Jackson County commissioners have nixed the idea of making volunteer fire departments financially autonomous.
The view from Roger Plemens office is hard to beat.
Bay windows serve up a bird’s eye view of the Nantahala mountain range, a vantage point that must have been a factor when Macon Bank chose this hilltop for its prestigious corporate headquarters that tower above Franklin.
The popular Folkmoot international festival will become a shadow of its current self in 2014 if its financial outlook doesn’t take a quick turn for the better.
An audit of REACH of Jackson County’s finances received by the nonprofit’s board last month show the money situation had become even more dicey than was previously made public.
The agency, which worked with victims of domestic violence and sexual assault, shut down last week amid accusations of internal financial irregularities. Jackson County women and children seeking help from abusive situations are now reliant on other counties’ agencies to provide services and emergency shelter.
What primarily triggered the sudden closure was the nonpayment of payroll taxes for three quarters in 2011 to the Internal Revenue Services. The board last week fired the agency’s executive director and finance officer. The seven remaining employees were laid-off.
The audit, reviewed this week by The Smoky Mountain News, reportedly played a huge role in the board’s decision to pull the plug on the 33-year organization. Here were some of the findings of the financial review, which was dated Dec. 28 and prepared by the Waynesville firm of Gahagan, Black and Associates:
• The organization lost $128,216 in net assets for fiscal year 2010-2011.
• At the time of the financial review, REACH’s assets totaled just $58,104, but the agency had current liabilities of $200,863. That included long-term debt totaling $100,789 and unpaid payroll taxes of $76,752 (that number continued to climb, totaling about $81,000, including penalties, by the time the agency closed).
• The situation was so dire the amount of assets held by REACH couldn’t even cover its temporarily restricted obligations of $10,295. These are funds restricted in use, with dollars required to be spent in a certain timeframe or be spent for specific purposes only.
“These conditions make it uncertain as to whether the organization will be able to continue as a growing concern,” the auditors noted.
In an interview last week, fired REACH Executive Director Kim Roberts-Fer said she waited to tell the board about the payroll tax issue until receiving the results of this audit. Roberts-Fer indicated she’d learned about the IRS problem in October. She said that she’d been in contact with the federal agency to try to work out a payment plan.
Roberts-Fer said her delay in relaying what was happening to the nonprofit’s overseeing board was justified because she wanted to give board members a complete picture of the situation, one that included solutions. Roberts-Fer said she had successfully worked out a compromise with the IRS that would have enable REACH to continue serving the community.
REACH’s board still hasn’t made any public comment except for the release of a small, prepared statement last week expressing their regrets over closing the agency.
But the auditor’s findings, coupled with the sudden appearance of an IRS agent who demanded personal financial information from board members, clearly influenced the decision to finally end the protracted death writhing of the virtually financially insolvent group.
According to Roberts-Fer, fired Finance Director Janice Mason was working within a financial system long in place at the agency. Mason has declined to comment through her former boss.
The auditor noted the following “client response” to the issue of the nonpayment of IRS payroll taxes: “The client was unaware of how to classify expenses through the accounts payable function and wrote the checks to classify expenses.”
REACH’s financial practices encompassed monkeying around with paying various bills because of an ongoing funding crisis that had threatened the agency’s survival for two years. The agency put off paying payroll taxes in hopes of catching up but instead fell more and more behind.
The root of the problem started before then, however. REACH in 2001 opened a $1.1-million transitional-housing complex for victims trying to escape abuse. It was a questionable financial venture from the get-go: The nine-apartment village could not actually generate the funds to pay the loans, much less keep pace with general repairs and upkeep. The loan amount owed was $840,074.
The REACH village went into foreclosure. Recently control of that housing complex shifted to Mountain Projects, a nonprofit that administers programs to benefit the needy and elderly in Haywood and Jackson counties.
