Trying to compare apples to apples

Fire and rescue companies' financial reports sometimes seem a matter of interpretation

October 08, 2011|By ARNOLD S. PLATOU |
  • "Some of them will report money that comes in one category, but others will report the same money in a different category. Like, I may take something as a 'grant' but you may see it as 'income.'" - Kevin Lewis, director, Washington County Division of Emergency Services
By Kevin G. Gilbert/Staff Photographer

Editor's note: Today's stories about the financial reporting and funding of Washington County's fire and rescue system are among a series of stories resulting from a yearlong investigation by The Herald-Mail.

There are red flags.

Until now, almost nobody has been looking — even though the omitted and conflicting information and apparent inaccuracies raise questions about how public money is being spent, as well as how well it's being reported.

In an examination of financial reports filed by volunteer fire and rescue companies in Washington County, The Herald-Mail found potential red flags — areas that raise questions — that the county government has not addressed.

For example, in 2009 alone:

  • Seven fire and/or ambulance companies told the county government they got "$0.00" from the county's gaming fund or didn't list the fund as a revenue source at all.
In fact, each company got nearly $30,000 from the gaming fund.
  • Hancock Volunteer Fire Co. told the county government that the fire company grossed $116,431 from all of its fundraising activities, including its gaming operations.

But to the Internal Revenue Service, the fire company reported its carnival alone grossed $119,455 and bingo grossed $32,745. In addition, the Washington County Gaming Office reported the company sold $206,775 in tip jars.
  • Antietam Fire Co. told the county that Antietam's independent volunteer station in Hagerstown spent $56,771 on "miscellaneous."

That was Antietam's entire explanation for 41 percent of the $137,447 it spent that year.

The Herald-Mail discovered dozens of such red flags that raise questions about the annual financial reports the county requires the 27 local volunteer fire and rescue companies to file.

Six years ago, the Washington County Commissioners publicly declared the importance of the reports. The policy the commissioners adopted called the reports a tool to enable the commissioners to "monitor" how companies are spending public money, to "make informed decisions" about budgeting, and to "ensure confidence" among donors, according to a policy the commissioners adopted.

Since at least 2007, however, the county's Division of Emergency Services (DES) has rarely scrutinized the reports, and hasn't alerted the commissioners to the red flags, The Herald-Mail found.

"I don't have the staff or the time" to give the reports careful review, said DES Director Kevin Lewis, who oversees five departments, including the county's 911 emergency communications center, and administers a complex plan for emergency medical service staffing countywide.

Lewis said he welcomed the newspaper's scrutiny because it could lead to a better way of doing things.

"We can't enhance the system unless we understand what we're not doing well," he said. "So, at some point in time, it's nice to have a third party look at what we're doing, because it gives us an outside view.

"And, the fire service, in general, we need to be open to outside views so we can address the deficiencies," he said.

Lewis said he was aware, based on the newspaper's questions, that citizens might find fault with his office.

But, he said, people should understand that "with these levels of accountability and deficiencies, there also is a cost. The public has to understand it comes with cost."

None of the "red flags" the newspaper found are necessarily signs of wrongdoing. There was not enough information in the reports to draw conclusions about that.

The issue is accountability.

Small steps

The county government's first clear attempt to establish accountability among the companies was launched in the late 1990s.

By then, and perhaps for as long as 20 years before, the county was helping the volunteer fire and rescue companies pay their bills.

County finance records don't show how much money the county was giving each company that long ago.

By 1993, the county was giving $18,250 a year to each of the six volunteer companies in Hagerstown and $36,500 a year to each of the 21 companies outside the city, according to records the newspaper obtained from a former leader of the Washington County Volunteer Fire and Rescue Association.

By 1995, county government records show, it was giving $20,000 a year to each of the six companies in Hagerstown and $40,000 a year to each of the 21 companies outside the city.

Beginning in 1996, each company also was getting money collected by the new gaming fund that Maryland lawmakers required the county to establish under the gaming law.

Under that law, which the county requested, private clubs, bars and taverns were required to turn over part of their tip jar gaming profits to the fund.

In turn, the county was required to give a chunk — 40 percent at first and, later, 50 percent — to the Washington County Volunteer Fire and Rescue Association, which represents the 27 companies.

Since 1996, the association has distributed most of its share among the companies. How much it gave them the first two years isn't clear.

But in 1998, it gave each company the same amount, $29,792.12, according to the financial statement the association filed with the Internal Revenue Service.

To each its own

Meanwhile, a problem was becoming obvious, said Debra Murray, who in 1995 was named Washington County's finance director, a position she still holds.

She thinks the county had begun requiring financial reports of each company by that time, but they were difficult to review in a way that made sense, Murray said. As she recalls it, every company had its own style and each report could consist of 20 pages or more.

"It was hard to summarize the information for the commissioners," she said. "Not that there was anything wrong. It was very difficult to take that many financial statements. I mean, they're independent corporations."

So Murray created a standardized report form to establish "financial accountability from the companies to receive the allocations" of county money. "It was an attempt to summarize for the commissioners — let them look at the forest, not the trees."

It was a way to "compare apples to apples, so we weren't getting 20 or 30 different financial statements with different formats, different line items," she said.

