Tri-City officals mull how to avoid future scandals

In the wake of a recent scandal involving an estimated $1 million allegedly embezzled from Franklin County, Mid-Columbia residents are asking how it happened -- and could it happen again in another agency?

While one Tri-City official admitted that even the best safeguards won't prevent a dishonest individual from defrauding a public agency, officials in the Tri-Cities say they have pretty good checks and balances in place.

In the Franklin County incident, Dennis Huston, 65, of Pasco, is being investigated on suspicion of setting up a payment account for a defunct company, then pocketing the checks the county cut to the company for possibly a decade.

Until Wednesday, Huston was the accounting and administrative director for the county's Public Works Department -- a department that, unlike others in the county, processed its own invoices without oversight from the county Auditor's Office.

But with the state Attorney General's Office still sifting through the evidence and no charges filed against Huston, much remains unclear about what happened and how because current county officials weren't in office when he was hired in 1989.

Franklin County officials said they are working to prevent fraud from happening again.

Much like Franklin County, Benton County's Public Works Department processes its own payments to companies it does business with.

Steve Becken, Benton's Public Works manager, said bills are created by Public Works employees and presented to the department's accounting division, which confirms the vendor is legitimate.

A payment voucher then is reviewed by one of four people in the Public Works Department before being sent to the county Auditor's Office.

Auditor Brenda Chilton's staff rechecks the documentation, confirming signatures and amounts before issuing a warrants payable list, which is subject to approval by county commissioners.

Becken said the process is good but not perfect.

"I look at the amount and who it is to. We can question why we are paying," Becken said.

But, in theory, Becken said he can use a computer to create a bill for any vendor, create a voucher and put it through to the auditor.

"There is not a firewall at each step. But there are so many people involved, someone would probably catch it," he said.

Larry Moser, the financial administrator for Benton County's Public Works Department, said even the best safeguards won't prevent a dishonest person from figuring out a way to defraud the county.

Chilton said each voucher that comes into her office must have evidence to support the transaction, but that verification can be difficult because so much business is done electronically.

"We do our best and require all the appropriate approvals," she said. "We are not popular when we sent out the dreaded salmon-colored reject sheets requiring additional documentation or signatures. It is very common."

Chilton also encourages all county departments to print financial reports often and review them closely.

Reviewing reports is how an employee at the fairgrounds discovered fraud involving misuse of a credit card last year, she noted.

"We also encourage separation of duties so that employees who make bank deposits are not the ones who reconcile the deposits," Chilton said. "But as much as we'd like to say it can't happen, individuals can be very crafty. That's why it is called fraud. It's really about being vigilant."

Pasco Deputy City Manager Stan Strebel told the Herald that only a few employees can set up vendors for payment, a process that includes checking the invoice and whether a W-9 is on file, he said. The form provides the company's taxpayer identification number.

People who order items for the city aren't allowed to approve the purchases -- that's done by someone else, he said.

And the finance department does internal audits from time to time, as well as paying attention to suggestions made by the state Auditor's Office as part of annual audits, Strebel said.

"We are always trying to improve our internal controls as much as we can," he said.

Kennewick, Richland and West Richland also segregate duties when it comes to ordering items, equipment or supplies and paying for them. No one person has control over the entire process, officials from each city told the Herald.

"We don't want one person setting up the vendor and setting up the payment," said Dan Legard, Kennewick's finance manager. "We have no one person whose job to pay a vendor can set up a vendor account," he added.

Each invoice goes through a series of approvals by various people, which means no single person can "do it all," Legard said.

And each vendor must have a federal tax identification number or Social Security number, he said. Kennewick has had a longtime practice of requiring the identification numbers, but only recently because of a federal requirement.

Kennewick's internal controls for processing claims and payments provide a first level of safeguard, but the city also has what Legard calls compensating controls.

The city council in each of the cities has ultimate approval over payment of bills and can call into question any item that looks unusual.

"We have a lot of tools and safeguards in place. If anything comes up that looks unusual, I'm confident we have the tools to deal with it," Legard said.

Each of the cities said new hires go through extensive background checks that can include drug and alcohol screening, physical exams, criminal background checks and credit checks, depending on the job.

Strebel said that when Pasco hires someone, it attempts to verify every employer listed in the past 10 to 15 years, and any gaps in employment are questioned.

With positions of higher responsibility, such as department heads or managers, the city will contact people the candidate would have done business with in his or her previous position, Strebel said.

Gordon Beecher, Richland's human resources manager, said his city uses a former police sergeant to perform a full background check on every new full-time employee -- including verification of previous employment, references, education and criminal history.

But the city can't deny someone employment based on criminal history unless it's related to the job, Beecher said.

"One of the things we have to do under the law is make sure a previous conviction is job-related," he said.

For example, a prior DUI is not sufficient reason not to hire a secretary -- but is for someone whose job responsibilities include driving.

Richland also does not do pre-employment drug screening, again because the city would have to demonstrate that it's related to the job.

Employees who take jobs that involve driving become subject to random drug testing after they're hired, and most city employees are subject to drug testing if they demonstrate that they might be under the influence on the job, Beecher said.

Richland performs a credit check on anyone who would handle money and would consider a previous financial crime reason not to hire someone, he said.

"With the finance positions -- anything to that has to do with finances -- they get the full monty," Beecher said. "We're very astute with our background checks. It delays the employment process a bit, but it's well worth it to make sure you're getting what you're paying for. You can't catch everything, but you do your best to lower the odds."

* Staff writer Loretto Hulse contributed to this report.