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Steep gaming losses, suspicion of embezzlement, led to probe

Former fire company president details how Halfway lost money and how it created new checks and balances to restore bingo

October 29, 2011|By ARNOLD S. PLATOU | arnoldp@herald-mail.com
  • Volunteer Fire Company of Halfway member Joshua Lehigh of Martinsburg, W.Va., talks to people attending bingo at the Volunteer Fire Company of Halfway bingo hall.
By Colleen McGrath/Staff Photographer

Over the decades, the bingo games at the Volunteer Fire Company of Halfway, Md., had become a rich source of revenue for the emergency service.

But from summer 2008 through summer 2009, things went wrong in the company's gaming operation, costing it up to $500,000 in profit, The Herald-Mail has determined.

Federal records show the company lost $520,000 on its bingo operation when it paid out hundreds of thousands of dollars more in prizes than players paid to play.

In essence, the records suggest that for every $1.36 that bingo players paid, the company was giving $1.72 in cash prizes.

And so, the $500,000 profit that the fire company made on tip jar sales that year had to be used to offset the bingo loss.

As a result, a combined gaming operation that normally nets hundreds of thousands of dollars, instead went more than $19,000 in the hole, federal records show.

Fearing theft after seeing gaming revenue fall, the fire company launched an undercover investigation, hiring an out-of-state consultant, bringing in strangers to gamble with marked money and digging into financial records, the newspaper learned.

Ultimately, the fire company determined there had been no intentional wrongdoing, just poor management among volunteers not trained in business or record-keeping, yet still trying to do their best.

In the process of the investigation, there were painful consequences.

Among longtime friends, there was sharp division and bitter accusations inside what is still one of Washington County's busiest fire and ambulance operations.

From the leadership, there were written accusations — though no actual charges — of embezzlement.

And, outside the station walls, there arose very public suspicion, denial and high-level investigation, some of which continues more than two years later.

Until now, current and former officials of the volunteer company have been unwilling to tell their story of what went wrong.

The story is not complete.

There are still gaps, doubts and conflicts.

But this is also the story of a silver lining, the lessons that company officers say have changed Halfway into a model of accountability.



Gaming revenue plummets

After his cellphone rang one summer day in 2009, longtime fire company President Jim Kimble Sr. got the message that shocked and propelled him into action.

"We're having cash flow issues," Kimble said fire company Administrator Jeff Ringer told him. "I dropped pretty much what I was doing and I rushed right to the fire station and I said, 'Show me the reports.'"

What Ringer saw that prompted the call was, "bingo wasn't turning the revenue that we expected or needed," Kimble said. Ringer "was seeing that the average we were making, wasn't measuring up to our debt load" on various fire apparatus the company needed to pay off, said Kimble, who was first elected president in late 1992 and served in the top post from 1993 through December 2010, when he chose not to run for re-election.

Kimble said he was determined to find out what and who was at fault.

"What we knew was, our bingo was losing money," Kimble said. "And, we had to find out why.

"Now, whether that was embezzlement or not, I was determined we're going to go through this and we're going to prosecute to the fullest extent of the laws," he said.

That meant that even his own brother, Jeff Kimble, was under scrutiny, Jim Kimble said.

Jeff Kimble, who succeeded his older brother as president this year, was in 2009 a volunteer member of Halfway's bingo committee and was among those so active that he was considered part of the gaming management, Jim Kimble said.

But what he found was not crime or intentional wrongdoing at all, Jim Kimble said.

"I'll be honest with you. I assumed the worst at the time. I launched an investigation. I was the president. I had been for 18 years, and I turned over every chapter and leaf. And, it all came back negative," Jim Kimble said.

"It turns out, it was a management issue."



Opportunity ignored

Together, bingo and tip jars produced so much money at Halfway that questions seemed a waste of time at monthly membership meetings, Jim Kimble said. "It's like, 'How long you want to be here tonight?'" he said.

"I never saw an actual bingo report. What we got was from the administrator or the treasurer at the time, at the monthly meeting, was 'This is what we made.'

"Most of the time, (that news) got a round of applause. It was, like, pretty cool. You develop a relationship with these people and you develop a trust with these people," he said.

