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O F F I C E O F A U D I T O R O F S T A T E
STATE OF IOWA
State Capitol Building Des Moines, Iowa 50319- Telephone (515) 281-5834 Facsimile (515) 242-
David A. Vaudt, CPA Auditor of State
NEWS RELEASE
Contact: David A. Vaudt 515/281- or Tami Kusian FOR RELEASE March 19, 2009 515/281-
Auditor of State David A. Vaudt today released a report on a special investigation of the
Searsboro Volunteer Fire/EMS Department for the period February 8, 2005 through
September 21, 2008. The special investigation was requested by the Poweshiek County Sheriff’s
Office after the Treasurer admitted misappropriating funds from the Searsboro Volunteer
Fire/EMS Department. Brenda Ruchti was appointed Treasurer of the Department on
February 8, 2005 and continued until September 21, 2008 when she ceased her duties as
Treasurer.
Vaudt reported the special investigation identified $11,179.51 of improper disbursements,
unsupported disbursements and undeposited collections. The improper disbursements of
$9,290.93 include $525.00 of checks issued to cash, $1,762.99 of payments to vendors,
$4,350.00 of transfers from a Department bank account to the former Treasurer’s personal bank
account and $2,652.94 of personal credit card payments.
The improper payments to vendors of $1,762.99 include $1,009.21 for Ms. Ruchti’s
personal utilities, cable and phone services, $531.18 of rent for Ms. Ruchti’s personal residence,
$118.55 for a student loan payment and $104.05 of personal purchases at Wal-Mart. The
unsupported disbursements of $1,348.58 include payments to Hy-Vee, Wal-Mart and Staples.
The undeposited collections of $540.00 consist of cash withheld from 3 deposits to a
Department bank account by the former Treasurer. Vaudt also reported adequate records for
receipts were not available to determine if all donations and fundraiser proceeds were properly
deposited.
The report also includes recommendations to strengthen the Department’s internal controls,
such as improvements to segregation of duties, reconciliation of bank statements by an
independent person and establishing formal accounting records to account for all receipts and
disbursements.
Copies of the report have been filed with the Poweshiek County Attorney’s Office, the
Poweshiek County Sheriff’s Office, the Division of Criminal Investigation and the Attorney
General’s Office. A copy of the report is available for review in the Office of Auditor of State and
on the Auditor of State’s web site at http://auditor.iowa.gov/specials/specials.htm.
Table of Contents
Page
Auditor of State’s Report 3-
Investigative Summary: Background Information 5- Detailed Findings 6- Recommended Control Procedures 11-
Exhibits: Exhibit Summary of Findings A 15 Improper Payments to Vendors B 16- Payments on Personal Credit Cards C 18-
Staff 20
Appendices: Appendix Copies of Checks Payable to Cash 1 22- Copies of Wal-Mart Receipts 2 24- Copies of Deposit Slips with Cash Withheld 3 26
O F F I C E O F A U D I T O R O F S T A T E
STATE OF IOWA
State Capitol Building Des Moines, Iowa 50319- Telephone (515) 281-5834 Facsimile (515) 242-
David A. Vaudt, CPA Auditor of State
Auditor of State’s Report
To the Trustees of the Searsboro Volunteer Fire/EMS Department:
At the request of the Poweshiek County Sheriff’s Office, we conducted a special investigation of the Searsboro Volunteer Fire/EMS Department (Department). We have applied certain tests and procedures to selected financial transactions of the Department for the period February 8, 2005 through September 21, 2008. Based on discussions with Department personnel and a review of relevant information, we performed the following procedures:
(1) Evaluated internal controls to determine whether adequate policies and procedures were in place and operating effectively.
(2) Examined bank statements for the Department’s checking and savings accounts to identify any unusual activity, including cash withdrawals, internet transfers and credit card payments. We also examined images of checks to identify any payments to unusual payees or for unusual amounts. In addition, we reviewed images of deposit slips to determine if any cash was withheld from the deposits.
