Inspection alleges nearly $200,000 stolen from MVFC


A former treasurer for the Millville Volunteer Fire Company (MVFC) is the focus of an inspection report conducted by the State of Delaware Office of Auditor of Accounts (AOA).

“Our inspection revealed $190,433.61 in personal transactions made by the former treasurer,” states the report, released on Tuesday, May 10. “Of this amount, over $144,000 were attributable to ATM and cash withdrawals. AOA also found MVFC accounting records were falsified to conceal the irregularities.

“MVFC’s lack of internal controls had a critical impact on the financial management of the MVFC during the former treasurer’s tenure,” according to the report.

The alleged embezzlement took place between 2012 and the early part of 2015, according to the report. MCpl. Gary Fournier of the Delaware State Police said mid-week that there was “an ongoing investigation,” and no arrests had been made or charges filed at that time. (The Coastal Point does not name suspects or persons of interest unless charges have been filed or police are actively searching for them.)

“The leadership of the Millville Volunteer Fire Company would like to apologize to the members of the community we serve,” began a statement from the MVFC. “This is truly a low point in our history. We would like to assure the members of our community that at no time was the delivery of emergency services affected in any way. We remain committed to providing quality fire, rescue and emergency medical services to our community.”

The report also stated that somewhat-lax financial procedures by the MVFC allowed the alleged theft to take place over a prolonged amount of time. Officials from the MVFC agreed with that sentiment.

“We made some mistakes,” said Bob Powell, public information officer for the fire company. “We’re taking serious steps now to make sure something like this never happens again.”

Powell gave the Coastal Point a list of budget controls implemented by the MVFC since the incident came to light (see box on left).

Unpaid bills

According to Powell, MVFC officers noticed in early 2015 that some bills were not being paid in a timely fashion. They hired Velicia Melson to serve as a part-time administrative assistant in mid-March to assist the treasurer and increase internal controls and financial reporting to the general membership.

“During this process, unauthorized/unexplained charges were discovered from our financial accounts,” said Powell.

In May 2015, Melson met with the chairman of the MVFC’s board of directors, fire chief and president to discuss discrepancies in the books and records, according to Powell. An internal investigation followed, and within three business days, there was sufficient documentation to suspend the treasurer from the company. The AOA report said that the “former treasurer admitted to incurring personal transactions” at that meeting.

Powell said the company then worked closely with Delaware Volunteer Firefighter officials and their accounting firm to “quantify the loss.” They then called the Fraud Hotline and began the process with the AOA, according to Powell.

“We want to assure the community that as soon as this alleged activity was discovered, we contacted the appropriate state agencies to begin to investigate,” the MVFC said in their statement.

The damage

According to the AOA report, there were 19 personal purchases made by the treasurer during the time in question:

• There were six “Auto and Marine” purchases, totaling $6,819.12 (four tires on a 2008 Toyota Solara; a lift kit, plus four new tires and rims on a 2006 Dodge Ram 1500 pickup truck; a lift kit and accessories on a 2015 Dodge Ram 2500 pickup truck; various boat supplies; winterization of a 21-foot Sea Pro boat; and rent for a boat slip).

• There were nine “Retail” purchases, totaling $3,982.02 (including a 28-gauge Remington 870 Wingmaster shotgun bought online; a rifle case, sweatshirt, ammunition, fishing supplies, a queen-size mattress, boxspring bedliner and frame.

• There were four transactions to a family law office, for $7,250.

There were also numerous instances of cash being withdrawn or taken, as detailed in the report:

• 15 instances of getting cash back on credit card purchases, totaling $1,303.05;

• 67 ATM withdrawals, totaling $38,880;

• 34 cash withdrawals, totaling $105,364.47;

• 20 checks made out to the former treasurer, totaling $25,564.95;

• 1 “cash from deposit,” for $370;

• 1 “Petty Cash” check for $500;

• 2 duplicate contractor payments, totaling $400.

The “duplicate contractor payments” were from a time when the treasurer reportedly resigned his position on July 31, 2012, because he had moved out of the MVFC’s jurisdiction. According to the report, the MVFC could not find a replacement treasurer, so they contracted with the former treasurer to perform those duties for $200 per week.

That contract lasted until he was elected back to the treasurer’s position in January 2014. The AOA found that two duplicate checks had been made out to the treasurer, for the weeks ending Jan. 4, 2013, and Feb. 15, 2013.