Perhaps, some of the trust was just in the fact that the gaming operation has for decades been in a bingo hall a few hundred yards around a street corner from the fire station's big emergency operation at 11114 Lincoln Ave., just south of Hagerstown.

During most of his 18 years as president, Jim Kimble said, he hardly ever went over to the bingo hall. "If I visited bingo once every six months, that would have been something," he said.

In fall 2006, Halfway got a wake-up call — almost.

News broke then that Clear Spring Volunteer Fire Co. was censured for violating Washington County gaming rules. The violations included poor record-keeping and invalid expenditures of gambling revenue.

A county Gaming Office investigation and an in-depth examination by an accounting firm hired by the county government showed how little could be determined about a gambling operation that handled more than $1 million in a single year.

"When Clear Spring went through their ordeal, we collectively talked in our department at our meeting — 'What was our department doing?'" Jim Kimble said. Together, members decided "Yes, we're going to get on that," he said.

"And, before long, it's a year later and ain't nobody on it. And, the money's still coming. And now, we wake up and now, the shit hits the fan," he said.



Report of missing money

The first that county Gaming Director Jim Hovis heard there was trouble at the Halfway fire company was in August 2009.

Hovis said Jim Kimble telephoned him "and said that, over the past 18 months, the management of the company noticed the decrease in revenue from bingo operations."

Hovis said Jim Kimble told him that the company's "preliminary inquiry indicated the possibility that one or more of the company's volunteers or employees working in the bingo operation may be stealing or embezzling money from the fire company.

"The purpose of Kimble's call at the time was to tell me of the investigation," Hovis said. "He requested me that I allow the fire department to conduct its own investigation before I got involved.

"In other words, he was doing the right thing in calling me as director of the Gaming Office and telling me what was going on," Hovis said.

Then, on Oct. 5, 2009, the fire company issued a press release saying it was suspending its bingo operations until a consultant's recommendations could be fully implemented. The press release said nothing about revenue losses or money missing.

But, Hovis said, on the very same day, Jim Kimble called him and said missing money was the reason the bingo operations were being shut down.

Jim Kimble "called and told me they had a problem at the bingo. They were shutting it down because $100,000 was missing," Hovis said.

"He further advised that all volunteers and employees involved with the gaming activities were relieved of their duties," Hovis said.

Jim Kimble said he did just that with the bingo volunteers and the company's one employee, who was also a bingo volunteer.

"I called my bingo people in and said until I get to the bottom of this, you're all done," Kimble recalled. "Give me all your keys and exit the premises."

He said that what he'd told Hovis was that the company's net income from bingo was $100,000 less than what it was a year ago.

Nonetheless, Jim Kimble said, when he called Hovis it was only with the thought there had been theft.

"When I talked to Hovis the day I closed bingo, I believed in my heart that someone was taking bingo money," Kimble said. "In all deference of Jim Hovis, when I talked to him, I was convinced that somebody was dipping, but that was Day One of the investigation."

So, Kimble said, he asked Hovis that day to come out to the fire company and check all its inventory of tip jar tickets. Only a few discrepancies were found, including some tip jar sales that hadn't been entered in record books, but, Kimble said, he thought that minor because he'd shut down the games right after a big gaming night.

What irked him, Kimble said, was that Hovis then launched his own investigation, that resulted in him asking Maryland State Police that November to begin an investigatioin.

"My issue with Hovis was that he didn't trust us to do our own investigation," Kimble said about the fire company's efforts. "That's why I'm disappointed in Hovis because we would have cleaned it up and the only thing that would have hit the media would have been that we suspended bingo and we closed it."



In-house investigation

By that November, Halfway's in-house investigation was well under way.

Jim Kimble said he had hired a consultant from Delaware, wanting someone from outside the local community so that there'd be no chance of bias.

He said he worked with the consultant on the investigation, not even telling the general membership what was happening because if there were problems to be found, he didn't want to give any guilty parties advance notice.

Working with the consultant, "we passed marked money. We had people come in from out of town. They passed big money and all that money come back to us," Jim Kimble said.

Still, "it took a while to develop" what the problem was, he said. "It wasn't until we closed bingo, that we figured out that (bingo volunteers were) paying out more than they could support," he said.

