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Random check of treasurer's office file set investigation in motion

Late last year, an accountant pulled a file at random from a cabinet inside the Beaufort County Treasurer's Office, setting into motion a chain of events that has included two criminal investigations, three arrests, a search for missing tax-sale money and calls for the resignation of Treasurer Joy Logan.

The accountant was from Elliot Davis, a firm paid about $53,000 to perform an annual review of the county's financial records and transactions. Beaufort County, like all counties in South Carolina, is required by state law to undergo an independent annual audit and report the findings to the S.C. Comptroller General's Office.

While documenting how the Treasurer's Office was handling money generated by a recent delinquent property tax sale, the accountant was performing a "walk-through" of the Treasurer's Office and pulled a file as a sample to ensure transactions were being processed correctly.

But there was a problem with the file.

"They could see where the person had paid, but the Treasurer's Office couldn't produce the deposit," said David Starkey, the county's chief ffinancial officer, who helped audit the county as an accountant for Elliot Davis in 2005 and 2006. "The person was given a receipt, but the money never posted to the county's general ledger and never made it to the bank."

"That snowballed into what you're seeing now," Starkey added.

The discrepancy was reported by the audit team to Beaufort County Administrator Gary Kubic, who then requested Beaufort County Sheriff P.J. Tanner investigate the Treasurer's Office and locate the missing tax-sale money. Logan estimated the amount missing to be less than $10,000 in cash.

But financial records in the Treasurer's Office are in such disarray, authorities might never know how many cash payments from the county's tax sale are missing, Tanner has said.

Kubic agrees.

"I share the sheriff's concerns," he said. "Cash is a very hard thing to track because it doesn't leave a trail like a check does."

As a result of the accountant's finding, investigators say they have discovered that Casaundra White --a former Treasurer's Office employee who continued to work for the department after once caught stealing $600 in cash -- funneled more than $210,000 from public accounts to dummy companies she and her ex-boyfriend set up in 2007 and 2008.

"It was a random transaction," Logan said. "If they had not picked that account, they might not have found it."

White was arrested and charged with six counts of embezzlement and five counts of criminal conspiracy. Her ex-boyfriend, Adrian Coore, was arrested Friday on five counts of criminal conspiracy.

The investigation is ongoing, and authorities are working to determine if any other employees were involved.

HOW AN AUDIT WORKS

Beginning in June each year, Beaufort County's finance department opens its books to independent accountants. The goal of an audit is to "obtain reasonable assurance about whether the financial statements are free of material misstatement," according to Elliot Davis' report to Beaufort County Council last year.

Accountants do this by first examining the county's accounting principles, procedures, controls and processes, then testing the controls by sampling transactions, according to the report.

"They run those sample transactions to show that what we're telling them we're doing is true," Starkey said.

The annual audit also includes a review of bank accounts belonging to county departments led by elected officials who don't answer to the county administrator, such as the Beaufort County Sheriff's Office and Beaufort County Clerk of Courts Office. State law also allows the county to perform special audits on those departments.

Starkey said that although the annual audit is designed to show that the county's financial records are "materially accurate," it won't always be able to detect all financial misconduct.

"It's not designed to detect 100 percent of fraud because to do that you'd have to test 100 percent of the transactions," Starkey said. "That would cost as much as the county takes in."

Indeed, the tab for this audit and investigation is mounting.

Beaufort County was charged $230,000 by accountants from the Atlanta office of KPMG for a forensic audit performed on the Treasurer's Office in late February. A forensic audit is typically a more thorough financial review and involves the application of accounting principles to track and collect evidence, usually to investigate and prosecute criminal acts such as embezzlement or fraud, according to the Business Dictionary website.

Though the KPMG audit found 11 checks White is believed to have written to her fake corporations, Kubic said it is not practical to regularly order exhaustive and expensive forensic audits.

He added the county's auditing process is "pretty good."

Logan agreed but said that more probing audits in the future might be helpful.

"An audit is certainly a good way to find discrepancies and indicate areas of improvement," Logan said. "But the accountants just pick an item out of hat. If we had an audit that looked more closely at every transaction, that would be neat but we don't have that."

THE FINDINGS

After each audit, the accounting firm that performs it writes a report for the county, detailing any major deficiencies in the government's financial controls. It also suggests ways to fix them.

Each of the past two reports have pointed out "significant deficiencies" in the Treasurer's Office, including a lack of support documentation for individual entries in the office's general ledger and concerns about "little to no oversight over the Controller and Treasurer's Office's work" in 2008, according to the reports.

The results of another KPMG audit examining Treasurer's Office procedures, performance and manuals could be released Monday. Unlike the forensic audit, the second KPMG audit will not look at specific transactions but instead will be an overview of how the Treasurer's Office does business.

Kubic said the findings will demonstrate that Logan failed to correct problems within her department. He added that is one reason White was able to embezzle $210,000.

"The checks and balances and controls (within the Treasurer's Office) could have been better," Kubic said. "The systems of checks and balances was lacking, and that became more self-evident with some of the recent audits. This breach of public trusts reflects on all of us. No one inside this organization is unaffected and we need to do better."

For example, auditors recommended last year the Treasurer's Office implement a policy to allow journal entries in the general ledger to be reviewed by someone other than the person recording the transaction.

Failing to do so, auditors said, "increases the risk that journal entries that are erroneous or for an unauthorized purpose could be recorded in the county's general ledger and not be detected," the report said.

The report said that Logan and Deputy Treasurer Herschel Evans would begin reviewing all journal entries this fiscal year.

Logan said little could have prevented White from stealing from the county.

"Embezzlement happens everyday and happens all over this country but I've never seen it boomerang back like this and hurt people that have tried so hard to serve the public," she said. "I'm not saying we're perfect. Nobody's perfect."

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