Auditors release Cathlamet report with 2 findings

The Washington State Auditor's Office on Monday released the long awaited report on the Town of Cathlamet for the years 2008-09.

Overall, the auditors said the town's financial statements presented accurate positions and complied with state laws.

However, auditors identified two conditions which they called "significant enough to report as findings." These are:

1. The town, council and management do not sufficiently monitor the fire department, placing public resources at risk, and

2. The town, council and management do not sufficiently monitor the fire department's credit cards, which resulted in the loss of public resources.

In an official response, Mayor George Wehrfritz said that the department has been run independently, that town staff have had trouble accessing department records, and that the council is working to rectify the situation.

In comments not included in the audit report, fire department officers contend that they are cooperating with staff, that they have addressed oversight problems, and some of the auditors' comments are unfounded.

The fire department was established in 1932 under Ordinance 170, which put supervision of the department under control of the Cathlamet Commercial Club, subject to approval by the town council.

Over the years, department members have set up bank accounts to handle department funds. They've elected officers out of their membership. They've worked with the town to finance the purchase of equipment through grants and funding appropriations.

"In each of the prior two audits, we have reported to the town council and management that they are not adequately overseeing fire department and emergency medical services operations," the audit says. "Volunteers at the department have historically operated the department as if it were not part of the town."

In 2006, the town began incorporating department accounts into its financial system. The council now approves the budgets for the department and its Emergency Management System (EMS).

The auditors cited "continuing areas of concern." These included:

1. Bank accounts: " We found Fire Department volunteers opened and maintained four bank accounts without the knowledge of the Town’s Mayor or management," the auditors said. "Department volunteers stated they are checking and savings accounts of the Volunteer Firefighters Association and the Fire Chief’s Association used to deposit donations. We could not determine the activity of these accounts because the department did not provide us the bank statements and documents that support bank activity. Fire department volunteers stated these are private bank accounts.

"We found the department opened these accounts using the town’s tax identification number, contradicting the argument that these are private bank accounts. In addition, checks written on one of these accounts paid up to $2,700 in department operating expenses. The Town Council did not approve these expenses and they were not reported in the Town’s financial system."

2. EMS billing and collection: "Fire Department volunteers entered into an agreement with a private firm to provide billing and receipting services on behalf of the Town for emergency transports. Neither the Council nor the Mayor signed this agreement. We found the Department does not routinely provide all information to ensure town management reconciles transport activity to billings to verify that all transports are billed. In addition, the Department does not have a formal collection policy and does not monitor accounts receivable. We found that at the end of October 2010, the Town had $82,290 in accounts past due more than 120 days, some dating back to 2000.

3. Contracts and Agreements: "State law gives the Mayor of the Town the authority to sign contracts for services to the Town. During our audit, we noted Fire Department volunteers entered into two fuel credit agreements with purchases that totaled $9,661 in 2008 and $7,578 in 2009 without the Mayor’s approval. In addition, we noted Fire Department volunteers entered into a lease for a propane tank and federal grant agreements for equipment without prior approval."

"Fire Department volunteers do not believe the Department is subject to the governance of the Town Council, Mayor and management," the audit said. "The Department does not share its financial information with the Town. Until recently, Town management had taken no action to bring the Department under the Town’s oversight.

The result is that the council and mayor were unable to adequately manage the activity of the Fire Department. Without monitoring or town management oversight, funds could be co-mingled, unaccounted for or misappropriated.

Auditors recommended that the town should establish policies and procedures to ensure all activities of the town and its departments are under the oversight and authority of the mayor and town council.

State law provides that fire and other departments should operate under the control of the mayor, the auditors said, with the town treasurer responsible for financial matters.

At a special meeting Monday, councilmembers seemed to want to update the ordinance to reflect current law.

The auditors also had recommendations for safeguarding public resources:

1. Bank accounts: Town management should evaluate the Departments’ bank accounts and ensuring they are necessary for business operations; ensure that the Town’s tax identification number is used to establish only authorized public accounts, and process all cash receipts and payments through the Town accounts and general ledger system.

2. EMS billing and collection: The town should ensure that all ambulance activity is appropriately billed and reconciled and account activity is reviewed and approved by the Town, and the town should establish a formal collection policy.

3. Contracts and agreements: Town management should ensure that all department contracts and agreements are properly authorized and approved by the Town Mayor and expenditures approved by Council.

The town's response, which was written by Wehrfritz, reviewed by a committee and vetted by the town attorney, cites management's frustration in accessing department financial information and adds that the town is taking steps to improve oversight.

