$573,0025 missing from Perry sheriff's office

A former employee in the Perry County sheriff's office manipulated tax collections and falsified records in an apparent theft of more than $500,000 over several years, according to audits released Wednesday.

A total of $573,025 is missing from tax receipts by the sheriff's office dating back to 2002, according to the audits.

The alleged theft is one of the largest ever uncovered by the state auditor's office, said state Auditor Crit Luallen.

”We are appalled at the magnitude of this apparent theft of local tax dollars,“ Luallen said.

Her office referred the findings to the FBI for further investigation.

An ”elaborate and technical manipulation“ of tax funds was involved in the scheme, Luallen said.

Sheriff's offices in Kentucky collect property and other taxes and forward the money to schools, libraries, health departments and other local government offices and services.

In Perry County, someone in the sheriff's office received franchise-tax payments from businesses but did not report them, instead using those checks to replace cash property-tax payment from residents. The property-tax payments were not deposited, the audits found.

In other words, someone used tax receipts from one source to cover tax payments that came in from another source but weren't put into the bank.

It's the first time the auditor's office had uncovered such an approach. It probably would have required a second set of books to keep track of the scheme, Luallen said.

A one-person job

The evidence points to the involvement of only one employee, Luallen said.

The audit and officials did not name the person; some cited the potential criminal investigation. However, chief Deputy Tony Eversole said the person is no longer employed with the office.

Eversole said the sheriff's office also has installed a new computer system and made other changes to improve accounting.

The shortfall means important agencies and services in Perry County lost out on nearly $600,000 in funding they were due, Luallen said.

Covered by bonds

However, sheriffs in Kentucky are covered by performance bonds. It appears the losses documented by the audit will be covered by the bond, Luallen said, so local schools and other agencies will get the money.

Most of the shortfall occurred during the term of Pat Wooton, though auditors documented a small amount at the end of his predecessor, Les Burgett.

Burgett had been sheriff two terms when Wooton defeated him in 2002. Burgett defeated Wooton in 2006 to regain the office.

Wooton said there were two people working in the tax division of the sheriff's office when he was sworn in and he kept both of them through his term.

He said he was shocked at the audit findings, pointing out that several prior audits had not uncovered the problem.

”No alarms, bells or whistles went off,“ he said.

Wooton is now a field representative for U.S. Rep. Hal Rogers, R-Somerset. He said he planned to take a leave of absence until the issue of the alleged theft is resolved because he doesn't want the matter to reflect on Rogers in any way.

However, Luallen said there is no indication Wooton or Burgett had any knowledge of the manipulation of tax collections. Wooton cooperated with the audit.

The audits released Wednesday covered Wooton's 2005 and 2006 tax collections but also contain information about earlier years.

Luallen's office audits local officials, but because of a lack of staff, it contracts with accounting firms to do many of the required financial reviews of local government.

Taking a closer look

An accounting firm had audited the Perry County sheriff's office for several years before Luallen's office did the 2005 audit. When state auditors spotted problems in the 2005 tax records, they backtracked to look at earlier audits, getting a subpoena for bank records, Luallen said.

The state auditors uncovered the problem in part because Luallen's office started taking a closer look in 2005 at franchise-tax collections by sheriffs. The office took that step because of concerns that came up, including that sheriffs were not pursuing collections in the same way they did with property taxes.

The auditor's office is now asking private accounting firms to take extra steps in reviewing franchise-tax collections when they audit sheriff's offices.

The case points up the need for local officials to adopt and oversee stronger financial controls, Luallen said.

State audits often cite inadequate segregation of accounting duties in local offices — meaning responsibility for handling money isn't divided among enough people — as a potential problem. It raises the risk of fraud because there aren't enough safeguards.

Wooton let an employee sign his name to checks from the tax accounts, the 2005 and '06 audits found.

The auditor's office had noted in an earlier review that internal financial controls in the Perry County sheriff's office were weak because one person did almost all the accounting work.

Local officials often respond that they don't have enough employees to divvy up accounting duties.

However, there are measures the auditor's office recommends that can improve oversight, Luallen said.

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