Thursday, March 10, 2011

Marrs’ Role In Misappropriation

Part X

In the list of county officials who purportedly had involvement in the $20 million misappropriation of the treasury, former Auditor Alice Marrs is ranked in the third tier, according to a claim seeking recovery of the funds.

As previously reported Cheryl Knoch, current treasurer; Judi Stevens, retired auditor; and Mike Maxwell, retired chief administrative officer, are all listed ahead of Marrs.

The claim, drafted by former DA Gary Woolverton, asserts that Marrs is potentially culpable because she worked under Stevens during most of the time that funds were being wrongfully withdrawn from the county’s investment pool.

The following is a time line of Marrs’ tenure in the auditor’s office.

2000
Marrs started with the auditor’s office as property tax manager working under Auditor Judi Stevens in December. She was appointed auditor in February 2009 following Stevens’ retirement.

2002
The claim alleges that Modoc Medical Center (MMC) was issuing orders to draw from a general fund that was broke, but the warrants were being paid by the auditor. “The practice had been going on since, at least, 2002,” Woolverton writes in the claim.

It should be noted that there is no conclusive proof that MMC was the sole benefactor of the misappropriation. Nor has there been any accounting to date of how the money was actually spent by MMC if, indeed, the hospital was getting all the treasury money.

2008
In late 2008 Kelly Crosby, assistant to Karen Stockton, who was suspicious that restricted funds were being taken from the public health account, went to then-auditor Judi Stevens for an accounting.

Stevens told Crosby, according to the claim, that there should have been $21 million in the treasury but there was only about $14 million.

“In other words, Crosby was informed that there was less in cash than there was on the books,” Woolverton observes in the claim.

2009
In February or March “There was a meeting involving Stockton, her financial team, Mark Charlton, Knoch, Marrs and Darcy Locken,” Woolverton states. “At this meeting questions were asked about whether or not their restricted funds were intact and whether there would be funds available for purchase of the building where Stockon’s team are housed.”

Enter Marrs:

“At this meeting Marrs advised Stockton that all of the restricted funds were in the account and intact,” Woolverton reports.

Charlton, unconvinced, took his information to the State Controller’s Office reporting that the treasury was seriously depleted.

“Alice Marrs has publicly stated that she had no idea that she was spending money from restricted funds during her tenure,” Woolverton states in the claim. “She disclaims any knowledge of writing checks/warrants with knowledge that the money was coming out of restricted funds.

“She was the assistant to Stevens from approximately 2003 to 2009, but claims that Stevens never made her aware of the problems. Marrs was interim auditor from Jan. 1, 2009 to June 30, 2010. There is evidence that she was aware of the problem on June 23, 2009 when Gary Jones, county superintendent of schools, spoke to the Board of Supervisors in Marrs’ presence.

“Therefore, after June 2009 she knew money was being spent from restricted funds and the only excuse was the dry period loan resolution of Jan. 25, 2010.”

Woolverton’s reference to the Jan. 25, 2010 resolution was an action taken by the Board of Supervisors, then chaired by Dan Macsay, authorizing the temporary transfer of treasury funds not to exceed $16.1 million. The resolution makes no mention of any requirement of the board to repay the money to the treasury.

2010
In her campaigning for re-election, Marrs repeatedly denied any involvement in the misappropriation of funds from the treasury, stating that she had never been included in the decision-making process that was overseen by Stevens, CAO Maxwell and Knoch.

“We have to be diligent and meticulous in monitoring all county expenditures for restricted and non-restricted funds,” Marrs said in a prepared campaign statement when she was running for office. “Continuing to use restricted funds puts those departments in jeopardy of receiving future funding and I will not allow it. I firmly believe that the using of funds from special districts is unacceptable and will not happen during my watch.”

For related articles see “Marrs Resigns As Auditor,” June 9, 2010 and “Marrs’ Campaign Statement,” May 4, 2010.

-- Ray A. March

Next: Where is Rudometkin in all this?

Wednesday, March 9, 2011

Stevens’ Role In Misappropriation

Part IX

As former DA Gary Woolverton drafted the insurance claim against performance bonds covering various county officials he ranked retired auditor Judi Stevens at the top of his list along with Cheryl Knoch, current treasurer, as the two officials most likely responsible for the misappropriation of $20 million.