"Again, I wasn't there. I can only assume they were guaranteeing payouts," he said.

With guaranteed payouts, the cash prize for each game is based solely on the number of players.

For instance, the company might guarantee a prize of $125 if 100 to 149 people are playing a regular bingo game. And the company might guarantee $150 as the prize as long as 150 or more people are playing.

In general, bingo operations are not the big profit makers for fire companies. After bingo expenses are covered, most of the rest of the bingo money is paid out as prizes. Many of the companies' gaming profits come from selling tip jars, which are cards with printed numbers, some of which win cash prizes.

Jim Kimble said it was hard to figure out what had happened at Halfway because bingo volunteers had kept so few records. "We found maybe a year's worth of reports," he said, adding that fire company officials had never directed the bingo crews what records to keep and for how long.

For decades, "we never told them they had to keep reports," he said. "And that's before my time. I was born into it. I was grown into it. Until something changes, we deal with it poorly."

The records that were found were on gaming revenue and payouts, but they didn't say whether the revenue was from food sales or gaming.

"It was just, this is income," Jim Kimble said. "It was all just lumped into one sale.

"And what we found, you had to work through them. You had to realize what was going on and work through them. Then, you're having to go through scenarios as to what is this? And, what is that?" he said.

Lacking complete records, Jim Kimble said, he and others trying to piece together what happened, had to average the numbers they had and apply them to the 18-month period during which the prize payouts seemed to be larger than what bingo players were paying.

By doing that, "it come up that there's still some money unaccounted for, but it's like $4,000 or $5,000" — a small gap compared to the amount investigators feared when they started, he said.

Another thing that helped determine there was no criminal wrongdoing was that records indicated the number of payouts and the number of games played was the same, he said.

"I mean, we had register receipts where you could see they were paying players, so it wasn't they were taking it for themselves. Let's say there was 18 games of bingo and there was 18 payouts," he said.

But in those cases the total amount of the payouts was greater than the amount that players paid to play.



Under scrutiny

Current President Jeff Kimble, who was on the bingo committee in 2008 and 2009 and helped run the games, said he knew the economy was bad and that was hurting Halfway's gaming operations.

But, he said, while he was on the bingo committee, he never realized they were paying more out in prizes than they were taking in.

Jeff Kimble said it's important to understand the mindset of the way things were done.

"Tip jars, bingo was all one process," Jeff Kimble said. "They didn't have the kind of accountability to know whether we was paying more out the window than we was taking in.

"When I say I was on the bingo committee and I worked bingo, that could have been anything from calling, to working the floor to working the kitchen.

"Was I privy to all the finances that was going on all the time?" Jeff Kimble asked. "No."

"We would actually sit down as a committee and say, 'these are the problems we see,' and we would tweak things here and there or say, 'let's include another game, we'll call it this,'" Jeff Kimble said.

But "to be honest with you, I don't think anybody realized at the time (that tip-jar sales were down and bingo payouts were too high), because had they done that, I don't think the fire company would have gotten into the financial situation that it got into," Jeff Kimble said.

A financial report the fire company filed to the Internal Revenue Service in 2010 shows that from July 2008 through June 2009, people paid $1.36 million to play bingo at Halfway.

During the same time, the company paid $1.72 million in cash prizes, the report shows.

And, it spent $122,393 on what the report calls "other direct expenses," which commonly include what the company paid for the bingo card paper. And, it spent $37,467 on what the report calls "rent/facility costs."

Jeff Kimble said it didn't bother him that when the company began its investigation, he was among those under scrutiny.

He said he knew his brother, Jim, "was doing his job as president in the investigation." And, Jeff Kimble said, "I knew in my head, I didn't feel there was any money walked out the door. I knew I didn't" take any.

"I just knew if they stuck together," Jeff Kimble said of fire company members, "and they got the right people involved, somewhere along the line, they'd figure out what happened, get the good name of the fire company cleared and move on."

When the investigation ended and he realized how much money the gaming operations had lost, "my feelings was, gee, all that hard work for nothing," Jeff Kimble said.



Tip jar, bingo money mixed

In Halfway's own investigation, the big questions then were, why and how was the company paying out more money in prizes than it was taking in the window?

