County leaders forced to face fiscal firestorm
By JUDITH O. ETZEL

12/9/03

Special Thanks to The Derrick for Allowing this Story to be Posted

STARTING THEIR NEW TERMS WITH A SWINDLE IS NOT THE IDEAL SCENARIO FOR COMMISSIONERS.

Dealing with the disappearance of $1.5 million, thanks to an alleged looting of a county investment account by a financial consultant, isn't how two new Venango County commissioners expected to start their first term in 2004.

And Sue Smith and Gary Hutchison, both elected to their first terms as county commissioners in November, are more than miffed about the money loss.

They join Larry Horn, who is completing his first term as a commissioner, on the county Board of Commissioners when they are formally sworn into office Jan. 5

Smith and Hutchison were advised about the missing funds at the end of November by Bob Murray and Deb Lutz, two-term commissioners who did not seek re-election, and Horn. The two newcomers were reportedly sworn to secrecy, and the issue of an alleged swindle was not made public until the media pressed for details last week.

To say she was surprised is an understatement, Smith said.

"It was beyond that. I had no idea anything like this was out there," she said.

Hutchison described his reaction as "absolute shock" that quickly evolved into "being very unhappy that it had happened."

Horn, in on the revelation sooner then the two other commissioner-elects, said the money loss presents an obstacle to the trio "getting off the ground running" in January.

Smith is concerned that the system failed for lack of appropriate "checks and balances."

"It just makes me sick, that the checks and balances were not there to catch it," Smith said. "Being on the (Franklin) school board, I knew this had happened to others, but I assumed that after that people would have been so much more careful about investments."

Smith was referring to a multi-million-dollar scam a few years ago when financial consultant John Gardner Black bilked several school districts out of funds. After nearly two years of litigation, most of the 50-plus school districts recouped the bulk of their losses.

As to having the $1.5 million available within a $3.5 million reserve fund awaiting the new commissioners, that scenario was not there to begin with, Smith said. Murray and Lutz had already voted to take out up to $2.3 million for several projects they said would stimulate the local economy.

"I anticipated that they would distribute that money, and while I wasn't thrilled with portions of their plan, I knew it was up to them. So it wasn't like the new commissioners would have had that money," Smith said.

The loss of the $1.5 million, though, galls Smith.

"We weren't expecting the full reserve, but it would have been nice to have had someone benefit from that money. Now it's just like it burned up in a fire," she said. "And not only do we not have the $1.5 million, we will have more (legal) expenses to pay in trying to recover it."

Smith said she intends to look into what checks and balances are in place as to investments, bonding and liability.

"Anyone who has county money is supposed to be bonded, so I am interested in that avenue. And even as we pursue this gentleman, because I want that money back, I want to see why it wasn't caught, where the checks and balances are," she said.

Hutchison, too, is emphatic that any repeat of misappropriated funds is out of the question.

"Wherever this leads, we can't let something like this be repeated. It just can't happen again, not on our watch. That's for sure," he said.

Hutchison, while reluctant to place blame for fear of "jeopardizing the investigation," said he believes the situation "needs to be played out so we can find out what happened."

"I don't want to find fault with the commissioners, and I'm not pointing fingers because that is not very productive. I do feel this is a terrible way for Deb and Bob to end their terms and that makes me feel badly. But, we don't want that scenario to be repeated. Before we approve any investment, I want to know where it is going and who has control of it," he said.

One issue the commissioners will have to grapple with, he said, is how far the they want to chase the missing funds.

"The big decision will be how far do we want to pursue this because the legal fees will impact us. That is where my major concern is: how far do we want to go?" Hutchison said.

The immediate effect of misappropriated funds, he said, is a dual one.

"It is obviously a tremendous impact to the taxpayers in terms of assets lost. And it is certainly not the best way to start a term as commissioner," Hutchison said.

Horn, too, didn't expect to begin his second term as commissioner with a money loss issue hanging over the county.

"It was unexpected, and it certainly not something I wanted to begin a new year with. Sure, it will be an issue but we are going to have to let it run its course, with the FBI and the attorneys. We were looking forward to a new team, a new term, a new year and getting off the ground running. Now there is this big wall out there for us," Horn said.

Optimistic all or at least some of the missing $1.5 million will be recovered, Horn said the county now has to consider "how do we pay for the legal fees for this." In addition, the county will have to change some of its procedures, he said.

"We probably need to change some things so we'll be looking at all that. It's taxpayers' money and we as commissioners are charged to run the county. ... Now we have to have a kind of wait-and-see attitude until we know where this will go," Horn said.