The IRS put a lien on the property in early February because of REACH’s nonpayment of taxes. That almost boogered up last week’s scheduled transfer to Mountain Projects. But, the U.S. Department of Agriculture (which was one of the original loan makers to REACH) persuaded the IRS to knock the $81,000 down to $51,000. REACH has agreed to be responsible for that debt if Mountain Projects would go through with taking over the property title.
Additional questions surfaced this week about whether REACH would even have been able to apply for and receive federal and state grants anymore since the agency both defaulted on a government loan and failed to pay the IRS. An estimated 90 percent of the nonprofit’s funding base was dependent on grant money.
In the short term, which could mean at least a couple of years, REACH of Macon County will provide services in Jackson County, including key legal services for domestic violence victims. The agency has been given a temporary office and phone at Jackson County’s social services department.
“It has seemed fairly seamless at this point,” said Ann VanHarlingen, executive director of REACH of Macon County. “We realize that Jackson County and the people of Jackson County will devise a system by which they will take this project back over; we also realize this is a process, not an event.”
REACH of Macon County expects to move into more permanent office space in Sylva March 1. That nonprofit will provide three staff members to Jackson County to ensure a continuation of services, said Andrea Anderson, director of client services for REACH of Macon County.
“The debt of gratitude the people of Jackson County owes REACH of Macon County is quite large right now,” Jack Debnam, chairman of the Jackson County Board of Commissioners, told VanHarlingen and Anderson during Monday’s commission meeting.
For now, victims fleeing abusive homes will be housed in emergency shelters in Haywood, Macon or Swain counties. That could change, however. Bob Cochran, director of the Jackson County Department of Social Services, said Mountain Projects via Patsy Dowling has offered Jackson the free use of the old emergency shelter in the former REACH Village.
VanHarlingen told Jackson County commissioners that it requires 18 to 24 months to fully setup a nonprofit agency to serve victims of domestic violence and sexual assault.
Cochran said in an interview with The Smoky Mountain News that “the dust needs to settle” before the community can chart its best course of action.
“It is still early in determining the status and the final outcome of the current REACH,” Cochran said. “We hope there will be some assets left that can be used toward a rebuilding process.”
Given the audit findings, that scenario seems increasingly unlikely.
In addition to not paying the IRS, REACH failed to pay several months rent for the space housing its thrift store. A lien seeking payment on back rent has been filed with the Jackson County Clerk of Court, and there is the possibility of more creditors seeking payment. Also, some of the employees of REACH are owed back pay.
Asked if Jackson County wouldn’t be better served by simply eliminating REACH and starting anew with a different name and no baggage, Cochran responded that he couldn’t answer that question yet.
“I don’t know. I think that conversation has yet to take place,” he said.
Despite multiple red flags, Bryson City officials failed to provide proper oversight of the town’s volunteer fire department over the past decade, eventually leading to a State Bureau of Investigation probe of possible misappropriation by the fire chief.
An investigation by The Smoky Mountain News shows:
• For almost a decade, Bryson City leaders knew something was awry with the fire department’s finances but failed to get to the bottom of it.
• The town was afraid to confront former Fire Chief Joey Hughes, fearing he would lead a strike of the volunteer firefighters as threatened and refuse to respond to emergencies.
• The Ladies Auxiliary, the department’s fundraising arm, went unaudited, unchecked and unmonitored for years. The lack of checks and balances created an atmosphere that gave Hughes, a volunteer firefighter, virtually total control of donations to the department and community fundraising efforts.
“It took a whistleblower in this case,” said Paul Miller, executive director of the North Carolina State Firemen’s Association.
Hughes is now under investigation for improperly using funds donated to the fire department. The State Bureau of Investigation is scrutinizing records collected from the department’s two secret bank accounts and Hughes’ Swain County home.
When the official investigation in the fire department’s finances began this summer, Assistant Police Chief Greg Jones found two accounts that town leaders were unaware existed — “Friends of the Firemen” at United Community Bank and “Ladies Auxiliary” at the North Carolina State Credit Union.
Checks addressed to the Bryson City Fire Department had been deposited into both accounts, according to search warrants issued for the bank records of the two fundraising arms. The confiscated documents include statements, signature cards and cancelled checks.