"The only explanation we could come up with, is the economy, the gas prices and we didn't have the players," Jim Kimble said.

He said he thinks what happened is that in mid-2008, as gas jumped to more than $4 a gallon, Halfway's usual crowd of bingo players thinned. Most of the usual players are from places as far away as Pennsylvania, West Virginia, Virginia and Frederick, Md.

With fewer players coming, Jim Kimble said the investigation determined, the bingo committee kept the prize payouts the same, in an effort to get all the players coming again.

"They tried all kind of things. They tried special games. They had a spin wheel in there that ended up costing money. But they were trying to make money for the company and that's all they were trying to do," he said.

And then, none of the bingo volunteers realized what was happening until it was too late, he said.

It was a longtime practice that masked the problem.

The money that was paid to buy bingo cards and the money that bingo players spent buying tip jars all were kept in the same cash drawer, Jim Kimble said.

"So they didn't know how much money they was taking in, versus how much money they was paying out," he said.

And, the bingo volunteers didn't realize they were using the tip jar proceeds to pay more of the bingo prizes. "They didn't know they were robbing Peter to pay Paul, so to speak," he said.

Jim Kimble said the company did determine how much it overpaid players. But, with his term as president having ended more than nine months ago, he said he couldn't recall the amount.

It looks to be a lot, according to the financial reports that Halfway has turned in to the Internal Revenue Service.

They show that during fiscal 2009, Halfway sold $2.05 million in tip jars.

That, in itself, suggests the depressive effect the economy was having on tip jar sales, which are considered a solid profit area because companies buy the jar packs based on how much profit each offers.

As the economy has slipped, Halfway's jar sales have fallen from $2.9 million in fiscal 2007, to $2.4 million in 2008, to 2009's $2.05 million, the financial reports show. And, the reports show, in 2009, Halfway paid out $1.55 million in cash prizes to tip jar players, leaving $500,977 in profits.

But all of that $500,977 in profits was apparently used to pay the oversized bingo payouts, according to Halfway's financial report for 2009.

Combined, the $500,977 in tip jar profits and the $520,391 loss in bingo left the company with an overall loss of $19,414 in gaming during fiscal 2009, the report shows.



Bingo returns with new procedures

As the in-house investigation continued, Halfway reopened its bingo games under Jim Kimble's supervision.

By this time, after having consulted with other area fire companies that run bingo, Halfway had adopted report forms and several of the accounting practices standard at other companies' bingo operations, Kimble said.

And, Halfway's games were changed to a calculated payout system just as Clear Spring Volunteer Fire Co. uses, he said.

Under this method, the bingo operation looks back at its financial records and determines how much money its average bingo player has spent just on bingo — not including tip jars, fire company kitchen refreshments and vending machines — on the average night.

At Clear Spring, the fire company determined that its average player spends about $30 a night, according to Rick Rowe, chairman of Clear Spring's bingo committee. Using that information, the committee then figured up how much money it could afford to pay in prize money per game, he said.

"If we wanted to pay $100 to the winner, we would need X number of people," Rowe said. "And, if we wanted to pay $150, we would need X number of people."

So, Jim Kimble adopted that system. But the immediate problem was that Halfway didn't have enough bingo revenue records to know how much money its average player was spending each night.

"So, we used a calculated payout of what came in at the register" before each day's bingo began, Kimble said. "We put a new register in play. Every button is 'cheeseburger,' 'hamburger,' whatever. We'd push a button and it would give you a figure on what everybody spent. It doesn't say who spends what. It just tells whether you bought a small bingo pack or a large pack and whether you bought extras."

Just starting out, the system was awkward — and, to the players, must have seemed unfriendly, he said.

"Every game, every night was a calculated payout and it didn't work," Jim Kimble said. "We were losing people. We couldn't keep the crowd. They start calling the first game and we're still doing a calculated payout, and (players) don't even know what they're playing for.

"There's times players would come in and keep walking up to the window (and saying), 'How many you got? How many you got?'" he said, referring to how many players there were. "And, people would walk out."

In fiscal 2010, Halfway's gross revenue from bingo plunged to $258,555, according to the financial report it sent the IRS for that year. Two years before, the gross was $420,284 and then, during the troubled fiscal 2009, the gross had inexplicably soared to $1.3 million.

