Inside jobs: Employees’ theft costs towns
Last summer, a former deputy clerk and treasurer of the town of Newburgh was sent to jail after pleading guilty to taking the town’s money, nearly $200,000 of it.
Last spring, the Pleasant Point police chief pleaded guilty to taking $33,000 from the Passamaquoddy Tribe.
Last year, the former Frenchboro treasurer pleaded guilty to a $5,250 theft; the former Amity town manager pleaded no contest to the charge of theft of $40,000; and a former Rumford parks and recreation superintendent pleaded guilty to theft for selling a piece of town equipment and pocketing the $1,500 proceeds.
A Maine Center for Public Interest Reporting examination has found that during the past five years, at least $800,000 has been taken from municipal coffers across Maine in the form of money or services by local officials whose job was to faithfully and honestly serve their towns. This has often come at steep cost to the towns, not just in missing money but in added fees and charges, not to mention hard feelings.
The extra charges — sometimes thousands of dollars — go to cover attorney fees and the cost of additional forensic audits that are used to substantiate what are often complicated cases of theft.
Like many cases involving fraud, the crime of the Newburgh official, Cindy Dunton, went on for several years, from 2006 to 2009. It was uncovered beginning in March 2010 after two Newburgh selectmen noticed discrepancies in the town annual report between their figures and Dunton’s.
‘Stole our trust’
A certified fraud examiner who was called in to investigate alleged, in an audit reported by the Bangor Daily News, that Dunton had stolen from the town in a range of ways, including forging selectmen’s names on town checks.
The grand total of missing money, according to the report, was $199,536.54. Dunton acknowledged her guilt.
Newburgh, a town of slightly more than 1,500 in Penobscot County, reacted strongly. Residents gathered names on a petition calling for the longest jail sentence possible.
On July 1, Dunton was sentenced to five years with all but 20 months suspended. She also received three years of probation and was ordered to pay approximately $252,000 in restitution — the sum of money that she stole, plus attorney and forensic auditor fees. Enraged citizens demanded a 10-year sentence.
As one irate Newburgh selectman, Mike Burns, told the Bangor Daily News, “She didn’t only steal our hard- earned money, she stole our trust and the innocence of the town of Newburgh. Newburgh isn’t a happy place to live any longer.”
In Chelsea, scene of one of the most recent cases, former Selectwoman Carole Swan pleaded not guilty to felony charges of aggravated forgery (for falsifying a public record) and attempted theft (alleging that she authorized a $22,075 check from the town to pay for a fraudulent invoice). She is also charged with two counts of improper compensation for services, alleging that she received money for promoting contracts while she served on the board. She declined to run for re-election last June.
Voters at a special town meeting in March set aside $50,000 to cover legal expenses and the cost of an audit. The final legal fees could total nearly $320,000, according to media reports.
Hundreds of municipal officials are serving their towns and cities without incident, but crime statistics indicate that embezzlement and other kinds of theft from government, along with corporate theft, have increased notably in the state and across the country during the past decade.
This crime, with its added costs, comes at a time when Maine’s towns and cities are dealing with shrinking budgets. In a survey conducted by the Maine Municipal Association (MMA), municipalities recentlyreporteda6percent drop in revenue last year, compared with 2009.
“ When I started out, the idea of selectmen or a town manager stealing money was rare, but over the last 10 or 12 years it has become more common, unfortunately,” said Christopher Almy, district attorney for Penobscot County, where Newburgh is located.
Almy added that the full picture couldn’t necessarily be found in the stories that make their way into local newspapers. His office also considers cases in which there may be cause for some investigation but ultimately not enough evidence to bring charges.
Statistics, both state and national, seem to bear out his perception of a general increase in fraud. Nationally, the total of government and private embezzlement cases increased nearly 17 percent in 2010 compared with the preceding year, according to a detailed report issued by Marquet International Ltd., a consulting firm based in Boston.
The report noted that of the 13 sectors or industries it listed as primary victims, government agencies and municipalities had the most cases, accounting for $48.2 million in losses.
As of last June, the FBI was working on more than 2,000 corruption cases involving public officials around the country. In 2009, the latest year for which statistics are available, U. S. attorneys across the country charged 270 local officials with corruption and won 257 convictions.
Maine has kept a low profile, compared with other states: Five Maine officials were convicted of corruption in federal courts in 2009.
Numbers posted annually by the state Department of Public Safety show that arrests for embezzlement — both public and private — in Maine totaled 20 in 2002, but shot up to 56 in 2007, and have cooled to 43 as of 2010.
