“The board and I have reviewed and are taking very seriously the information included in the forensic audit,” General Manager John Viola said. “We have already taken several steps to tighten up the oversight of association finances and have addressed virtually all of the Gross, Mendelsohn recommendations, which Finance Director Steve Phillips is taking a leadership role on.”
Association President Doug Parks noted many of those items were addressed several years ago, based on the results of a “deep-dive” audit commissioned in 2017.
“I want to ensure the public that the finance team has been proactive in addressing these concerns, and that John Viola and Steve Phillips have already implemented a number of changes to our processes and procedures some time ago, based on the ‘deep dive’ audit,” Parks said.
According to the report, dated May 30, 2019, two phases of work separately addressed food and beverage and public works financial activities between May 1, 2016 and April 30, 2018.
An entrance conference that included several board members, former General Manager John Bailey and Phillips was conducted on April 20, 2018. The report states Gross, Mendelsohn “were told that over a period of approximately the last eighteen months there have been various allegations of potential fraud pertaining to missing bank deposits, missing petty cash funds, fictitious vendor invoices, and payroll abuse.”
The forensic audit sought to “evaluate those issues and to identify and quantify any abnormal activity.” The Ocean Pines Board of Directors provided access to all available records and information, and allowed the firm to interview association personnel. According to Gross, Mendelsohn, “The Board did not direct how we were to conduct our investigation, and did not limit our investigation in any way.”
According to a “Conclusions and Recommendations” section in the report, “numerous factors … contributed to the Food and Beverage Department’s operating losses during the last two fiscal years.”
The report listed “missing bank deposit shortages totaling $27,632.49, which most likely are missing due to fraud.”
“However, our investigation did not uncover any evidence that the missing deposit money was taken by any OPA employee, and there is a possibility that the missing deposits may relate to bank employees failing to follow the bank’s procedure,” the report said.
Additionally, the report found $5,262 in missing petty cash funds apparently taken by a food and beverage manager “who confessed and was terminated.” Nearly half of that amount, $2,484, was recovered from the manager’s final paycheck.
The investigation did not identify any other fraudulent activity.
Gross, Mendelsohn recommendations included having the accounting manager verify the accuracy of each completed deposit ticket, retaining a copy of each deposit ticket sent to the bank, reviewing all canceled checks, and ensuring checks issued for more than $15,000 contain two authorized signatures.
The firm also called for more realistic budgeting, for the finance department to perform periodic surprise counts of petty cash funds, and for petty cash disbursements to be supported by a receipt and signed by the recipient.
Conclusions and recommendations based on the public works forensic audit identified “several findings of noncompliance with OPA financial policies,” as well as purchases made from a business owned by a relative of the public works director and the spouse of an association employee. The report also identified a public works employee related to the public works director.
According to Gross, Mendelsohn’s recommendations, “The Finance Department should require that all documentation of written bids and Board approval … be submitted along with the approved purchase order and vendor invoices (not estimates), before payment is issued.”
The report recommended not releasing any check for more than $15,000, unless the check is signed by two authorized signers, and establishing written policies to seek at least three written bids for purchases made on a frequent basis. Gross, Mendelsohn also recommended increasing the threshold for purchases requiring three written bids from $5,000 to $10,000.
The firm called for written policies for purchases and contracts involving vendors who are relatives of association employees or board members, and written policies for employing relatives of association employees or board members.
According to the report, “It is our understanding that some of the above-listed recommendations have already been implemented.”
To address the personnel issues, General Manager John Viola has formed a working group to review the association handbook, which already includes a section on “Employment of Relatives.”
According to the handbook, “members of your immediate family will be considered for employment based on their qualifications,” but immediate family will not be considered if employment would “create a direct supervisor-subordinate relationship with a family member, have the potential for creating an adverse effect on work performance [or] create either an actual conflict of interest or the appearance of a conflict of interest.”
A human resources attorney was consulted about the matter and provided an opinion that Ocean Pines’ current policies comply with the law. It was also determined that no employees working for Ocean Pines directly report to a supervisor they are related to.
“We have closely reviewed potential conflicts regarding the employment of relatives and expect a report from our work group to be forwarded to the board of directors for action,” Viola said. “Our human resources attorney is developing a script for us to perform training on the employment of relatives, which will be conducted on a department by department basis, and some changes to the employee handbook and our policies may be necessary, going forward.”
The Ocean Pines Board of Directors reviewed and accepted the forensic audit by an email vote last month. No changes were made and unredacted copies are available to association members, upon request.
To request a copy of the forensic audit, email Executive Secretary Michelle Bennett at firstname.lastname@example.org and include name, lot number, address and phone number.