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Wednesday, 23 July 2014 14:38

Tapping the trough

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coverA wall calendar edged with hot-pink swirls seems out of place in the Junaluska Sanitary District, where the back door of the office opens onto a double-bay equipment garage and work boots leave muddy tracks across the concrete floor.

“It’s the cheapest calendar I could find at Staples,” offered Jim Francis, an elected board member for the sanitary district. Saving money, after all, is a point of pride for the scrappy water and sewer system, and it goes hand in hand with keeping rates as low as possible for the 1,850 customers along its lines.

SEE ALSO: The slow leak: Junaluska Sanitary District rocked by embezzlement

Still, it’s an odd choice for such a go-to item in the office. All month long, Francis and his fellow board members file past the calendar, signing their names in its tiny squares — the sole method for figuring up how much to pay themselves.

The rudimentary system relies on the honor system. There’s little if any documentation justifying what work the elected officials did on a given day or the hours spent.

But no matter. They just count up the number of squares with their names and Francis cuts their checks accordingly. 

“We trust each other,” said Francis.

But the adhoc system has flaws. For starters, it violates the board’s compensation policy.

Elected board members were only supposed to be paid for attending official board meetings, a flat rate of $125 per meeting and $150 for the chairman. But the board has systematically been paying itself — using the same flat rate that applies to board meetings — for all sorts of other things that weren’t board meetings.

An investigation by The Smoky Mountain News found:

• The payments to board members were never formally authorized or voted on by the board. 

• The payments to board members ran counter to their own pay policy, which only allows compensation for attending board meetings, not additional perfunctory duties in their capacity as an elected official.

• One board member was paid $20,000 over a nine-month period for performing routine daily duties, arguably acting as a de facto employee of the sanitary district, contrary to a state statue that prohibits board members from serving as employees. He also wrote his own checks.

• Board members did not provide documentation of what work they were performing, nor submit itemized invoices, to justify their payments.

 

The unraveling

The loose system of board members paying themselves for work they did on behalf of the Sanitary District mushroomed over the past year. Historically, total board compensation ran about $11,000 a year, according to budget records.

But board pay came in nearly four times higher for the most recent fiscal year of 2013-2014, according to what board members have logged on the office calendar.

There’s good reason board compensation has gone off the charts, according to board members.

Two long-time staff members were fired in the past year — one for criminal embezzlement of $210,000 and one for job performance issues. Those two employees were the only office staff for the sanitary district. Their departure — one in October and the other in May — left a huge hole in daily operations.

To fill the void, elected board members found themselves pitching in to run the water and sewer office.

“When you are a candidate for office you accept those responsibilities, that if an emergency hits you have to step up and do it,” said Francis. “I put in a whole lot of time and a whole lot of days down here.”

That presented a quandary, however.

On the books, there was no formal mechanism for board members to compensate themselves for time they put in. They were only supposed to be paid for attending board meetings. So, they just counted whatever work they were doing as board meetings, even if they weren’t.

“That’s the only way we had to do it,” said Dan McCracken, a board member. 

Francis is a retired grandfather-type like most of the elected men who run the sanitary district. He’s recently been volunteering to repaint his church, and he helps his sister deliver her Meals on Wheels route. McCracken recently got back from a fishing trip in Alaska, shipping home 250 pounds of vacuum-sealed fish on ice for a family fish fry in September.

Their position on the sanitary board was done out of public service for their community.

“It’s not the most glamorous job in the country,” Francis said. 

Mopping up after an embezzlement implosion was not what board members signed on for when they ran for a seat on the sanitary board. But that was the position in which they found themselves.

“It comes to the point whether you shut the system down and leave 1,800 households and 6,000 people without water and sewer service,” Francis said. “We didn’t have anybody to hire. Who is going to be able to come in here and understand how it works?”

There was another problem, as well. The embezzlement of $210,000 occurred over six years at the hands of an employee they thought they could trust.

“After something like that happens, it’s a while before you can trust anyone again,” McCracken said.

Francis said he didn’t see another option to keep the doors open, the lights on and the water flowing.

“We have sort of been in a state of flux,” Francis said.

From the board’s perspective, their willingness to step in and carry out the functions previously done by employees saved the sanitary district money in the long run.

While the budget for board member pay ballooned, the sanitary district has saved money on employee salaries.

They went nearly two months before replacing the employee fired for embezzlement. And they still haven’t replaced the head manager who was fired in May.