(3) Examined documentation for certain checks issued from the Department’s checking accounts to determine if the payments were appropriate, authorized and properly supported.
(4) Compared the bank images of checks redeemed from the Department’s checking accounts to disbursements listed in the financial statements included with the Department’s meeting minutes to determine if the payments were approved.
(5) Reviewed monthly Treasurer’s reports to determine if financial information was accurately reported to the Trustees. We compared the balances in the Department’s checking and savings accounts to the Treasurer’s reports.
(6) Confirmed payments made to the Department by the State of Iowa, Poweshiek County, the City of Searsboro, Sugar Creek Township and Washington Township to determine if they were properly deposited to the Department’s accounts.
(7) Examined fundraising and donation records to determine if collections were properly accounted for and deposited.
(8) Obtained and reviewed the personal bank statements of the former Treasurer, Brenda Ruchti, to identify any transfers from the Department’s accounts and to identify the source of certain deposits.
(9) Reviewed the Department’s meeting minutes for significant actions.
Searsboro Volunteer Fire/EMS Department Investigative Summary
Background Information
The Searsboro Fire/EMS Department is a volunteer Department serving the City of Searsboro, Sugar Creek Township and Washington Township and is organized under Chapter 504 of the Code of Iowa. The Department has a 3 member Board of Trustees. The 3 Trustees are elected by the members of the Department. Meetings for Department members are held the 1 st Monday of each month.
Brenda Ruchti became a member of the Department on February 8, 2005. At that time, Ms. Ruchti was a nurse for the EMS and was also helping the Treasurer balance the accounting records on a periodic basis. On March 8, 2005, Ms. Ruchti was appointed Treasurer for the Department. As the Treasurer, Ms. Ruchti was responsible for:
Disbursements – check preparation, check signing, distribution and posting to the accounting records,
Receipts – collection, posting to the accounting records, deposit preparation and making deposits,
Reporting – preparation of Fire Department meeting minutes and preparation of financial reports.
The Department’s primary revenue sources are collections from the State of Iowa, Poweshiek County, the City of Searsboro, Sugar Creek Township and Washington Township. The Department also receives periodic donations and proceeds from fundraisers. All collections are to be deposited in the Department’s bank accounts.
The Department has 2 checking accounts and a savings account. The Department established a checking account for general operations. The other checking account, called a “taxation” checking account, was established to track contributions to the Department and their subsequent use.
The Chief collects and opens the Department’s mail. He reviews any invoices or collections received and gives them to the Treasurer for payment or deposit. Ms. Ruchti prepared a monthly bill listing to be approved during the monthly meetings. According to the Chief, all disbursements are to be included on the bill listing. All checks were required to have dual signatures. Ms. Ruchti prepared and signed the checks after the monthly meeting and the Chief or Assistant Chief counter-signed the checks after Ms. Ruchti signed.
In September 2008, a representative from the Department’s bank called the Chief to report internet transfers from the Department’s bank account to Ms. Ruchti’s personal bank account. After receiving the call, the Chief went to Ms. Ruchti’s residence to discuss the transfers with Ms. Ruchti. Ms. Ruchti, the Chief and Ms. Ruchti’s husband were all present at the meeting. During the conversation, Ms. Ruchti admitted she made the internet transfers.
During the next week, Ms. Ruchti provided a few pages of her personal bank statements to the Trustees. After reviewing the bank statements, the Trustees asked the Chief to collect Ms. Ruchti’s keys and pager. However, according to the Chief, Ms. Ruchti was not terminated from the Department because of limited staffing, but she was no longer the Department’s Treasurer. After the meeting with the Trustees, the Chief contacted a representative from the State Fire Marshal’s Office, who referred the Chief to the Poweshiek County Attorney’s Office.