When the final version of the claim was signed by Supervisor Loren “Shorty” Crabtree on Feb. 24, two days after the board unanimously voted to go forward with the claim, Stevens’ ranking had dropped to level number two. Woolverton said he did not know why.

Also deleted from the draft were references to an interview Stevens gave to the Modoc County Daily News blog in which she implicated both former CAO Mike Maxwell and the Board of Supervisors.

That interview quoted Stevens as saying she and Knoch had been intimidated by the board and Maxwell into using restricted funds from the treasury to pay down the growing debt at the Modoc Medical Center. Stevens’ assertion that Maxwell and the board had pressured the two elected county officials was also included in the Modoc County grand jury report last year.

Asked to comment on Stevens’ statements, Knoch said she disagreed with Stevens’ allegations, but did not elaborate. Although some of the language in the claim was either deleted or omitted for unexplained reasons, a copy of the interview published on the Modoc County Daily News blog remains as an exhibit in the final draft.

Last December, when Woolverton told the board then chaired by Dan Macsay that the claim was using the Stevens’ interview as a source to substantiate that various county officials were involved in the misappropriation of the treasury, Macsay attempted to discredit Woolverton’s work by saying, “… whatever he came up (with) we can throw in the trash can.”

Macsay, along with Supervisors Patricia Cantrall and Dave Bradshaw, were among other county officials named in the claim.

Woolverton states in the claim that it is “apparent most of the money that was withdrawn from restricted funds occurred during her (Stevens) tenure as auditor.”

“There is some evidence that that auditor, Stevens, was conferring with the CAO, Maxwell, about the invasion of restricted funds, but that evidence is somewhat tenuous. The firm evidence on this quantum of knowledge is lacking and will require further investigation.

“The question is whether or not Stevens, having been the auditor for approximately 12 years, was in a position to disclaim knowledge that she was spending money from restricted funds,” Woolverton states.

In referring to the Modoc County Daily News blog interview of Aug. 18, 2010, Woolverton writes, “The admissions by Stevens points to Stevens and Knoch having knowledge of the fund diversion. Stevens goes on to excuse her conduct by saying she was intimidated into doing what she did by (apparently) CAO Mike Maxwell and the Board of Supervisors.

“Evidence is fairly strong that the auditor was receiving the monthly treasurer’s report and was apparently not alerting anyone other than the CAO. The evidence seems fairly clear that the auditor was not doing (at least quarterly) quarterly reports and not doing annual in-house audits.

“These reports and audits would have alerted the auditor and others that would have been privy to them,” Woolverton concludes. Some portions of his draft were underlined for emphasis, but omitted in this article.

For the entire interview with Stevens, see “Former Auditor Implicates BOS in Misappropriation,” Aug. 18, 2010).

For an accounting of the Board of Supervisors and its efforts in 2010 to either discredit the claim or hope to see its demise, see “BOS Uncertain, Fails To Act On Performance Bond Claim,” Dec.9, 2010.

-- Ray A. March

Next: Alice Marrs, Still Another Former Auditor’s Role

Monday, March 7, 2011

Knoch Neglectful
Shares Parallel Role with Stevens


Part VIII


Cheryl Knoch, county treasurer during the entire period that funds were being misappropriated, occupies the lone seat as the person most responsible for the loss, according to a claim seeking $12.5 million against bonds insuring various officials.

Although Knoch is listed at “level one,” she is closely aligned with former Auditor Judi Sevens by former DA Gary Woolverton, who drafted the claim. The link between Knoch and Stevens is based on the parallel roles the two offices perform and an admission by Stevens that she and Knoch were intimidated by the Board of Supervisors and that former CAO Mike Maxwell was involved.

In an interview last August with the Modoc County Daily News blog Stevens said she had been intimidated by the Board of Supervisors into using restricted funds from the treasury to pay down the growing hospital debt.