 

Heavy lifting

As the primary board member who stepped in to run the office and handle the embezzlement crisis, Francis’s name appears on the office calendar more than anyone else’s. He has also pulled in the most compensation, paying himself nearly $20,000 over the past 12 months. 

Under state statute, elected officials are prohibited from working as employees for the entity they oversee. 

“A board member cannot work for a district — by law,” Francis said.

But they can be compensated for carrying out their duties as a board member.

That begs the question: at what point does compensation rise to the level of being a de facto employee, and when do duties of a board member start to look like an employee?

“He only filled in due to the emergency nature of this thing. He did a lot of heavy lifting,” said Burton Smith, the board attorney for the Junaluska Sanitary District. “He was taking the place of the person who did those tasks. He is not an employee though.”

But Francis, in essence, was acting like an employee. He came into the office almost every day — logging 24 consecutive days, including weekends, one month last fall. He performed routine functions previously carried out by an employee. And he got paid every day he came in to the office.

“What I have been doing is working for the board, as a function of the board. I was assigned board functions to help carry out operations of the district,” Francis said.

The duties board members paid themselves for were all over the map, from cleaning the office to simply coming in on weekends to unlock the equipment garage for maintenance workers, who had their keys taken during a lock-down period following the embezzlement scandal.

Kimberly Nelson, a local government expert with the Institute of Government at UNC-Chapel Hill, said board members seemed to be getting paid for work beyond the normal scope of “board functions.”

“If they were being paid for some other job, that would make them an employee in a different role,” Nelson said.

The sanitary board shouldn’t have extrapolated the compensation policy on the books for board meetings to cover all sorts of other duties that weren’t actually board meetings, she said.

“They should have passed another policy because that definitely doesn’t fit. Whether it was unethical, careless, lack of knowledge, I don’t know, but it sounds unusual,” Nelson said.

Smith said Francis stepped up to the plate as a “default.”

“This board authorized Jim to get in there and pitch,” Smith said.

However, there is no a record of the board authorizing Francis to step in and carry out the daily operations in place of the fired employee. A review of meeting minutes from the past year contain no mention of altering the compensation policy to pay Francis, or any of the board members for that matter, for their work.

Still, “We all agreed that Jim would get paid for this,” McCracken said.

 

Cutting checks

A problematic aspect of the board compensation is how it was documented, authorized and paid out.

Other than their names penciled in on the office calendar, board members did not submit an invoice, itemization or record detailing what duties they carried out any given day that warranted compensation.

“We trust each other,” Francis said.

Francis was solely in charge of cutting the checks to board members as part of the new financial duties he had started performing.

Board meeting minutes show no indication that Francis sought authorization or approval for the amounts being paid.

The same was true for Francis’ own paychecks. He tallied his own pay, wrote out his own checks and signed them, according to a copy of cashed checks and Francis’ own account of the process.

In December, Francis wrote himself a compensation check for more than $7,700 out of sanitary district funds. His own signature was the only one on his check.

Francis has written himself three additional checks since then — in the amounts of $4,000, $6,000 and $4,500 — for work done between January and June. Those last three checks bore a second signature of a newly hired employee in addition to his own, in keeping with a new policy of requiring two signatures on all checks. 

Board members typically got one check in December for everything from the year, because it was never very much — averaging just $2,000 per board member per year.

That changed this year.

Checks cut in December for the 2013 calendar year totaled:

• Jim Francis, $7,770.

• Bill Barker, $4,500.

• Dan McCracken, $3,750.

• John McCracken,  $2,875. (Passed away in August 2013, leaving a vacant seat on the board.) 

• Randy Cunningham, $2,400.

The following is what board members have accrued the first half of this year, taken from the office calendar.

• Jim Francis, $17,000 accrued, with $14,500 of that paid out so far.

• Dan McCracken, $4,200 accrued, with $1,750 of that paid out so far.

• Bill Barker, $2,500 accrued, none paid out yet.

• Randy Cunningham, $2,000 accrued, none paid out yet.

Barker did not return multiple phone messages seeking a comment for this article. Barker did reply to an email asking for an interview with this response: “Do you have a specific question(s)? I have some specific questions for you.” However, a follow-up email taking Barker up on the offer to swap questions went unanswered.

Cunningham did not return a message seeking comment for this story either. Cunningham’s name rarely shows up on the calendar for anything other than official board meetings. Cunningham’s name has never shown up as a solo entry. So far this year, his name only makes one appearance on the calendar outside of an official board meeting.

