The sheriff in Whitley County let many people pay less in taxes, penalties and interest than they owed and ran up a deficit of nearly $125,000 over a three-year period, according to audits released Tuesday.
The shortfall in Sheriff Lawrence Hodge's office was likely higher, but his record-keeping was so bad auditors couldn't confirm the true figure, according to the reports.
State Auditor Crit Luallen said she had given the findings to the FBI to review.
"That's a sizeable deficit and these are serious problems of financial mismanagement," Luallen said.
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The audits said one key reason for the deficit is that Hodge's office took in money but didn't deposit it. The reviews document that the money is missing, said Cindy James, assistant state auditor.
"It raises suspicion about possible wrongdoing because the money is not accounted for," Luallen said.
Sheriffs in Kentucky collect property taxes that help fund a range of services such as local school systems, health departments and libraries. Among other problems, when a sheriff collects money but doesn't deposit it, other agencies don't get as much money as they are due, the audits noted.
The audits covered Jan. 1, 2005 to Dec. 31, 2007 and involved accounts he used to collect taxes and operate the office.
The financial reviews took longer than usual to complete because auditors had trouble getting some records from Hodge's office and had to get them other ways, such as by issuing subpoenas for bank records.
Hodge did not respond to a request for comment.
In comments included in the audits, however, he said he had put better financial controls in place to fix the problems.
Hodge pledged in some cases to use his own money to cover some deficits listed in the audits, such as $1,900 to reimburse undocumented spending from an account that held seized drug money.
In response to recommendations that he personally cover some larger shortfalls such as a $54,444 in his 2006 tax account, however, Hodge said he would "make every reasonable effort to reconcile this deficit" as soon as possible.
The audits found numerous accounting problems in Hodge's office, including poor record-keeping, putting money in the wrong accounts and failing to properly document or oversee spending, including $177,000 in credit-card fuel purchases.
Auditors could not confirm that all the gas was used for official business, according to the news release.
Hodge provided no oversight of tax collections, the audits said.
"When tax bills are paid but not subsequently marked as paid by the sheriff's office, it can be a mechanism for concealment of theft of tax collections," one audit commented.
Among the key findings was that Hodge had an unusually large number of what are called supplemental reports.
Those are generally used to report early-payment discounts on property taxes that a sheriff can give after the time has expired for taxpayers to receive such discounts.
State law allows sheriffs to do that in limited cases, such as when a taxpayer can show he or she mailed the payment during the discount period but it arrived after that time was over.
James said most sheriffs report only a few of those instances a year.
But Hodge issued supplemental reports indicating the office had given discounts on more than $2.4 million in taxes, according to the audits.
The audits noted that supplemental reports "can be used to conceal the theft of tax payments to the Sheriff's office."
Auditors found evidence that some people paid more in taxes than Hodge's office reported.
In other cases, people were not charged the correct amount of penalty and interest on tax bills, reducing the amount of money available for government services, according to the audits.
Two supplemental reports included Hodge's own personal taxes, according to audits.
In one case, the report showed he had paid the bill after the discount period but at the lower, discounted rate.
The other report showed his tax bills were marked paid on June 12, 2007, at the face amount, even though a hefty penalty should have applied at that point.
Hodge told Luallen's office he would stop giving the 2 percent tax discount outside the proper period.
Among the other findings in the audits:
Hodge's office told the county fiscal court it had no excess fees to turn over from 2007, but actually should have given the county $134,428.
Hodge cashed thousands of dollars in checks from an account that held money seized in drug cases and said he used the money to pay informants for information and making drug buys, but there was no documentation to verify the informants got the money.
Hodge told auditors he would begin requiring informants to sign for the money.
The audit also noted discrepancies in how Hodge handled the sale of a 2005 Mustang that had been seized in a drug case.
Hodge certified he sold the car for $1,000, but it didn't go to the person who had bid on it and later ended up in the hands of a car dealer the day after a deposit of $5,500 went into the sheriff's drug account, the audit said.
Luallen's office referred the finding to the local prosecutor for review because of the difference in what Hodge got for the car and what he said the sale price was.
Hodge also didn't give the state Attorney General's Office its share of proceeds from that drug case. Hodge said he would forward the money.