Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 12, 1995 TAG: 9503130018
SECTION: VIRGINIA PAGE: A1 EDITION: METRO
SOURCE: SARAH HUNTLEY AND KIMBERLY N. MARTIN STAFF WRITERS
DATELINE: LENGTH: Long
Recent state police investigations into the squad's finances have put the price tag at about $1,900 in funds they say were embezzled and at least another $2,000 in unaccounted-for money, not to mention the damage done by the public relations black eye.
Now the squad is inviting the city into the fray. There's a request on Monday's City Council agenda for Salem to step in and audit the squad's books.
Salem's problems began when a year-end scrutiny of the books revealed discrepancies in two accounts. A grand jury indicted former Chief Ray Houff last month on charges of embezzlement, forgery and uttering in connection with one of the accounts. State police are still investigating the other account.
The Salem squad isn't the first to have problems - rescue squads have a history pockmarked by tales of financial impropriety - nor is the city the first government faced with the oversight issue.
According to Benny Summerlin, president of the Virginia Association of Volunteer Rescue Squads, there are at least 318 squads and 15,000 volunteers across the state. About the only thing they have in common is their purpose. Rescue squads save lives, pure and simple.
Except it isn't so simple. That task requires an enormous amount of beyond-the-crisis, behind-the-scenes administrative work. There is equipment to buy, people to train and financial records to be kept, and the who, what, when, where and how of all these functions vary dramatically from crew to crew.
Some crews in the Roanoke Valley have across-the-board dual-signature standards, requiring two officers to sign checks. Some mandate dual signatures if the purchase exceeds $1,000. Others have no dual-signature requirement whatsoever.
Some crews have computerized accounts, using electronic fiscal management programs. Others continue to put pen to paper and rely on the old-fashioned ledger method of record-keeping.
Even the treasurer's level of accounting experience differs from squad to squad. The Mount Pleasant Rescue squad pays a professional accountant to handle bookkeeping. Chief Dennis Furrow declined to say how much the service costs, but added: "It's worth every penny."
In most cases, however, the treasurer is elected and may or may not know the intricacies of bookkeeping and budgeting.
"Most of the time, the treasurer is chosen through a popularity vote. I might not even know how to balance my own checkbook, but I could have been elected," said Chris Stull, chief of the Vinton First Aid Crew.
The Vinton crew decided to take its treasurer out of the political loop last year. Now the position is appointed, filled annually by the board of directors.
"If you look at the rescue crew overall, it is a business - a big business," Stull said. "By the time you look at equipment and the building, our assets are probably in the millions."
Like most businesses, rescue squads are independent entities with corporation status and boards of directors. In the world of government services, however, rescue squads are a strange animal.
"They control their own bylaws and constitution. In that respect, they're no different from the Kiwanis Club," Salem City Manager Randy Smith said, "and I don't tell the Kiwanis Club how to handle its money."
Unlike the Kiwanis Club and other nonprofits, though, rescue squads perform a public safety role. To support those efforts, local governments provide the stations and underwrite a portion of the squads' operating budgets.
Roanoke County Administrator Elmer Hodge said that although squads traditionally have been viewed as nongovernmental charitable organizations, the county-squad relationship is slightly nebulous.
"They do have to submit a charter to the county before they can get started," Hodge said. "So they are probably somewhere in between a totally independent entity and a department of the county."
'It's easy to trace'
The local governments require a detailed account of how squads spend the money they allocate, but that covers only a fraction of the funds the squads handle. When there's trouble, it's the money tucked away in nonpublic accounts that is investigated most often.
"In most cases, the money is taken from donations in cash, and there's no record of it. So you have people collecting $500, but saying they only collected $300. The other $200 goes in their pockets," said Robert Perry, the state police assistant special agent in charge of the Salem bureau. "Sometimes, you have a person go out and write themselves checks, but that's just stupid. It's very easy to trace."
Perry, a veteran investigator, said his unit handles one fire or rescue embezzlement case a year.
"For a 14-county area, one a year is not a lot," Perry said. "Almost always, there is a decent criminal case there. They aren't bringing us pie in the sky. The question is not if you have a problem, but what are you going to do about it."