The County Attorney’s Office requested the Poweshiek County Sheriff’s Office conduct a search at Ms. Ruchti’s personal residence and the Department’s Station house. On October 6, 2008, all records pertaining to the Department were seized from both Ms. Ruchti’s residence and the Department. In addition, several personal bills and records were seized from Ms. Ruchti’s residence.
On the same day, the Poweshiek County Sheriff’s Office requested the Office of Auditor of State conduct an investigation. As a result of that request, we performed the procedures detailed in the Auditor of State’s report for the period February 8, 2005 through September 21, 2008.
Detailed Findings
These procedures identified $11,179.51 of improper disbursements, unsupported disbursements and undeposited collections for the period February 8, 2005 through September 21, 2008. The $11,179.51 is composed of the following:
- $9,290.93 of improper disbursements, including checks payable to cash and other improper vendors, bank transfers to the former Treasurer’s personal bank account via the internet and payments on personal credit cards.
- $1,348.58 of unsupported disbursements, including payments to Hy-Vee and Wal- Mart.
- $540.00 of undeposited collections which consist of cash withheld from deposits.
However, we were unable to determine if all donations and fundraiser proceeds were properly deposited during this time period because adequate records were not available. All findings are summarized in Exhibit A and a detailed explanation of each finding follows.
IMPROPER AND UNSUPPORTED DISBURSEMENTS
Checks issued from the Department’s checking accounts required 2 signatures. The authorized check signers were Brenda Ruchti, Gary Sears, Chief, and Dale Earnhart, Assistant Chief. During the course of our investigation, we reviewed selected disbursements from the Department’s checking and savings accounts. Supporting documentation for disbursements was to be maintained by the Treasurer and should have consisted of invoices and receipts from vendors. Supporting documentation was not available for some of the disbursements made from the Department’s accounts. As a result, we discussed all disbursements that were unusual in nature with the Chief to determine if they were appropriate. We also confirmed certain disbursements with vendors and the bank when possible.
All disbursements were to be included on a monthly bill listing presented to the Trustees for approval. In addition, the Chief stated all Department payments should be by check to the vendor and there should be no payments made in cash. According to the Chief, the only time cash was needed was when fundraisers were held. The cash was used as a change fund. Per discussion with the Chief, a check was to be written to the bank for withdrawal of cash and approved by the Trustees. The former Treasurer was not to pay bills with internet banking. In addition, the former Treasurer used both checking accounts for general operating costs.
During the course of our investigation, we identified several improper disbursements. Each of the improper disbursements is discussed in this section of the report.
Checks Payable to Cash – We identified 5 checks from the Department’s checking account payable to cash. The checks total $525.00 and are listed in Table 1.
We obtained the Department’s Alliant account history from Alliant Energy. We identified the payments to Alliant Energy which were posted to the Department’s account. However, we identified 3 payments to Alliant Energy which were not posted to the Department’s account. We subpoenaed Ms. Ruchti’s account history from Alliant Energy and confirmed these 3 payments were posted to her personal account.
According to the Chief, Iowa Telecom is not a service provider for the Department and there would be no reason for the Department to make a payment to them. Therefore, we subpoenaed Ms. Ruchti’s personal account information from Iowa Telecom. We confirmed the 2 payments to Iowa Telecom were posted to Ms. Ruchti’s personal account.
In addition, we identified a check for $531.18 payable to Ms. Ruchti’s landlord for rent and a check to ISLLC (Iowa Student Loan Liquidity Corporation) in the amount of $118.55 for Ms. Ruchti’s student loans. We also identified 3 checks payable to Wal-Mart for personal items such as medicine, cough drops, a file cabinet, ink cartridges, hanging files and coffee. In addition, a receipt from Wal-Mart shows Ms. Ruchti received $20.00 cash back. The 3 checks total $104.05. Copies of the 3 Wal-Mart receipts are included in Appendix 2.
The 13 improper payments totaling $1,762.99 are included in Exhibit A.
