During a special called meeting tonight, Mayor Rick Austin read the final report on the investigation into the thefts of 471 batches of money taken between 2009-2013. “We are the victim of a crime,” stated Austin, “I have never heard of a vicitim having to hire an investigator, but that is what we did in the City of Demorest. We have doggedly pursued this investigation.” Former Mayor Malcom Hunnicut and former City Manager Juanita Crumley are cited numerous times in the report. The report concludes, “the apparent disregard for their fiduciary responsibility contributed to an atmosphere ripe for theft and corruption.”
The investigation began in January 2013 with an employee reporting the theft of $5,000 from a cash drawer. It concluded tonight with the release of Eason Investigation’s report into the over $600,000 eventually discovered missing in total. Initially the investigation was handled by the Demorest Police department and then turned over to the GBI. After Mayor Rick Austin had a conversation with the GBI over the stalled investigation, the City took the unprecedented move to hire their own investigator in October of 2014. Mike Eason, with Eason Investigations, is a former GBI agent took the reins of the investigation and within a month had released a preliminary report highlighting financial mismangement by then City Manager/Treasurer/ Secretary, Juanita Crumley.
This is the entire report transcribed in its entirety:
Eason Investigative Services, Inc.
City of Demorest
Investigative Summation
In Ocotober of 2014 Eason Investigative Services was contracted by the Mayor and City Council of Demorest to work with the city attorney, Mr. Joey Homans, to conduct and internal investigation into the missing water money from the City of Demorest.
The directions from the City were to conduct an internal investigation to try to obtain information for a city action, employment action or criminal prosecution of the person or persons responsible for the theft of these funds.
The investigation also sought to eliminate city employees from suspicion if possible and to address the many rumors and misconceptions surrounding the missing water funds.
During the course fo our investigation, we prepared a management report for the City of Demorest regarding the operational practices of the City’s handling of funds.
The City of Demorest discovered in 2013 that it had been the victim of a theft of over $200,000. The City of Demorest Police Department requested the Georgia Bureau of Investigation to conduct an investigation in to the missing money. The Georgia Bureau of Investigation interviewed City employees and conducted polygraphs of several employees and officials.
Following these interviews, the Georgia Bureau of Investigation determined that a forensic audit was needed to track the funds. The City of Demorest paid for an audit by a firm that was recommended by the Georgia Bureau of Investigation. The information from the forensic auditors did not result in any significant information that identified a suspect.
The lack of the City of Demorest management repsonse to their own annual audits and the failure to follow the recommendations of the audits, as well as poor business practices, contributed to the loss of funds.
The current city council and mayor subsequently contracted with Eason Investigative Service for an internal investigation into the matter.
This report is prepared for presentation to law enforcement and the prosecution agencies to assist in understanding the circumstances of the thefts of City of Demorest water revenues collected and stolen from 2009-2013. The victim of a crime does not have the responsiblity to solve it but to report the incident to law enforcement and to implement safeguards to prevent or reduce the probability of subsequent losses.
The City of Demorest directed that this report be provided to the prosecuting authority as well as the Georgia Bureau of Investigation.
The current City Council and Mayor of the City of Demorest implemented new business practices and procedures and made personnel changes to deal with the deficiences indentified with the financial practices of the City of Demorest. These poor practices enabled persons with knowledge of these practices and having access to the facility to steal over $600,000,00 from the City of Demorest over almost five years.
Rumors circulated that were seen as possible explanations of the missing funds including software/computer errors and possible theft of water department revenue funds by inmates who cleaned the City Hall each day.
Missing funds were the result fo computer software issues: Theses claims were addressed with the software provider as well as the source of this speculation. Upon reviewing the facts of the numerous thefts over a four year period of time, this was ruled out by the determination that hundreds and possibly thousands of computer one-sided entries would have had to have been made to make this a possibility.
The inmate theft of funds” our investigation determined that there was no evidence to support the allegation of inmate thefts. The Georgia Bureau of Investigation and the Departement of Corrections eliminated this possbility through their investigative efforts.
The initial investigation by the Georgia Bureau of Investigation and the City of Demorest’s contracted forensic auditors seemed to focus on the uncashed and missing payroll checks by an employee and focused on her as the principle suspect in their investigation.
We determined through our interviews that City employees routinely utilized the cash collected at the water department as a source for cashing checks and making short-term cash loans. The checks that were suspected as having not been deposited or cashed at a bank were most likely cashed with cash collected at the department and stolen with the currency taken from the water revenue funds as these checks were placed with the cash to balane that particular batch of funds.
During the course of our investigation, we met with the auditors who discovered the missing funds. They provided us with documentation concerning how and when the discovery was made and how it had been reported to the city management. The auditors had reported for several years to the City through their audit reports the poor cash handling procedures utilized by the City as well as the lack of coordination between the two software programs used for general ledger accounting, water billing and collections.
The scope of the audit did not include a comparison of the monies collected in the billing software for the water deaprtment with the general ledger deposit. The auditor discovered though a normal review of the bank accounts for the City of Demorest that several payroll checks of one employee had not cleared the bank during 2012 and that monies were missing. This exemplified the earlier report to management that no correlation between these two software packages existed.
When the original City auditors determined that in the year 2012 there were missing funds in excess of $200,000 there was speculation that this was a one-sided computer entry. This was thought to be an explanation of this missing water payment money by both the City of Demorest management and City employees.
