LC Audit Report

LENOIR CITY - As an investigation continues into missing reprimands issued for four Lenoir City assistant clerks, the municipality's independent auditing firm confirms employees last year often used City Hall's cash drawer as a personal ATM.

The disclosure was part of Brown, Jake & McDaniel's yearly audit to the city, released Tuesday.

"We noticed some employees were cashing personal checks out of the cash drawer," according to the Knoxville-based CPA firm's report, which covers the fiscal year ending June 20, 2010. "Occasionally, these checks were being held and not immediately deposited."

Auditors also found that a city employee made three purchases on city accounts that were not for municipal purposes.

Other deficiency findings included the Lenoir City Utility Board's lack of documentation for travel and meals related to conferences. That finding also was reported during the prior fiscal year's audit and is something city officials said they'd correct by adopting a travel policy that monitors documentation.

The report itself does not detail names, dates or financial figures about those findings.

"Operating deficiencies are more than likely not in the report," said Terry Moats, with Brown, Jake & McDaniel. "We learned about them through audit procedure."

City Administrator Dale Hurst said the information was disseminated when auditors questioned city employees when they began the auditing process in October.

Former city treasurer/recorder/clerk Bobby Johnson said he told auditors about employees cashing checks and other issues with the cash drawer.

"They asked us if we knew of anything fraudulent going on. I told them about the checks before I left office," said Johnson. He could not recall when he informed auditors of the checks.

Johnson stepped down from his elected post Dec. 31 and later told a Tennessee Bureau of Investigation agent in a recorded interview that Councilman Eddie Simpson threatened him about reprimanding four assistant clerks and placing their written reprimands into their personnel files. Johnson would not say what the threat was, and Simpson has denied the allegation.

Agents have questioned people about missing paperwork involving assistant clerks Jennifer Jackson, Shelley Herron, Rebekah Haydon and Julie Harvey, who were reprimanded by Johnson and his predecessor, Debbie Cook, who retired early from her post in 2007. The two former officials said they wrote the assistants up for reasons that include falsifying time cards, writing faulty arrest warrants and sending pornographic e-mail at work. Cook and Johnson said they tried to reprimand the clerks but that often nothing happened when they alerted city officials about the reprimands.

In January, the News Sentinel obtained copies of July 2010 reprimands written by Johnson, but they were not in the clerks' personnel files during a public inspection by a reporter. Loudon County District Attorney General Russell Johnson then asked TBI to investigate.

Aside from the operating deficiencies, Hurst said he was pleased with the results of the audit because the fund balance at the beginning of the fiscal year was $515,007 and its ending fund balance was $1,037,552.

"We had a surplus, and I was encouraged with that," Hurst said. "Anytime you have surplus in a recession it's pretty good."

Regarding employees using City Hall's cash drawer for personal reasons, Hurst said newly appointed city recorder Jimmy Wilburn put the kibosh on that practice.

"I met with Jimmy on that and he created a new policy and went over it with the staff," Hurst said. "That's just inappropriate."

None of the assistant clerks under scrutiny have been fired; they have been verbally reprimanded, Hurst said. Meanwhile, TBI spokeswoman Kristin Helm said the investigation remained open Tuesday.

The results are in and the recently completed audit of the city of Lenoir City is printed and bound. The announcement of the audit's completion was made at the end of Monday night's Lenoir City Council meeting and includes two findings of city employees misappropriating funds.

One finding states a former city employee made three purchases on the city's account that were not for municipal purposes and no sales tax was paid on the purchases.

Recently resigned city recorder/treasurer Bobby Johnson Jr. made the three purchases that included recreational balls, pens and calendars, Johnson said.

Johnson's purchases were brought to City Administrator Dale Hurst's attention by an anonymous source several months ago. Hurst said he was unsure if the purchases were used for re-election purposes but Johnson's name was on the products.

The products were not used for re-election purposes, but Johnson's name and title was on the items as they were used for his capacity as city recorder/treasurer, according to Johnson.

"I know somebody down there is wanting to twist it up and say I put elect or re-elect. I didn't put any of that on there," he said.