MMA: Not a trend
Eric Conrad, spokesman for the MMA, said, “We want to emphasize that we’ve seen no data indicating an upward trend in municipal embezzlement cases. These things happen rarely. When they do, they tend to be reported to police and they get widespread publicity, which can last for years. That’s eyecatching but it’s not necessarily a trend.”
While Almy has perceived an increase in fraud cases in Penobscot County, Evert Fowle, district attorney for Kennebec County, said simply that to him “it’s been a fairly constant problem.”
The cases present a challenge to his office, he said, because they are labor-intensive and the special audits involved are expensive.
Experts say that a lack of deep training in financial record-keeping and uneven oversight by town officials have contributed to this problem. The thefts primarily occurred in the smaller towns among the nearly 500 Maine municipalities, where there may be few people available to furnish the second pair of eyes that could see every town transaction.
Mike Starn, city manager of Hallowell and former communications director for MMA, said that in many cases there are “similar diagrams of the problem. The person who takes funds has usually been in the community for a long time, they have been given ‘extreme latitude’ in taking care of town finances, and local financial practices among town officials — such as routine oversight of town finances — are very lax.”
Too many town finance people are “learning on the job,” said Ron H.R. Smith, managing partner of RHR Smith and Co., certified public accountants with offices in Buxton and Machias, whose firm handles about 140 annual municipal audits. He added that, despite the increasing availability of computerized accounting, “quite a few people in smaller municipalities don’t have technical expertise.”
According to an article in Maine Townsman, the magazine of the MMA, Maine is unique in New England in allowing towns to run their own financial affairs with certain requirements set by the state. Maine demands that all town and city finances undergo an annual audit and publishes a list of allowable municipal investment options, but otherwise keeps out of municipal finance.
By contrast, Massachusetts and New Hampshire oversee their municipalities to the point that the states actually set municipal tax rates.
Some in Maine, including professor Tom Taylor, head of the University of Maine’s department of public administration, have called for a professionalization of all town government — the hiring of town or city managers to work on finances and other local matters under the scrutiny of the elected officials.
“You need more than one person to sign off on financial matters,” he said. “Having a town manager brings more transparency and accountability.”
He agrees that many small towns cannot afford to hire managers, but he says the problem could be addressed through mergers of town functions, if not the towns themselves.
At a workshop at MMA’s convention in October, representatives of several towns said their governments were already involved in joint sewage, solid waste disposal, ambulance districts and billing services.
But until full mergers put professional administrators in charge, small towns will rely on training classes, online instruction, reviews and coaching that are offered every year, primarily by the MMA.
State administrators (from the state auditor’s office, for example), as well as at least one individual accounting firm have also worked to improve local officials’ competence in handling their own municipal finances.
The meeting room deep within the Augusta Civic Center was packed Oct. 5 as town and city finance officials found seats for one of the workshops at MMA’s convention. The session filled the Kennebec Room with a standing room-only crowd to hear “Understanding Your Audit.”
The workshop’s first topic: Fraud and its detection.
Speaker John S. Eldridge III, Brunswick’s finance director, said, “I can’t speak to individual situations, but a lot of things happen when you trust people. Fraud is committed by people we trust.”
And, he added, the annual audit “shouldn’t be the only means for looking at fraud.”
He added, “The purpose of an audit is to render an opinion on whether the financials have been fairly stated.”
In other words, an audit won’t necessarily find problems if someone has made an effort to hide them.
An audit is only as good as the financial statements presented to the auditor, according to accountant Smith, who is a certified fraud examiner.
Smith emphasized that the major problem that can lead to fraud, or simply problems in keeping a town’s accounts, is the fact that “a lot of people are learning on the job — they’re part of the problem. Add to that the many places that are trying to do so much with so little money. That can be a recipe for disaster,” he said.
Starn acknowledged that the MMA training has its shortcomings: Not everyone takes advantage of it. But for now there is no easy solution.
“Look, the state can’t create one model for municipal government,” said Starn. “For now, we have to fix the model that towns have.”
KATE McCORMICK retired to Newcastle after a long journalism career at New York Newsday, the Patriot Ledger in Quincy, Mass., and the Indianapolis Star. The Maine Center for Public Interest Reporting is a nonprofit and nonpartisan journalism organization that provides in-depth reporting as a public service to its Maine media partners. The email address is firstname.lastname@example.org. The website is pinetreewatchdog.org. ©Maine Center for Public Interest Reporting