Investigators are trying to piece together where the money in the accounts went after that and whether any of that funding actually benefited the fire department and its firefighting efforts.
Hughes’ wife Cylena was listed on the signature card for both accounts, while Hughes, Wendy Peterson and Heather Wiggins were listed as possible signatures for the “Friends of the Firemen” account.
Investigators conducted another search of Hughes’ home on Hyatt Creek Road in Bryson City in October. Agents with the North Carolina Department of Insurance and State Bureau of Investigation seized paperwork, two computers and a collection of checks, stamps and envelopes.
Hughes Tuesday denied any wrongdoing on his part. The former fire chief said that he was the victim of dirty politics and that he’d never misused fire department funds or abused his position.
“I hope Bryson City gets a mayor from Bryson City,” Hughes said, a critical reference to Mayor Brad Walker who isn’t originally from the mountains.
Hughes blamed Walker for spreading misinformation. Hughes said that his troubles date to disagreements about equipment purchases the fire department made under Mayor Bruce Medford more than six years ago, and that Walker, as a friend of Medford’s, is simply engaging in dirty politics because of those old disagreements.
Hughes’ house has recently been put up for sale by owner.
Troubles with Hughes dates back eight to nine years ago. The former fire chief talked his fellow firemen into striking, according to a search warrant issued for the Hughes’ home.
The volunteer firefighters “threatened to close down the fire department,” Walker told The Smoky Mountain News.
Back then, town leaders told the fire department that checks made out to the Bryson City Fire Department must go through proper town accounting procedures, Walker said.
“The best I remember there were some questions about the bookkeeping — how the records were being kept,” said Alderman Kate Welch.
The town feared another strike if they made Hughes mad and, therefore, maintained a relatively hands-off approach after that — without ever getting satisfactory answers to its questions.
Around the same time, Hughes closed the existing bank accounts for its fundraising arms and opened new ones that he could control access to — shutting out the town’s access in the process, Walker said.
Before the strike, the fire department’s account information was available upon request by the fire department’s executive board, according to warrants. Afterwards, however, Hughes would not share bank statements for the fundraising arms when asked repeatedly by fellow firefighters.
Hughes refused to open his books to the town as well. Officials were not privy to the finances of the fire department’s fundraising arms despite at least one official request.
Hughes told Town Attorney Fred Moody, in a letter dated July 13, that the Bryson City Fire Department had not had a bank account since Jan. 1, 2000, according to a search warrant.
Other firemen who asked about financial records were also told “no” by Hughes, the search warrant states.
A volunteer firefighter Mitch Cooper, who later provided the town with what he asserted was proof of Hughes’ mismanagement, is among those who asked where the (citizen) donations were going. Hughes told Cooper that he would get the information together.
Instead, Hughes would “fabricate a piece of paper of what was spent and how much was left,” according to a search warrant.
The fire department’s board of directors also asked about the bank statements for the fundraising arms. But in what was apparently his typical fashion, Hughes produced a handwritten notation, but no official documentation.
During Fireman’s Day in 2010, a community rally of sorts for the volunteer firefighters, town fireman David Zalva helped count the donations the department received, which totaled about $4,800, according to a search warrant. However, Hughes said only $600 was collected, according to a search warrant.
At some point in the not too distant past, Bryson City’s mayors would also serve as fire chief, said Town Manager Larry Callicutt.
Because of this, the town board did not need formal oversights. The mayor, who was also the fire chief, maintained an informal line of communication between the firehouse and the town board.
Walker said he believes this resulted in a separation between the town board and the fire department because there was never a formal system of checks and balances. When Hughes came along, but wasn’t also the mayor, there was no prescedent of oversight.
“That’s my belief,” Walker said. “Somebody took advantage of (the separation).”
This meant the town did not exercise any oversight of the fire department’s fundraising activities, and officials did not know how much the department brought in, nor how it was being spent.
The Bryson City Fire Department has a local relief fund, a separate fundraising arm so to speak, as do other fire departments in the state.
