Longtime Owsley County Clerk Sid Gabbard withheld state income tax from employees' checks but didn't forward it to the state, a Franklin County grand jury has charged.
Gabbard, 61, is charged with two counts of theft for not remitting the tax withholdings to the state in 2010 and 2011, and two counts of failing to file individual state income-tax returns those years, according to the indictment.
All four charges are felonies punishable by one to five years in prison.
Gabbard, who has been clerk more than 25 years, was arrested Monday. He was released Tuesday from the Franklin County Regional Jail. His bond had been set at $20,000.
State audits have routinely identified financial and accounting problems in Gabbard's small office over the last decade.
The last audit, covering 2010, said Gabbard owed a total of $55,000 in withholdings to the state and the Internal Revenue Service at the end of the year. Of that, $8,375 was owed to the Kentucky Department of Revenue, said Franklin County Commonwealth's Attorney Larry Cleveland.
That was the money at issue in the state charges.
Auditor Adam Edelen had referred the audit to the Kentucky Department of Revenue, which investigated.
Cleveland said it is possible federal authorities could also go after Gabbard over the money owed to the IRS.
The 2010 audit also found a number of other problems in Gabbard's office, including that it took in at least $59,536 that Gabbard and employees either didn't put in the bank or didn't record. Much of that money should have been passed on to other local agencies.
Edelen urged other local officials to try to recover that money, saying it was unfathomable that in one of the nation's poorest counties they "could turn a blind eye to the unnecessary costs inflicted on Owsley County taxpayers and the high risk for fraud that exists due to (Gabbard's) refusal to manage the financial activities of his office."
Owsley County Attorney Henley McIntosh said Tuesday that Gabbard had paid what was owed to the fiscal court and sheriff's office.
The 2010 audit was the ninth in a row in which Gabbard's accounting was so poor auditors could not express an opinion on the financial condition of the office. It also was the seventh review in a row that the auditor's office had referred to law enforcement, Edelen said Tuesday.
Edelen said taxpayers deserve an accounting of what happened with the $60,000 identified as missing from Gabbard's office in the 2010 audit, as well as other funds not remitted to tax and retirement authorities.
"It's welcome news," he said of the indictment, "but for the taxpayers of Owsley County and Kentucky it's overdue."
The 2011 audit of Gabbard's office has not been released yet, but Edelen said the operating shortfall could be more than $100,000. Owsley County Judge-Executive Ronnie Debord said Tuesday he was aware of Gabbard's arrest, but had no details.
Valarie Honeycutt Spears: (859) 231-3409. Twitter: @vhspears