Annual county financial audits since 2008 failed to uncover at least $600,000 in losses involving loose handling of cash and other accounting failures at the Wake County Register of Deeds office, county officials say.
The county apparently chose not to perform a more specific audit of the Register of Deeds office, even though officials could have: state law requires at least an annual audit for any county office that deals with money or taxes.
The county Board of Commissioners will discuss the matter at a two p.m. work session Monday, with one question sure to emerge: Why did no one catch the apparent ongoing thefts during annual audits under the direction of county financial staff? (Update: the Monday work session has been canceled.)
"There are legitimate questions to be asked about why this was missed for so long," says Lorrin Freeman, the Wake County district attorney.
The answer may lie in the various sorts of accounting procedures employed to examine the finances of public bodies. Each North Carolina county prepares a record of its financial affairs, producing a comprehensive annual financial report, or CAFR. But such accountings aren’t designed to catch fraud and did not reveal the kinds of problems in Wake that the county prosecutor and a former employer describe.
Daryl Black, a former top official of the department, says in an email that the mishandling of funds was apparent during his tenure at the office, which ended early this year. Among the practices he says he witnessed were unaccounted cash bundled from several registers without proper oversight, a lack of segregation of duties between staff members, cash transferred in an insecure manner, a recording system that didn’t distinguish between cash and non-cash transactions, a persistent lack of documentation, and delayed implementation of credit card payments.
According to Wake internal documents first reported by the N&O
, then-Register of Deeds Laura Riddick was habitually handed bundles of uncounted cash, which she totaled while alone, then handed on to other staff for recording. During Black’s tenure—he ultimately resigned—he suggested an internal audit that revealed the staggering scope of the losses.
County attorney Scott Warren says that Wake County financial director Susan McCullen maintains that the usual annual report, or CAFR, met the mandate of state law.
"The position of the finance officer is that that statute was complied with with a general financial audit rather than a forensic fraud audit," Warren says.
However, state law sets out specific requirement for units that handle money. According to GS 159-32, “The (county) finance officer may at any time audit the accounts of any officer or employee collecting or receiving taxes or other moneys, and may prescribe the form and detail of these accounts. The accounts of such an officer or employee shall be audited at least annually.”
External county auditors Elliott Davis Decosimo
say their overall examination was not intended to pick up anomalies such as the apparent mishandling of funds in the Register of Deeds office. The Greenville, South Carolina-based firm included in the 2016 CAFR a statement that it only considered internal control, or the monitoring of payments and disbursements, as part of deciding how to form opinions on financial outcomes. The firm specifically says that its work was not done "for the purpose of expressing an opinion on the effectiveness of the County’s internal control."
Wake County is in the process of filing insurance claims to recover an estimated $600,000 in losses at the Register of Deeds office, the amount officials believe they can substantiate. Records for the office have only been located dating back to 2008, limiting the scope of the investigation, Freeman said.
In March, Freeman and county manager Jim Hartmann announced that Riddick, an elected official who had held the office since 1996, had resigned her post because of poor health. Since that time, the office has remained under investigation by the State Bureau of Investigation, with the probe likely to conclude in about two months, Freeman says.
Riddick could be reached for comment. Freeman says Riddick is continuing to cooperate with the investigation.
Once the investigation is complete, a grand jury will likely be impaneled to consider the evidence and possible indictments, Freeman says. As part of the probe, investigators are going through the financial records of staffers who may have been involved with the thefts.
“Part of what we are working on are both financial records for the county and records of people who may be involved,” Freeman says. “[Records] come through a number of different ways. Sometimes they consent with signed releases. Sometimes we get an order ordering the bank to turn them over.”
Another question emerges, though it may be unanswerable: What would have caused trusted employees to engage in the sorts of behavior that are under review?
“Generally speaking—I can’t give specifics about this case—what you usually see is that people tend to trust people who are in positions of responsibility,” Freeman says. “The reality is we are often caught by surprise. Where there are not sufficient detailed audits done, it opens up the opportunity for these things to occur. It can be as simple as the computer system is set up in such a way that it makes these kinds of things hard to be detected.”
Freeman mentions that significant corruption occurred under her tenure as the Wake County Clerk of Court. A scheme involving clerks and bondsmen allowed numerous defendants who had missed court appearances to skip payments they owed for not showing up. In 2013, Freeman reported the shortages to then-DA Colon Willoughby, and arrests and convictions followed.
“That was more of a forgiveness of people not having to pay in,” Freeman says. “The computer system was set up in such a way that it was easy to manipulate.”
The Clerk of Court’s office, because the courts are function of state government, undergoes a much more thorough auditing at the hands of the Office of the State Auditor. Depending on how the law is interpreted, a county Register of Deeds office can get less stringent examinations of its processes and handling of taxpayers’ money.