By Gregg Bragg, The Island Connection Staff Writer
The Town of Kiawah Island held a special meeting March 4, 2016 to present the findings of the second financial audit of the town’s finances, following allegations of financial improprieties against its former treasurer and administrator. The meeting began in short order with Mayor Lipuma setting the stage.
“As you are aware, last year the town conducted a forensic audit of its financial records. That audit concluded that two former town employees—Tumiko Rucker and Kenneth Gunnells—were paid compensation over and above their authorized salaries during the period 2013 through 2015 [totalling $125,000]. It was also found that the town’s payroll system and W-2 tax documents were manipulated in an effort to cover up those excess payments.
“Given the span of time and magnitude of the town’s financial loss in 2013 through 2015, town council instructed the same forensic accountant to conduct a second review focused on payroll records for the two prior years—2011 and 2012. This second review was restricted only to those years because payroll records before 2011 are not deemed to be sufficiently available in order to draw reliable conclusions.”
The summarized findings include:
1. More salary overpayments occurred between 2011 and 2012;
2. Further manipulation of the town’s payroll system and certain W-2 tax documents occurred;
3. The reports identified an additional $81,400 in excess payments to former employees Rucker and Gunnells. Excess payments to Rucker of $23,222 in 2011 and $33,449 in 2012. Excess payments to Gunnells were $11,753 in 2011 and $12,976 in 2012.
4. The aggregate overpayment to both employees reported brings the total for Rucker and Gunnells to $206,425.
5. This follow-up audit also found that salary overpayments to three current salaried employees [and one hourly employee] also predated 2013 and occurred in both 2011 and 2012.
“I want to again express my regret that the Town experienced these improprieties by two employees who were in positions of considerable trust and responsibility,” Lipuma said. “I want to emphasize that we have taken action and will continue to do so to recover as much of the lost funds as possible.”
The mayor then cited a number of corrective actions the town has taken to prevent this occurring again. The town has replaced its auditor, created a new audit committee, changed its payroll system and replaced Rucker and Gunnells.
Mayor Lipuma also said this information will be available to appropriate law enforcement (including US Attorney Rhett DeHart, Special agent Bob Derr of the FBI and Joe Albayalde of SLED). Lipuma added that “any criminal action resulting from these findings is solely at the discretion of federal law enforcement. The town is not privy to those considerations or the status of any investigation.”
The mayor continued his account by saying the town is actively working with the three additional employees to extend those repayment agreements to cover 2011 and 2012, and is working with the fourth employee for overpayments found from 2011 to 2015.
“The Town believes these employees were victims of fraudulent supervisors,” the mayor said before opening the floor to questions. The first question came from Kiawah resident Dennis McGill.
“What was the overpayments to [Jim] Jordan, [Rusty] Lamaeo and [Aaron] Given?” McGill asked
The Mayor responded saying “Jordan was almost $40,000, Given was $22,000, Lameo was almost $33,000 … for all of the years.”
Diana Mezzanotte asked if there were any losses associated with credit cards or evidence of contracts which benefitted the two former employees. Lipuma responded saying “all contracts were pretty sound.”
Wendy Kulick asked if the $26,000 overpayment to the town’s attorney was included in $81,400. “No, that overpayment had nothing to do with this situation,” Lipuma said
Dave Power asked if the town has embezzlement insurance. Lipuma said the town has insurance to a maximum of $50,000 per event, and the insurance company considered 2011 to 2015 a single event. The town was allowed almost $40,000 against the policy. The town’s attorney added that an additional claim for $5,500 has been filed, which he believes the town has a pretty good chance of collecting.
Wendy Kulick spoke up to say she remembered Lipuma previously saying the town had $100,000 insurance, not $50,000. Lipuma said the town had thought it could claim one amount for what Rucker took and one claim for Gunnells, but the insurance company saw this as a single event, limiting the amount of the claim.
Dennis McGill asked if the town intended to amend repayment agreements for the three salaried employees, and would repayment include interest? Lipuma said the town would extend the period to repay by one year. McGill followed up to ask if those agreements would be presented for approval to council at a public meeting, but Lipuma didn’t think that was necessary.
Russ Crane noted the mayor’s use of the term “victims” was curious. He asked if the town had received legal advice on that, and if the town is comfortable this kind of behavior would not result in firing, if repeated in the future.
“I can’t predict what future councils will do. This system was so dysfunctional … maybe ‘victims’ is not the correct term. When you expect to be paid the first of the month and don’t get paid until the 15th or 20th … when people breach the trust [of council],” said the mayor.
Diana Mezzanote asked if the four additional, overpaid staff members had received correct W-2s. Lipuma responded they had [received accurate W-2s].
Kulick followed up on Crane’s comments asking, “How could salaried employees not have known they were being overpaid?”
Lipuma referred again to the dysfunctional system and attributed problems to a lack of management by Rucker and Gunnells the council had trusted them to achieve.
Fred Peterson said he was really distressed by all of this. “We have a local solicitor. Why hasn’t this been turned over to her?” he asked.
“Every few weeks we read of some school secretary being arrested for stealing a few thousand dollars. Why isn’t Scarlett Wilson [of the 9th circuit court] involved?” Lipuma said there were IRS issues which placed this in the federal realm.
“That’s why we are trying to get some more information to them [legal entities],” Lipuma said. “If we were to do it over again, we would have gone to the solicitor.”
Councilmember John Wilson added that SLED was involved. Councilmember Craig Weaver said council was “equally perplexed” why nothing had been done.
“Your constituents would like to see something that makes them understand that you feel this way.” Peterson rejoined.
Art Zackrison asked if anything was being done to recover money from Rucker and Gunnells. The town’s attorney said attempts were being made. Lipuma said he was led to believe US Attorney DeHart had asked if the town was interested in repayment of money or the full penalty under the law and was told “all of the above.”
Russ Crane asked what the town would do if no agreement were reached in negotiations with four overpaid employees as the final question of the day. Lipuma responded saying he “Wasn’t going to speculate,” adding that the town is in the process of reaching an agreement with [the hourly employee]. “When it happens, it happens,” said the mayor before adjourning the meeting a little over 30 minutes after it had begun.