"The Town of Cathlamet has struggled to exert effective control over its 57-member Fire Department for some time," the response says. "As the SAO first observed back in 2006, the Department functions much like an independent fire district instead of a Town department. Its leaders sign contracts unilaterally; set procedures without Town Council approval; shield financial records from the Town’s elected leadership; and oversee unaudited, undeclared, off-balance-sheet bank accounts opened in the Town’s name using the Town’s tax ID numbers.

"Even now, the Town’s elected leaders have not reached a consensus on how to manage the Fire Department. It is therefore impossible to articulate a “Town Response” to issues identified in this finding without giving a false impression of unity. Suffice it to say that some members of the Town’s elected leadership believe that the Fire Department “has done nothing wrong.” That is not the view of the Town’s executive branch, nor does it appear to be the majority opinion of the Town Council.

"The Town is alarmed that undeclared bank accounts have been maintained by members of the Fire Department for years in its name. The risk, as the audit finding states, is that “funds could be co-mingled, unaccounted for or misappropriated” unless monitoring or effective oversight is established. The Town will seek to obtain all bank records for the four bank accounts in question, and for any additional accounts discovered in the future. The Town will undertake to retrieve all public funds identified in these accounts.

"The Town is also concerned that a private, Department-controlled “petty cash account” for incidental EMS expenses still exists at a local bank, despite the SAO’s 2006 admonition to close it. The sheer volume of inappropriately deposited money – the bulk of it Medicare reimbursements for ambulance transports – raises serious accounting issues that the Town is determined to properly address. Nevertheless, Town efforts to redirect these Medicare payments into a Town-controlled account have met with resistance from the Fire Department. Further, complete bank records for this account are not yet in the Town’s custody and may have been lost or destroyed.

"As it works toward eventually closing this account, the Town has: 1) established oversight of all Fire Department mail, 2) worked to establish a new Medicare account with vendor Noridian for reimbursements, and 3) taken over accounting for ambulance transports from a private contractor. In addition, the Town now meets the Fire Department’s petty cash needs through warrants issued by the Clerk-treasurer.

"To improve oversight, the Town’s Clerk-treasurer assumed control of accounting for ambulance transports from a private contractor in November 2010 and now communicates directly with our contract billing entity, AMR. The Clerk-treasurer is working with the EMS commander to reconcile transport activity to billing. The Town Council should review current EMS billing procedures and establish a collection policy. The Town also recognizes that a policy allowing for accounts receivable that are long past due to be written off is necessary.

"The Town has begun a review of all known contracts entered into by the Fire Department and instructed commanders that they are to cease making contractual commitments unilaterally. In April 2011, the Town Council passed a resolution requiring all departments to seek prior Council approval before submitting grant applications."

The auditors also criticized the town and departments handling of fuel credit cards for department trucks and vehicles. They pointed out that a former department member had used a card for his own gasoline purchases. Department members discovered the thefts, and the man and his wife, who also used the card, were convicted of theft.

Subsequently, the audit report notes that the department and town have changed procedures for use of credit cards.

The fire department also issued a response to the audit findings; their response wasn't included in the audit report.

In a June 10 letter to the SAO, Assistant Chief Fred Johnson challenged the first finding, saying that Dick Swart had been mayor during the time of the audit and had knowledge of fire department accounts.

"The accounts in question were opened by private associations, the Fire Fighters Association and the Wahkiakum County Fire Chief's Association," Johnson says in the letter. "As we noted in our meeting with you, those accounts were in existence long before January 1, 2008. The proposed audit report does not point to any statute that requires private associations to seek the mayor's approval prior to opening a bank account."

Johnson also cites a 2007 memo to former Mayor Swart which outlines anticipated donations from the Fire Fighter's Association for the purpose of providing furnishings for the new fire hall. Another, in May, 2009, talks about a donation to equip a new wildland engine.

The letter also states that in December, 2010, department officers advised auditors that they could have full access to the associations' bank accounts.

Johnson also said that checks written on the accounts went to the Widows & Orphans Fund, a private life insurance program for individual fire fighters.

"The dues payments in question are to private entities, and it has been our judgment that those dues are best paid from the firefighters association to avoid any claim that membership in those organizations is not a public benefit," the letter states.

The letter also points out that the town took over management of the EMS fund in 2006.

Johnson writes that during the audit period, "there is no evidence to suggest that any fire department officer ever refused to follow directives of Mayor Swart or refused to follow policies established by the town council."

At a special meeting Monday (see related story elsewhere in this edition), Johnson and councilmembers discussed having a public workshop to go over audit findings. No date was set.

The complete text of the two audit reports may be found on the state auditor's website, http://www.sao.wa.gov/auditreports/auditreportfiles/ar1006117.pdf and http://www.sao.wa.gov/auditreports/auditreportfiles/ar1006118.pdf.