Forensic audit paints ugly picture; Treasurer's office, Johnson Controls contract questioned

PETERSBURG — City Treasurer Kevin Brown admitted to forensic auditors that he stole money from his office’s petty cash and the case has been turned over to the FBI for further investigation, according to a report filed by the auditors.

PBMares LLP, the accounting firm hired to conduct the forensic audit, has been delving into the city’s books since March.

Treasurer’s Office

In addition to other findings, the auditors found evidence of money being stolen from the Treasurer’s Office by Brown.

According to the final report, the forensic auditors uncovered “two significant dollar value thefts and a possible much larger scheme whereby many tens of thousands of dollars could have been misappropriated.”

According to the report, the thefts “involved the stealing of $2,371.44 in petty cash in the Treasurer’s Office.”

In June, media reports claimed that Brown had admitted stealing $2,300 from the office. Brown denied the report multiple times, but the according to the audit report, “Ultimately, the City Treasurer admitted to us that he had stolen the petty cash.”

The auditors also found several instances where employees they interviewed said they suspected that Brown was taking cash. One employee, who the report identifies as “Employee A,” said that he or she confronted Brown about the petty cash balance declining from $1,500 down to just $400. Brown told Employee A that he did not take the cash, but “because it was ultimately his responsibility,” he said he would replenish the account with his own money. As of May 2017, the petty cash balance was still short, the report said.

The report also uncovered a pattern in which Brown would “inappropriately waive tax penalties, interest, and sometimes principal (effectively an ‘abatement’ of taxes). Of prime concern was that doing so in such manner would have allowed the City Treasurer to misappropriate portions of or whole cash tax payments while concealing it on the city’s books and records.”

Several emails the auditors attach to their report support this, with Brown telling one citizen he would “waive the fees and hope I don’t lose my job,” and telling the citizen to “send the payment directly to me.” The fee in question was a $147.35 late fee for real estate taxes.

According to the audit report, Brown admitted to the auditors that he gave these waivers knowing that they violated state law, but he “denied that he had misappropriated any city funds other than petty cash.”

The auditors acknowledge in the report that they have “no evidence the possible tax waivers scheme(s) we identified was ever actually used to misappropriate additional city funds.”

Last week, The Progress-Index reported that Brown had a second job as an Uber driver. The audit found that he was compensated as an Uber driver in 2016 and 2017. Though the auditors “could not determine” whether this affected Brown’s ability to do his job effectively.

The auditors filed a complaint with the FBI on behalf of the city because of their findings. It is unclear what type of legal action, if any, Brown or other employees associated with the Treasurer's office could face. “We provided all the relevant information to the FBI and were authorized by the city to assist them if so requested,” the report notes.

Johnson Controls

The forensic auditors were also tasked with looking into the city’s water meter replacement contract with Johnson Controls, which led to major problems with residents’ water bills and contributed to disarray in Petersburg’s finances.

The auditors said they found “no indicators of misconduct, fraud, waste or abuse noted during the examination.” However, they did find that several employees with the Public Works Department had relationships with Johnson Controls that would normally be considered conflicts of interest.

According to the report, “Some of the actions referred to included: payment by the vendor for meals or entertainment of Public Works employees, sharing of information about other job opportunities, and allowing a Public Works employee to attend conferences under the vendor’s contract (apparently to avoid paying the conference registration fee).”

The auditors found several emails where Public Works personnel were being treated to meals and golf outings courtesy of Johnson Controls.

“Overall, our examination found that this project appeared to have been poorly planned and managed by Public Works,” the report states. ”In addition to those issues already noted, turnover of City personnel highly involved in the project created problems. Also, it did not appear that Petersburg had assigned and maintained a dedicated “Project Manager” with sufficient experience to manage such a large and complex project. Conversely, JCI maintained a Project Manager through whom all communications appeared to flow and who appeared both proactive and responsive to issues. When a concern was raised, JCI appeared to address it quickly, reasonably, and thoroughly, including when those issues involved its subcontractors.”

Other findings

Overall, the forensic audit shows that many functions of the city government went unchecked. One example the report gave was the old Parks and Recreation Department. The report states that the there “did not appear to be adequate controls to ensure that City employees did not accept cash for non-official activities” and “it was feasible that the [stadium at the Petersburg Sports Complex] venue could be used for an event without compensation to or even being known to the City.”

PBMares also addresses the “ethical tone” exhibited by city employees, saying that “it is of such relevance that we bring it to the City Council’s attention.”

Including in these allegations of misconduct are: misappropriations of fuel for city vehicles: falsification of overtime hours and/or vacation/sick leave abuse: use of city property for personal gain including lawn mowers and vehicles for travel: excessive and/or lavish gifts from vendors: questionable hiring practices.

PBMares stated that one of the main limitations in their report was that they could not interview former city employees during their audit. With all the turnover the city administration has seen since the financial crisis came to light in February of 2016, auditors stated that “not being able to speak with former Petersburg employees whom we would reasonably believe to have important and relevant information to our examination greatly diminished our ability to fully examine some of the areas subject to our scope.”

PBMares also stated that another limitation was the “inaccuracy, unavailability and/or nonexistence of reliable data.” When auditors from Robinson, Farmer, Cox Associates were completing the city’s 2016 Comprehensive Annual Financial Report (CAFR), they noted that there were several holes in the city’s financial records that made them unable pin down where certain money figures came from. PBMares ran into the same problem.

•John Adam may be reached at jadam@progress-index.com or 804-722-5172.