What Financial Auditors found
Controversy over accounting failures and alleged misspending in the Department of Social Services has dogged Mecklenburg County administrators most of the year.
DSS Director Mary Wilson called for financial audits of the Giving Tree and two other programs after receiving a tip about suspicious spending. The following is a description of the programs and problems auditors found in each.
Giving Tree
The DSS program collected Christmas gifts for children in the county's foster care system. Gifts were received from donors or purchased through financial contributions. Auditors found:
No receipts for a $10,000 check made out to an employee.
Of 840 receipts inspected, 799 had problems, including:
Parts of receipts whited out, or omitted in photocopying. Some receipts had altered dates.
Good Friends
The independent, nonprofit group collected donations and gave them to DSS to distribute to families and children. The county audited DSS expenditures from Good Friends, which no longer works with DSS. Auditors found:
Payments made to county employees, instead of stores.
Unapproved items purchased.
Due to the number of "unsupported transactions," auditors could not render an opinion on financial statements.
Voucher Program
Social workers used this program to purchase emergency supplies for needy families. DSS discontinued the program in May.
What Auditors found:
99.3 percent of all transactions tested had problems, including:
Missing receipts and emergency money used for office supplies.
Since the findings were released, here are some of the steps county officials have taken:
Retrained DSS employees on proper compliance with financial policies, procedures.
Put DSS finance under the direct control of county's main Finance department.
Asked Charlotte-Mecklenburg police to help investigate possible misspending. Investigation is on-going.
Approved hiring of at least three new internal auditors to help increase frequency of audits. Replaced management in department.
Ordered review of financial practices in other county agencies.
Implemented anonymous report line to allow employees to report waste, fraud or abuse. Effort had been in the works before the audits.
Memo: Money flowed, no questions asked
A former Department of Social Services employee at the center of a charity probe says the county advanced her as much as $198,000 since 2005 with the approval of her supervisors.
The county checks, which she deposited in her personal bank account, were meant to provide gifts for needy children, according to an internal memo the Observer obtained. The 74-page document was written by Cindy Brady, the former DSS employee who ran the Giving Tree charity.
The document paints the defunct charity in more detail than the county has released publicly. It also raises new questions about the investigation, which the county has turned over to police.
The county has never publicly identified Brady or released the full internal audit of the Giving Tree, which the county maintains are both prohibited under personnel law.
The county also has said that all expenditures were accounted for - a fact that the former internal audit director now disputes. Cornita Spears, who was disciplined for a flawed review of the Giving Tree, says the county can't be sure of how $108,000 of $162,000 was spent in 2008.
Brady said the investigation has focused on her spending, which she defended as appropriate. But she acknowledged she fell behind in collecting receipts last year, and some were handwritten, damaged or lost.
Her memo and statements from current and former employees describe a popular Christmas charity that operated for years without accepted standards or accountability. The county has said DSS has not been audited comprehensively since 1996.
The memo, dated July 29, was sent to a county human resources manager, but it's unclear who read it and when.
County spokesman Danny Diehl would not say if County Manager Harry Jones has read it, citing personnel law. Three county commissioners listed as recipients said they have not seen it.
Former Internal Audit Director Spears said she first received the document in November, five months after she released her audit of the program.
Spears said Brady's memo had enough evidence to cause her to revise her June report, and she now says she wishes she had seen it earlier. Spears said personnel rules prevented her from interviewing Brady. Brady wrote in the memo that she wanted to talk but was "given no opportunity for input or clarification."
She said in her memo that some receipts were either lost in a rainstorm or shredded by her dog. Original receipts also remain missing, including some for more than $2,200 spent for the charity at an Old Navy store, the document says.
The county has asked the Charlotte-Mecklenburg Police to investigate the Giving Tree and help retrieve receipts from vendors.
Contacted by the Observer, current and former DSS administrators named in the memo supported Brady's description of how the program operated, though one former director said fiscal controls were appropriate under his watch.
Brady's attorney has said Brady is cooperating with a police investigation. Brady, a 20-year county social worker who retired in August, declined to comment for this story.
Suspicious spending
Organizers launched the Giving Tree nearly two decades ago to provide toys, clothing and other gifts to foster children.
The program relied on donations of money and gifts. Past supporters include Second String Santa, Young Lawyers, employees of Wachovia and Bank of America and Project Joy, a fundraiser set up by Observer columnist Tommy Tomlinson. Brady said financial contributions began to grow after Tomlinson became involved.
Officials collected more than 8,400 gifts last Christmas.
