Municipal court theft among highest in state involving public funds

State and federal law enforcement officials couldn’t point to another case involving more money, nor could Gary Markenson, executive director of the Missouri Municipal League, a nonprofit lobbying group and resource organization for member cities.

“I have not come across anything of this magnitude before,” Markenson said, adding that municipal courts have long been targets for white-collar criminals.

Exactly how much money was skimmed from the court is unknown, but a forensic examiner with accounting firm BKD LLP estimates at least $1 million to $1.2 million since Jan. 1, 2000. The city recently extended its contract with BKD – capped at $125,000 – to examine court records dating back to 1995, said Springfield Public Information Director Louise Whall.

Meanwhile, city officials are reassuring the public that they’re addressing weaknesses exploited by the responsible party or parties.

An accounting services representative arrested in connection with the alleged embezzlement was fired in early July, and former court administrator Janice Piper, who denied any involvement, resigned a short time later. Both were initially placed on administrative leave with pay.

No charges have been filed, and officials with the FBI and Internal Revenue Service would not say if federal investigations were under way.

Large-scale embezzlement

Questions linger about accounting discrepancies that the city knew about for at least a year and a state audit that failed to detect what appears to be the largest government rip-off ever in the Show-Me State.

The crime of embezzlement – the fraudulent misuse or theft of money from a corporation or organization – is committed many different ways, and some embezzlers are better at covering their tracks than others, said J. Gregory Pierce, a financial litigation consultant in Springfield.

Pierce is a former special agent with the IRS Criminal Investigations Division who has 27 years of experience investigating white-collar crime in the public and private sectors. He led the multiagency task force that investigated former Missouri Attorney General William Webster for corruption.

Downplaying accounting discrepancies just because they are overages instead of shortages can be a costly mistake, Pierce said. City officials assumed the inconsistencies were related to credit card machines or “other system failures,” according to a report released to City Council late last month.

“A red flag like that should raise at least a higher level of concern to get to the bottom of it as quickly as possible to determine why the books are out of balance,” Pierce said.

Municipal court revenue from fines, costs and forfeitures is about $2.55 million annually, about $1.1 million of which goes into the city’s general operating fund, Whall said.

That means the amount missing from court coffers equates to a year’s worth of general operating revenue, which pays for basic government services and public works.

“If, in fact, it is approximately a million dollars, that would be considered a very large-scale embezzlement, especially for the size of Springfield,” Pierce said.

Safeguarding funds

White-collar crime — from corporate fraud to public corruption — is on the rise, according to the FBI.

Fortunately, Pierce said, there are several steps government and private enterprise can take to protect themselves from embezzlement schemes like the one under investigation in Springfield.

Segregating duties among employees who record, receive and disperse funds is a good idea. So is occasionally switching their responsibilities to deter or disrupt theft, he said.

Employers also should pay attention to the lifestyles and spending habits of employees who manage funds, Pierce said, adding that some companies even require periodic financial statements from employees.

Whall said the city has already made numerous changes in the way its cash-intensive departments do business.

In recent years, the city has allowed customers to write one check for three or four permits but will now return to its previous format of individual payments despite the inconvenience, Whall said. “This is a classic example of balancing internal controls with customer service,” she added.

Municipal court software has been modified to electronically send cash receipts to the Finance Department for daily review, and a new camera installed near the court’s vault offers more security, Whall said.

Court policy now requires that two employees must be present when the vault is opened, she added.

City administrators are also considering routine internal audits – an expenditure Whall said could be absorbed by the city’s existing budget.

How Springfield’s $1M Case Stacks Up

1. Kim Hawk, former municipal court administrator in the St. Louis suburb of O’Fallon, pleaded guilty in June 2005 to stealing more than $346,000 from the court. Hawk was sentenced to 18 months in prison and ordered to pay $77,434 in restitution.

2. Gary Melton, former Christian County treasurer, pleaded guilty in May 1997 to stealing $625,000 by transferring the money to a private account disguised as a building fund. The county only recovered about a third of the money, and Melton was released from prison in 1999 after serving 33 months of his seven-year sentence.

3. Christy A. Tutin, a former employee at the University of Missouri Graduate School, pleaded guilty in June 1994 to embezzling nearly $667,000 by forging documents to obtain cash advances for student travel. Tutin was sentenced to two years in prison but was released after nine months.

4. Several employees at the St. Louis Municipal Court were arrested in August 1991 and charged with embezzling at least $300,000 from the court’s traffic violations bureau after police taped the crimes with a hidden camera.

Are Audits Enough?

Audits conducted by the Missouri State Auditor’s Office aren’t intended to uncover fraud or other illegal activity, although they sometimes do.

A recent audit of the Crawford County Clerk’s Office found obvious evidence of wrongdoing, but that’s rare, said Samantha Brewer, a spokeswoman for the auditor’s office. As financial litigation consultant J. Gregory Pierce noted, state audits check the accuracy of records at a particular time, but they stop short of reviewing individual transactions.

A state audit of the Springfield Municipal Court in 1999 didn’t find any evidence of embezzlement, but auditors were critical of the court’s handling of traffic tickets. “To adequately safeguard receipts and reduce the loss or misuse of funds, all receipts should be recorded immediately upon receipt, and deposits should be made daily or when accumulated receipts exceed $100,” the audit report read.

Missouri Municipal League Executive Director Markenson said he’d like to see state lawmakers devise a uniform set of controls for Missouri’s municipal courts, given their susceptibility to theft.

“No one’s really watching out for the municipal courts,” he said. “All the cities can do is audit the heck out of them.”