Fort Smith draft audit reveals mishandling of funds in criminal investigations division, seven other ‘exceptions’

by Aric Mitchell ([email protected]) 1,173 views 

Fort Smith Internal Auditor Tracey Shockley cited failure to follow appropriate chain of custody practices; failure to maintain adequate documentation for cash expenditures; comingling of funds intended for different purposes; lack of understanding of the importance of maintaining tight controls over cash funds; and failure to follow police department policies as the primary exceptions in her preliminary draft report of the Fort Smith Police Department (FSPD).

The document, which stirred controversy following a Thursday (Oct. 5) report from Talk Business & Politics, was released to press outlets on Wednesday (Oct. 11) after debuting a week earlier at an audit review committee meeting.

The preliminary draft report was released to audit committee members first — including four of seven members on the Board of Directors (Andre Good, Keith Lau, Mike Lorenz, and Tracy Pennartz) — on Wednesday (Oct. 4), but the committee expressed reluctance to talk about the particulars considering police officers were named in the document. Under a Freedom of Information Act (FOIA) request submitted Oct. 5 by Talk Business & Politics and other media outlets, the city made efforts to redact the document but failed to properly do so, thus unmasking a few of its undercover officers. Talk Business & Politics will not identify those officers nor how the information was retrieved, but it has verified the city’s discrepancy.

The four-page report was to make redactions of the “identities of law enforcement officers currently working undercover with their agencies and identified in the Arkansas Minimum Standards Office as undercover officers,” pursuant to A.C.A 25-19-105 (b)(10A). It is not known which person or entity involved with the city failed to properly redact the names and dates, but where those redactions were intended, Talk Business & Politics has marked the info [redacted] to protect the officers and their families, and the workings of the department.

In the report, Shockley notes that she could not find any prior record of a divisional review or audit. During the planning process, she identified “three high-risk areas to review first,” which included the Narcotics and Evidence sections.

“IA (Internal Affairs) began by obtaining the Police Department policies for Narcotics and Evidence, then a process walk-through was performed for both areas, and the period for testing procedures was selected,” the report states.

The audit range was for 2015 through YTD 2017.

According to Fort Smith City Administrator Carl Geffken, “The Majors who oversaw the three areas during that time were Major (Mark) Hallum in the criminal investiation division, Major (Larry) Ranells in Patrol, and Major (Dean) Pitts in Support Services. After the Chief (Nathaniel Clark) started in early January 2017, he moved Major Pitts to the criminal investigation division, Major Hallum to the Patrol division, and Major Ranells to Support Services. Majors Pitts and Hallum retired at the end of May.”

The first part of the testing began with reviewing the “Receipt for Monies From Confidential Buy Money Fund,” FSPD Form # 216, “Receipt for Money From Emergency Fund,” and the “Confidential Buy Fund Ledger Sheet.” FSPD Form #216 is the form used to document how requested “buy money” is intended to be used, the Confidential Informant (C/I) used, and the amount paid to that C/I, Shockley stated.

She continued: “The officers are supposed to document all sections on this form. At the bottom of those forms, there is space for the signature of the officer receiving the funds, for the signature of the officer who will be witnessing payment of the funds to the C/I, and for the signature of the supervisor who is issuing the funds. If any funds are returned the supervisor is required to sign for them. The Fund should function so that the total of the outstanding Forms and the cash in the fund will always equal the total of the fund. Fund reimbursements should be based on issued Forms that are submitted as support for reimbursement. The Confidential Buy Fund Ledger Sheet is a record of all Fund transactions. The Police Department Policies and the related forms are designed to create a ‘chain of custody’ for cash funds in order to provide accountability for all cash monies and to protect the individuals who must have access to cash in order to perform their jobs.”

Shockley compared the C/I Buy Form to the Confidential Buy Fund Ledger Sheet and also reviewed the FSPD Forms and Receipt for Money From Emergency Fund forms. “Because of the number of exceptions noted during IA’s preliminary testing,” she said, “IA concluded that the exceptions should be reported immediately rather than waiting until the completion of the audit. Control policies directly applicable to the cash Funds described above are not being followed.”

