Poor recordkeeping fostered opportunities to steal money paid to rural northern Hidalgo County's primary fire department, county auditors say.
The lack of control over the Linn-San Manuel Volunteer Fire Department's finances could "create opportunities for misappropriation to occur without detection," according to an audit of county reimbursement of the department. The department continues to operate, despite losing its station last year in a suspicious blaze set during a Christmas party.
The scathing review of the fire department's reimbursements for providing fire protection and emergency services revealed that more than $330,000 in county-funded expenses often lacked supporting documentation. The funds in question include $79,000 earmarked for travel purposes to conferences and emergency calls and another $40,000 where auditors could not even determine the purpose of the transaction.
The five-month examination by the Hidalgo County Auditor's Office also found the fire department lacked evidence that some of the emergency calls it was reimbursed for responding to even occurred.
The audit, requested by Hidalgo County commissioners in March amid rumors of financial misconduct, is the latest blow for the department that has been in turmoil since its fire station burned down in December when volunteers were at an annual Christmas party. Hidalgo County Sheriff Lupe Trevino has said his investigators believe that the fire was intentionally set to hide evidence that money was misspent.
Concerns about the volunteers' financial management had already led Hidalgo County Precinct 4's emergency services district to cease funding that pays for the fire department to respond to emergency calls in the northern Hidalgo County community. But the Hidalgo County auditor's office recommended to commissioners in the Sept. 6 report that they terminate the county's own funding agreement until the department addresses "significant weakness in the management of its finances."
Hidalgo County commissioners -- who on Tuesday will consider the auditor's recommendation to suspend funding -- reimburse fire departments that respond in rural areas on a per-call rate that ranges from $120 to $1,000. From October 2008 to September 2011, the period covered in the audit, the county reimbursed Linn-San Manuel $331,000 and also paid for firefighting and emergency response equipment through federal funds.
The department's operations are funded entirely by the county's reimbursements and by community donations and fundraisers. Losing the county's regular check could be a crippling blow to the department.
The department's board agreed at a Thursday meeting to begin implementing recommendations in the audit, said Fire Chief Domingo Hinojosa, who reports directly to the board comprised of community members selected by the volunteers. But he added the department should be allowed to "justify and clarify the areas identified in the letters" that prompted the concerns.
Fire Department treasurer Rudy Flores said the volunteers are not "given the benefit of the doubt because we're not able to produce the (financial) documents" lost in the fire.
"Financial records were maintained. They were provided at every board of directors meeting, as well as the business meetings," Flores said. "The financial records were there, but unfortunately the fire destroyed them."
LACK OF CONTROLS
The auditor's review of the fire department's bank statements found it lacked "formal policies and procedures for the management of its finances," making it difficult to determine whether reimbursements for emergency calls were properly claimed and whether expenditures were properly documented and authorized.
The department lacked sufficient supporting documentation for the reimbursements requested by Hidalgo County for fire protection and emergency response services, the audit found. Incident reports submitted for reimbursement did not consistently contain required information -- such as the caller's name, telephone number and type of emergency call -- and dispatch logs supporting the incident reports were not maintained.
Auditors also selected a small sample of incident reports submitted to the Hidalgo County Sheriff's Office. Of the 41 incident reports pulled, the Sheriff's Office had emergency call recordings for 29 of them but had records of the other 12.
But the audit also raised questions about the department's expenditures. Among them are:
--Expenditures for cell phone and wireless card services that totaled $22,276. A review of invoices from Sprint and AT&T revealed that the total payments reportedly made exceeded the amount on the invoices provided by $5,474.
--Nearly 400 check and credit card transactions for food and drink, totaling $39,680. About $31,200 was paid to restaurants, convenience stores and grocery stores, and another $7,600 was reimbursed to individuals. Flores, the treasurer, told the auditor that food and drinks were purchased for meetings and for fire incidents lasting more than three hours.
--Travel expenditures totaling $79,753 for mileage reimbursements, per diems and allowance. Documentation supporting the travel expenditures was not provided, but eight checks totaling $3,706 were made payable to cash. The check memos said the cash was used to pay for hotels and parking.
--Expenses to provide lawn care and cleaning to the department. Flores, the treasurer, was paid $3,450 to maintain the property after submitting the winning bid for lawn care services, according to the audit. Flores, who bid $20 for the service, was paid $100 each time.
--The department also spent $2,535 for cleaning. Most of that sum was written in checks to an individual, but $1,300 were checks made payable to cash or ATM withdrawals.