A Board of Trustees, consisting of five fire department members, is supposed to oversee the local relief fund. However, this board never met, and people named in the annual reports did not know they were on the board.
As of 2002, Hughes was listed as treasurer of the Relief Fund Board, according to its annual reports. Charles Killebrew was listed as chairman of the board.
Killebrew told Chet Effler, an investigator with the State Department of Insurance, that Hughes asked him to serve on the board but stated that he never attended any meetings for the board nor saw any annual reports. Most of the firemen interviewed during the state investigation said they did not even know the Bryson City Fire Department had a local relief fund.
The department is required to submit an annual report to the State Firemen’s Association, detailing how much money the relief fund had at the end of the year, where it is invested and what funds were spent on that year. MOVED
Each fire department is required to submit the annual report if it wishes receive funding the following year. In most cases, departments must have permission from the association to spend relief fund monies.
“Based on the reports they sent, you really couldn’t tell anything was going on,” said Miller, executive director of the firemen’s association. That’s why Cooper’s whistleblower role was key to uncovering possible wrongdoings, Miller said.
Cooper told police in May that money collected during some donation and fund raising events was unaccounted for, and money given to the department was not “being maintained, accounted for, or properly used as intended,” according to a search warrant.
Cooper could not be reached for comment.
Walker said that Cooper brought cancelled checks to him, which showed that the fire department was misusing funds. Walker then presented the checks to the town board, he said. But he said he couldn’t the rest of the board to take it seriously.
“The board took no action,” Walker said. “I had to go around the board to get this done in the first place.”
According the search warrant, Walker asked the Bryson City Police to investigate the fire department’s fundraising accounts on July 15 after citizens had asked him about their donated funds and why the department’s building looked run down. The mayor said he did not remember when he presented the cancelled checks to the board, and he did not approach the police sooner, he said, “because there was no physical evidence.”
Alderman Jim Gribble declined to comment on Walker’s statement that the board did nothing when presented with the cancelled checks. Tom Reidmiller, a fellow alderman, said the board has no jurisdiction over the auxiliary.
“I can’t tell you much because I don’t know much,” added Alderman Welch.
The town had to “back off” until it had evidence of wrongdoing, she said, later adding that the mayor, who oversees the police department, handled much of the investigation.
“We (town board) don’t have authority to initiate an investigation,” Welch said.
Callicutt said the board turned the cancelled checks over to Moody, the town attorney.
Throughout the past three years, the town has discussed the fire department at several workshops, or additional monthly discussion session held by the board. An Aug. 25, 2009, workshop, illustrates the board’s apprehension to question the fire department.
“We’re not trying to be big brother or anything,” stated a Bryson City leader. No one is identified directly by name on the recording.
That audio recording of the August workshop is preserved on cassette at Bryson City Town Hall.
At the time, the board was talking about requiring drug testing for all town employees and querying whether fire department members, who are volunteers, can be subject to such an obligation. The board also discussed requesting the department include a drug testing policy in its bylaws.
The board planned to meet with fire department members at a later time to discuss the possible implementation of a drug testing policy.
“I am sure the people over there will say, ‘why in the hell are they coming over here?’” said a town leader on the recording. “As of yesterday, half of them didn’t even know we were coming.”
Several times during the workshop various alderman expressed a need to form a relationship with the fire department.
“The main thing is to establish a relationship, and find out what’s going on over there,” said another official.
As the meeting drew to a close, the aldermen mentioned that the department is obliged to send the town any checks addressed to the Bryson City Fire Department — not put them in a separate accounts.
“It’s just the way it should be. Period,” stated a Bryson City leader on the recording. “If you don’t, you gonna cause questions, and it’s gonna get you in trouble.”
In 2007 when the town and the county met to discuss their contracts with county fire departments, resident Mike Clampitt expressed concerns about a lack of information regarding the Bryson City Fire Department.