The balls were passed out at the 4th of July parade to promote the upcoming October tax season as that was the last big event before the season, Johnson said. The pens and calendars were left on the counters at city hall for citizens to pick up and some were also taken to elderly residents when Johnson and a clerk would visit those residents at their home to collect their taxes, he said.

"He reimbursed the treasury and he understood and he's a very honest individual and we got that behind us, but it's still a finding. It's been addressed and been corrected," Hurst said.

The money for the purchases was paid to the city by Johnson before the products were paid for by the city, Johnson said.

If he did anything wrong, Johnson said it would have been not paying the taxes, but he said they were used for city purposes so he did not think anything of it.

"There wasn't any sales tax on it, and that wasn't trying to skirt the sales tax because I was using it to try and promote the city," Johnson said.

There were never city funds used, the products were just ordered in the city's name, Johnson said.
"I paid for it," he said.

Some of the products purchased were bought out of state and Hurst said while he is still looking into the incidents, he has reason to believe some of the products were tax free even if not purchased through the city.

"It has to be for the city and Bobby understood that and in his defense he didn't see the inappropriateness at first," Hurst said.

Once it was brought to Johnson's attention he understood it fully, Hurst said.

What Johnson said he does not understand is why his character is being attacked.

Johnson said he knows of city employees purchasing products using city funds for personal use including "knick knacks" from catalogs.

He said he was also aware of a city councilman purchasing an item for personal use.

Johnson would not disclose the names of the employees or the councilman in question.

"They're trying to smear my character, blow this thing up and make it look like I stole money or something. I didn't steal anything. I paid for all that stuff, my stuff and it is a big deal to me. I'm not like most politicians in this town. It's my character they're trying to mess up and it makes me mad," he said.

Why someone would want to hurt his reputation, Johnson said he did not know.

"I don't know ... It goes back to the other thing, I'm not like most politicians. I care about the people, I care about this city, it's not about me. I got in there to work for the people who put me in there," he said.

Johnson said he does not understand any of it as he is out of the way now and not in office anymore.
"I really ain't got nothing to hide at all," he said.

A lot of politicians are about themselves and not about the people, Johnson said and he emphasized he is not like that.

"I go to church, try to do exactly what the Good Book says, try to help as many people as I can ... I try to impact as many people as I can. Come see my house, my cars, it's not like I have anything ," Johnson said.

"That's the reality of it though and I just don't get what they get out of it ... What are you going to get out of smashing me? I can't figure that out," he said.

The auditors recommended no employees be allowed to make purchases on the city accounts unless it is for municipal purposes.

"Also, no one should be allowed to utilize the city's exempt status for sales tax," it stated.

City Hall's response to the finding, included in the audit, was in agreement with the recommendation.

"We will ensure strict enforcement of this recommendation," it stated also noting they had reviewed the State of Tennessee Internal and Compliance Manual with department heads in regards to the finding.

The report also listed a finding involving city employees in the city recorder/treasurer's office cashing personal checks out of the cash drawer.

"Occasionally, these checks were being held and not immediately deposited," the report stated.
The auditors recommended no employees be allowed to cash checks at the city.

The city replied stating the practice had been stopped.

"No city employee is permitted to cash checks of any kind," the report stated in a response from city management.

Who the exact employees were cashing the personal checks, Hurst said he did not know.

When the issue was brought to Hurst's attention prior to the audit he said he put a stop to it immediately.

"I said you know, that has to stop immediately, you can't do that, that's just inappropriate," Hurst said.

This practice was brought about just before Johnson's resignation, Johnson said.

"We cut that out when I was down there where no one could cash any checks at all," he said.

All of the "junk" involved in the job as city recorder changed Johnson's mind on politics he said.

"If I knew this job was going to be this way, with all that junk involved in it, I would have never ran. I really did think I could make a difference and when I found out all this junk was involved, I thought, 'I'm getting out of this. I want no part of it,'" he said.

"There's one thing I learned out of all this: I'm getting out of politics period."

Audit firm confirms cash misuse in Lenoir City government