The total damage done to the company may, in fact, have been even greater than the $190,000 figure. The AOA found an additional 100 transactions, totaling $45,474.01, for which they could not determine the veracity of the purchases. All of those purchases could have had legitimate roots in the business of running the MVFC, but there was not sufficient evidence to classify them as personal or not.

In addition, there were 10 chicken dinners held by the MVFC during the period covered in the AOA inspection. The AOA reportedly tried to trace the proceeds of the dinners to the bank deposit through revenue and expenditure reports but was unable to do so.

“AOA could not determine if the revenues from the chicken dinners were properly deposited to an MVFC bank account,” the report stated.

How it happened

The MVFC did use Jefferson, Urian, Doane & Sterner, P.A. (JUDS), a certified public accounting firm, to perform annual financial statement reviews for each of the years in question. As both Melson and AOA pointed out during the inspection process, a review is different than an audit.

“A review provides substantially less assurance since the evaluation of internal controls and fraud risk is not required,” according to the AOA inspection.

AOA pointed out that JUDS had made some observations and recommendations for improving the procedures the MVFC used for all three years in question:

• In 2012, JUDS had suggested creating a due-to/-from account to track funds transferred between the fire and EMS companies, and completing a monthly reconciliation to zero the accounts. JUDS identified $17,115 in expenses not accounted for in the general ledger for 2012.

• In 2012, 2013 and 2014, JUDS suggested that additional detail should be entered into QuickBooks, indicating what was being purchased.

• In 2012, 2013 and 2014, JUDS suggested that a spreadsheet should be maintained to monitor grants that are required to be spent on specific items.

• In 2012, 2013 and 2014, JUDS noted that payroll wages and taxes should be listed separately when budgeting.

The AOA also suggested in its report that there was a “lack of internal controls” at MVFC.

“Throughout our procedures and interviews, we found that MVFC did not have any written policies or procedures pertaining to its financial operations other than the officer position descriptions written in the By-Laws and a Budget Policy,” according to the inspection report. “… A common statement made during our interviews was that there was no clear definition of responsibilities or written job descriptions detailing the position duties and internal control procedures.”

There was also an entry in the inspection report titled, “Falsified Accounting Records.” The AOA said that not all bills and invoices were presented to the MVFC membership for approval, including credit card transactions. The AOA identified 185 QuickBooks errors between Jan. 1, 2012, and June 30, 2015. Those transactions totaled $111,629.30.

“Since MVFC’s QuickBooks records were unreliable, AOA used statements of all 13 bank accounts and three credit cards to identify transactions made during the period,” read the report. “While utilizing the bank statements helped to identify transactions, it is impossible to capture certain activity, such as cash received from fundraising events.”

There is also mention in the report of a signature stamp that belonged to the then-MVFC vice president, which the treasurer had in his possession, according to the AOA inspection.

“AOA examined 49 cancelled checks, totaling $31,364.95, payable to the former treasurer for contract payments and various reimbursements,” read the report. “Only three appeared to have the vice president’s live signature; 23 appeared to be the vice president’s signature stamp; and 23 were signed by the former treasurer. Of the 23 signed by the former treasurer, we discovered that he signed four checks before he was added back as an authorized signer.”

Moving forward

The AOA inspection said that MVFC officials have told them they started making changes to their internal controls in May 2015, when a new treasurer was elected. Those changes include providing the membership all invoices, including credit card statements, at their bi-monthly meetings, as well as the MVFC identifying authorized purchasers with certain vendors.

The AOA also encouraged the MVFC to update their bylaws to indicate which positions should be authorized signers on accounts, and to ensure position duties and responsibilities are properly outlined.

The graphic on Page 8 demonstrates all the changes the MVFC has implemented.

“They had a job to do,” said Powell of the AOA inspection report. “And they did it. Now we have a big job to do, and we’re going to do it.”

He said the MVFC knows it has some challenges to meet in the community, as well. When asked about the community-wide discounted ambulance program the MVFC has been in negotiations with several municipalities to implement, Powell said it had nothing to do with the embezzlement allegations.

“Over the years, we have seen a decline on the participation in the voluntary ambulance subscribers,” he said. “Typical response for donations has been about one-third of the community. With increased call volume and increased staff, leadership proposed the idea of 100-percent participation from the community at a discounted rate. Volunteerism, in EMS situations, is not the optimum response.