 

Internal audit

One of the major roles Francis performed after the embezzlement scandal hit last October was assuming financial responsibilities for the Junaluska Sanitary District.

And the first order of business was figuring out how much was stolen.

The estimate for a forensic audit by an outside accountant was $75,000. The board was hesitant to incur that kind of cost not knowing how much had been taken in the first place, and not knowing how much they stood to get back — if anything — in restitution.

So the board decided to have Francis do the audit at considerable savings.

“I did it in three weeks for about $3,000,” Francis said. 

He went through every cash deposit slip and every customer billing record for seven years. He worked long days and nights, sifting through the paperwork.

Francis said he found every dime the employee, Scarlette Heatherly, had stolen. 

“She had a system and I discovered her system and she used it on a consistent basis and once you discovered her system you can follow the trail,” Francis said.

The sanitary district was paid back in full by Heatherly, including for legal and audit costs, to the tune of $224,000.

Each day Francis came in to the office, he billed the sanitary district for $125 in compensation. If he worked into the evening, he doubled his pay for that day, akin to working a double shift.

In December, during the thick of his audit, 10 squares on the calendar had the notation “2X” beside Francis’ name, which he said stood for “times two.” Those days, Francis paid himself $250 — double the standard compensation rate the board was using of $125.

Even after he concluded the audit, the practice of billing double payments in a single day continued on occasion.

Francis was working at the sanitary district office so much — almost daily — that by January, rather than writing his name on the calendar every day he came in, he simply made a check mark for each day he worked. Several days showed two check marks inside the square for that day, which was his way of noting that he did enough work that day to count for two payments of $125.

 

Carrying on

The workload for board members in the wake of the embezzlement scandal is undeniable. They met with auditors, accountants, detectives, prosecutors and their own attorney myriad times. And the two board members who stepped in to manage the sanitary district’s daily finances — Francis and McCracken — were regulars at the office.

But the payments logged by board members over the past year weren’t limited to the embezzlement fall-out. They began billing the sanitary district for all sorts of duties that they previously carried out in a volunteer capacity, simply by virtue of their position as elected officials. They were getting paid for everything from one-on-one meetings with their engineer to discuss infrastructure projects to informal business discussions between a couple of board members.

Board members even logged their service time on the office calendar for participating in interviews with The Smoky Mountain News for this article. 

Francis and McCracken said payments to board members will decline again once the office is fully staffed and in-house employees resume duties that board members have been carrying out.

But the budget for board compensation for the upcoming 2014-2015 fiscal year clocks in at $40,000 — nearly four times what it had been in past fiscal years, indicating the increased payments to board members will continue.

And the questionable compensation practice pre-dates the embezzlement scandal as well. In June of last year, Francis billed the sanitary district on eight occasions, according to his name’s appearance on the calendar.

Some had notations referencing what work Francis performed, including selling off a surplus truck, meeting with an engineer about a line relocation, working on the budget, meeting with the board’s attorney and dealing with a pump replacement. Twice in June, Francis and fellow board member Bill Barker’s names appeared on the same day for unspecified reasons.

The calendar for July and August of last year were empty except for official meetings.

But in September, Francis’ name appeared twice with no notation of what duties he had carried out, and Barker’s name appeared once for meeting the public works director of Lake Junaluska Assembly.

 

New way forward

Last week, the Junaluska Sanitary District revised its board compensation policy. The new policy expands what board members can be compensated for, reflecting in a sense what they had been doing already. In addition to compensation for board meetings, the policy allows them to be paid $50 an hour for any work they do on behalf of the sanitary district.

“We realized board members were coming down here and spending time that should be compensated for but certainly didn’t qualify for $125 compensation each time,” Francis said.

Francis and McCracken — the only two board members willing to talk for this article — admitted their compensation practice used to date needed refining.

“It is not really legal we didn’t feel like, because there wasn’t minutes kept on the time we spent,” McCracken said.

The board policy adopted last week adds a litany of additional roles and duties board members can be paid for at the hourly rate of $50, including work normally done by regular employees if the employee is absent or otherwise out of pocket. 

The new policy was passed a few days after the Smoky Mountain News first questioned the Junaluska Sanitary District about its board compensation practices, including a public records request for documents related to board compensation.

The new policy was already in the works, however, and not a result of the newspaper’s inquiry, Francis and McCracken said.

