for Withholding Payments
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Fenwick Island's Town Council has fired its finance administrator in the wake of revelations that employee withholding checks weren't cleared and that town bank accounts weren't reconciled during a four-year period .
Meanwhile, town council president Peg Baunchalk apologized to townspeople at the Friday, Jan. 31, 2003 council meeting -- amid calls for her resignation by some town residents.
June Truitt had been the town's finance administrator for about five years and had been a town employee for 19 years.
On Jan. 20, according to council member Peter Frederick, the council drafted a letter to Truitt regarding the discovery of $98,000 in missing state withholding payments. On Jan. 24, Frederick said, the council received Truitt's response to the letter and she was dismissed.
Efforts to reach Truitt for comment have been unsuccessful.
Tension was thick at the packed council meeting as council members addressed the residents. Baunchalk told the crowd "... I apologize ... No one is more concerned or sorry for the difficult times we find ourselves in than I am."
Council member Theo Brans, a former town treasurer, said he had attempted to alert the council that something was amiss, but that he was rebuffed by council leadership. "If my input wasn't first rejected by the higher echelon of the council, some of these mistakes could have been avoided," he said.
"For three and a half years, I was told that all was fine and I do not have to worry about anything. In other words, the wool was pulled over my eyes. Regretfully, I went along with it because I was the only dissenter," Brans said.
Brans went on to say it took the August 2002 election of Vicki Carmean to the council for him to come forward. Carmean has been outspoken in her criticism of town council procedures and has herself claimed she has been left out of the loop on crucial town information.
Carmean has filed a Freedom of Information Act complaint accusing council leadership of failing to include her in briefings on the withholding snafu.
At the Jan. 31 meeting, Frederick defended actions taken after the withholding problems were discovered by the town's auditor, Thomas Sombar of Sombar & Co., Georgetown.
Frederick said in the course of conducting audits of the town's financial records from 1999 to 2002 -- which should have been completed at the end of each fiscal year -- Sombar discovered "a large number of checks had not cleared Baltimore Trust. He also found that the town's bank accounts had not been properly reconciled for the same period.
"The (unprocessed) checks were all made out to the state of Delaware," Frederick said.
He said Sombar contacted council vice president Harry Haon and treasurer Dick Griffin on Dec. 18, and that the two immediately began investigating the problem. Neither Griffin nor Haon attended the Jan. 31 meeting -- Griffin was on vacation and Haon was recuperating from an illness that had required hospitalization, according to Baunchalk.
On Jan. 5, Frederick said, he met with Griffin, Haon and Sombar to discuss what they had been able to determine about the withholding checks. It wasn't until the following day during a special council meeting that Carmean and Brans learned what had transpired. They were told to "wait until we got all the details" before going public with the information, Frederick said.
Carmean met Jan. 9 with members of the Fenwick Island Concerned Citizens and two reporters and told them what she knew at that point.
Frederick said the long-term nature of the problem is puzzling -- particularly because the state Division of Revenue did not notify the town of the problem. "We had made payments to the state of Delaware," he said. "The state of Delaware hadn't cashed our checks. That would indicate that the state of Delaware has a problem."
Frederick assured the residents that "the whole problem does not affect the town's financial picture. We had accounted for the money as salaries paid. The money was sitting in our checking account, but we didn't know it," because the bank statements had never been reconciled, he said.
The audit shows that in 1999, of 53 withholding payments due to the state, 19 cleared, 17 were written but did not clear, and 17 were never written. In 2000, 42 payments were made but never cleared and 11 payments were never made. In 2001, 16 payments were made but did not clear, and 36 payments were never made. And in 2002, Frederick said, "there is no record of any payments made."
Many residents laughed when Frederick pointed out that the town "made 73 percent of the payments that were due. It's not a perfect situation," he said.
Still unclear is exactly what happened to the checks. "The only thing we know is that the checks were cut," Frederick said.
Meanwhile, the town has paid the state "what the auditor says we owe them" -- which is about $98,000. In addition, the town faces interest and penalties -- which are as yet undetermined.
Frederick said the town will "negotiate" with the state regarding the fines. The interest would be as much as 1 percent a month from the time the payments were due; penalties could be as much as two times the interest amount.
Any penalties and interest would be paid from revenues from the town's real estate transfer tax, according to Frederick.
Although Sombar concurred that this is a legal use of the 1.5 percent transfer tax, Chapter 16 of the Delaware Code, covering municipal realty transfer taxes, says the following:
Frederick said the town has taken steps to ensure that the lapses in withholding and monitoring of the town's finances do not happen again. Among those are plans to hire a "real accountant" as a finance administrator, and improvements in the town's computer system, which will allow electronic transfer of town funds.
He did not initially mention the hiring of a town manager to oversee the day-to-day operation of the town. Resident Chris Clark said, "I believe now is the time" for the council to consider hiring a town manager. "It's too much for the town council," Clark said.
When resident Kurt Hoffman asked the council for their opinions, all the council members present at the Jan. 31 meeting said they favored the idea. "It's a great concept," Frederick said.
He added that when the council hired Helen Torres last July to replace Barbara Hanrahan as town administrator, the job description was crafted so that it could "maybe work into a town manager" position. Henifin said he would support the idea, and indicated that Griffin had urged the council to consider it.
Baunchalk said with continued growth in the town, "I think it's time that we do something like that ..."
Carmean said that when she was elected, "my sole ambition was to help us move back to a democratic form of government," and said she would support hiring a town manager.
"I've said for a long time the town should hire a town manager," Brans said.
As he reviewed the audit reports for 1999 and 2000, Sombar said the town's revenues appear to have been stable during those years, while expenditures are rising. "You need to consider revenue-raising measures," he said. Sombar assured the council that Fenwick is not the only town facing such a trend. "Other coastal towns ... they're all facing the same problem," he said.
But he added Fenwick Island's current problems are unusual. "In 30 years of doing audits for towns, I've never seen anything like it," he said. Sombar also said the town's books have been difficult to decipher -- particularly those in 1999, when they were still handwritten. "That's almost unheard of now," he said.
Sombar also cautioned the town to avoid overuse of the "miscellaneous" category in its budgets. "There's no excuse for not using multiple accounts," he said.
In other business, the council voted to throw out the sole bid for renovation to the town park. The bid came in at $134,000 -- well over the $80,000 the town had planned for. The town received a $40,000 matching grant from the state; the town women's association has pledged $10,000 for the project.
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