The result was a comprehensive analysis of revenue and expenses that included comparisons to figures each of the companies, as tax-exempt organizations, were required to report to the Internal Revenue Service.

The IRS reports — Form 990, which can be found online — provide more detail about each company's finances than the county requires.

Matter of interpretation

Even with the county's new standardized report forms, the companies' information can be difficult to understand.

"Every (fire and rescue) company interpreted those forms differently as far as where to put various things," said former Washington County Commissioner Gregory Snook, who was elected in 1990 and served as president of the board of commissioners from 1994 to 2006.

"It was pretty much a nightmare as to how to interpret these things," said Snook, who recalled trying to read every company's report.

Snook said the commissioners tolerated the jumble of information because they realized most of the reports were being filled out by volunteers who were not necessarily skilled at reporting finances. "We had to crawl through it or walk through it," he said.

To try to ensure the reporting was honest, Snook said, the county did investigations any time someone complained about any company. In almost every case, the complaint proved to be false, he said.

Any that indicated problems were turned over to the Washington County Sheriff's Office or to other authorities for further investigation, Snook said.

For commissioners trying to improve the county's emergency services system, the value of having clear financial reports from each of the volunteer organizations can't be overestimated, Snook and other past and present county leaders said.

"To me, they're a tool that benefits everyone," former County Commissioner James Kercheval said.

"It makes it much easier for the commissioners when there's a need expressed," Kercheval said. "We'd have a comfort level that, you know, they're (companies) doing everything they can to raise money.

"Whereas, if you ever had to impose a fire tax on the public," he said, "you could make sure those are justified. And, the other thing, it helps companies police themselves."

Change in the path

The path to improved accountability back then was proving to be a bumpy one.

Then, in 2005, the commissioners adopted procedures for what was termed: "Financial Reporting and Auditing of Volunteer Fire and Rescue Companies."

The policy statement set forth clear reason for the annual financial reports the county was requiring of each volunteer company.

The commissioners said they needed the information to help them wisely budget money for public safety services, to ensure all money distributed to and raised by the companies was well-spent, and to assure residents their donations were being used properly.

"Annual financial reporting plays a major role in fulfilling the fire and emergency service's duty to be accountable to citizens, local elected officials, regulators and creditors," the commissioners wrote.

With the new policy came a revised report form that requires the companies to provide more information than had been the case.

But with the new policy came a change in direction that raises questions about the county's accountability process.

Instead of companies sending their financial reports to Murray's office for the comprehensive review she said it had provided to the commissioners, each company is now required to send its report to the county Division of Emergency Services.

There, the reports are scarcely being given a look, let alone an examination before DES authorizes Murray's office to issue a new round of quarterly checks to the companies.

"I don't have the staff or the time," DES Director Kevin Lewis said. "... We have the structure in place. We have these policies ... but again, there's not really direct policing per se, you know, trying to figure out" whether the companies are spending money wisely.

It's not that he doesn't care, Lewis said.

His office isn't structured to do such reviews, he said, noting that he relies on the verification statement an officer of each company and whoever prepared its financial report must sign.

That statement reads:

"I have compared the information contained on the two electronic Excel Worksheets with the information complied (sic) from the Financial Statements of the Company. I declare that I have reviewed the attached financial worksheets. To the best of my knowledge and belief, the documents are true, correct and complete."

Because he seldom examines the reports, Lewis said he wouldn't know whether what was reported was flat-out wrong.

So, someone could submit any column of numbers in their report and he'd still approve the funds?

"Right," Lewis replied.

However, when the newspaper asked Lewis in early September for copies of a verification statement that one company was supposed to have filed, Lewis discovered he'd never received them.

So he immediately asked the company's president for them. The president said he'd given them to the association, which then told Lewis it would send them to him, Lewis said.

Lewis said the statements had arrived by early October.

Red flags

Other red flags involve companies not reporting tip jar sales that the Washington County Gaming Office says they had.

Items that seem likely to raise questions on the company reports go unchallenged.

Lewis didn't seem to be surprised when a reporter pointed out questions raised by parts of some company reports such as large "miscellaneous" expenses, as well as "opening" and "closing" cash balances that reflect cash on hand from the last day of the budget year to the first day of the next budget year, and should be identical, but aren't.

He said he noticed the "$0.00" that some companies list on report lines for sources of revenue, such as the county gaming fund and Maryland's 508 grant, money most or all of the companies do receive.

The "$0.00" reporting is likely the result of so many different accountants or volunteers filling out the forms, Lewis said.

"Some of them will report money that comes in one category, but others will report the same money in a different category," he said. "Like, I may take something as a 'grant' but you may see it as 'income,'" he said.

It's puzzling that happens after so many years of filling out the same standard form, said Phil Ridenour, president of Maugansville Goodwill Volunteer Fire Co.

Ridenour expressed surprise when told that his fire company is among those reporting $0.00 income from the county gaming fund in 2009.

In fact, the Maugansville company got $36,483, according to the Fire and Rescue Association report to the IRS.

Ridenour said he guesses the $36,483 was mistakenly included in the $190,748.12 revenue the county was told the company earned from its fundraising, including gaming.

"Why that's not broken out, I can't really tell you," Ridenour said of the $36,483 the association reports on its own Form 990, as having been given to the Maugansville company.

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