Embezzled funds lead to stronger safeguards

Published 10:12 pm Monday, June 29, 2009

ARLINGTON — The same day last July that city finance department staff discovered a former employee had embezzled public money, the city stopped using hand-written checks.

The state Auditor’s Office was contacted immediately, and City Hall’s check-writing policy changed.

Nearly a year later, the state Auditor’s Office recently released its report on the embezzlement, with the sole directive to the city being to do what already had been done: “strengthen internal controls over the manual warrant process to ensure there is adequate oversight and monitoring to safeguard public resources.”

Former finance department employee Terry L. Davis, 57, currently is serving a three-year prison sentence for embezzling about $1.3 million from the city. She also must pay restitution to the city and income tax on the stolen money.

Davis, of Arlington, had retired at the end of May 2008 after 32 years with the city. The loss of public funds was discovered about seven weeks later during a routine examination of city accounts, a job Davis previously had done. A finance department employee found a suspicious check made out to Davis.

Davis admitted writing herself more than 100 checks to steal city funds during her final eight years on the job. The state audit found 161 city checks deposited into her account, and an FBI search warrant for her bank account confirmed she stole at least $1.3 million.

With total control over the city’s checkbook, Davis was able to circumvent any oversight. She falsified information to make it look as if bogus checks were legitimate.

Her method was simple. She provided the check amount and other details to another city employee whose job it was to enter the information into the city computer system. However, Davis kept the actual checks, which were written to her. Based on her lies, computer records showed payments were made to legitimate vendors, but the money actually wound up in Davis’ accounts.

“We know we missed this for eight years,” city spokeswoman Kristin Banfield said. “But so did the state Auditor’s Office. They admit they missed it, too, but we haven’t heard what safeguards the state plans to put into place to be able to catch this.”

Davis was so thorough with her fraud that the state’s audit team never identified the embezzlement in regular audits of city books, said state Auditor’s Office spokeswoman Mindy Chambers.

“(Davis) was really able to cover her tracks well,” Chambers said. “No one single person should have that kind of control.”

The city was responsive to the case auditor’s recommendations and made changes quickly, Chambers said.

The state investigated 36 cases of government fraud in 2008, Chambers said.

“It occurs in school districts, fire districts and even in departments of large universities,” Chambers said.

City staff take seriously their responsibility for public money, Banfield said.

“We’ve instituted additional checks and balances to make sure anything out of payroll won’t be paid again out of accounts payable — safeguards that should prevent that from happening again.”

For example, manual checks are not issued unless approved and signed directly by the city administrator, mayor and finance director.

“Our internal audits will be very thorough because of this event. It’s been devastating to our entire staff and has affected the level of trust we share and probably has slowed our efficiency,” Banfield said. “We are hopeful that other jurisdictions will be made aware of the potential through this horrible case. I wouldn’t wish this on anyone, ever.”

Gale Fiege: 425-339-3427; gfiege@heraldnet.com.