Ohio legislature moves to crack down $1.2 mil in local government credit, debit card abuse

|
Posted: Aug 25, 2017 11:48 AM

Two Ohio representatives have submitted a bill that would curtail the kinds of  local government debit and credit card misuse that, in one recent instance, allowed the administrator of a small village to charge more than $700,000 in personal items to taxpayers.

House Bill 312, introduced late last month, would ban debit cards for all but “law enforcement purposes” and require local government entities to establish policy limiting credit card use. Though it provides some latitude in how those policies are written, it does specify that the policy must include rules on credit limits, who is authorized to use the card, and what constitutes acceptable use.

The bill appears to have received at least some tepid support among municipalities. Kent Scarrett, executive director of the Ohio Municipal League, told Watchdog.org that though his group is always concerned about state mandates on local government, it remains neutral on the bill.

“We don’t oppose it – there were some changes we sought and received,” Scarrett said. “It’s kind of in the vein of good government and setting some guidelines … it’s something we’ve already been talking to our members about, and we’re kind of following along.”

The bill, sponsored by Reps. Dave Greenspan, R-Westlake, and Kirk Schuring R-Canton, comes in light of a recent report by the state auditor, summarizing $1.2 million in local government card fraud discovered through 35 investigations since 2011.

In its most high profile example, the administrator for the Village of Mt. Sterling – with just over 1,700 residents – used over $724,000 in public funds to buy personal items ranging from a washer and dryer for his girlfriend, to a camper. Nearly half of the expenditures were made using the village credit card. The fraud, which began as early as 2012, was only discovered after the manager, mayor and the village’s fiscal officer simultaneously retired in 2016.

The manager, Joseph Johnson, faced 10 felony counts and ultimately entered into a plea deal in which he was sentenced to 10 years in prison and an agreement to repay the $724,000.

 

After finding that many of the instances of fraud stemmed from poor or lacking credit card policies, State Auditor David Yost sent out a survey to local government entities to determine the extent to which local government controlled credit card use. Though roughly 90 percent of respondents claimed to have some form of policy in place, a majority of those did not spell out “allowable expenses” as part of that policy.

“The response and findings were solid and provided the framework for the auditor and several state legislators to pursue … policies to safeguard credit-card use and protect taxpayers,” a representative for the Auditor’s office, Benjamin Marrison, told Watchdog.org. “In the meantime, the findings have encouraged local government employees, citizens and others to more closely examine credit and debit card spending, limits and policies.”

A representatives of the State Auditor’s office said that HB 312 was written in close consultation with the auditor’s legislative team.

Illinois’ most prominent action on limiting credit card use came in a state Supreme Court ruling nearly a decade ago against the former mayor of the City of Pekin, who used the town’s credit card for gambling-related cash advances during his term beginning in 2004. After he was caught, People v. Howard made its way to the the Illinois Supreme Court, which disagreed with the former mayor’s argument that since he repaid the withdrawn funds from his personal accounts, it was not misconduct. It ruled that the violation of the policy from the outset was a violation of the Illinois Constitution, regardless of whether the money was ultimately returned.

Since then, the Illinois Municipal League has warned members that even paying a double-occupancy fee for an accompanying spouse at a professional development event should be booked first with personal funds and reimbursed minus the fee. Like Ohio, Illinois’ rules on local government credit and debit cards appears to be at the discretion of local entities.

The Ohio bill also addresses increased oversight of credit card use, which the auditor advocated as part of its report. The report highlighted a township in Franklin County where the fiscal officer spent nearly $40,000 on unauthorized purchases over two years, including retail stores, amusement parks and more. In the ensuing investigation, it was uncovered that local policy made the officer responsible for not only deciding who received the township’s credit cards, but also for signing the monthly payment checks to those cards, and “maintaining support for expenditures.”

“In other words, she had total power over using and accounting for debit and credit cards,” the report said. “With no one looking over her shoulder, it was a situation ripe for exploitation.”

Provisions in the bill help enforce checks and balances, including regular reviews of credit card purchases by boards and councils and, for instances where local government has limited home rule, rules against appointing the fiscal officer to be the credit/debit card compliance officer mandated by the bill.

The ban on debit cards appears to stem from concerns expressed in the auditor’s report that such cards can be used for difficult-to-trace cash withdrawals.

If passed by the Ohio legislature, local governments in Ohio would have three months to establish a policy, or submit to a board policy.

The Ohio Senate and House are scheduled to reconvene floor sessions in September.