State auditors refer more Hodge audits to FBI

 One week after former Whitley County Sheriff Lawrence Hodge pled guilty in U.S. District Court to charges of extortion, drug trafficking and money laundering state auditors have released two more audits from Hodge’s office that are being referred to the FBI for further investigation.

Thursday morning, State Auditor Crit Luallen released Hodge’s 2008 tax audit for the period July 26, 2008 through April 15, 2009 and the audit of his 2009 fee account used to operate the office.

Since June 2009, the Auditor’s Office has referred seven other audits of the former Whitley County Sheriff to the FBI due to a total deficit of $222,914. With these two audits released Thursday, the total number of referred audits now stands at nine, with a total deficit of $230,040.

The 2008 tax audit found that the former sheriff did not maintain adequate accounting records of tax revenues and tax distributions, ultimately impacting the county’s taxing districts.

In one instance, the former sheriff overpaid the fiscal court, school board and library district a total of more than $4,600 in tax distributions. These taxing districts must repay their share of that money to the sheriff.

Auditors note in the former sheriff’s 2009 fee audit that he did not maintain accurate accounting records for all receipts of the office.

In that audit, auditors are questioning $62,760 the former sheriff expended for vehicle repairs and maintenance. Auditors also were unable to determine the use of numerous tires purchased by the former sheriff, as well as charges for fuel.

Auditors also found in the 2009 fee audit that the former sheriff had disallowed expenditures in his drug and alcohol account and that he did not maintain proper documentation for receipts and disbursements for this account.

Although Hodge’s previous audits were initially referred to the FBI, they were later turned over to the Internal Revenue Service for investigation. After a joint investigation by the IRS and the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), Hodge pleaded guilty in federal court earlier on May 12 to federal criminal charges including conspiracy to commit extortion, conspiracy to distribute pain pills, and conspiracy to launder money.

The former sheriff’s plea agreement with the federal authorities calls for him to serve 15.5 years in prison, forfeit $50,000 to the federal government, and pay restitution of $64,897 to Whitley County for money he stole from the Sheriff’s office.

The audits released Thursday do not note large deficits in the former sheriff’s office; however, auditors did find the same concerns in the office that were noted in the previous audits.

The former sheriff was elected in 2002 and held that office for two, four-year terms. He lost re-election in the May 2010 primary and left office at the end of 2010. The former sheriff was indicted by a Whitley County Grand Jury in November 2010 on 21 felony counts and that case is currently pending in state court where a hearing is planned for late September.

The Auditor’s Office will conduct the former sheriff’s 2009 and 2010 tax audits and his 2010 fee audit.

2008 Tax Audit

In this audit, the former sheriff’s financial records were in such disarray, auditors were unable to apply auditing procedures to his tax revenues and tax distributions.

Additionally, the former sheriff did not provide auditors with a management representation letter and the Whitley County Attorney did not provide auditors with a legal representation letter.

Because of this, auditors were unable to express an opinion on the former sheriff’s 2008 tax audit, meaning the Auditor’s Office cannot give assurance on the accuracy of the sheriff’s financial statements.

The tax audit notes continual concerns with how the former sheriff handled tax collection and distribution in Whitley County.

Inconsistencies in the process led to the former sheriff having a surplus of $8,561, $1,587, $7,145 and $11,850 for tax years 2002, 2003, 2004 and 2008 and a deficit of $15,984, $54,444 and $87,589 for tax years 2005, 2006 and 2007, according to the audit.

"The former sheriff would be personally responsible for any additional tax bills erroneously turned over as delinquent for any tax year in a deficit or the additional amount in any tax year where the surplus would not be enough to cover the payment to taxing districts," according to the audit.

Auditors also note the following findings in the 2008 tax audit:

• The former sheriff should not have deposited fee account money in his tax account.

• The former sheriff did not accurately account for all franchise tax collections and distribute all franchise taxes by the tenth of the month following collections.

• The former sheriff’s office did not properly account for all paid tax bills.

• The former sheriff did not properly document approval of waiver of penalties and fees as required by statutes and department of revenue guidelines, and granted discounts on tax bills paid after the discount period had ended.

• The former sheriff did not reconcile deposits to the daily collection sheet or a daily receipts journal.

• The former sheriff’s office lacked adequate segregation of duties over accounting functions.

• The former sheriff did not distribute the proper amounts of interest earned on tax collections to the school districts and his fee account.

• The former sheriff should not have loaned money to the fee account from the tax account.

• The former sheriff did not accurately account for the ten percent (10%) Sheriff’s add-on fees.

• The former sheriff should not have collected taxes before signing the official receipt.

• The former sheriff should settle 2008 taxes.

2009 Fee Audit

This audit found that the former sheriff did not maintain adequate accounting records of fee account revenues and expenditures for the 2009 calendar year. Auditors were unable to apply auditing procedures to the fee account’s revenues and expenditures because of the condition of the former sheriff’s financial records.

As with the 2008 tax audit, auditors were not provided a management representation letter from the former sheriff or a legal representation letter from the county attorney during the 2009 fee audit.

Auditors also were unable to express an opinion on the former sheriff’s 2009 fee account, meaning auditors cannot give assurance on the accuracy of the sheriff’s financial statements for the 2009 calendar year.

Auditors did, however, note the following findings in the 2009 fee audit:

• The former sheriff did not maintain accurate accounting records and account for all receipts in the appropriate year.

• The former sheriff lacked adequate internal controls over overtime and holiday pay.

• The former sheriff expended $62,760 for vehicle repairs and maintenance that auditors question as reasonable and necessary expenses.

• The former sheriff improperly disposed of a county vehicle. This finding is being referred to the Whitley County Attorney because only $275 of the $1,500 vehicle sale prices was deposited into the fee account.

• The former sheriff should have provided adequate oversight for all fuel purchases made with credit cards.

• The former sheriff’s office lacked adequate segregation of duties over accounting functions.

• All Whitley County assets should be titled in the name of the county.

• The former sheriff did not take proper corrective action for a prior year finding regarding the payroll of two employees. The audit recommends the former sheriff collect $2,471 from one employee and deposit this amount into the 2008 fee account or deposit personal funds for $2,471 if he is unable to collect from the employee.

• The former sheriff expended seized assets prior to forfeiture by the court and has not paid amounts due others from forfeitures.

• The former sheriff had disallowed expenditures of the drug and alcohol account. The audit recommends the former sheriff transfer $350 from his 2005 tax account, $1,400 from the 2007 tax account, and deposit personal funds of $5,176 and $1,950.

• The former sheriff did not maintain proper documentation for receipts and disbursements of the drug and alcohol account.

• The former sheriff should submit additional excess fees to the fiscal court.