In addition to the 13 improper checks and online payments, we identified 17 payments to vendors such as Hy-Vee, Wal-Mart and Staples for which supporting documentation could not be located at the Department or obtained from the vendor. The unsupported payments are summarized by vendor in Table 2 and are listed in Exhibit B. The unsupported payments of $1,348.58 are included in Exhibit A.
Internet Transfers – We identified 6 transfers from the Department’s account to Ms. Ruchti’s personal bank account between August 2007 and July 2008. The transfer amounts range from $100.00 to $2,000.00 and were made through internet banking. According to the Chief, an on- line bank account was set-up for the purpose of viewing the balances at any given time, but no transactions were to be processed because all bills were to be reviewed and approved at the monthly meetings. Table 3 lists the 6 internet transfers totaling $4,350.00. The internet transfers of $4,350.00 are included in Exhibit A as improper disbursements.
Table 3
Transaction Date Description per bank Amount 08/03/07 Telephone Withdrawal – Internet Transfer To Checking Acct: Brenda S. Ruchti
01/04/08 Telephone Withdrawal – Internet Transfer To Checking Acct: Brenda S. Ruchti
01/07/08 Telephone Withdrawal – Internet Transfer To Checking Acct: Brenda S. Ruchti
01/29/08 Telephone Withdrawal – Internet Transfer To Checking Acct: Brenda S. Ruchti
06/30/08 ACH Debit – Internet Banking Withdrawal 150.
07/15/08 ACH Debit – Internet Banking Withdrawal 2,000. Total $4,350.
Personal Credit Card Payments – As stated previously, we reviewed all disbursements from the Department’s checking accounts for the period February 8, 2005 through September 21, 2008. During our review of the Department’s disbursements, we identified 13 payments to various credit card companies. The payments were to vendors such as Capital One, Capital One Auto, Credit One Bank and First Premier Bank and total $2,652.94. According to the Chief, the Department does not have a credit card.
We obtained some of Ms. Ruchti’s personal credit card statements from records seized by the Poweshiek County Sheriff’s Office. During our review of Ms. Ruchti’s credit card statements, we determined Ms. Ruchti had written the date of a payment and the amount on each statement. As a result, we were able to trace all 13 payments to statements for credit card companies held in Ms. Ruchti’s name.
Of the 13 payments, 10 were made by check and 3 were on-line payments. The payments ranged from $75.00 to $548.40. There were 2 payments to Capital One Auto for $548.40 which are payments on Ms. Ruchti’s car loan.
The improper payments totaling $2,652.94 are listed in Exhibit C and are included in Exhibit A.
UNDEPOSITED COLLECTIONS
As stated previously, the primary revenue sources for the Department are the State of Iowa, Poweshiek County, the City of Searsboro, Sugar Creek Township and Washington Township. In addition, the Department receives funds from donations and fundraisers.
Cash Withheld from Deposit – During our review of the Department’s bank statements, we identified 3 deposits where cash was withheld from the deposit. According to the Chief, all collections received are to be deposited to the Department’s checking account. If cash is needed for fundraising events, members have to approve cash withdrawals at the monthly meetings.
The cash withheld from the 3 deposits totals $540.00. The deposits and the cash withheld are listed in Table 4. In addition, copies of the 3 deposit slips are included in Appendix 3. As shown in Appendix 3 , the deposit made on October 15, 2007 included a check from the State of Iowa for $6,724.80 and the deposit dated January 19, 2008 included a check from the City of Searsboro for $2,600.00.
Table 4
Deposit Date
Collections to be Deposited
Amount Deposited
Amount of Cash Withheld
10/15/07 $ 7,069.10 6,869.10 200. 11/19/07 556.40 416.40 140. 01/19/08 2,630.00 2,430.00 200. Total $ 10,255.50 9,715.50 540.
The $540.00 of cash withheld from deposits is included in Exhibit A as undeposited collections.