But Department of Social Services Director Mary Wilson got a tip earlier this year about suspicious spending and ordered financial audits of the Giving Tree and other programs. Wilson declined to comment through a spokesperson.
E-mails previously obtained by the Observer have shown officials suspected an employee received $80,000 in checks from Giving Tree donations.
Officials also investigated whether an employee's sister got money to buy gifts. Questions were also raised over purchases of diamond earrings, leather coats and a DVD player.
Auditors found numerous accounting failures across the department. County officials suspended some programs and put the agency's finances under direct county control. Officials retrained workers on accounting rules, including the use of restricted purchasing cards.
More Oversight
County records show the Department of Social Services wrote checks to Brady totaling more than $176,000 during a three-year period that ended in June 2009. Brady's memo reflects that about $126,000 was for the Christmas program last year, but the county records didn't say how much of the remaining money was for the charity.
The agency also gave another woman about $8,000, records show. Brady's memo identifies her as the sister of an administrator who helped oversee the Giving Tree.
The administrator's sister used her employee discount at Belk Department Store in Brevard, in Western North Carolina, to purchase gifts for the charity, according to the memo and an accompanying letter from the store's manager.
The woman could not be reached for comment.
Jones said officials have strengthened supervisory oversight and clarified employee rules, responsibilities and requirements.
Ward Simmons is a citizen member of the county commission's Audit Review Committee, which investigated accounting failures in DSS. He said that regardless of whether the county explicitly spells out procedures for handling donations, employees have a responsibility to remain diligent in bookkeeping.
"There exist certain standards of prudent behavior that any employee who handles money should adhere to," Simmons said. "If someone else is not using good judgment it's not a license for a second person to do the same."
Lost, damaged receipts
Brady's report contains photocopies of checks she returned to the county, pictures of torn store receipts, a detailed accounting of more than 40 transactions, and her positive performance evaluations.
Her memo says 10 bags of clothing were purchased at an Old Navy store for $2,222. The clothes were put in a room with donated toys, but the original receipts are lost, she said.
Brady wrote that receipts were lost or damaged on hundreds of dollars worth of items from Belk, Coldwater Creek, Target and Kohl's.
Brady also wrote that for years workers did not inventory donated items individually. Storage rooms contained jewelry, music players, a home theater system and toys. She defended purchasing expensive items, saying some children overcame obstacles to graduate from high school, college or find a job.
Brady said she asked the county in February to do an inventory of the items stored at Walton Plaza, a government building on the edge of uptown.
But she said she received a phone call days later from another social worker who told her a county auditor looked at a room of clothing and said she wasn't going to inventory the items because there was "too much stuff," the memo states.
Diehl said items bought with Giving Tree donations are secure and DSS staff conducted an inventory after the audit.
Brady said after a February meeting where she was first questioned about Giving Tree spending, she was told to bring in receipts showing how money advanced to her was spent.
In the following weeks, she said she kept updating the information, and returned $33,000 in money that she hadn't spent.
Internal Audit
Spears, the former internal audit director, recently said her June report on the Giving Tree failed to account for money returned by Brady. Spears was suspended last month after acknowledging the error. At the time, Jones said the auditor failed to consider information that had been available before the June report.
Spears said she discovered the oversight after receiving the Brady memo on Nov. 11 from someone in the county manager's office who asked her to review it.
There are "inconsistencies" between the information used to conduct the audit and statements contained in Brady's memo, Spears said.
One example, she said, involves an $11,000 check Brady wrote to the county. Spears said in an interview she was informed that the check was for repayment of personal purchases.
But Brady's memo states that $10,000 of the amount was unspent money from the program, Spears said.
She said she performed a thorough investigation, given the circumstances. It would have been helpful, Spears said, to interview Brady for "clarification" on some issues.
Brady said she was placed on nondisciplinary suspension in February. On March 9, she was placed on medical leave and remained on leave until she retired.
Diehl, the county spokesman, said the county typically tries to contact workers involved in internal audits or human resources investigations.
But he said exceptions may be granted in some cases, such as if an employee is on leave. "Requiring an employee on leave to participate in work-related functions, including investigation interviews, would constitute a county violation of the employee's leave status," Diehl wrote in the county statement.
In recent weeks, Jones and some county commissioners have said the Giving Tree investigation has been handled appropriately.
County commission chairman Jennifer Roberts said she is confident in Jones' assessment that the county knows how last year's donations were spent. She said the county has receipts, possession of items purchased, and returned checks.
But Roberts acknowledged that some receipts may have been altered and have missing dates and store names.