She then uses the three remaining three pages listing eight “exceptions” that “should be addressed immediately by the Police Department.” Her descriptions are as follows:

1. Fiscal Management 1101.15, Section VI.B. states “The Fort Smith Police Department maintains two separate cash funds within the Criminal Investigations Division. One for the purpose of providing ‘buy money’ or confidential informant funds for the Narcotics Unit and the Criminal Investigations Division, and one which is an emergency fund which provides funds for emergency travel or other exigent situations as authorized by the Chief of Police.” Additionally, Section VI.B.1 states “Buy money and Emergency funds are to be used for no purpose other than those specified by this policy.”

It was noted on multiple dates in 2017 that emergency fund monies were transferred over to the “buy money” fund and used to make purchases or pay C/I expenses. Additionally, at one point the emergency fund, which is supposed to be maintained at $2,000, was completely depleted. A replenishment check was received for $3,000, however all of it was used within that week and the emergency fund was not replenished until after another two weeks had passed. At that time an Request For Payment (RFP) was received by the Purchasing Department who noted that the amount had obviously been changed from $3000 to $4000 and the change had not been initialed on the RFP. The Purchasing Manager contacted the Chief of Police and asked him about the changed amount. The Chief stated he only approved the $3,000 and was not aware that the amounts were changed. The Chief after looking into the matter approved the RFP for $4,000 and the emergency fund was replenished with $2,000. Although the amount requested was subsequently approved, the change was not authorized prior to submission to Purchasing.

2. Fiscal Management 1101.15 Section VI, B, 7 states “a payment to a confidential informant shall not exceed $150 unless authorized by the Chief of Police.” Section VI.B.8 states “A payment that is designated as ‘buy money’ shall not exceed $500 unless authorized by the Chief of Police. A payment that is designated as ‘buy money’ less than or equal to $500 but more than $250 must be approved by the Narcotics Unit Commander or his designee.” It was noted on several “buy” forms that C/I’s were paid more than the $150, and several “buys” exceeded the $250 and $500 limits and no approvals were on the forms or attached to the forms from the appropriate approvers.

3. Fiscal Management 1105.15 Section VII.B. states, “At least quarterly, the Chief of Police shall direct a member of the Office of Professional Standards to inspect all cash management records with respect to confidential informant and ‘buy money’ funds maintained by the Criminal Investigations Division and the Narcotics Unit. IA identified several mathematical errors for entries on the ledger in February 2017 for $120 each. The prior supervisor, D. Brooks was questioned about the mathematical errors and he stated he did not know how it was missed since he sat with the Captain and the Major to review all of the ‘buy’ forms, cash, and ledger. Additionally, the Office of Professional Standards should have also caught the errors.

4. IA noted that monies were used from the ‘Buy’ funds and the ’emergency’ funds to purchase or reload ‘Green Dot’ credit cards. Officers, the Police Chief, and the Captain over the Division were questioned about the credit cards. Captain Rice, and [redacted] and the Police Chief Clark stated that they were not aware of the credit cards [redacted] Wright, Bolinger, Collins and Captain Baker utilized the credit cards. It was explained to IA by the officers queried that the credit cards were used for [redacted] and that the cards could not be sent to a PO Box and therefore the officers put the cards in their name and home address. The cards were never ordered under the Police Department (PD) name or address. One card under Captain Bakers name initiated as far back as 2012. Memo’s were written for each use of the cards, however the original receipts for card purchases were not made available. Also when questioned about the card, Baker stated that he had the card returned to him in April of 2017 and cut it up into pieces. IA asked him for the card and any receipts, statements, and documentation. Baker subsequently brought the card intact (not in pieces as he had previously stated) and stapled to a direct deposit form that was marked “requested acct. closed 6/26/2017. The fact that Baker still had the card and that the account was not in fact closed in April is in conflict with the previous statement from Baker. IA will be reviewing other accounts to verify other funds have not been used to purchase additional credit cards.