Table 5
Date of Financial Report
Checking Account Balance per Bank Statement
Checking Account Balance per Financial Report Difference
Savings Account Balance per Bank Statement
Savings Account Balance per Financial Report Difference
10/03/05 $ 4,655.58 3,095.24 1,560.34 313.01 313.01 - 11/07/05 5,620.15 5,753.85 (133.70) 333.11 333.11 - 12/05/05 3,460.19 3,159.95 300.24 333.66 333.66 - 03/14/06 2,298.45 1,921.48 376.97 357.56 357.56 - 08/07/06 1,082.19 2,057.15 (974.96) 1,018.20 1018.20 - 11/06/06 1,645.43 215.03 1,430.40 585.20 585.20 - 12/04/06 609.19 875.47 (266.28) 589.01 585.20 3. 01/02/07 275.56 254.83 20.73 589.01 585.20 3.
We also compared each disbursement reported on the financial reports prepared by Ms. Ruchti to actual payments from the Department’s bank accounts. We identified transactions not listed on the financial reports which were reflected in the Department’s bank activity, including several proper disbursements.
Recommended Control Procedures
As part of our investigation, we reviewed the procedures used by the Searsboro Volunteer Fire/EMS Department to process receipts and disbursements. An important aspect of internal control is to establish procedures that provide accountability for assets susceptible to loss from errors or irregularities. These procedures provide the actions of one individual will act as a check on those of another and provide a level of assurance errors or irregularities will be noted within a reasonable time during the course of normal operations. Based on our findings and observations detailed below, the following recommendations are made to strengthen the Department’s internal controls.
(A) Segregation of Duties – An important aspect of internal control is the segregation of duties among individuals to prevent one person from handling duties which are incompatible. The Treasurer had control over each of the following areas for the Department:
Disbursements – check preparation, check signing, distribution and posting to the accounting records.
Receipts – collection, posting to the accounting records, deposit preparation and making deposits.
Recommendation – We realize segregation of duties is difficult with a limited number of staff. However, the Department should review its control procedures to obtain the maximum internal control possible under the circumstances utilizing currently available personnel. Evidence of various reviews should be indicated by initials of the independent reviewer and the date of the review.
In addition, bank statements should be independently reviewed by a designated member of the Department who does not have the ability to issue checks or make deposits. Bank reconciliations should be performed on a monthly basis.
(B) Financial Accounting Records and Financial Reports – Limited financial records were maintained by the Department for the period of our investigation. Specifically, records for donations and fundraisers did not exist. In addition, pre-numbered receipts were not issued for donations and fundraising proceeds. Also, invoices/receipts were not maintained for all disbursements.
In addition, the financial reports prepared by Ms. Ruchti did not always accurately reflect the Department’s activities. We identified transactions not listed on the financial reports which were reflected in the Department’s bank activity.
Recommendation – The Department should establish formal accounting records to account for all receipts and disbursements. All disbursements should be approved prior to payment and documented in the financial reports or minutes. All payments should be supported by invoices or other appropriate documentation. Collections should be recorded on the financial reports and the Department should use pre- numbered receipts.
(C) Minutes – Official signed copies of minutes from the Trustees’ meetings and related financial reports were not available at the Department. In addition, 17 months of minutes could not be located at the Department.
Recommendation – The minutes and financial reports should be signed by a responsible designated official of the Department to attest to the accuracy of the documents. The minutes should include all actions taken at the meeting. The financial reports should include a detailed listing of bills approved for payment and be supported by receipts and disbursements posted to the Department’s bank accounts. Also, all minutes should be maintained at the Department for the public to review if needed.
Report on Special Investigation of the Searsboro Volunteer Fire/EMS Department
Exhibit A
Report on Special Investigation of the Searsboro Volunteer Fire/EMS Department
Summary of Findings For the period February 8, 2005 through September 21, 2008
Exhibit/Table
Improper disbursements:
Checks payable to cash Table 1^ $ 525. Payments to vendors Exhibit B 1,762. Internet transfers Table 3 4,350. Personal credit card payments Exhibit C^ 2,652. Total improper disbursements $ 9,290.
