State: Gardner swindled Stevensville
Derek Hall, an auditor from the state treasurer's office, gives a copy of the report to Stevensville Village Council President Lori Gibson Wednesday night. John Madill / H-P staff
Village Council accepts state audit after scolding from auditor Derek Hall
By WILLIAM F. AST III - H-P Staff Writer
Published: Thursday, February 18, 2010 1:10 PM EST
STEVENSVILLE - A Michigan Department of Treasury auditor Wednesday said former Stevensville village manager Todd Gardner embezzled $277,647 from village funds.
"Transfers were made to the building fund, then from the building fund to his personal account," senior auditor Derek Hall told the Village Council and 25 audience members at a special meeting on the village audit. "When I say 'his,' I mean Todd Gardner, the village manager."
Gardner also gave himself "excess payroll checks" and further took funds by "simply purchasing things using village funds," Hall said after the meeting.
The council voted to accept the audit, which gives details of the alleged embezzlement and a massive failure of the council to monitor what Gardner was doing. But while the audit never mentions Gardner by name, Hall was not so reticent.
"The audit is to give an opinion on the financial statements themselves," Hall told reporters after the meeting. "However, yes, there was an embezzlement, and yes, it was Todd Gardner."
The audit was supposed to be delivered in late December, but the presentation was delayed. Hall said the department was waiting for law enforcement officials to take action on Gardner.
"Initially, we did not want to be the ones to release the information first," Hall said. "We were waiting for the state police to do what they had to do on their end."
As to why the department finally released the audit, Hall said, "We received permission. That's all I really know."
Gardner did not respond to a message from The Herald-Palladium seeking comment on the embezzlement allegation.
The council came in for some heavy criticism in the audit for its lack of oversight. There were some "red flags" and account activities that the council should have caught, Hall said.
In one instance, a fund balance of some $400,000 shrank to $200,000, but "you approved checks of only $30,000," Hall said. "You have to understand what you're looking at."
In another instance, the village for fiscal 2008-09 budgeted $35,000 for attorney fees, but ended up paying $115,903. Hall said that should have been a warning as well.
The village's financial software allowed data to be changed, another flaw, Hall said.
"I can post a check to the system and write it out to Derek Hall," Hall said. "I go back into the system, erase Derek Hall, and put on Shell Oil. The computer will never know the difference."
But while Hall accused Gardner of being the culprit, the council remains responsible, he said.
"Yes, an embezzlement occurred," Hall said. "Yes, he took $277,647, he being Todd Gardner. ... But you, as the council, are just as responsible because you gave him the keys to the kingdom, and provided no oversight.
"... Obviously, no fund was off limits. Every fund experienced a loss."
The council hired Gardner in April 2006. Treasurer Jan Lausch-Zilke resigned in November 2006, and the embezzlement started right after that, Hall said.
"Once the previous treasurer resigned, the illegal activity began within a month," Hall said. While Gardner has denied being responsible, the audit said he was responsible for all financial activity following the treasurer's departure.
The council in May 2009 voted to not renew Gardner's contract. The village hadn't had an audit since 2006, but the books were in such disarray the council had to hire CPA Stephen Ross of Stephen Ross & Co. to reconstruct the village's financial records. With that in hand, the treasury department stepped in to perform the audit.
The village is left trying to pay off some $262,000 in debts.
Interim Manager Bret Witkowski, who has limited the council to paying bills of no more than $35,000 a month, said Stevensville can get that paid off in 17 to 27 months.
A far more intractable problem - Witkowski referred to it as an "albatross" - is the $691,435 in loans that the village's Downtown Development Authority owes for buying lots to expand the downtown.
Gardner in an earlier communication said he was "dismayed that the DDA loans and related property purchases keep getting mentioned without any disclosure about the context in which the loans were acquired ... the lines of credit were never intended to be long-term financing solutions for either the property purchases or construction projects. Both loans, approved in 2006 by the council, were used in anticipation of receiving long-overdue 'tax capture' funds being held by Lincoln Township and (Berrien) County."
Those funds have "ballooned to over $700,000," Gardner said.
Hall said there are some positive notes for Stevensville.
"The $277,000, that's gone," Hall said. "You'll get part of it back, through insurance. The village can take this as a hard lesson learned, and slowly begin to recover. There's no need for a state takeover. This is not Three Oaks."
The audience members sat quietly during Hall's presentation. Once he was done, council President Lori Gibson apologized to the residents on behalf of the council, and said many of the audit's recommendations have already been put in place.
Not everyone was mollified.
"I'm sorry. I won't take your apology," resident Jim Muldoon said. "...You let us down. We had a lot of money before. ... You should all resign. You proved yourself not capable of handling your money. It's your responsibility. You hired him. It's time to leave, all of you."
Former council member Dick Kramer said the village used to publish its minutes in The Herald-Palladium, and recommended that practice be resumed.
Council members said the minutes are available at Village Hall, and will be posted on the village Web site - once the village gets access to a new site. The current one is owned by Gardner, Gibson said.
Gibson after the meeting said the evening went as well as could be expected.
Looking back on Gardner's tenure, the council should have caught some things, Gibson said.
"Now that it's all pointed out in a nutshell, in retrospect ..." Gibson said. "They say hindsight is 20-20 - never more so than now. Now I can see some very specific instances where we should have acted more strongly as a council.
"I can't undo any of that. This council can't undo that. Now that we know better, we will do better. ... We have a whole new understanding of what we need to do. Each one of us is more involved on a day-to-day basis than ever before."
The audit will be available at the Treasury Department's Web some time today.
wast@TheH-P.com