One way to monitor funding - before a full-blown police investigation - is external audits.
Roanoke figured this out early and has made provisions to ensure the practice continues.
The city drafted a contract in 1989 that takes the guesswork out of what could have been a murky government-squad relationship. The agreement spells out everything from how much money the city gives the consolidated Roanoke Emergency Medical Services organization to how many volunteers must ride in the ambulances. The contract also mandates an external audit.
Wanda Reed, manager of emergency medical services, has been working for the city for 25 years, and she can't remember a time when someone - the city or the United Way - wasn't looking at the squad's books. But that doesn't mean the city is constantly peering over the squad's shoulder.
"I do not approve every expenditure that they make. If they need a new copy machine, I don't have to approve that," Reed said.
Roanoke County caught on to the idea of external audits two years ago, and the Salem squad plans to begin external auditing this year, Salem Rescue Squad Chief John Beach said.
"We talked about [having an audit] for several years," Beach said. "There's a sense that we need to upgrade our accounting standards, and we decided to buy some help to do it. I think that's a legitimate administrative expense."
'Like a mutiny'
As Roanoke County discovered, however, the road to financial accountability is fraught with political peril.
The tensions started in the summer of 1993, when Hodge, who was on United Way's board of directors, realized that some squads never had been granted federal tax-exempt status.
Hodge also discovered another worrisome wrinkle. Although the county required audits of all other charities it funded, a complete and independent review of rescue squads' accounts had never been done.
"It didn't make sense," he said. "We should treat rescue squads like all the other charitable organizations we make donations to, whether it is Little League, Center in the Square or the Transportation Museum."
Hodge set out to encourage the squads to apply for tax-exempt status and made yearly external audits, fully funded by the county, a requirement. If an independent certified public accountant refused to approve the squad's accounting methods and financial records, the county would withhold its allocation.
"Our intentions from the beginning were to do this for their good, for their benefit," Hodge said. "It was not to meddle in their affairs."
Many crews didn't see it that way, and the decision caused "a little ruffling of the feathers," said Howard Hartman, public relations officer for the Fort Lewis Rescue crew. Others recall a more intense reaction.
"It was more like a mutiny," said Susan Lowe, acting chief of the Clearbrook Rescue Squad.
The biggest fear was that the squads would be penalized for effective fund-raising efforts.
"The crews were worried. If the county came in and did an audit, they'd say we don't have to give you any more money since you already have that much," Stull said. "It basically resulted in the same kind of resistance you would feel if I was asking you what money you had in your private bank accounts." A certain amount of the resentment stemmed from human nature.
"Anytime someone comes in and tells you you aren't running your company right, you tend to get defensive," said Lindsey Arnold, chief of the Cave Spring Rescue crew.
But there was more to it. This wasn't some average donor asking to see the books. This was The Government.
"The attitude was: We work long hours with no pay and then we have people coming in here and trying to tell us what to do. Bureaucracy has but one dream," said Bob Fulgaro, president of the Clearbrook Rescue Squad. "That's to get bigger and bigger."
The squads argued they should be self-policing, because they have to cover many of their expenses themselves.
"It almost has to be up to each crew because they are the ones going out and raising the funds," said Arnold. "If the county came in and said we are going to give you an operating budget of $75,000 and they wanted to see every penny, that would be fine; but that isn't going to happen."
The county examined the feasibility of taking over the operating budgets of both rescue and fire three years ago. Even if the squads remained volunteer-driven and no salaries were added to the budget, the minimum price tag would exceed $90,000 each year, said Tommy Fuqua, the county's chief of fire and rescue.
The county compromised. Squads hired a certified public accountant and handed over their books for external review, but all county officials received was a copy of the auditor's letter that affairs were in order.
For some squads, the external audit was no big deal because they had already implemented independent reviews. Two squads, Bent Mountain Rescue and Mount Pleasant Rescue, have been partner agencies with the United Way since the mid-1960s; to receive funds from the philanthropic organization, they are required to submit complete audits.
Some squads, however, weren't as experienced in financial accountability; for them, the external audit became a daunting task. The Clearbrook Rescue Squad was the hardest hit.
