Dog shooting leads to discovery of tax-dollar misuse

Case in Point: Case history applications

The dog had escaped from its home in a small rural county. His frantic owners posted fliers and offered a sizable reward for his return. Two weeks later, the animal control officer spotted the weak Great Dane.

Inexplicably, the officer shot and killed the dog even though it was wearing a collar with identification tags and license. He dumped the body in the local landfill and called the owners to tell them their dog was dead. The owners wanted the dog's body for cremation, but animal control officers told them it wasn't available. The officers ultimately relented and retrieved the body from the dump and returned it to the family.

Citizens and local media coverage questioned why the animal control officer hadn't simply tranquilized the dog, taken it to the animal shelter and contacted the owners.

Many now began to scrutinize the operations of the animal control department, which is part of the county sheriff's office. (Approximately 10 percent of the sheriff's deputies were assigned to the animal control department.) The animal control department received the majority of its funding from a separate millage (taxation) included in the annual property tax assessments, which generated approximately $300,000 of revenue each year.

Questionable purchases

Outrage over the shooting prompted local citizens and the media to question animal control department policies, financial support of its operations and appropriate use of tax funds. The public began to ask: Should expenditures be limited to direct expenses that related to the care of animals? Were indirect expenses permissible? If so, what types of indirect expenses, and how much?

An initial in-house analysis of the financial transactions of the animal control department showed multiple questionable purchases recorded in its books and records, including ammunition, watches, parties, counter-terrorism training, hotel bills and drunk-driving campaigns.

County officials discovered that many of the purchases actually pertained to the general operations of the sheriff's office — not the animal control department.

One of the county commissioners, in a separate investigation, found that the sheriff's department had spent $5,000 for ammunition for all the deputies in one year. However, $2,000 (or 40 percent) of this expense was allocated to the animal control department, which had only three employees. The commissioner conducting the investigation noted that $2,000 of ammunition was an "awful lot for three employees."

The sheriff defended the expenditures. He explained that the county commissioners had encouraged cost-sharing practices among departments within the sheriff's office. The sheriff said the finance committee, the county clerk and the county treasurer had approved the bills in question.

The sheriff also said that the watch purchased by the sheriff's department — and partially charged to the animal control department — was a retirement gift for a sheriff's deputy. He said that it was appropriate to recognize employees with many years of service. He also compared the purchase of a watch for a retiring employee to the framed certificates of recognition that outgoing county commissioners received.

As a result of the controversy, the county commissioners voted to hire an independent organization — our team — to analyze six years of expenditures from the animal control fund to determine if they had been appropriately charged to the fund.

The vote to have the audit performed passed 6-3. Two of the individuals voting against the audit had known connections to the sheriff's department. One was a retired employee of the sheriff's department, and another was married to a high-ranking member of the department and a former employee of the county's now-defunct general accounting office.

$42,000 of inappropriate charges

We obtained six years of general ledger details, which included all the expenditures recorded in the animal control fund. We then requested original supporting documentation for all expenditures in excess of $50.

We asked two fundamental questions when examining each transaction:

• Did this purchase pertain directly or indirectly to the animal control division?
• Was the amount of indirect costs allocated to the animal control fund appropriate when considering the relative size of the department compared to the sheriff's office as a whole?

Based on the results of our investigation, we determined that there were numerous instances in which the general operations of the sheriff's office were financed indirectly through the use of funds generated by the animal control millage. These expenditures included repairs on vehicles not assigned to the animal control department, general IT support for the sheriff's department, Internet service and the installation of a new air conditioning system for the local jail (which is maintained in a separate facility from the animal shelter).

Typically there was little documentation provided to indicate how indirect expenses recorded in the animal control fund related to the operations of the animal control department or the rationale used to allocate the costs between departments.

We also evaluated the cost-sharing formula the sheriff's office used to apply general costs to the animal control department. We determined that the sheriff's office didn't have a consistent formula and the allocation method it used could appear to be very aggressive. Only 10 percent of the staff and 10 percent of the vehicles used by the sheriff's department were assigned to the animal control department. However, the animal control department frequently paid more than 10 percent of the costs related to the vehicles' maintenance, ammunition and office supplies.

As a result of the investigation, we determined that the sheriff's department between 2005 and 2009 inappropriately charged approximately $42,000 of expenditures to the animal control fund.

Contributing factors

Questionable financial practices thrived in the county for several years because of multiple contributing factors:

• The sheriff's department wasn't required to indicate how expenditures recorded in the animal control fund related to the purpose described in the millage.
• We saw minimal indication of review and approval of the underlying expenses recorded in the animal control fund. In the majority of instances, it wasn't possible to determine who authorized the purchases and their proportional allocation between departments.
• The sheriff's office's cost-sharing practices weren't clear, and the office didn't use a consistent method to allocate costs between departments.
• We didn't find within the sheriff's office any independent review and approval of the allocation method it used to spread costs among departments. As a result, those in the sheriff's office were able to use the abundant resources of the animal control fund to subsidize other less-profitable activities.

Tips for the county

We made several recommendations to help the county address these and other issues, including:

• Increase the documentation for the expenditure of millage funds.
• Substantiate that millage funds were utilized in accordance with the necessary legal requirements.
• Develop a cost-sharing allocation based on relevant factors, such as head count or number of vehicles to allocate expenses that benefit numerous departments and obtain approval for the allocation.
• Develop a policy that prohibits family members from working in departments in which they have professional interactions.
• Develop a formal conflict-of-interest policy and prohibit employees from participating in activities in which they have a conflict of interest.

A subsequent millage pertaining to the animal control fund failed, and the future of the animal shelter is now in doubt.

Lessons learned

• County departments must have adequate documentation of the appropriateness of expenditures — particularly for funds raised through a special millage. This documentation should explicitly include information identifying how these expenditures pertain to the purpose intended by the millage.
• Municipalities should consistently allocate indirect costs to departments using a method that considers all relevant cost drivers. Independent personnel should approve the allocation method.
• Municipalities should train individuals responsible for approving expenditures to review purchases for appropriateness and to verify that they were allocated to the proper funds within the general ledger based on the nature of the purchase and other relevant concerns.

Jenell West, CFE, CPA, CIA, is the forensic accounting manager at Rehmann Corporate Investigative Services in Troy, Michigan.

Bill Edwards, a retired FBI special agent, is director of financial investigations at Rehmann Corporate Investigative Services in Troy, Michigan.

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