--More than $40,000 in expenditures where the auditor could not determine the purpose for the transactions because it was not documented or legible. Flores told the auditor that those transactions included a $5,000 teller withdrawal to set up the pension fund -- although the auditor found no evidence that money was ever deposited into the pension account -- and ATM withdrawals worth $700 to set up a petty cash fund. Financial records for the petty cash fund were not maintained.
The auditor recommended the department implement internal controls, including formal financial policies and procedures for the receipt and disbursement of funds. Although other controls such as requiring dual signatures for checks are in place, they were apparently not strictly enforced.
The treasurer and fire chief signed on several of their own reimbursement checks.
ARSON INVESTIGATION
The report was released as sheriff's deputies investigate the Dec. 10 arson that claimed the fire station and the allegations of misappropriations and fraud.
The 20 volunteers were at an annual Christmas party in Edinburg when the closed convenience store that served as the fire department's home caught fire, destroying equipment and a trail of paperwork. Hidalgo County Fire Marshal Juan Martinez classified the blaze as arson and turned it over to the sheriff's office for investigation.
Hidalgo County Sheriff Lupe Trevino said his office's "working theory" is that the fire was started to eliminate evidence of financial misconduct. While some paperwork was lost in the fire, Trevino said the audit's findings are among the evidence his investigators have independently uncovered.
"One of the easiest cases to investigate is financial fraud because once you put it in writing, someone will always have a record of it," he said. "It's just a matter of finding that database."
Fire Chief Domingo Hinojosa, Flores and board president Lucas Hinojosa Sr., however, said in an interview Friday that they don't believe a volunteer could be tied to the blaze.
Calling the fire station a "second home" for volunteers, Domingo Hinojosa said it was "heartbreaking" to see it classified as arson. But he said the fire department never stopped responding to calls despite the loss of the station and much of their firefighting equipment.
The treasurer and fire chief also said the auditor's report did not fully account for the policies and procedures the department already has in place. Flores said the auditor's office did not meet in person with fire department officials before issuing the report.
While Domingo Hinojosa said the department's board wants to work with county commissioners to address any concerns, he added the department already has in place "95 percent of the recommendations that (the auditor) made," such as an annual budget and cash management procedures.
"We welcome the recommendations," Domingo Hinojosa said. "We're going to respond to the inconsistencies and tell them, 'You didn't ask for this, but we have it and here it is."
In the interim, the fire department is largely operating on what it has in the bank and with the support it generates from the community. On Sunday, firefighters will sell dinner plates to generate revenue.
Linn-San Manuel residents remain strongly behind the volunteers in a community where the volunteer fire department is a point of pride, along with its church and elementary school, said Lucas Hinojosa. The retired educator, who has volunteered with the department since its inception, wanted to donate land to construct a new fire station.
Although the department spent $7,000 to install a fence around his property, an alternate location was eventually chosen for the new fire station.
"We still continue to provide services even though we've gone months without a check from the county," Hinojosa said. "Our fundraisers from the community have helped a lot."
COUNTY'S QUESTIONS
But it's unclear whether the department can provide services without the county's support.
Pending completion of the audit, the county stopped all payments to the fire department for services. Precinct 4's emergency services district, a taxpayer-funded entity charged with providing ambulance care in rural areas, followed suit.
The district's $10,000 contribution was to subsidize the firefighters for showing up to the scene of accidents where they can provide first aid or additional stabilization before EMS arrives.
"When the audit came out, based on where they're spending their money, it's going to be taken into consideration into what if any contracts we'll have with Linn-San Manuel," said Frank Prado, the district's attorney. "We'll look at renewing the contract for this year based (on whether the recommendations are implemented)."
An ongoing concern for some officials is the fire department's structure where the volunteers nominate and elect their own board of directors. Although the volunteers take pride in its democratic nature, the self-selection process has put some volunteers on the board that oversees their work.
On Tuesday, Hidalgo County commissioners will decide whether to suspend reimbursing the Linn-San Manuel Fire Department. Commissioner Joseph Palacios said the Edinburg Fire Department has volunteered to operate in Linn-San Manuel to ensure services are not interrupted.
"Unfortunately, the audit on the Linn-San Manuel Fire Department presented vulnerabilities in their ability to create proper documentation and expenditure processes," said Palacios, who represents the area. "The county will continue to monitor the investigation by the Sheriff's Office to ensure that tax dollars are being used in accordance with the law."
Copyright 2012 - The Monitor, McAllen, Texas
McClatchy-Tribune News Service