Another receipt reviewed by IA for money from emergency fund form stated it was for recharging of UC Green Dot Card and was completed by Sgt. Harris for $199.95 on [redacted]. However, the only support behind the form was a Walgreens receipt and it does not identify the card number. [redacted] stated that he brought it back and gave it to Sgt. Harris, (who has since retired). Another card was purchased in [redacted], however the monies were used from the ‘buy’ funds and the Walgreens receipt states it was a universal reload to a card ending in 2519 in the amount of $115.05. Both cards had a fee associated with it and no support of usage for the monies on either card could be located. Additionally, the $115.05 was loaded onto Captain Baker’s card, who was no longer in the Division and allowed the other officers to use the card.

Officer Collins obtained another credit card [redacted] for $100, however, no receipt of purchase was provided, nor are there any receipts to show what the funds were used for attached. Officer Collins was questioned about the card and he stated he used it [redacted]. IA asked him to look into account that the card is associated to and print off the purchases made. He said he did not know if he could access it anymore. IA still has not received anything from Collins.

[redacted], monies were taken from the emergency fund to purchase another card for [redacted]. Wright stated the reason he had to get another credit card was that the card Officer Collins was supposed to have purchased never arrived at his home.

IA requested the receipts from Officers George and Wright. Wright also was able to print off each monthly statement for the card. Not all charges on the statements could be tied to a receipt. Wright stated that could be because two other officers used it and they are no longer with the Police Department. The statements identified a monthly maintenance fee for $7.95 and for the year incurred charges for $95.40 on the same card.

5. IA performed a spot check on the confidential buy fund ledger sheet and physically counted both funds in 2015 and 2016. During the review, IA was informed that the three employees in the Narcotics Division were the only ones who had access to the funds in the safe. However, during the current audit of the ‘buy’ funds and emergency funds it was noted through a conversation with Sgt. D Brooks that two other employees from the Street Crimes Division had access to the funds. Therefore, the prior statements made to IA were not accurate.

6. As stated above, IA performed a spot check on the confidential buy fund ledger sheet and counted both funds in 2015 and 2016. It was noted that some funds were not returned up to 30 days after the initial ‘buys.’ IA informed the Captain and Sergeant that any funds not used needed to be returned immediately and logged on the ledger. However, subsequent to this discussion, during the audit of the ‘buy’ funds, IA determined that no corrective action has been taken and the unused funds are still not being returned immediately. It was noted that some officers took up to six days and had other ‘buys’ between the first buy and the second buy. The Fort Smith Police Department policy 1102.13, Section IV.I.4 states “If the transaction does not occur or if there is a balance remaining, the officer is to immediately return the unused portion to the issuing supervisor.”

7. It appears currently that $100 from the “buy” funds and $200 from the emergency fund monies cannot be accounted for. The “buy” form was notated with a signature from supervisor [redacted] that $100 was returned to him; however, it was not logged back into the ledger. [redacted] does not remember the transaction and the officer on the “buy” stated two different scenarios that he thinks took place. When asked about the witnessing officer, [redacted], however the signature cannot be read. When [redacted] was asked about the transaction he stated he was there but could not say for sure that the C/I was paid $100 and that was not his signature as the witness. Additionally, he stated it was just him and [redacted] on the “buy.” IA question [redacted] about the witness signature and he stated it was his, however, IA commented to him that [redacted] said it was only him and [redacted] on the transaction. [redaction] he did not know why because that was his signature but does not remember what all took place. IA is currently looking at the other transactions in Intel, ICS Case Management, and Evidence to see if the funds can be accounted for.

8. Signatures and initials on the forms, logs and other documents do not agree. Officers are initialing the logs to say they are receiving funds for the transactions. However, the “buy” forms officer receiving the funds signature is not the same person. Therefore, the officers are not factually stating the log or the “buy” forms when receiving cash.

Shockley concludes the document by noting it is “a preliminary draft and the audit is not complete,” therefore, “Substantial additional audit procedures remain.”

“Some of the exceptions noted above may require additional follow-up and a further search for documentation. This preliminary draft report was provided in order to allow Department management to promptly address the major deficiencies identified,” she said.