(See “Former Auditor Implicates BOS in Misappropriation,” Wednesday, Aug. 18, 2010)

“Stevens’ admission tends to confirm that Knoch should be level one, but also strongly suggests that she (Stevens) and Mike Maxwell should also be in the level one category, excepting for his denial of knowledge,” Woolverton writes in an early draft of the claim

Somehow, unknown to Woolverton, that statement was omitted from the final draft recently submitted to Trindel Insurance Fund, the county‘s go between with National Union Fire Insurance Company.

However, a final draft of the claim adds this statement by Woolverton:

“If the excuse on behalf of herself (Stevens) and Knoch has merit, that pressure most likely came from Maxwell and not from individual members of the Board of Supervisors.”

Knoch’s blame goes beyond Stevens’s implication, according to Woolverton. It goes to Knoch’s neglect of duties.

“Upon inquiry of various department heads in the county, department heads were not provided with the monthly treasurer’s report and were provided only with an expenditure audit trail to review their own current financial state and the status of the department budget,” Woolverton writes.

“Thus, department heads were probably not provided with sufficient information to readily determine that the auditor and treasurer were drawing money from restricted fund accounts,” he reveals. “The fiduciary responsibilities of the county auditor and county treasurer were disregarded.”

The claim adds that the treasurer’s report was not going to all departments but “was (historically) going to a select number of departments heads, but not others.”

Woolverton also refers to state law requiring that “a treasurer should not only refuse to pay demands that he or she believe to be illegal, but should also refuse to pay a legal demand unless there has been compliance with all legal requirements…”

In reference to Penal Code 425, Woolverton quotes, “Every officer charged with the receipt, safekeeping or disbursement of public money, who neglects or fails to keep and pay over the same in the manner prescribed by law, is guilty of a felony.”

As for further example of the parallel roles of auditor and treasurer, Woolverton again goes to state law, writing, “It is the duty of the county auditor to make a monthly examination of the treasurer’s books to determine that the treasurer maintained adequate and current records for internal control of his or her office transactions and that records of the treasurer agree with those of the auditor.”

Was there a warning sign that something was amiss in the treasury? Woolverton says there was.

“At one point they (the outside auditors) did advise the county treasurer, Cheryl Knoch, that she had to charge the hospital interest, payable to those departments where the ‘debt’ was coming from,” he writes. “This should have alerted county officials that something was wrong.”

Woolverton concludes with:

“The identity of those committing the improprieties is also an issue, although the finger of culpability seems to point squarely at previous auditor Stevens, the current treasurer and previous CAO, Maxwell.”

Knoch first took office as county treasurer in January 1999. She was unopposed in her most recent bid for re-election last June. Stevens was auditor from about 1997 until she retired in January 2009. Woolverton states that the misappropriation of treasury funds occurred during that time period.

(For related articles please see “Treasury Misappropriation: Officials Failed In Their Duties, Sunday, Feb. 27, 2011).

-- Ray A. March

Next: Judi Stevens, Former Auditor's Role

Sunday, March 6, 2011

Modoc-gate Continuing Analysis

BOS 
“Third World Governing Body”
 

“…there were organizations of headhunters who could help you find executives if you had to go outside the company…”

--Katharine Graham, the late publisher of the Washington Post, from “Personal History”


The chasm -- rarely if ever bridged -- between the Modoc County Board of Supervisors and the citizen-based Monday Night Group (MNG) grows ever wider as debate swirls around the controversial search and hiring process for a new chief administrative officer, and the board’s failure to resolve its financial crisis.

Normally diplomatically constructive in its suggestions on how the board could guide itself out of everything from its fiscal morass to hiring a qualified administrative officer, the MNG has become not only frustrated, but openly critical of the board.

“We have worked our tails off trying to be helpful and they are not making any progress,” Don Demsher, spokesman for the MNG told the Modoc County Daily News blog.

“The same financial problem they face today existed 18 months ago. Rick Rudometkin is not qualified for the job he has,” Demsher continued referring to the board’s inability to replace at least $12.5 million to the misappropriated treasury and the contentious appointment of Rudometkin by last year’s board.

“Geri Byrne shows real leadership and the rest of the Board of Supervisors is dysfunctional,” Demsher went on. “They don’t know their duties or how to develop an agenda. They are petty and use their position inappropriately.

