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More audits released critical of former Whitley Sheriff; deficit now exceeds $240,000

Two days before former Whitley County Sheriff Lawrence Hodge is expected to be sentenced to at least 15.5 years in a federal prison, Kentucky State Auditor Crit Luallen released two more scathing audits on Hodge's books while he was in office.

Tuesday morning, Luallen released the 2009 tax audit for the period April 16, 2009 through April 15, 2010, and the audit of the 2010 fee account, which was used to operate Hodge's office.

Like the nine other most recent audits for Hodge's office, the findings were once again referred to the FBI for further review.
All the audits combined show a total deficit of more than $240,000 from the sheriff's department during Hodge's tenure in office.
The 2009 tax audit found the former sheriff had not settled all prior year taxes by depositing personal funds for known deficit amounts, obtaining refunds for all amounts due from the taxing districts, paying all amounts due, and transferring amounts due from other accounts for each tax year.

Unresolved deficits are as follows: 2005 tax account - $17,422; 2006 - $57,623; 2007 - $87,589.

The 2010 fee audit notes that the former sheriff did not take corrective action for prior year findings. The audit recommends the former sheriff take action to close all prior year fee accounts by depositing personal funds for all deficit amounts which total $60,952.

Auditors also note in the fee audit that he did not maintain proper documentation for receipts and disbursements of the Drug and Alcohol Account. The audit recommends that the former sheriff deposit a total of $16,793 to the account from personal funds as reimbursement for disallowed expenditures. Hodge has admitted to using money from the fund to pay for his own drug habit, and for personal expenses.

Criminal charges

After a federal investigation, the former sheriff pleaded guilty in U.S. District Court earlier this year to federal criminal charges including conspiracy to commit extortion, conspiracy to distribute pain pills, and conspiracy to launder money.

Hodge's plea agreement with the federal authorities calls for him to serve 15.5 years in prison, forfeit $50,000 to the federal government, and pay restitution of $64,897 to Whitley County for money he stole from the sheriff's office.

The audits released Tuesday do not note large current year deficits in the former sheriff's office; however, auditors did find continuing concerns in the operations of the office that were also noted in the previous audits.

The former sheriff was elected in 2002 and held that office for two, four-year terms. He lost re-election in the May 2010 primary and left office at the end of 2010. The former sheriff was indicted by a Whitley County Grand Jury in November 2010 on 21 felony counts and that case is currently pending in state court.

Hodge has a court hearing set in Whitley Circuit Court in the case on Sept. 20, but that hearing will likely be rescheduled. The circuit clerk's office will be closed on that date in order to make the move into the new justice center, which opens next month.

2010 fee audit

This audit found that the former sheriff did not maintain adequate accounting records of fee account revenues and expenditures for the 2010 calendar year. Auditors were unable to apply auditing procedures to the fee account's revenues and expenditures because of the condition of the former sheriff's financial records.

Auditors also found in the 2010 fee audit that the former sheriff had disallowed expenditures in his drug and alcohol account and that he did not maintain proper documentation for receipts and disbursements for this account.

Auditors noted the following findings in the 2010 fee audit:

• The former sheriff paid unused vacation benefits which are questionable.

"Two of the four employees paid for unused vacation time received payment for more time than they would have been entitled to even if they did not use any vacation time during the year," the audit stated.

On Dec. 10, 2010, one deputy was paid for 128 hours of unused vacation time when they only qualified for a maximum of 112 hours of unused vacation time.

On Jan. 6, 2011, one office employee was paid for 96 hours of unused vacation time when they should have had only a maximum of 48 hours vacation time.

• The former sheriff did not properly account for vehicle repairs and maintenance expenditures.
One invoice totaling $164 showed repair and maintenance for a vehicle, which had been sold in 2004.

Auditors also noted an unusual payment of $275, which was a handwritten check while the rest of the checks were typed. The check was made payable to an individual for cleaning and detailing vehicles assigned to the former sheriff and former chief deputy.

• The former sheriff should have provided adequate oversight for all fuel purchases made with credit cards.
For the month of October 2010, there were 45 unsubstantiated fuel charges totaling $1,886. For the month of February 2010, there were 22 unsubstantiated fuel charges totaling $733.

• The former sheriff did not maintain proper documentation for receipts and disbursements of the drug and alcohol account.

"The former bookkeeper stated that the former sheriff had implemented guidelines and forms to be utilized for sheriff's record keeping systems adopted by the Kentucky Sheriff's Association," the audit stated.

"However, this information was not made available to auditors. Copies of sheets provided to the auditors as documentation for 'drug buy' expenditures were not legible and no other documentation was made available."

Eight checks totaling $3,250 were issued to the former sheriff from the drug and alcohol fund. The memo box on the checks indicated they were either to pay informants or were for drug buy money.

"No signed documentation made available to auditors to show that any of these checks cashed were actually used for these purposes," the audit stated.

2009 tax audit

The tax audit notes continual concerns with how the former sheriff handled tax collection and distribution in Whitley County.
Auditors note the following findings in the 2009 tax audit:

• The former sheriff did not reconcile deposits to the daily collection reports or a daily receipts journal and did not account for second notice fees.

Auditors tested seven daily receipt ledgers and found 14 taxpayers, who paid face value on tax bills during the 2 percent discount period; three taxpayers, who paid a 5 percent penalty during the face value period; six taxpayers, who overpaid their bills during the 10 percent penalty period; and seven taxpayers, who paid a $5 second notice fee during the 10 percent penalty period.

Some of the taxpayers received refunds.

As of April 15, 2009, Hodge had an unexplained surplus of $1,440 in his 2009 tax account, and an unexplained surplus of $11,850 in his 2008 tax account.

There was $7,406 for un-refundable duplicate payments and unexplained receipts from 2004 collections, and $1,587 from 2003 collections.

Hodge has admitted in federal court that had bookkeepers alter the books and other paperwork to cover up the theft of funds.

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