Undeposited collections:
Cash withheld from deposits Table 4^ 540.
Total improper disbursements and undeposited collections 9,830.
Unsupported disbursements Exhibit B 1,348.
Total $11,179.
Description Amount
Exhibit B
Description per Bank Statement, Check Memo or Other Explanation Amount Proper Improper Unsupported
None $^ 42.00^ -^ -^ 42.
None 127.11^ -^ -^ 127.
None 13.34^ -^ -^ 13.
None 154.72^ -^ -^ 154.
None 83.92^ -^ -^ 83.
Breakfast supplies 37.58^ -^ -^ 37.
station and supper supplies 102.42^ -^ -^ 102. County Mtg supplies (5 bags of chips, 4 cans of pork beans, onions, Pepsi, Diet Pepsi, Mt. Dew, Diet Dew) - $20.00 change received
73.35 53.35 20.00 -
tractor ride & parades (^) 144.93 - - 144. None 12.67 - - 12. WAL-MART STORES PURCHASE (^) 8.96 - - 8. WAL-MART STORES PURCHASE (^) 131.21 - - 131. WAL-MART STORES PURCHASE (^) 73.99 - - 73. None (^) 40.55 - - 40. PO # 9262 (^) 18.00 - - 18. None (^) 92.94 - - 92. None (^) 16.07 - - 16. (Ms. Ruchti's personal bill) (^) 177.88 - 177.88 - None 251.65 - 251.65 -
238048280 118.55 - 118.55 - (Skitty, (^) Cough/cold, Ibu tabs, halls , batteries, DrP Dt, Mt. Dew, Pepsi, Electrosol, rolls, 2 swn beef brt, honey, rnz wonder pet, noodle, potato, milk)
54.18 45.37 8.81 -
fee (Rent payment for Ms. Ruchti's residence) (^) 531.18 - 531.18 - None 167.71 - 167.71 -
Ink 248.17 - - 248. (20 hang file, 2 blk ink cartridges, folgers, 2dr file cab - items removed from Ms. Ruchti's residence )
75.24 - 75.24 -
None 2.95 - 2.95 - None 99.51 - 99.51 - None 11.95 - 11.95 - None 132.33 - 132.33 - None 165.23 - 165.23 -
Total $3,210.29^ 98.72^ 1,762.99^ 1,348.
Report on Special Investigation of the Searsboro Volunteer Fire/EMS Department
Payments on Personal Credit Cards For the period February 8, 2005 through September 21, 2008
Transaction Date Description per Bank Statement 01/23/08 DR Auto Trans - Capital One Autocheck Pymt ARC Truncated Check # 01/29/08 DR Auto Trans - FPB CR Card Internet 01/29/08 Cortrust 01/30/08 DR Auto Trans - Capital One Online Pmt 01/31/08 DR Auto Trans - Credit One Bank Payment ARC Truncated Check # 01/31/08 DR Auto Trans - FDR 3 Checkpaymt Arc Truncated Check # 01/31/08 DR Auto Trans - HSBC Credit Svc3 Checkpaymt ARC Truncated Check # 02/01/08 DR Auto Trans - ACB - PA Checkpaymt ARC Truncated Check # 02/01/08 DR Auto Trans - Credit Card Payment ARC Truncated Check # 02/04/08 DR Auto Trans - Capital One ARC Check Pymt ARC Truncated Check # 02/04/08 DR Auto Trans - Credit One Bank Payment ARC Truncated Check # 05/28/08 ACH Debit - Capital One Auto Web Carpay 07/15/08 ACH Debit - ACB - PA ARC Checkpaymt Check # Total
^ - On-line payment.
