Do-over: Kennett Twp. will redo controversial 2009-10 audits

Under intense pressure by residents, supervisors agree to a re-audit of the township’s questioned 2009-2010 fiscal records

By P.J. D’Annunzio, Staff Writer, KennettTimes.com

Kennett Township Supervisors Robert Hammaker (left) and Michael Elling answer quesrions from residents about the 2009 and 2010 township audit, Monday night. Supervisors, under some public pressure, agreed to authorize a reaudit later this spring.

KENNETT — Under pressure from more than 100 township residents, the township’s Board of Supervisors relented Monday and agreed to allow its new auditing firm, Umbreit, Korengel and Associates, to completely re-audit the township’s financial records from 2009 and 2010, after both the chief of police and a private investigation revealed they could not find Ed Johnson, the auditor hired by the board, nor his company, SGR.

Initially, it appeared that the board was willing to limit the reexamination of records to only “samples” — a less intensive method of financial forensics that attempts to judge the accuracy of a previous audit by looking at random account to see if the results match. If the results match, the audit is deemed upheld, if not, a full audit review typically done.

Residents, angered at the use of what appears to have been an unqualified — and some suggested, non-existent — auditor, demanded a full accounting of the township’s finances and pressed township officials for details as to how the audit would proceed.

Township Manager and Treasurer Lisa Moore confirmed Umbreit would also be looking at the township’s 2009-2010 financial records. However, residents raised questions as to whether the new audit would be a “full audit,” a complete review of all township financial documents, or a sample audit. Chairman Michael Elling announced that the audit would be done in the random sampling fashion as done in previous years.

“I was under the impression that we were going to do a full audit of 2011 in order to clear the air about some of the controversy and some of the mysterious things that happened during the 2009-2010 audits,” resident and former supervisor Bill Hewton said. “Is Umbreit going to do a re-audit of 2009 and 2010 since there are a lot of questions about the honest, if you will, about those two audits?”

Elling went on to explicitly state that a “full audit” would not be done. When Hewton persisted in his questioning, Elling attempted to move on without answering him.

In an effort to clarify the matter and address inquiries, Supervisor Scudder Stevens questioned Moore on the nature of the funds presented on the audit and what the new auditors would assess, however, Elling began to steer the conversation in a different direction.

Those in the audience did not appear to be happy with the change in subject matter. The crowd grew restless and began to complain about the lack of looking at the previous audits in more detail. Police Chief Albert McCarthy tried to sway the audience from its discontent into silence, without success.

After Elling attempted to move onto new business, Stevens interjected to ask permission to read a statement and offer a motion.

“I was elected by over 60% of the electorate; including a substantial percentage of Republicans and Independents. The over-riding issue in that election was the 2009-2010 audits, the residents wanting fiscal clarity and responsibility,” he said.

“For the last three months the township has attempted to gain clarification from the Commonwealth for what to do about these audits, without success,” he continued. “This township has learned that the individual who presented himself to do the two audits was not who he said he was, and was not qualified to perform a township audit pursuant to state law and regulations.

“The residents of this township have expressed deep and abiding concern, if not outrage, at the failure of this board of supervisors to resolve this matter. The meetings of this board over the last two months have been the site of discourse and disruption over this on-going matter.

“It is believed that that an audit for 2011 cannot be completed if there are no audited fund-balances for 2009 and 2010. In light of the foregoing considerations, I move that this board hire Umbreit to perform an audit for 2009 and 2010, in addition to the 2011 audit, to be completed at the same time,” he concluded.

At the end of the Stevens’ motion, there was no second to his motion, and Elling proceeded to read from the agenda a list of new business. The audience burst into jeers and groans, verbally assaulting Elling over his attempt to move on with the rest of the meeting agenda.

“We will talk about this at a later date,” Elling told Stevens, “This is something that is very awkward to spring on your fellow supervisors.”

Stevens discounted the nature of “surprise,” noting he had brought the issue up at a previous supervisors’ work session.

Moore also interjected that the audit is not her personal responsibility, emphasizing that she is an employee working at the direction of the Board of Supervisors.

