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County given clean audit despite probe
Sunday, 11 February 2018 11:39

From Staff Reports

Buncombe County, while in the midst of a federal investigation concerning fraud allegedly perpetrated by a former county manager, received a clean audit in late January.

County CFO Tim Flora took it upon himself to explain that, due to the ongoing investigation, he could only speak in general terms, noting even the county Board of Commissioners likely did not know some of the details.

Commissioner Al Whitesides led off the public conversation with compliments to county personnel for making changes. The list of improvements included many interruptions of the monopolistic controls the former county manager had imposed to limit scrutiny of her actions. Others made it safe for whistleblowers to report suspicious activity without fear of retribution.

From remarks from the county’s internal audit committee, on which he serves, Whitesides read, “The most effective internal controls over county assets become much less so in an environment that affords senior management extremely broad powers over financial resources and personnel. In addition, the effectiveness of the internal audit function in prior years was limited, given the internal auditor reported to senior management for all practical purposes. 

From this broader perspective, the Audit Committee believes that internal controls were weak during the fiscal year ending June 30, 2017 and likely in preceding fiscal years in which these conditions were the rule.”

Next, Flora explained there is a perception that members of the public expect routine annual audits to detect fraud, when they only check internal controls to make sure they align with standards and protocols for fraud prevention. Secondly, Flora said it was the county’s strong internal controls that allowed suspicious activities to be detected.

The federal investigation now underway will include forensic auditing. While, as Flora said, “a single tax dollar used wrongly is a material event and a betrayal of public trust;” from an auditing standpoint, the amounts involved in inappropriate expenditures were not enough to change the county’s financial position. All questionable transactions were recorded in the county’s books, and while the purpose may have been unacceptable, the money is all accounted-for.

Flora continued, “Before, we had protocols in place to prevent and detect wrongdoing. However, we let someone in power and position take advantage of those systems. We also operated in an environment where discovering these exploits was made difficult and making changes to any of the weaknesses incredibly hard.”

While prevention had failed, detection remained strong. Flora gave a summary that began in 2016, when, “there were some peculiar decisions and directions provided by the former county manager that came across as odd; nothing concrete, mind you, just things that made me scratch my head and wonder what’s going on.” Then, in 2017, “there were some questionable actions by the county manager that raised some red flags for finance staff. Not much detail can be provided at this time.”

Flora said this led to a beefing up of scrutiny, and in the summer of 2017, routine reviews detected, “a series of irregularities tied to the former county manager.” And that triggered an internal review. The county’s internal auditor and human resources director were alerted, and the next weekend, the issues were documented and reported to the county’s senior attorney.

The attorney, suspecting a “potential breach,” alerted the proper authorities, which included the Local Government Commission, the state treasurer, the state auditor, and the county’s external auditor Gould Killian CPA Group.

Representatives from the county’s Human Resources, Information Technology, and Finance departments began restricting the former manager’s access to systems and facilities. They also began preserving evidence, and the county manager resigned. Gould Killian then worked with staff to assess the damage and construct better checks and balances.

Flora concluded, “These events speak loudly to our past failures at transparency and accountability. Things were approved. Authority was granted. It was clear messages got muddled, intent obfuscated. As department heads, we let ourselves be put in silos. We trusted when we should have questioned. And when we did question, we let ourselves be convinced.

“We have all been let down. We have been misled. We thought we were better than this. We know we are better than this. Public trust has been compromised. We cannot let these actions define us, nor interfere with the tremendous work otherwise done by county staff.”

Ed Towson, representing Gould Killian, said the county had suffered “override of internal control.” That is, while everything was good on paper, people were not obeying the rules. 

Towson indicated it appeared the former manager was not acting alone. He explained in situations of collusion, the underlings are either in over their heads and acting out of absolute trust, or they’re afraid to challenge authority.

Towson added no amount of policies and procedures will make people follow those policies and procedures if they are disinclined to do so.

What’s more, Towson said what was needed was to change the “tone at the top.” New leadership had to “make sure that every person in the system – every employee, every person in finance – realizes that they have a duty and responsibility to report anything they think is inappropriate, or question it, and to make sure there’s education in that area.”

 



 


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