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State Auditor cites misappropriation of funds from Yakima-area local governments

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(The Center Square) – A bookkeeper for seven special-purpose irrigation and drainage districts in the Yakima Valley is suspected of misappropriating public funds over several years through a variety of schemes, according to a report issued Monday by the Washington State Auditor’s Office.

The female bookkeeper was not named in the report, but information was forwarded to the Yakima County Prosecutor’s Office for review. The prosecutor’s office did not initially respond to a request Tuesday from The Center Square regarding status of the review and whether any criminal charges are pending.

“It is unusual to see a single fraud report involving seven different local governments. However, the root problem is far too familiar, especially within small governments: a lack of strong financial controls, and of appropriate checks and balances,” state Auditor Pat McCarthy said in a statement accompanying the report.

McCarthy’s office was initially notified in March 2023 about the potential loss of public funds. Auditors began an investigation that spanned from January 2017 to Sept. 30, 2023 and identified a total of $9,151 in misappropriations and $17,706 in questionable disbursements between June 2019 and June 2023.

The bookkeeper provided services to the Union Gap and Wenas irrigation districts and five separate Yakima County Drainage Districts – Nos. 7, 11, 12, 16, and 28. The districts are governed by boards of directors and receive operational funding through apportionments of county property taxes.

Auditors said the bookkeeper used “a variety of schemes” in the alleged frauds. At one point, she claimed to have worked a total of 24 hours in the same day across three districts. In other instances, she allegedly charged a district for expenses that exceeded an approved budget for her services; processed payroll claims within six months for the total amount of her annual contract; cashed out sick leave contrary to a district policy; and billed multiple districts for the same supplies resulting in reimbursements higher than the actual costs.

“Any loss of public funds is a serious matter, but the smallest governments can ill afford the expense of a loss and the resulting investigation,” said McCarthy. She said the total amount of questionable spending identified by auditors exceeded the annual revenue of four of the involved districts.

Not all of the alleged misappropriations occurred at each district, the report said. But it did note that the various boards of directors allowed the bookkeeper to work without a contract and submit expenses for reimbursement without the directors’ approval. During years 2020-22, her service fees exceeded one district’s actual budget by nearly $8,700 – which the directors did not realize until after she resigned.

For several districts, auditors noticed that some payroll withholdings – for Social Security, Medicare, and other federal taxes – had been modified in her payments and went unrecorded in accounting systems.

“Since we do not have the Bookkeeper’s personal tax information that would be required to calculate the correct withholdings, we cannot substantiate the amount that should have been withheld,” the report stated.

Last October, auditors interviewed the bookkeeper, who said she thought she could provide services to multiple districts but ultimately “found the work to be overwhelming.” She said the duplicate reimbursements were errors and she would be willing to repay those amounts. The bookkeeper said she also informed one district manager that she was modifying her payroll withholdings.

When questioned in November, the now-former district manager acknowledged he was aware of the payroll modifications as well as letting the bookkeeper cash out her sick leave. Both are unallowable and by law should have been reported to the board of directors and auditor’s office. But the ex-manager said he did not inform either because “he believed the Bookkeeper was a trustworthy employee and would not intentionally misappropriate funds,” the report stated.

Auditors said all the districts had previously been warned about their deficiencies in safeguarding public resources.

“We also recommend the districts seek recovery of the misappropriated $9,151, questionable amounts as appropriate, and related investigation costs of $21,800 from the Bookkeeper and/or their insurance bonding companies, as appropriate,” the report said.

Any settlements must be approved by both the State Auditor and Attorney General’s Office.

Yakima County Drainage District No. 7 and the Union Gap Irrigation District – which was subject to a separate-but-related accountability report – did not respond to the state’s audit findings.

Other responses varied.

Drainage District No. 11 said the bookkeeper would remain in her position with more oversight pending decisions by the auditor and prosecutor’s offices.

District No. 12 said it launched an internal investigation after the bookkeeper unexpectedly resigned and said that several transactions “appeared to be fraudulent.”

District No. 16 said the experience “has proven to be valuable knowledge for when a new accountant/bookkeeper is hired.”

District No. 28 said a review of invoice copies indicated that costs “seemed reasonable and appropriate,” but there was no way of knowing if reimbursements had been duplicated among multiple accounts.

The Wenas Irrigation District replied, “The Bookkeeper has constitutional rights of being innocent until proven guilty. She will be kept on the payroll and do her job with a few modifications. However, if she is found guilty, we will request reimbursement. We have no further comments while the case is pending.”

After several other small cities and local governments experienced misappropriations last year, the state Auditor’s Office launched a campaign to better educate government leaders about combatting fraud.