“Frankly there is little hope,” he said. “We have a Board of Supervisors the majority of which cannot govern. This is a third world governing body.”

Criticism from the MNG comes at the time when the board is divided and uncertain of itself in spite of its bravado as to whether an ad hoc screening committee consisting of citizens-at-large and board members should be involved in the search for Rudometkin’s replacement.

Case in point, and we quote from the board’s Feb. 22 meeting and follow up interviews:

Supervisor Dave Allan, “I asked myself, can you handle this? I’ve hired and fired, made huge decisions. I retain what I read, make notes. I’m confident I can look a man or woman in the eye and make decisions.”

In an interview Allan said, “I’m qualified to make the decision, it doesn’t need citizen involvement.”

Supervisor Patricia Cantrall, “Public perception is everything. I don’t have a problem with the public knowing what we’re doing. I have a problem with the Monday Night Group.”

In an interview Cantrall said, “I didn’t care,” but revealed she had two community members present at the Feb 22 board meeting waiting to be called to serve as citizens on the interview panel.

Supervisor Jeff Bullock, “It’s a privacy issue, a gray area. I’ve had no chance to figure this out. I haven’t looked at anybody in my district. We’re going into an area we don’t want to go into. The CAO works for the board.” He was reminded by board clerk Stephanie Northrup and Byrne that the board had been given two weeks notice to select citizens for the panel.

Repeated calls to Bullock were unanswered.

Supervisor Geri Byrne, “I ran for this office because I wanted to see more transparency in government. We’re accused of being good old boys. This process would give us the opportunity to be transparent.”

In an interview Byrne said, “My idea to do so was voted down. I can’t speak for the rest of the board, but no one else has proposed citizen involvement so far. In discussion, Jeff, Shorty and Dave all said they were opposed to it so we did not put the issue to a vote. Pat indicated she would have no problem with it and I was for it, but that wasn't enough votes.”

Byrne, the only supervisor posting comments to the Modoc County Daily News blog and the only supervisor to respond to e-mails, stated on March 3, “I tried to have public involvement in the CAO hiring process, but I was not successful. I do have some experience with executive hiring and I shared my knowledge, sample questions, list of things you can't ask, etc. in binder form with each of the board members. We are using these materials to help with the interview process.”

Supervisor and chair Loren “Shorty” Crabtree, “I’m not in favor.”

In an interview Crabtree said, “I didn’t want it,” referring to citizen involvement. “I was elected by the citizens. I’ve hired and fired on my own and I know I can do it myself. I think the idea of (citizen involvement) is a waste of time. We done away with it.”

Auditor Darcy Locken, who has no involvement in the hiring process but considerable insight into the fiscal crisis and who previously served as assistant CAO under Mark Charlton, said with some contradiction, “I don’t think you should shut out the public, but I don’t think public input is good. I think the department heads who will be working with the new CAO should have input. The department heads don’t feel they’re involved.”

Going back to Demsher and the MNG’s repeated advice to the board that there should be citizen involvement in the CAO search:

“We recommended people from the community, whether from the Monday Night Group or any other citizens, for screening applications and making recommendations to the board,” he explained. “The emphasis is on recommendations. That’s very common. It might be able to guide them in the right direction. Also, a citizen's committee to interview those selected and interviewed by the Board of Supervisors to give their opinions on the candidates. The final decision is with the Board of Supervisors and that’s where it belongs. That was our recommendation. It’s a format that works quite well. It gives the community input and still leaves the authority with the Board of Supervisors.”

What has been ignored by the present board as well as the out-going board chaired by Dan Macsay, is that no one has reviewed the county’s contract with Avery & Associates, the firm which recruited Charlton, to see if Avery has an obligation to make a new executive search.

The Modoc County Daily News blog took a survey of various municipal entities and found that it’s relatively unheard of among counties and cities in California not to hire a headhunter and form a screening committee that includes local citizens. Neighboring Siskiyou County, for example did just that and later put that experience to practice in a subsequent search.

County Counsel John Kenny summed up it when he told the board, “I have trouble with the fact that you’re this far down the line and you don’t know what your selection process is going to be. The candidates need to know.”

 -- Barbara March and Ray A. March