The idea of a more refined compensation policy was first broached in the spring. 

The new policy is still unclear in some areas, however.

There is no mention of how, or whether, board members must record and document hours worked. And there is no mention of who board members should submit their hours to, or who will approve and sign off on them. There is also no mention of a schedule for paying out board members, such as monthly, quarterly or yearly.

Another outstanding question for board members: what to do about the days they logged thus far this calendar year that haven’t been paid out?

Do they use the old payment system that was in place the first half of the year where they counted anything they did as a board meeting even if it wasn’t? Or do they retroactively apply the new hourly rate of $50 to work they’ve done but not been paid for? 

McCracken said he kept a separate list at home of hours he worked each day. So he could retroactively apply the new board policy to the past few months, and use the hourly calculation instead of the old method.

Other board members may have to estimate in order to apply the hourly pay rate, since they weren’t keeping track of specific hours under the flat rate pay system.

According to McCracken and Francis, their attorney had suggested clarifying the compensation policy and had drafted the policy they ended up adopting.

Smith, the attorney for the sanitary board, said the financial management of the sanitary district wasn’t under his purview, and he wasn’t sure how they handled their own compensation, how much it was, or how it was kept track of.

“I don’t know what their policy was exactly before,” Smith said.

But Smith could see the need for more flexibility other than a flat pay rate for board meetings.

Like Smith, McCracken and Francis aren’t sure exactly how the old compensation policy read either, even though it is the one they had been operating under until a week ago.

The old compensation policy is likely embedded in the minutes of whatever meeting it was passed during — sometime around 2010, give or take a year, McCracken and Francis surmised — but finding it would require a trip back in time through the minutes.

 

Holdover from the past

In a sense, board members now at the helm of the Junaluska Sanitary Board inherited ways of doing business from their predecessors, a holdover from the humble start of the Junaluska Sanitary Board in the late 1950s.

It started as a noble endeavor to build a water line to a small, rural area community plagued with shallow wells and spring-fed water systems at risk of contamination.

A group of men in the community started a petition, kept behind the counter at the local gas station, of those willing to sign up for a water line.

McCracken was one of those men.

“People were using springs and old dug wells,” said McCracken, who was the county environmental health supervisor at the time. “I knew first hand what kind of water a lot of people were drinking. People would call me on a Sunday morning when a skunk got in their spring and they couldn’t stand to turn their faucet on.”

Meanwhile, too-shallow wells were prone to contamination from septic tanks leaching into the surrounding water table. 

McCracken and a few others spent several months talking up the idea of a public water line to their neighbors, visiting their homes and convincing them to buy into the idea.

When the water line was launched, it served just 300 or so homes.

Now, the Junaluska Sanitary District serves 1,850 water customers and 900 sewer customer, has an annual budget of 1.9 million, six paid staff members and the power to levy property taxes.

But its practices in many ways still date to its early years as a start-up operation launched with a petition behind the counter of a local gas station.

For example, minutes are not kept digitally, at least not that Francis and McCracken know of. 

The printed copy of minutes, contained in a three-ring binder in the sanitary district office, were clearly typed on a computer. But when asked whether the file containing the minutes were saved on whatever computer they were typed on, Francis didn’t think so.

When asked why the minute taker would type up the minutes on a computer, print them out and then delete them from the computer, leaving the printed out version as the only lasting record, Francis said perhaps they were saved on the computer after all, but given turn-over of the office staff, he simply didn’t know where they would be. 

The sanitary office didn’t even have a vacuum until recently. The new secretary for the office broached the subject at a recent board meeting, seeking permission to buy a vacuum for the office, a motion that carried unanimously.

“We are moving up in the world,” McCracken joked.

What is the Junaluska Sanitary District?

Junaluska Sanitary District is a small water and sewer system in Haywood County that serves 1,850 water customers and about half as many sewer customers. 

It serves the semi-rural area along the N.C. 209 corridor, from Lowe’s to Riverbend Elementary School north of I-40, and along U.S. 23-74 to Haywood Community College, including the hospital and Tuscola High School.

It has a $1.9 million annual budget and is overseen by a five-member elected board, which operates as a public body. In addition to water and sewer bills, the district imposes a 6 cent property tax rate, which subsidizes infrastructure maintenance and expansion.

For the record, it has nothing to do with Lake Junaluska, which actually runs its own water and sewer system and isn’t affiliated with Junaluska Sanitary.

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