During Financial Audits
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Editor's Note: Story updated with comments from David Sullivan, deputy directory of the Delaware Division of Revenue, on Monday, Jan. 13, 2003.
The independent audits of the Town of Fenwick Island's financial records for the past four years have revealed that the town has failed to pay employee withholding taxes for the state of Delaware during that four-year period.
According to Council member Vicki Carmean and Thomas Sombar of the auditing firm Sombar & Company, the irregularities were discovered during the audit of the town's financial records from Fiscal Years 1999 to 2002.
David Sullivan, the deputy director of the Delaware Division of Revenue, said on Monday, Jan. 13, 2003, that the total amount owed by the town has not been determined yet. He said once that amount is determined, penalties and interest will be calculated. The town will then have 30 days to appeal the amounts determined by the division.
Interest for late tax payments usually accrues at 1 percent per month, but Sullivan said that in cases of a failure to file as well as a failure to pay, interest could be as much as 5 percent per month and penalties could be as much as 50 percent of the principal.
Sombar said his audits have revealed that the town did not pay or file its state withholding returns from early 1999 through Fiscal Year 2002. Withholding taxes are owed on the 15th of each month for the preceding month.
Sombar declined to provide an estimate of the principal owed but said it was a "fairly significant sum". He added that the town did have the money to pay when the final amount is determined. Carmean said she was told the town owes roughly $100,000 in past due withholding taxes.
Sombar said that the town actually informed the state during the course of the audits that it had not paid the withholding taxes because the state didn't know the withholding taxes hadn't been paid.
"We (Sombar & Company) didn't know what had been done or not been done," said Sombar. "I personally made the contact (with the Division of Revenue) and the state didn't know. The employees had filed their returns, but the town didn't remit the money. Nobody's been hurt, other than the repercussions (that could stem from the revelations)."
Sombar said that town officials are "working expeditiously to resolve the issue" and that he expected it to be resolved "within a week". Sombar said the town will try to negotiate a reduction or elimination of penalties and interest once the exact principal amounts are known.
It was not immediately known who is responsible for ensuring that withholding taxes are paid in Fenwick. Neither treasurer Richard Griffin or council president Peg Baunchalk were available for comment Friday.
Sullivan said he has never seen a case of a town failing to file or pay for withholding taxes. Asked how this could have escaped the state's attention for so long, Sullivan said, "That's what I'm trying to find out."
Sombar said his firm discovered the unpaid withholding taxes while auditing the town's Fiscal Year 2000 books. He confirmed that he had told town officials about the unpaid withholding taxes in early December.
The annual audits, required by the town's charter, were not performed from 1999-2002. On Friday, Sombar said his firm had approached the town to audit the books as it always had "but we weren't allowed to come into town for at least four years." Asked to clarify what he meant, he said the town's financial records weren't ready for his firm to audit.
Sombar said that his firm will present the results of the Fiscal Year 1999 and 2000 audits at the rescheduled town meeting on Jan. 31. He said he is currently working on the FY2001 and FY2002 audits.
He said his firm has also completed the audit ordered by the town of the police department's books and said that although some "procedural things" bothered him, "everything seemed to be fine as far as the dollars are concerned."
Based on the revelation of the unpaid withholding taxes, Carmean has written a letter to the Delaware Attorney General's office, charging that other town council members withheld important information regarding the audits' discoveries from her and council member Theo Brans.
In her letter, dated Jan. 10, 2003, and sent to Deputy Attorney General W. Michael Tupman, Carmean says she was "kept in the dark" regarding "major irregularities" found during the auditing of the town's books by Sombar & Company and that she believes some council members are making decisions in private before meeting in public.
Carmean says that she and Brans were not informed of the discovery of the unpaid state withholding taxes until after an executive session on Monday, Jan. 6, 2003, a month after Sombar had told town officials of the irregularities in early December.
She said that when council member Peter Frederick told her and Brans about the unpaid withholding taxes, he asked them to keep the matter a "secret" for two weeks while the town negotiated with the state on the possible penalties and interest charged for late tax payments.
Carmean said she "was incensed to think that while Mr. Brans and I may be 'separately and equally' liable with the costs passed onto the taxpayers, we all were kept in the dark while 'informal' decisions and meetings were continuing behind our backs for almost a month".
"It is my belief that meetings and decisions have gone well beyond the normal scope of individual assigned duties," said Carmean in her complaint. "There also appears to be an ongoing pattern, rather than isolated incidents."
Carmean said she didn't feel comfortable after talking with Frederick on Jan. 6 and decided to call Sombar herself. She said Sombar told her he first notified town officials about the irregularities in early December. She added that further investigation revealed that there are no ongoing negotations between the town and the state regarding the withholding taxes.
"The monies must be paid first before this is determined, and no one at this time is even sure how much is owed since records need to be researched," said Carmean in her complaint. "In checking with the other council members, I feel certain that everyone with the exception of Mr. Brans and me had been made aware of this situation by Christmas."
She said she based her belief on the copy of an email she received, as well as verbal discussions with other council members.
Brans confirmed that neither he nor Carmean had been told about the audit's findings until Jan. 6, but he was not upset that he hadn't been informed until then.
"The thing I got out of it (discussion with Frederick on Jan. 6)," said Brans, "was that the audit had not been completed. Mr. Frederick is a very precise man and he didn't want to give out anything he couldn't substantiate. I was satisfied with that."
Frederick disputed Carmean's claims on Friday, saying the town did not have the information Carmean says it had in early December. When informed that Sombar confirmed that he had told the town about the withholding tax irregularities in early December, Frederick said that while Sombar had informed the town of the discovery, he had not yet issued a final report. "I'm looking forward to seeing the final report," Frederick said.
Frederick said council has been "very public about saying the audits should have been done. It's an embarrassment."
Frederick, who won a seat on council in 2002 after being appointed to fill out departing council member Chris Clark's term in 2001, said that he began requesting the audits upon his appointment in 2001. "We've asked about them every meeting since then, and as a result, it's being done," he said.
Following is a copy of the letter Fenwick Island council member Vicki Carmean sent to Deputy Attorney General W. Michael Tupman on Jan. 10, 2003:
"Thank you for addressing my previous concerns in your November 22, 2002 letter. Even if the Town is not charged with any formal violations, the public now has access to at least twenty Executive and Special meeting minutes that heretofore were not transcribed or approved. My sole purpose in seeking the advice of your office is simply to change Fenwick Island's present form of government so that it adheres to the policies underlying FOIA.
It is unfortunate that by the time I approach your office that other in-house remedies have been exhausted. With that in mind, I need to share my concern about what I perceive to be a general pattern of meetings by less than a quorum, which may violate the open meeting provisions of FOIA. It is my belief that "informal" meetings are often used to make decisions where I unknowingly become "equally and separately liable" and the ultimate price is paid quite literally by the voiceless citizens of Fenwick:
It is my belief that meetings and discussions have gone well beyond the normal scope of individual assigned duties. There also appears to be an on-going pattern, rather than isolated incidents. As such, I am respectfully asking that this problem be reviewed by your office.
Thank you for your attention to this concern!
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