Even now, Jim Kimble can't explain why Halfway's bingo traffic skyrocketed during fiscal 2009. The only plausible explanation, he agreed, is that word had gotten out among bingo players that the fire company was, in effect, paying players to play — because its prizes were so much higher than players themselves were paying.

Kimble said he better understands the plummet to $258,555 in fiscal 2010 because he was living it. Even so, he said, he cannot explain why Halfway's report to the Internal Revenue Service (IRS) shows the company's gross revenue from tip jars sunk to just $30,495 — not even 2 percent of the $2 million in tip jars sold the previous year.

But 2010's gaming picture did have at least one bright spot. According to the IRS report, the company posted a combined tip jar and bingo profit of $106,261 for the year.

The turnaround got stronger late in 2010 when company officials decided they needed something or somebody more to draw the crowds back, Jim Kimble said. For Halfway, he said, that was to recruit the popular bingo caller who had left after the bingo operation had been shut down in late 2009.



'Found nothing wrong'

On or about the same day the bingo caller returned in late October 2010, the fire company held a press conference.

By then, the company had drawn further attention from the news media because of a series of happenings.

In addition to the state police, the U.S. Attorney's Office and the IRS had gotten involved in the investigation and in May 2010, Halfway had suspended Jeff Ringer, its fire chief/administrator. Ringer, whose suspension was lifted two months later, had been punished for speaking to police and IRS investigators without the fire company's lawyer present, Ringer's attorney said at the time.

At the Oct. 26, 2010, press conference, Jim Kimble said a 40 percent drop in gaming revenue over two years prompted an internal review at the fire company.

And, the assembled fire officials said, the fire company has been cleared of wrongdoing.

Indeed, the previous week, state police had said that the U.S. Attorney's Office had closed its investigation when the IRS's criminal division dropped out of the case. State police said their own investigation was "in limbo."

In addition to that, Glenn Fishack, president of the Washington County Volunteer Fire and Rescue Association, told the media that the association's own investigation of the matter "found nothing wrong."

Frank J. Underwood, past president of the Maryland State Firemen's Association, told reporters that only "curiosity seekers" still think there could have been wrongdoing at the Halfway fire company.

"Everything that they have been accused of has not been proven," Underwood said.

Asked later that day what the accusations were, Underwood said, "They seem to come from the press. ... The press started blowing this out of proportion."

Nothing was said at the October 2010 press conference about Halfway's big bingo loss of the past year, its internal investigation or its struggles to rebuild its gaming operations.

Nor was the media told what Jim Kimble had suspected at least five months before.



Worst suspicions reported to IRS

The IRS office in Ogden, Utah, date-stamped the 24-page document it received — May 19, 2010.

It was the Form 990 financial report that the Halfway fire company is required, like all organizations that have been declared tax-exempt, to file to the IRS every year.

This one was for Halfway's budget year, beginning July 1, 2008, and ending June 30, 2009.

In such documents, which resemble an income tax form, organizations are to report their various revenues and expenses, as well as the value of their cash and investment holdings, and their liabilities.

A copy of Halfway's report was obtained by The Herald-Mail through GuideStar, an online reporting service.

Near the bottom of the first page of Halfway's report is a printed statement. It reads: "Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer (other than officer) is based on all information of which preparer has any knowledge."

Beneath the statement are two signatures. Jim Kimble's is dated May 14, 2010, and accountant Jack W. Slick Jr.'s is dated May 13.

Near the end of the report are a series of typed statements in which the fire company presents supplemental information to help explain other sections of the report.

In reference to a section in which the IRS asks whether Halfway had an "excess benefit transaction with a disqualified person" during the year or in a prior year, the fire company stated:

"The organization does not have enough information to determine whether excess benefits occurred with the individual they suspect of embezzling from them. Therefore these questions were answered no."

In another section, the IRS asks, "Did the organization become aware during the year of a material diversion of the organization's assets?"

In response, the fire company stated:

"The Volunteer Fire Co. of Halfway MD, Inc. has become aware that there may have been embezzlement occuring in the Bingo operations. To date, they have been unable to discover evidence to prove that any embezzlement occurred and so have not been able to press charges or sue for recovery of funds."