Clearbrook, like all the squads, received several letters from the county about the audit policy, but the leaders of Station No. 7 paid little heed.
First, they missed the June deadline.
"It took a while to get the materials together," Fulgaro said. "Certain people were dragging their feet. They were good at that. They could keep the shoe companies in business."
That was just the beginning. When the audit was done in July, the accountant the crew had hired, Topping Tax Service, refused to sign off on the books.
"Naturally, we thought we'd get a green light, but we were told that we weren't operating under general accounting principles," Fulgaro said. "Incompetence is a good word to describe what happened. It was like we had pickup truck bookkeeping. If someone got a receipt, they threw it in the back of the truck, where, of course, it disappeared."
Roanoke County police found no criminal wrongdoing by anyone, but the county withheld its allocation. Clearbrook Rescue was counting on the allocation to cover a loan payment on an $80,000 crash truck it had bought.
At the same time, Fulgaro was elected president. He cut off spending and convinced Central Fidelity Bank to refinance the truck. Then he and the other officers, including the newly elected treasurer, Chris Richardson, got to work cleaning up the records and enacting strict financial policies.
Since then, they have developed a chain of command for handling cash. They plan to set up an interest-bearing account with money set aside for emergency spending. To get access to the funds, one crew member would have to appear before the board of directors and argue in favor of spending the money. Another crew member would have to argue against tapping into the funds.
The county is awaiting the results of a six-month audit before allocating the crew its $9,200, but Fulgaro isn't worried.
"We're solvent now and well on our way to a rosy recovery," he said. "This audit business has been a learning experience for us. In the long run, I think the county's decision was a good move. It certainly had positive effects on Clearbrook."
'People trust people'
Nonetheless, financial experts agree that audits are not a cure-all. Nor are strict standards and guidelines.
"Embezzlements go on all the time. They just make larger splashes when it's a rescue squad," said Perry, the state police investigator. "I think they're run very well. They might not be as tight with the books as they should be, but that's not the key. What it rises and falls upon is people trust people."
Sometimes, though, people don't deserve that trust.
"It doesn't start out as stealing. People rationalize that they're just borrowing, that they'll pay it back, and at first they do, but at some point they have to look at what they really are," Perry said.
Doug Adams, an auto-parts salesman by profession, has handled the accounts for the Vinton First Aid crew for more than four years, and he defends the value of strict standards. During his tenure as treasurer, Adams has helped the crew develop spending limits, policies on reimbursements and a chain of financial command.
"I'm a stickler. I want to know where every penny comes from and where every penny goes. My name is on that report, so it's got to be right," he said.
Sooner or later, though, the issue boils down to a basic principle that no bookkeeper can do without - trust.
"If you make it so Big Brother is watching every action you do, you are going to lose sight of that basic fact," Adams said. "To some extent, it all comes down to trust. Now, if someone violates that trust, then woe be unto them."
And woe be unto the other squads in the area. The public doesn't forget.
A few days after the Salem Rescue Squad case hit the newspaper, Howard Hartman, of the Fort Lewis Rescue squad, stopped by the Libby Hill Seafood restaurant. He was on his way to work, so he was wearing his jacket with the Fort Lewis emblem.
"This man was coming out of the restaurant and he was mumbling something about how we used the money improperly," Hartman said. "It didn't make a difference that the case involved Salem, not us. Sometimes I think these things make people think, 'Well, if this is going on down the road, what's going on in my backyard?'"
To squads that have to raise funds for much of their operating budgets, that's a frightening thought.
The volunteer squads have tried a variety of efforts to raise revenue - chicken dinners, bake sales, photo shoots, car washes and rummage sales - but the money doesn't go far. Medical equipment is expensive, and prices are rising.
"For 15 years, we didn't buy a single stretcher. This year, we bought two and they cost us $7,000," Arnold said. "People really have no concept of how much this stuff costs."
To survive, squads must continue to depend upon the public's goodwill, and it takes more than good service to earn that.
"Rescue squads and fire departments have been known over the years to be lax in following up on the money. We have to track it more closely now, and rightly so," Adams said. "It's not my money I'm spending. It's the money of the people who donated it to us."
by CNB