“I am not personally responsible for the audit,” she said. “I am the manager and I provide information to whoever the board hires. I do not do the audit, I don’t have any part of it than providing what I’m asked for.”

But that did not satisfy the more than 100 residents gathered in the township’s meeting room — and had residents questions about the nature of the audit, and the auditor, who apparently also never cashed his payment for conducting the audit. Elling and fellow supervisor Robert Hammaker came under increasing criticism from the audience at their unwillingness to authorize a full re-audit of 2009 & 2010.

“There are serious questions here, and I’m afraid you’re the one dodging the bullet. I want to know why you don’t want to talk about this right here, right now,” resident Heather Kelly said, addressing Elling. “You have a lot of history in this township. If you’re not hiding anything, you should feel comfortable to talk about this right now.”

“I think I’ve been quite comfortable talking about this,” Elling said in response. “We have nothing to hide whatsoever. There is nothing deliberate by the Board of Supervisors or any employee of the township to hide anything.”

“We’ve announced clearly a path to get to the information that you and we want,” he continued. “It is a path that is very logical and sequential. We’re going to do the 2011 audit and see what that does.” He said once 2011 was done, that the auditor would “take a look at 2010” and see if it needed further study. He noted that the 2011 audit is the priority, as the township has requirements under state law and that Umbreit, who performs audits for a number of local municipalities, would lack capacity to look at the old audits until after tax season is complete in April. Elling said he and his colleagues expected that a close look of 2010 and 2009 would be part of the process.

The exchanges between citizens and supervisors continued, with residents demanding that supervisors take action on Stevens’ motion. Many also demanded answers about the erstwhile auditor, Johnson. Eventually, McCarthy spoke up.

“I was asked by the township manager to find this individual,” McCarthy said. “I ran it through several databases; the problem with the name is that it’s so common that there are hundreds of them.”

But that wasn’t the end of it. Tom Monahan — a licensed private investigator — rose to address the board, in attempt to shed light on the mystery surrounding Johnson.

“I can tell you that there is no Ed Johnson who has been licensed to practice accounting in Pennsylvania in over 20 years,” Monahan said. “There is also no Ed Johnson licensed to practice at all in the state of Delaware.”

Monahan noted that he was hired by five township residents to seek out the identity of the mystery auditor. He said that while there were many Ed Johnsons in Pennsylvania, none of them were registered as Certified Public Accountants. The same is true of Johnson’s alleged associate, Steven Ruane, or SGR Co., the firm that he supposedly employed him. Monahan said he contacted the only two Steven Ruane’s he could find and neither are CPAs and could find no record of SGR in Pennsylvania or Delaware.

Moore was also asked if she thought it was suspicious that Johnson never cashed his check for the 2009 audit.

“When he came back in 2010, I asked him about it,” she said. “That’s why we gave him checks for 2009 and 2010 for both years.” Moore confirmed that neither check, including the second check for 2009, were ever cashed.

Elling was asked whether — if as it appears, Johnson at minimum was not legally qualified to conduct the audit — whether the board was willing to admit whether the 2009 and 2010 audits were probably not valid.

“We acknowledge that this is a very mysterious man,” Elling said. “We didn’t know he wasn’t going to cash the last check until the audit was submitted and he disappeared. I wish we had. I wish we had been more proactive. But wishes don’t correct the problem. I highly regret it, too.”

“If we have no auditor, we have no audit,” resident Joe Duffy said to Elling. “I would like you to reconsider the motion based on that fact.”

Hammaker said “we can’t do it in the timeframe, that’s my main objection.” He allowed that he could support the motion if the re-audit was done after tax season. Elling concurred.

“I know this is a very touchy, sensitive subject,” Elling said. “Because of the interest and concern of the township, we will make this a unanimous agreement to vote for the motion that Scudder has presented. With the caveat that the time frame is changed.” Elling said that the work could not begin before April 15, based on conversations with Umbreit.

The motion’s approval was met with thunderous applause.

For a full video account of the meeting, visit: http://www.youtube.com/watch?v=J3kQoKnCjL4

For more on the history of the audit controversy, visit: http://kennetttimes.com/?p=2344