Rifts form

Asked about the statements to the IRS, current company President Jeff Kimble was surprised they even exist.

"That's the first I've heard that the fire company was looking into embezzlement," Jeff Kimble said. "... You totally caught me by surprise with that because I was not aware that was in writing anywhere," he said.

"Had I been in this position when that happened, trying to find an answer, I can see where possibly might have been a situation" where such suspicions were raised, Jeff Kimble said.

Asked why the fire company would have had such suspicions and, particularly, have felt so strongly about them that it would disclose it suspected "an individual," Jeff Kimble said he has no idea.

"That I don't know. Nope. I haven't seen that (report to the IRS). I was not aware that was on any paper. I don't know why it's there. I don't know who it was (that the company suspected), or why they're talking about that. So, I have no comment," Jeff Kimble said.

Past President Jim Kimble said the statements about embezzlement reflect what he truly thought when he signed the IRS report.

But, he said, his investigation proved him wrong.

"They truly tried to do the right thing," he said of bingo workers. "They truly thought they were doing the right thing and by the time they realized (there were problems), they were too far into it to get out of it."

Jim Kimble said he didn't say anything at the press conference about Halfway's internal investigation or about the bingo loss because he just didn't think about it.

He said he wasn't trying to hide it, though he does feel there's a difference in accountability measures for money received from the government versus money from bingo and other fundraisers.

"When government gives an organization tax money, then, by God, they ought to be able to answer for it," Jim Kimble said. "When an organization has fundraisers to raise money to do the extras, then the organization should be able to answer for it. The fire company should be accountable for itself."

Jim Kimble said he has regrets about his in-house investigation, one being that Jeff Ringer was suspended during the time when there was public controversy over the police investigation into the gaming operation.

The suspension was "due to an infraction. As it turned out, it was a minor infraction, but it could have been a major infraction," Jim Kimble said, citing privacy laws in declining to say what the alleged problem was.

"But one thing I do want to make perfectly clear is that (Ringer's) suspension had nothing to do with money. He's being plagued by just being suspended during the ordeal that we had a money issue and he's being plagued by people just not knowing," Jim Kimble said.

He said another regret is a problem that his investigation created, that he thinks couldn't have been avoided.

Kimble said he was bound by federal authorities from disclosing even the fact of their investigation, to his own fire company members or to anybody else. And, he said, he had to keep details of his in-house investigation secret from them, too, just so that the probe would be effective.

Unfortunately, what resulted was that longtime friends in the fire company began to act as though he suspected even them, Kimble said.

As the investigation progressed and after Ringer was suspended, Halfway's 80 or so active members divided into two camps, one that supported Ringer and one that supported (Jim) Kimble.



State Police still investigating

After all that's happened, one investigative part still presses on.

Maryland State Police are still investigating allegations at the fire company, said Senior Trooper Scott Bare, who is assigned to the case.

"We're still investigating a couple different allegations," Bare said earlier this month. He said he has seen the statements Halfway gave the IRS about the suspicion of embezzlement, but he declined to say whether that is among the allegations he is investigating.

In separate interviews, Jim and Jeff Kimble were surprised to hear the police investigation has continued.

"When can this be called harassment?" Jim Kimble asked.

Jeff Kimble said that, as the new president, he has been trying to move the company beyond the problems of recent years and take only the lessons of what he called "a learning experience."

"Obviously, we made mistakes. We're not perfect. Nobody is," Jeff Kimble said. "My point is, we have a theme this year. And the theme is: It happened. We got through it and what we want to do now is, we want to move forward. We want to take it with us and we want to move forward."

Jim Kimble said that to him one silver lining of recent experience is that the company now has good financial accountability in its gaming operations.

"Halfway's been put through a big ordeal in the past couple of years," Jim Kimble said. "In all the years, we provided excellent (emergency) service, top-notch service. And, we have a year or two bad and now, we're no good for nobody?

"If we can get past all that, then we're doing something," Jim Kimble said. "Even with all this stuff, we got through. Something good came out of it because we have accountability. We didn't even know we needed it, but we have good accountability now."

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