Commissioner Bill James said statements in Spears' audit report about the poor condition of receipts or other documentation makes it inaccurate to say the county has accounted for all of the expenditures. "The central question I have asked since this started was how much of the $162,000 made it to the children or needy," James said. "That question hasn't been answered."
Asked about questions that the county can account for all of last year's donations, Spears said: "From an auditing standpoint, it's not accounted for. You have to have reliable documentation."
Scapegoat?
The Observer sought comment from the roughly two dozen current and former DSS employees named in the memo. Most declined to comment or could not be reached.
Five corroborated Brady's account. None said they witnessed any wrongdoing in the program.
Polly Needham, a former DSS administrator who helped oversee the Giving Tree, said she anticipates that police will interview her. In her eight years with the program, Needham said DSS finance administrators always approved how Brady and others handled donations.
"Cindy is an honest person," Needham said. "We tried to follow the rules."
Robert McCarter, a former DSS attorney and volunteer for the Christmas charity, said he believes DSS is trying to cover up how little oversight the agency provided the program.
"There was no accounting," McCarter said. "This is the county finding a scapegoat and it is Cindy."
Darryl German, an administrative assistant for DSS who volunteered with the Giving Tree program for five years, said Brady still has broad support in the agency and many people are angry over her departure.
"I have never seen anything at all" that would be considered inappropriate, German said. "It's all been blown out of proportion."
For years, he said the program operated without any complaints about how donations and money were handled. German said it was "common" for employees to receive advance money to purchase items for clients and then submit receipts.
The county no longer runs the program, which has been taken over by the Salvation Army, but he said residents still call to inquire about donating items.
Donald Bynum, who led the Giving Tree program in the early 1990s, said he is sure Brady handled donations appropriately, but disagreed with her description of lax accounting.
In 1992, members of Second String Santa, a nonprofit that holds an annual fundraiser benefiting the program, questioned how donations were handled and feared they did not reach foster children, Bynum said. The group threatened to stop giving donations to the program, he said.
Bynum said he responded by implementing a new inventory system and making sure gifts were placed in a secure area. Organizers then compiled a report each year to show Second String Santa how donations were used, he said.
"I was proud of how we handled the program," Bynum said.
Brady wrote that she was also proud of her work. She cited a passage from a performance evaluation that said "she is an excellent ambassador for the agency."
"My job was to do what I could to get the most we could for our children with the money we had to spend," Brady wrote. "It was someone else's job to monitor the financial end of the process."
The Charlotte-Mecklenburg DSS Fraud Mystery: Where did money go?
Internal e-mails reveal new allegations of misspending at the Mecklenburg County Department of Social Services, raising more unanswered questions about what happened to money intended to help needy children.
Some of the more than 1,000 e-mails the Observer obtained through a public records request provide the most detailed account to date about the agency's accounting fiasco.
E-mails show:
Officials suspected an employee wrote $80,000 in checks to herself from donations.
An administrator questioned why other donations were used to buy $340 diamond earrings, leather coats and a $300 DVD player.
A top executive complained that a senior fiscal administrator frustrated co-workers with her "inability to explain the simplest concepts of revenue and expenses."
After nearly a year, officials have never said who was at fault for $162,000 that disappeared or whether anyone was disciplined.
No one has been charged in an ongoing police investigation and a county report says officials cannot be certain where the money went.
Meanwhile, donors are left to wonder whether their generosity ever helped buy Christmas gifts for those in need.
In one e-mail, a woman describes calling the county in 2007 to give $900 for single mothers at Christmas. The person who answered the phone told her to make a check payable to the worker's sister.
The donor said she grew suspicious and made the check out to the county, but the idea that it may still have been misused is "like a kick in the stomach."
In another e-mail, a founder of Second String Santa said he was concerned whether kids received the more than 50,000 toys his group had donated since 1989.
Will Miller said he believes some of the toys reached children, but he's not sure about the rest.
"Will we ever know? Probably not," he said.
Two commissioners said they have asked county administrators for a full accounting of what went wrong at DSS but have yet to receive answers. County officials have never explained who was responsible, they said.
"To fix it, you have to admit all the stuff that is messed up," Commissioner Bill James said. "They don't want to do too much digging."
County administrators declined interview requests. Instead, a county spokesman released a prepared statement saying appropriate fiscal controls have been installed in response to an outside audit and an internal investigation.
"Our review of the e-mails we provided and your follow up questions did not reveal any new information that would suggest any change in the audit findings or in management's response to those findings," the statement said.
Some commissioners said they have been told that the employees involved have either left county government or been placed in new positions.
Unusual Spending patterns
DSS spends $176 million annually and employs 1,200 workers to assist Mecklenburg's poor and neglected. The agency administers everything from food stamps to foster care and child protection services.
