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Lucchino calls CYF slush fund a violation
Friday, October 16, 1998 By Barbara White Stack, Post-Gazette Staff Writer
Allegheny County's Office of Children, Youth and Families has maintained a slush fund for six years that it used to make purchases the county controller's office would have denied.
In just the past two years, the controller's office said yesterday, its accountants would have forbidden $98,617 of the $222,000 in total purchases from the fund because they were inappropriate or violated county policies. The office couldn't deny the payments, though, because it didn't learn about the existence of the fund until March.
In at least one case, CYF used the fund to pay a bill after the controller had denied payment.
CYF Director Marc Cherna shut down the fund in April, when the agency was still called Children and Youth Services, but only after learning that Controller Frank Lucchino had begun investigating the improper payment procedure.
Lucchino said there were two problems with the fund.
First, it skirted review by his office, which is supposed to sign off on all payment requests by county agencies.
"I think it is typical of any organization that people want to avoid controls," Lucchino said. "They believe they are honest and doing good work and these controls that you have in place when you are dealing with public funds are just an annoyance to them. But these controls are totally essential, as we showed them in 1992, when people were stealing cash from their petty cash books."
The second problem, Lucchino said, was that although the money was used to pay CYF bills, it did not always go to provide emergency services for families, such as paying utility bills or rent deposits, as the contract which created the fund stipulated.
The idea behind the fund was that it could be used to issue checks more quickly than under the county's procedure, and that would be important in cases where parents were threatened with losing their children to foster care if they couldn't pay to have heat or water service restored immediately.
Instead, much of the fund was used for other purposes. For example:
$38,000 was spent to deliver mail between CYF offices.
$7,460 was spent on refreshments at CYF meetings.
$3,297 was spent on two fax machines, a VCR and a television set for the CYF public relations director and a refrigerator for an employee lunch room.
Lucchino said yesterday he would research whether to surcharge Cherna -- a procedure in which a county official is forced to repay any misspent money.
"A surcharge is very serious action," he said. "That would not be something we would do without serious consideration."
In addition, a spokesman for the Department of Public Welfare said yesterday that DPW will investigate whether state and federal funds used to pay these bills were properly spent.
The vast majority of CYF's money comes from state and federal grants. Both set limits on how the money may be used, and the state review would determine whether the expenditures were outside those limits. If they were, CYS could be ordered to pay back the money.
The current CYF slush fund was set up as part of a contract it had with a nonprofit agency, Family Resources. In addition to providing services to families and children, the agency agreed to write checks from this fund for CYF. Family Resources was then allowed to charge CYF $10 for each check it wrote.
During the two years Family Resources provided this service, it charged CYF $5,180 in fees for writing checks. If CYF had routed its payments through the county controller's and treasurer's offices, the checks would have been free.
Before Family Resources, CYF had a similar fund with a different nonprofit agency, Northern Area Multi-Service Center, at a higher rate per check. CYF made $421,500 in purchases from that fund from 1992 through 1996 and paid Northern Area $54,000 to write checks.
That process was set up in 1992 after a CYF caseworker was charged with stealing from three other checking accounts CYF had established to pay bills without submitting them to the controller's office for review.
Lucchino recommended then that CYF close those accounts.
Immediately after the agency did that, though, then-director Mary Freeland set up the new process with Northern Area that allowed the agency to continue spending money without control from the county. Lucchino knew nothing about the procedure until he received a tip about the fund this year.
Cherna, who is also director of the county Human Services Department, took over CYF in February of 1996, just before the first contract with Family Resources was negotiated. He said yesterday he was unaware of the specifics of that contract, although he did tell Lucchino during the audit that he knew CYF had a method of circumventing review by the controller's office.
Cherna said there was no way for him to know this was a problem before the controller alerted him.
But three current and former CYF employees, who asked not to be named, said Cherna was warned in spring 1997, just after the purchase of the TV, VCR and fax machines for the public relations office, that the procedure was improper and should be stopped.
"I deny I was told that," he said.
He said purchases from the fund -- $222,000 worth in two years -- were made without his knowledge or approval.
Lucchino said in the audit that at least two of the purchases from the fund money should have been submitted for bid under county regulations because they exceeded $10,000. Cherna replied that bidding was unnecessary because Family Resources, which is not a county agency, had made the purchases. Lucchino said yesterday he was disappointed in that response.
Walter Howard Smith Jr., executive director of Family Resources, said his agency does not provide a check-writing service for anyone besides CYF.
"Our intent really was to assist families who were poor and might need emergency services," Smith said.
He conceded, however, that his agency did not question CYF when it asked for check after check for items other than emergency services for families. He said the contract did not require Family Resources to determine whether the expenditures were proper.
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