“The community-wide discount program has been in the works for several years,” he continued. “In fact, about 10-plus years ago, we attempted this process and were not successful with the communities.”

Members of the MVFC were scheduled to meet on Tuesday, May 10, to discuss the AOA report, and to begin the process of moving forward, according to MVFC President Clark Droney.

According to the AOA inspection report, the MVFC had 169 volunteer firefighters, nine paid emergency medical technicians and 54 auxiliary members as of June 5, 2015, when the investigation initially got going. MVFC officials said they were hoping this incident did not stain the entire company.

“Unfortunately, the actions of one individual has reflected very poorly on our fire company,” the MVFC said in a statement. “Years of hard work and dedication by the vast majority of our members and employees to gain your trust and respect have been destroyed by one individual in a very short period of time.”

Budget Controls Implemented by Millville Volunteer Fire Company

• Hired a full time independent (not affiliated with MVFC) bookkeeper.

• Administrative Officers are more involved in the financial reporting of the company.

• QuickBooks® has been reconciled with all bank accounts. All income and expenses
are now recorded daily within the program, with great detail. For example: vendor,
invoice #, invoice amount, memo as to what was purchased (2 computers for
board), budget area charged for expense.

• Income received is recorded with the same level of detail (bank account of deposit,
budget area to which deposit is applied (ie fund drive income), donor name, method
of donation, check # if applicable and dollar amount.

• All company accounts with financial institutions have two authorized signatures.

• All company debit cards have been canceled.

• Company credit cards have tighter controls. All receipts are maintained by the
bookkeeper and reconciled to the statement. Credit Card statements are presented
to membership for approval monthly with detail of each expense.

• Implemented a company fuel account. Each driver has a specific PIN # and receipts
are required. Fuel cards are administered by the bookkeeper at the direction of the
Fire Chief.

• Receipts are issued for all cash transactions. Individual remitting cash is issued a
receipt. Once funds are turned into the Treasurer's office for deposit another receipt
is issued.

• Deposit slips are generated from QuickBooks program, matched with the receipt
from the bank teller and maintained by the Treasurer. These receipts are matched
with the bank statement monthly.

• Implemented a Purchase order system. Department heads are approving purchases
prior to ordering. Membership votes on all purchases over $500 prior to ordering. 
Treasurer verifies the funds are in the budget and available prior to incurring
expense.

• Invoices are centrally processed upon receipt. Each invoice is reviewed and
approved by the Department head in charge of the line item. Approved bills are
presented to membership for approval prior to remitting payment. Once approved,
checks are issued for payment. Those checks are matched with invoices and
signed by an authorized account holder. Records are then maintained by the
bookkeeper.

• Reimbursement to members or department heads are reviewed by two people. 
Under no circumstances, does the individual to be reimbursed approve an expense
or issue a check to themselves.

• Bank statements are reviewed by a minimum of two people monthly. All bank
statements are reconciled with QuickBooks monthly. Those reconciliations are
maintained in the permanent records.

• Budget Committee and President are reviewing the Profit & Loss Statements Qtrly. 
This review is a detailed review of all expenditures by budget line item. Each
department head reviews and approves Transaction detail for their budget area.

• Grants are recorded within QuickBooks for income. Each grant also has a separate
chart of account for expenses. Expenses are recorded at the same level of detail as
stated above.

• We have worked closely with all banking authorities to minimize the exposure of
theft in the company held accounts.  This area requires more improvement, we
could internally require two signatures on all checks. The deficiency is the banking
system will only require one signature and does not intend to change. We have
eliminated the “cash back” transactions.

• Annual review of financial records by a CPA. The difference is, the consultation
meeting is attended by the budget committee chairman, administrative officer,
treasurer and the bookkeeper. Recommendations are reviewed and analyzed for
implementation.

Areas to be improved

• Capitalization policy - set a dollar limit on purchases to be capitalized for tax
purposes. Currently any items over $500 is capitalized. This could be raised to
$2,000 or some other level to minimize the fixed asset detail.

• Retention policy - issue a company policy on record retention. Generally three to five
years depending on the records. Personnel files should be maintained longer and in
a locked cabinet.

• Revise the budget policy or by law to specifically address financial reporting
procedures to each officer.

• Background checks for those handling finances. 

• Increase the bonding limits for insurance coverage of those handling finances.