Last spring, DSS Director Mary Wilson ordered financial audits following reports of suspicious spending.
Auditors looked at multiple spending programs and financial practices in the agency. They found a $10,000 check made out to an employee, missing and altered receipts and money for kids spent on office supplies.
County leaders responded by suspending the programs, putting DSS finance under direct county control, training workers on accounting procedures and ordering a review of financial procedures in each county agency.
The Observer reviewed e-mails dating from December 2008 to July 2009 for seven current and former county administrators, including Wilson, County Manager Harry Jones, County Finance Director Dena Diorio and Internal Auditor Cornita Spears.
E-mails show county officials noticed unusual spending patterns as early as last December but did not disclose problems to the public until March.
On New Year's Eve, Wilson told staff she had suspended a voucher program the agency used to purchase clothes and other items for clients at local stores. She wrote that officials were worried about a lack of oversight and a spike in spending.
One monthly retail bill leapt from between $5,000 and $6,000 to more than $20,000 in October 2008, the e-mail says. Employees turned in receipts only 30 to 35 percent of the time, she wrote.
At one time or another, workers possessed or had access to numerous credit cards and gift cards, including some to Bath & Body Works, Bass Pro Shops, Macy's, the Cheesecake Factory and Outback Steakhouse.
Outside auditors verified for county administrators that DSS workers possessed county-issued credit cards, including 10 credit cards for Sam's Club, three for Harris Teeter and an online charge account with amazon.com.
In February, county officials asked internal auditors to look into questionable spending, including purchases of diamond earrings, leather coats and a DVD player.
An e-mail to one of the auditors from a human resources consultant said the purchases raise "many questions and concerns."
According to the county's statement, most gifts were typical children's items such as toys, clothes and books. More expensive items such as diamond earrings and leather coats were approved purchases for foster children who reached special milestones like high school graduation, the statement says.
"Receiving a gift of some significant value was viewed as an incentive for other children who were in foster care to set goals and accomplish them," the statement said.
Commissioner Harold Cogdell said he spent part of his early childhood in foster care and believes the gifts are a good idea.
"It makes sense to me to show the kids some love," Cogdell said.
A new Accountant
DSS has endured multiple management shakeups in recent years. The latest came when Wilson reorganized the agency after she was hired in July 2008.
She laid out the reasons to hire a new finance director in a February e-mail.
Wilson wrote that the senior fiscal administrator who managed DSS finances failed to provide reports about oversight, alienated staff and lacked the ability to conduct productive discussions with senior county executives. The e-mail does not name the senior fiscal administrator.
DSS later hired accountant Angela Hurlburt to oversee its finances.
James, the commissioner, said he has asked for the names and background information on Hurlburt's predecessors. He wants them to answer questions from the Board of Commissioners' Audit Review Committee, which investigated accounting lapses at DSS.
He said administrators have failed to respond to his requests and complained that officials "keep us in the dark."
Other Charlotte-Mecklenburg County Commissioners disagreed.
Chairman Jennifer Roberts and Commissioner Dumont Clarke said county leaders have already put in place reforms that will protect taxpayer and donor money.
"The highest priority" is implementing new financial controls, Clarke said.
Shifting the Finances
Auditors from Cherry, Bekaert & Holland reviewed DSS and found that Mecklenburg officials responded appropriately. The county's Audit Review Committee came to the same conclusion.
But DSS Director Wilson bristled at one of the major reforms.
Leaders put DSS finance under the direct control of the county's main finance department after allegations of misspending surfaced.
In April, Wilson sent an e-mail to County General Manager Michelle Lancaster to complain. Calling the decision "premature" and "shortsighted," Wilson said there are emergencies when DSS workers must write checks immediately, including occasions when the agency takes children in custody who need clothes, toiletries and school supplies.
"I understand the urgency at the time, but there was a reason DSS had check writing capability and I think we threw the baby out with the bathwater instead of fixing the underlying issue, which is documentation and accountability," Wilson wrote.
Donors left with Questions
Past supporters of the DSS Christmas charity include Young Lawyers, employees of Wachovia and Bank of America, and Project Joy, the holiday fund drive initiated by Observer columnist Tommy Tomlinson. The Christmas charity, known as the Giving Tree, is now run by the Salvation Army.
The donor who gave $900 e-mailed the county in July after learning about accounting failures from news accounts. She attached a picture of the check copy she made around Christmas in 2007.
She wrote that she did not remember the name of the woman she spoke with on the phone.
The donor said she and her family all pitched in to raise the money so she could assist women like her who had struggled as single mothers.
