Officials say a deeper dive into Gary city government's misuse of $8.2 million in public safety dollars is warranted, given the recent findings of a detailed analysis by accounting firm Whittaker & Co.
The firm’s financial review determined about $8.2 million was improperly transferred from the city’s emergency services fund — a restricted account — from Jan. 1, 2015, to March 31, 2018, to cover payroll and other expenses in the face of a multimillion-dollar structural deficit where yearly expenses outweigh revenue.
Just over half of that — $4.5 million — was inappropriately transferred from Fund 224 to cover the city’s payroll beginning in 2015, the same year the city approved $3.8 million in pay raises for police and fire personnel.
The practice continued up until March of this year.
Municipal wire transfers between accounts are common to ensure payroll is met each month or to cover other expenses, but in this case, transfers took place for years without City Council approval.
The emergency services fund is designated for deposits of emergency fees from individuals who use EMS services and largely supports EMS- and fire-related needs.
Rebecca Wyatt, a first-term council member for the 1st District, said the misuse of Fund 224 points to a larger problem in city government.
Not only does it highlight sloppy bookkeeping and a lack of checks and balances; it also points to a long-standing culture of kicking the debt can down the road, she said.
"It seems to me that if we had known — you know, the council is a fiscal body — if the finance department had come to us and said, 'We need to use funds from 224,' then we would have known long ago that there’s not enough money here, that it's not there. Perhaps we could have taken steps to prevent the cliffhanger that we’re on right now," Wyatt said.
"If we had known that we were robbing Peter to pay Paul, we may have been able to make more informed decisions when asked to vote on things," she said.
A contract obtained by The Times shows the city of Gary agreed to pay Whittaker and Co. a rate of $165 per hour, not to exceed $50,000, to perform the accounting analysis of Fund 224.
A detailed accounting
Whittaker's report shows the majority of transfers were in the six-figure range to cover payroll and other expenses, records show.
In total, $1.7 million was inappropriately transferred from the EMS fund in 2015; $3 million was transferred in 2016; and $3.2 million in 2017. About $175,000 was transferred this year, as of March 31.
The initial analysis shows $1.9 million was transferred to the city's account that hosts 146 special-use funds, including Fund 224; though Curtis Whittaker, a certified public accountant with Whittaker and Co., explained his firm has not analyzed all of those funds for inappropriate wire transfers.
They did find that, of the $1.9 million, a single $1 million transfer went to an appropriate source — an EMS vendor — but was not reflected in the city’s financial system.
A more detailed analysis is needed to determine if any inter-fund activity was not properly recorded.
"The city really needs to get a handle on that," Whittaker said.
Whittaker's report also found that instead of depositing emergency service fees into the restrictive Fund 224, as they should have been, city personnel directed those dollars to a city bank account that hosts all the city's 146 special-use funds.
Hundreds of these small deposits totaling $14,800 were reflected in the city's accounting system as going into Fund 224, but that wasn't the case, according to Whittaker.
Whittaker's analysis of Fund 244 extends back to Jan. 1, 2015, because, he said, that's when he started to see major activity flowing through the fund. It's the same year the city administration pushed, and won approval, for police and fire pay raises.
Wyatt said it's her understanding Fire Department personnel flagged the bank account discrepancies — long before the city opened its own investigation earlier this year — and went to the controller's office for an explanation.
Wyatt said she wants to know why the practice wasn't brought to an end then.
$131,850 still missing
Of the $8.2 million, $131,850 remains unaccounted for. Gary City Council President Ronald Brewer described the missing dollars as "possible theft" and has called for a full investigation into the matter.
"I think we might have a problem with theft here," Brewer said.
Whittaker's full report, including information about the $131,850, has been forwarded to the State Board of Accounts, the agency charged with conducting annual audits on local municipalities and investigating possible instances of taxpayer-dollar misuse.
Brewer said he and other city officials are meeting with the SBOA on Tuesday, when SBOA is expected to present its final audit findings.
The blame behind the misuse in funds so far has largely fallen on two key figures in the city’s finance department: Michele Roby, the deputy controller fired in June, and former Controller M. Celita Green, who retired in March.
Mayor Karen Freeman-Wilson terminated Green’s nine-month consulting contract in May after the findings came to light.
"How does this happen? You had a controller and deputy controller that didn’t record transactions. They are clearly seen on the bank statements, but were never recorded into the system. They were in positions of trust, but they did a work-around the fabric of the system," Whittaker said.
Brewer said it "doesn't add up" why the finance department didn't bring requests to use Fund 224 to cover payroll to the City Council.
"Was this a culture of past administrations? Did this happen before? I am under the conclusion someone had to have known it was taking place. I find it very hard to think they were the only two who knew," Brewer said.
Whittaker said his staff attempted to contact Green through a working phone number to ask about the $131,850 discrepancy, but did not receive a response. The Times found two phone numbers associated with Green's home address in Gary. One phone number was disconnected; the other continuously rang with no option to leave a voice message.
Whittaker said his firm made contact with Roby through her attorney, and said they could not provide any specific information about the missing funds.
Roby's attorney, Darnail Lyles, said he and Whittaker had multiple email exchanges this summer in which Roby offered methods to determine where the $131,850 may have been deposited, such as scrutinizing bank reconciliation documents or running a full report of 2015 receipts, and comparing that to bank statements.
"The big question is 'What the hell happened to the 132,000?' I can tell you Ms. Roby doesn’t have it," Lyles said. "My client did thousands of transactions. That's why she's directing them back to the city’s books. There’s a breadcrumb trail."
Lyles maintains his client did nothing wrong.
"Roby was doing what the city needed done. She doesn't make decisions on her own, how to pay the bills. She follows orders. This has been going on since 2015. So she doesn’t just decide what accounts she wants to pay the city’s bills out of," Lyles said.
'How does this happen?'
About $1.3 million was inappropriately transferred to the city’s Blight Elimination Fund, a reimbursement account for federal Hardest Hit grant money to help tear down blighted homes. Local municipalities are required to spend money up front to obtain federal Hardest Hit dollars.
Whittaker said it’s still unknown if the city, once reimbursed by the federal government, returned the money to the Ambulance Fund. The mayor has publicly stated a commitment to do so if it was not done already.
Wyatt says Whittaker's report uncovered more questions than answers.
"How do we not know where the money went? If we got reimbursed (through Hardest Hit dollars), where is that? And why don't we know where it is?" Wyatt said.
Cender & Co., an accounting firm based in Merrillville that assisted the city with bank statement reconciliations, is also no longer contracted by the city, the mayor and the law department have confirmed.
Karl Cender, CPA executive and owner of the firm, did not respond to a request for comment last week. A voice message was left with his office.
There are those at City Hall and within the city of Gary who question how Roby and Green could have transferred millions in funds from a restricted account in a silo-like fashion without someone, such as the mayor, taking notice.
"I can’t imagine the controller acted on her own. It’s hard to imagine. I knew her. She had a lot of integrity," Wyatt said.
Freeman-Wilson has said it is not customary for the mayor or council members to analyze bank accounts. However, it is common to review the city’s accounting system, but none of these transfers was properly reflected there.