Subsequently, the new auditors determined that the loss of City water funds occured in 2009 and continued until around the time the auditor determined that the funds were missing in 2013. The total of the missing funds is approximately $600,000.
Both of the auditors, the original auditors as well as the current auditors, made recommendations to the city that daily deposits be made as well as installing a software application that linked the two programs. (Note this had been routinely suggested and directed by the auditors for several yeas prior to the discovery of the missing funds in 2013) Examples of these are attached to this report (Attachement A)
Interviews with the City of Demorest employees who handled the cash and other payments taken in for the City water bill payments revealed that there were no safeguards in the handling of this revenue. This was a business practice that had not changed during the tenture of the staff at the city of Demorest.
Employees described having to request the City manager to make a deposit because they could stuff no more money in to the file cabinet drawer were it was maintained. Deposits would sometimes exceed $100,000.00 at a time and much of this was in cash.
The auditor made a random check of the cash drawer and found over $9,000.00 in cash on one day following the discovery of the missing money.
The Management Report provided to the City by Eason Investigative Services is attached to this report. (Attachement B)
Eason Investigative Services has conducted interview with the City of Demorest employees including City Hall staff and managenement, department heads of the city and City employees who were required to frequent City Hall on a regular basis.
Current City of Demorest council members and some former council members have been interviewed about their observations while on duty patrolling the City of Demorest during periods of time that the City Hall was closed, as well as their own visits to City Hall.
The auditing firm that discovered the initial loss, as well as the current firm, that uncovered the subsequent losses, were interviewed.
The software providers for the billing software and general ledger software, as well as the City of Demorest IT servicemean and the former City of Demorest bookkeeper, have also been interviewed.
Eason Investigative Services met with the Georgia Bureay of Investigation agent assigned to the case and other GBI agents and talked to the polygraph examiner.
We met with the District Attorney of the Mountain Judicial Circuit, his investigators and chief assistant and discussed the investigation with them.
We talked with the Federal Bureau of Investigation office in Gainesville, which covers the Habersham County area.
We also examined bank records, financial reports and other documents prepared by the auditors and forensic auditor regarding this investigation.
The lack of written procedures and the lack of a method to securely maintain and track cash and other financial documents presented and open invitation to anyone familiar with these lax procedures to take cash from the City of Demorest.
During the course of this interviews, we determined that there were many unfounded and false rumors and false perceptions of how and who had access to City Hall, and the funds.
We believe that we have been able to eliminate the possibility of either computer error or external thefts due to the large number of thefts that occured over such a prolonged period of time.
Demorest city employees who routinely handled cash have been interviewed adn polygraphs were performed by the Georgia Bureau of Investigation.
The opportunity for access to the funds was easy for anyone who was familiar with the process used by the staff to handle and store the cash and other financial documents.
The storage of the funds in a locked file cabinet drawer with no inventory of what funds were stored and the irregular retrieval of the funds for preparation for deposit provided and easy target for an informed thief. Access to the funds location in the building was limited during the day due to the presence of 3-4 employees during business hours.
The investigation determined that after hours access is the most likely time of theft.
Key control to the buildig was lackadaisical and erratic by management. Keys were provided to various City Council members and the former Mayor who all had legitimate reasons to enter the building after hours to retrieve mail from their City mailboxes and to complete required documents such as the finance council member who was required to co-sign check for official City purchases. No log of keys was maintained.
The City Council members denied frequent access to City Hall and several of them were not serving in office when the thefts began, some left office and the thefts continued.
The former Mayor was seen in Demorest City Hall numerous times afterhours by many people.
The City Manager and the former Mayor were both aware of the problem of no correlation between the billing software and the general ledger software through audit reports and conversation with their bookkeeper.
The City Manager was the person responsible for making the decision when to take money from the locked drawer and make a bank deposit. She was also responsible for preparation of the bank deposits and making arrangements to transport the deposit to the bank. Numerous employees from various departments were directed to carry deposits for her on some occasions.
Water bill payment stubs from some of the stolen batches were placed in the box in which non-stolen batches were stored, which indicates a very strong knowledge of the process that the City used to deal with a disputed payment as staff had to go back through these stubs to verify that a payment had been made. If the stolen batch receipts had been taken with the currency stolen, the theft may have been noticed sooner.
During the course of the internal investigation it was determined that many people had access to City Hall where teh funds were stored in a locked file cabinet drawer in the front office All of these employees and elected officials also had legitimate reasons to enter City Hall as any time, including nights and weekends. Additionally amny of these people based on their position with the City of Demorest could have or should have had knowledge of how the finacial processes for the City of Demorest worked regarding the handling of funds for the water department.
However, responsibility to ensure that a system was in place to properly collect, secure and ultimately deposit tens of thousands of dollars in water revenue rested with the former Mayor and the former city Manager (the former mayor’s sister -in -law). The failure to implement safeguards recommended by the city auditors and their bookkeeper and apparent disregard for their fiduciary responsibility contributed to an atmosphere ripe for theft and corruption.
During an interview with the Georgia Bureau Investigation, the former mayor, who was in office for about 3 decades stated that he was not aware of the procedures of the City of Demorest used to collect water revenue. Of the city officials interviewed by the GBI, he was the only one who declined to take a polygraph.