When she heard there were allegations of misspending in a DSS charity program, "It's like your stomach just drops."
Man's e-mails about Charlotte-Mecklenburg County DSS Fraud sent to his employer
As news spread about possible missing money from the Department of Social Services Christmas charity, Harry Lomax and other donors contacted Mecklenburg County leaders to complain.
"I feel duped," Lomax wrote in an e-mail to county commissioners and top administrators.
But Lomax likely did not anticipate County Manager Harry Jones' response.
Jones forwarded the e-mail to Lomax's employer, Bank of America, and wrote, "Do you know Harry Lomax."
A Bank of America vice president replied to Jones about one hour later, writing that she was "embarrassed" by Lomax's e-mail.
"I am tracking it down. I don't know him - I have alerted charles. Will be back to you," she wrote.
Some commissioners and ethics experts now say the actions by Jones and the bank official were improper because they could stifle free speech and blur the lines between employment and citizenship.
It's unclear how Jones knew Lomax worked at Bank of America. Lomax sent his message from a personal account and did not mention the bank by name.
"It is not appropriate," said Diane Swanson, a professor of business ethics at Kansas State University. "If this happened all the time, what kind of world would we have?"
The Observer obtained the e-mails from the county through an open records request. They provide a glimpse into how top Mecklenburg administrators reacted to reports of misspending and accounting lapses at the Department of Social Services.
Worried donors wrote to commissioners and county executives after auditors disclosed that they could not account for tens of thousands of dollars from a charity designed to buy Christmas presents for needy children.
Some county commissioners said they do not understand why Jones forwarded the e-mail from Lomax to his employer when he was speaking as a citizen and not on behalf of the company. They said they would question Jones about it.
Public officials publish their phone numbers and e-mail addresses to allow constituents to voice concerns and ask questions. They also set aside time during public meetings to listen to comments from constituents.
"Citizens are able to vent frustrations without thinking that (county) management will get their employer to engage in some retribution," Commissioner Bill James said. "This makes the county look bad. It makes Harry look vindictive. It makes Bank of America look like the county's hatchet man."
Jones did not respond to interview requests from the Observer. A county spokesman referred a reporter to a statement the county released, but it does not directly address questions about Lomax's e-mail.
Nicole Nastacie, a spokeswoman for Bank of America, said "on their personal time, employees are free to express personal opinions" to government officials about any issue that is not related to the company.
Betty Turner, the bank's government liaison who responded to Jones, suspected that Lomax's e-mail involved issues related to the bank and appropriately looked into the situation, Nastacie said. When she determined Lomax was speaking as a private citizen, there were no further discussions, Nastacie said.
Lomax declined to comment.
The e-mails
On July 7, Lomax sent his e-mail to commissioners, Jones, DSS Director Mary Wilson and County Finance Director Dena Diorio. He wrote that he had planned to speak during a commissioners meeting the same day at the urging of Commissioner Neil Cooksey.
Lomax wrote that he left before speaking and decided to e-mail his comments.
The e-mail criticizes county management for failing to prevent accounting failures and accuses some commissioners of a "flippant, hands-off response" to the issue. "There seems to be a need for a wholesale cleanup of many county agencies, and I think that starts from the top down," Lomax wrote.
A week after receiving the e-mail, Jones forwarded it to Turner.
Commissioners respond
Commissioner Karen Bentley said Jones should not have sent the e-mail to Bank of America.
"It should have no bearing on his job," Bentley said. "That's his right."
Commissioner Dumont Clarke called the move "unusual."
Clarke and some other commissioners said they would need more information to judge whether Jones acted appropriately.
"It's not a good practice for the manager to do," Clarke said.
Commissioner Chairman Jennifer Roberts said she would try to contact Lomax to speak with him. "I don't read anything into this," Roberts said. "Maybe Harry was trying to make sure Bank of America didn't feel duped."
Four business and government professors reviewed the e-mails for the Observer. Three said Jones did not have a valid reason to forward Lomax's e-mail since he did not mention his employer by name or present himself as a representative of the company.
"Given these circumstances, one would expect a public official to respond directly to Mr. Lomax and not contact his employer," said Denis Arnold, a professor of business ethics at UNC Charlotte.
Winthrop professor Marilyn Smith disagreed.
Considering public outcry over alleged misspending in DSS, Smith said it understandable that Jones would contact Bank of America. The bank also reacted appropriately, she said.
"To a certain extent, we represent our employers 24/7," said Smith, a professor of management. "We like to think it's my own personal opinion. Companies are judged by how their employees behave, fair or not."
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