NEWS RELEASE
For Immediate Release
Contact: Steve Halvonik 717-787-1381
Report Text

Auditor General Jack Wagner Says Chester County IU Let Former Director Collect $79,000 in Pension Benefits While Working

Investigators also find at least $12,750 in improper credit-card purchases

HARRISBURG, Pa., Sept. 1, 2010 – Auditor General Jack Wagner said today that his special investigation has concluded that the Chester County Intermediate Unit improperly circumvented state pension rules by paying a salary to its former executive director, John K. Baillie, for a period of six months after his retirement while he also collected $79,083 in payments from the state pension system.

Wagner’s Office of Special Investigations found that Baillie retired from CCIU on Friday, Jan. 5, 2007, and returned to work on the following Monday. The state pension law permits a retiree collecting a pension to return to work only in an emergency in which no qualified replacement can be found to fill the retiree’s vacant position. However, investigators concluded that no real emergency existed and that the pension payments should be returned to the Public School Employees’ Retirement System.

Acting on information received from Wagner’s investigators, PSERS ordered Baillie to return the improper payments to the pension system. Due to the litigation over the pension issues, issuance of Wagner’s report was delayed pending final resolution of Baillie’s appeal to the Commonwealth Court. The court upheld PSERS’ order on April 30, finding that Baillie’s retirement was “phony” and was done for the purpose of increasing his payout from the pension system.

Investigators also found that:

• CCIU improperly used $683,583 of federal Medicaid School Based Access Program funds to make capital improvements to the Downingtown Education Center.
  
• Employees used CCIU credit cards to make at least $12,750 in improper purchases, including $1,600 for a set of golf clubs and $1,700 for 20 cases of wine; and
  
• CCIU failed in 2006 and 2007 to properly report $12,000 per year that it paid to Baillie and failed to withhold taxes on the payments.

Wagner referred his findings to multiple state and federal government agencies, including PSERS, the Pennsylvania Department of Education, the Pennsylvania Department of Revenue, and the Internal Revenue Service, for whatever further action they deem appropriate.

“Public servants should never put their interests ahead of the taxpayers,’’ Wagner said. “I strongly urge the Chester County Intermediate Unit to implement the recommendations made in my report so that it can regain the public’s trust that it is handling state funds prudently and properly. I will follow up at the appropriate time to determine whether our recommendations have been implemented.”

Wagner’s report made 16 recommendations, including:

• CCIU should reconfigure its cabinet to provide for an assistant executive director, as is the practice at other intermediate units in the commonwealth. This would enhance the CCIU’s succession plan and render “emergency’’ employment contracts unnecessary.
  
• CCIU should seek PSERS’ approval before entering into any future emergency employment contracts.
  
• CCIU should amend its credit-card procedures to eliminate improper purchases and prohibit the use of intermediate unit funds for entertainment purposes and alcohol.
  
• CCIU should issue corrected Internal Revenue Service Forms W-2 for 2006 and 2007 to Baillie and file the corrected forms with the IRS and the state Department of Revenue.

In a response to the investigative report, CCIU agreed to implement most of the recommendations or to implement alternative measures to accomplish the same objectives.

Wagner commended PSERS for its finding that Baillie did not actually retire on Jan. 5, 2007 and for its decision to recoup pension payments made to him between January 8, 2007, and June 30, 2007, when his six-month emergency employment contract expired.

“Based on our interviews and a thorough review of all available records, we can only conclude that the Chester County Intermediate Unit board of directors’ decision to extend an emergency employment contract was merely a means of accommodating the desire of its executive director to receive additional remuneration and to select his successor,” Wagner said. “We commend PSERS for taking action to recover the improper payments, and we are gratified that the Commonwealth Court has vindicated our position on the issue.”

Investigators also found that CCIU violated state Department of Education guidelines when it failed to seek approval for spending federal ACCESS funds on capital improvements at the Downingtown Education Center. The Department of Education said that program rules expressly prohibit spending ACCESS funds on capital projects like windows and heating-ventilation equipment.

In addition, investigators found that CCIU employees rang up $12,750 in improper credit-card purchases from June 21, 2006 through June 27, 2007. Among the purchases:

• Twenty cases of wine, totaling $1,707.72, from an out-of-state liquor store. An employee said that two bottles of wine were given to each participant in a charity golf tournament benefiting the CCIU’s Children’s Fund.
  
• Holiday lunches for 35 guests, totaling $704.25, on Dec. 21, 2006, at a golf-club restaurant.
  
• A new set of golf clubs, totaling $1,600, for a retiring CCIU maintenance employee. The gift exceeded the amount permitted in an employee recognition policy promulgated by Baillie, who reimbursed $1,500 to CCIU after the Department of the Auditor General had initiated its investigation.

During their review of Baillie’s employment records, investigators discovered that he had received $1,000 per month for “expenses of the office” in 2006 and 2007. CCIU failed to report those payments to the IRS as supplemental income on Baillie’s annual W-2 form. Instead, CCIU reported this income on a Form 1099, which is the form used to report payments to independent contractors. CCIU also had failed to withhold appropriate federal, state, and local taxes on this additional income.

“The pattern of lax administrative and financial oversight uncovered by our investigators is deeply disturbing,” Wagner said. “CCIU can and must do better in fulfilling its fiduciary responsibilities to taxpayers.”

Auditor General Jack Wagner is responsible for ensuring that all state money is spent legally and properly. He is the commonwealth’s elected independent fiscal watchdog, conducting financial audits, performance audits, and special investigations. The Department of the Auditor General conducts approximately 5,000 audits per year. To learn more about the Department of the Auditor General, taxpayers are encouraged to visit the department’s website at www.auditorgen.state.pa.us.

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