Amid a theft scandal, emails reveal finances in disarray and lack of cooperation with Ohio officials

The recent grand jury indictment of a former clerk in the Niles treasurer’s office is not the end of trouble for the city.

It appears state financial and performance audits have found that the city’s utility funds are short by millions of dollars, the city’s financial records are in shambles and a city official may have made an illegal loan to the community’s youth baseball league.

The Tribune Chronicle pored through hundreds of emails and obtained confidential copies of an audit draft and pre-audit meeting agenda that, among other matters, indicate a lack of cooperation from the city’s auditor and treasurer in reactions to requests from state officials.

While the final audits have not been released, some findings have already been passed to the investigative arm of state Auditor Dave Yost’s office and a special audit has since been launched.

Records obtained by the Tribune Chronicle show:

  • The city’s water utility fund has a $2.2 million deficit and its sewer fund is $734,666 in the red.
  • Former treasurer’s clerk Phyllis Wilson, who pleaded not guilty to an accusation of stealing $72,000 from the city during her employment, operated without much oversight from Treasurer Bob Swauger or Auditor Chuck Nader.
  • The city does not account for capital purchases, does not track the location of its capital assets, and its most recent record of capital assets in its utility departments is 1996.
  • The city misstated its federal awards by hundreds of thousands of dollars in 2012.
  • The city does not have an accounting of more than $2 million that the Ohio Department of Transportation paid to vendors on behalf of the city in 2012.
  • The city has not reconciled its fund balances with its bank balances in at least three years.
  • The city has a number of “fraud risk factors.”

Those are among the findings mentioned in a state auditor’s draft report and a pre-audit meeting agenda. Since the audits are not final, these preliminary findings could change.

Carrie Bartunek, assistant public affairs director and press secretary for the state auditor, said Thursday that the allegations against Wilson prompted state auditors to initiate a ”special audit,” a separate investigation initiated when fraud or misuse of public funds is suspected.

Last week, City Council Finance Committee Chairman Steve Papalas seemed particularly irked by a $15,000 loan approved by City Council in April 2012 on behalf of Swauger, who was serving as president of the Niles Youth League.

Swauger said that a weather-related accident required the league to make repairs at Waddell Park. “Two dugouts were blown over in a wind storm, and the league decided to take the opportunity to make improvements to the whole field for the betterment of the kids,” Swauger said.

Swauger said the $15,000 was appropriated, not loaned, but that the league paid the money back anyway.

“It wasn’t a true loan that was made,” the treasurer said. ”Council gave money to the parks, and they controlled the payout, which we have since paid back.”

Papalas said that Swauger’s account of the events is not the full story.

”It was a loan. I will be clear as day to say it was a loan, and I will look (Swauger) in the eye and he won’t rebut me,” Papalas said. ”He’s covering his rear end on this. This was an unusual request he made of council in the first place because that’s not something we do. But this was to help the kids play baseball, so we consulted (Law Director) Terry Dull, and he told us this was something we were allowed to do.”

But state auditors informed city officials that the loan may not be legal and, Papalas said, could result in the city being cited by Yost’s office.

Papalas also expressed frustration with Dull, whose office prepared the initial ordinance and verified to council that the loan was legal.

”We wouldn’t have done this if Terry Dull did not tell us it was OK to do, but we met in Terry’s office a few months ago, and he was all set to tell the auditors that this was actually an appropriation,” Papalas said. ”We heard that and made it clear that, no, this was a loan we approved and it was not an appropriation.”

Attempts to reach Dull for comment were unsuccessful.