“There seemed to be a shortage of information and accurate data available at the meeting,” Clampitt, a former firefighter, wrote. “A great amount of time was spent in speculation and conjecture, which for me is even more troubling.”
During the past few years, there have also been several incidents regarding the improper use of fire department vehicles. In July 2009, Callicutt issued a notice to all volunteer firemen, based on a policy passed in 2008, which prohibits personal use of a fire department vehicle.
The town had received complaints that Hughes’ son was riding in vehicles purchased for the department using taxpayer funds, Walker said.
Almost a year later, in March 2010, the town board told Hughes to implement rules and regulations for the use of its GMC Yukon Quick Response Vehicle. When the fire department reported that it had yet to pass rules and regulations regarding the Yukon in June 2010, Walker asked the department to give the vehicle to local police until such policies were in place.
In addition to the local relief fund, the Bryson City Fire Department also had a Ladies Auxiliary, a nonprofit fundraising arm.
“I think what got lost in the shuffle was maybe the Ladies Auxiliary fund” because no one was overseeing it, Miller said.
It appears that no one audited the Bryson City Fire Department auxiliary’s finances.
“The auxiliary, that has not been part of our business; maybe, it should have been,” Welch said.
Although the auxiliary is registered with the state as a charitable organization, it does not have 501(c)3, or federal nonprofit, status and has not filed any nonprofit tax forms with the Internal Revenue Service.
“I won’t say that it can’t solicit funds, but the funds would not be tax deductible by the people giving the donations,” said Dean Coward, treasurer of executive board for the state firemen’s association.
The Waynesville Fire Department, which has a mixture of volunteer and salaried firefighters, also has a fund raising arm separate from its relief fund or town monies. However, the organization is registered as a nonprofit with the federal government, requires two signatures on all its checks and has its finances maintained by a local accountant. Its finances are accounted for by the fire department, its members and the federal government.
Callicutt said the town knew about an auxiliary account but did not know that the Bryson City Fire Department has two bank accounts, “Ladies Auxiliary” and “Friends of the Firemen,” at two different banks and that the town’s lawyer had advised the town board that they had no control over any auxiliary accounts.
“If they collect money in the name of the auxiliary, that was separate money, and that doesn’t need to come here (to the town),” Callicutt said. “If it doesn’t come through here, then we don’t know what they do.”
Hughes told The Smoky Mountain News that the auxiliary funds were handled precisely as the town had instructed.
While the fundraising arms was theoretically an important piece of the fire department’s budget, the core operations are funded by the county and town.
The town contributes between $40,000 and $50,000, plus insurance costs. The county kicks in $40,320 each year, since the fire department responds to calls outside the town limits in the county.
The town manages all the town and county funding coming in to the department, writing checks for the fire department’s yearly expenses rather than giving the money directly to the department.
Within the last year, the town board has worked on amending the fire department’s bylaws to include a new fiscal policy.
“The bylaws that we know of were never really ratified by the board,” Walker said.
The new fiscal policy section states the all money belonging to the department or funds raised under its name should be deposited in an account with the Town of Bryson City. Firefighters may apply to the town for reimbursement for gas or out-of-town travel and must follow the town’s purchasing policy. And although the volunteers can still elect their chief, the board must approve him or her. The town board must also approve changes to the department’s bylaws.
The accounts impacted by the investigation into Hughes’ activities were specifically for donations and other funds raised in the name of the Bryson City Fire Department and its auxiliary. Those who gave from their own pocketbooks — both business owners and residents — were most affected.
“People are frustrated and concerned, and I think people just want answers,” said Scott Mastej, part owner of Cork and Bean Coffee House and Wine Bar in Bryson City. With the economy still in recovery, any form of “financial fraud” hurts even more, he said.
Bryson City resident Willard Smith has given money to the fire department in past years and doesn’t know what to believe.
“That’s kind of a mess ain’t it,” Smith said. “I hope it’s not too bad.”
Some people who have donated before, including Pasqualino’s Italian Restaurant owner Pascual Izquierdo, have lost faith in the fire department.
“Who will we trust now?” he said.