Forensic audit finds no evidence of fraud in Arcadia

ARCADIA TWP. — A forensic audit produced no evidence of fraudulent activity in Arcadia Township, its board learned Thursday night.

Certified public accountant Karl Haiser, who was hired via board approval in October to conduct the audit, delivered his final report at the regular monthly meeting, which was well attended by area citizens.

While highlighting concerns over the township’s internal controls and general handling of township funds, Haiser concluded that no documentation pointing to fraud could be produced in his findings.

“My question was, ‘is the money there or not?'” he explained in presenting his report. “That’s all we needed to know here.

“The procedures (in the township) are minimal and correction is recommended, but based on the nature of review, I didn’t find anything that was fraudulent,” he concluded. “(I can’t) produce a document that says, ‘here is missing money.’ … Right now we have a lot of different views on what happened and how it happened (concerning certain transfers of funds), and a lot of it is procedural in nature.

“But when it comes right down to, what I call, ‘provable and intentional’ fraud, we have none. … That is my conclusion.”

The months-long forensic audit stemmed from what several township officials determined to be “red flags” in the township’s annual audit of 2016-17, conducted by Gabridge & Co. of Grand Rapids.

Joseph Verlin, managing principal and CPA at Gabridge, explained the general audit process in an interview with the News Advocate last week.

“If, during (the audit) process, we feel one of the internal controls is not effectively designed or if the internal control is effectively designed but not being carried out effectively on a day to day basis, we put those types of items in writing and they’re considered significant deficiencies or material weaknesses and we include that in the report to the board in the back of the audit,” Verlin said. “We’re not necessarily expressing an opinion on internal controls; these are just things that came up during the course of our audit that we felt needed to be brought to the attention of the board so they became aware of them.”

While it’s not unusual for townships to receive “deficiencies” in their audit, Arcadia’s latest report listed more findings than in past years.

Verlin also explained that while the township’s marina fund’s total net position was $311,404 positive, the fund had an unrestricted net position of a deficit of $2,309.

“Treasury requires all elements of net position in all funds to maintain positive balances,” he said. “For that reason, the township needed to submit a deficit elimination plan to the Department of Treasury. This isn’t something that is privy just to the township board. Treasury will automatically send a letter to townships with any type of a deficit even if total net position is positive.”

Due to the findings listed in the annual audit, the township board approved to hire Haiser in October to perform the forensic audit. The approval was by a 4-1 vote, with treasurer Debbra Eckhout dissenting.

On Thursday, Eckhout expressed vindication in the wake of Haiser’s findings.

“It was unnecessary from the beginning,” she said. “The transactions in question could have been followed through bank statements and this all could have been avoided. … I’m glad it’s behind us, because it was a waste of a lot of time and probably about $25,000 of township funds were spent on this (forensic audit), and that’s tragic.”

The exact cost of the forensic audit has yet to be calculated.

“I’ve been concerned that our internal controls were virtually nonexistent.” Eckhout added. “There are issues, and they’re fixable, but we have to have some integrity and maturity to fix them. And that included better communication (among board members).”

At the conclusion of Haiser’s report, Arcadia Township supervisor Janis McCraner reiterated that the township has issues that still need immediate addressing.

“We still have un-reconciled accounts,” she said. “We still have issues of malfeasance, incompetency, lack of internal controls and deficiencies.”

“Some of those words are yours,” Haiser replied, “but, yes, as a municipality, you need to work through those.”

Township attorney Craig Rolfe concurred, and reviewed the financial duties of the board and its specific positions with board members at Thursday’s meeting.

“This township, with respect to financial governance, has not been functioning in a normal manner for many months,” he said. “I’m not trying to make this personal, this is about the process, the procedures, the practices, this about, ultimately, the law.

“It doesn’t seem that this can or should go on,” he added. “I would think there would be unanimity of support for that idea.

“We have to find appropriate ways to address issues that sometimes involved irregularities of procedures and practices, that sometimes involve, I think, misunderstandings of what certain responsibilities and duties of an official or a board itself entail.”

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Posted by Dylan Savela

Dylan is the county reporter for the News Advocate, he also is in charge of the Small Town Life, religion and senior pages. He can be reached at (231) 398-3111 or dsavela@pioneergroup.com.

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