Tenino’s former utility clerk ‘misappropriated’ at least $22,800, State Auditor finds

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Tenino’s former utility clerk is found to have misappropriated $22,783 between September 2016 and December 2019, according to an investigation report released by the Washington State Auditor on April 14.

The utility clerk, Denise C. Nelson, was terminated in January 2020 after a city volunteer discovered in December 2019 that the clerk processed several unauthorized transactions.

Mayor Wayne Fournier told The JOLT that Nelson had worked for the city for more than 20 years. Nelson has not paid restitution and that the city has filed a claim with its insurance company. He added that “the issue of restitution would be referred to our court system.” The State Auditor has referred the case to the Thurston County Prosecutor.

“Past administrations were negligent,” Fournier said, adding, “It has taken us a long time to put together the proper safeguards, oversight, checks and balances so that we can be responsible with city funds.” In 2020 the city was taken for some $280,000 in an email cyber scam, but recovered more than was taken, according to Fournier.

“All cities face these threats. We are a small city, with a city hall with three staff members. When you have an internal threat like that, it shakes you to the core,” the mayor said.  

Embezzled funds through varied methods

The Tenino utility clerk processes receipts and records of payments of utility bills and business and operations (B&O) tax. The clerk is also responsible for preparing daily bank deposits and handling the close-outs of utility accounts, such as when individuals sell their properties. It was through these routine duties that the clerk was found to have been embezzling city funds.

The auditor’s report found that of the misappropriated funds, $18,381 were supposed to be refunds for the utility bills of 40 customers. The refunds occur as escrow companies pay the utility balance on behalf of a real estate seller when a property has been sold. Sellers tend to pay their last utility bill before escrow companies can do so, resulting in a positive account balance.

Instead of refunding the accounts, the clerk reduced the balance of certain customers to zero by processing negative cash payments on days when a customer made an actual payment. The timing of the payment makes the negative transaction difficult to trace, as the actual payment offsets the negative amount.

Nearly two grand to mother’s account

The report also found that the clerk on several occasions applied payments to her mother’s utility account, reducing the balance her mother owed. The clerk processed transfers to her mother’s account amounting to $1,972 through different methods: misappropriating B&O taxes, applying a non-related customer payment to her mother’s account, and transferring the balance of other customers to her mother’s account. The clerks’s mother died in 2017 or 2018, according to the mayor. The auditor’s report explained that transferring of balances typically occurs when someone, usually a renter, takes over the payments of a property.

The investigation also found transactions worth $33,730 that the state auditor’s office considered questionable as it could not determine if the transactions were legitimate. A significant portion of these transactions were unauthorized; undocumented write-offs totaled $18,058.

State auditor finds Tenino had inadequate controls

The report stated that in 2019 Tenino had inadequate internal controls for safeguarding public funds. As part of its recommendations, the state auditor told the city to separate duties between those who process cash recipients and those who prepare bank deposits. It also recommended Tenino implement a process ensuring that adjustments, transfers, and non-cash transactions are sufficiently documented and independently reviewed.

Lastly, the state auditor wants Tenino to recover from the utility clerk the misappropriated funds, as well as funds lost to questionable transactions, if appropriate, and investigation costs totaling $32,800.

Tenino has already responded to the state auditors, according to the report. The city responded that it had addressed all of the auditor’s recommendations before the release of the report.

“The City of Tenino has made many changes to secure our financials, such as secondary reviews. All write-offs and adjustments must be approved and signed off by a second person,” the city’s response stated.

The city also stated that it has a financial committee to review transactions, bank statements, and reconciliations.

Fournier told The JOLT that they appreciated the state auditor’s office for its willingness to conduct a thorough investigation and for serving as the city’s advisor in protecting its public assets.

“The investigation was lengthy but it covered a significant amount of time going all the way back to 2016. The breadth and scope was wide, and the SAO’s office worked very hard to deliver the findings they did,” Fournier said. 

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