Expensing patterns of top Delaware audit staffer probed
UPDATE: June 25, 2018 — A new Department of Labor decision says state Auditor Tom Wagner did not have sufficient cause for firing his No. 2, Kathleen Davies, in late 2017, because the evidence he cited in her discharge letter consisted largely of hearsay and personal opinion.
Visit delawareonline.com/story/news/education/2018/06/25/ruling-auditor-didnt-have-cause-dismiss-kathleen-davies/672650002/ to read the story.
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Kathleen A. Davies, the top official in the Delaware Auditor of Accounts office, which investigates cases of corruption and embezzlement of taxpayer funds, has been placed on paid administrative leave after complaints surfaced she deviated from state guidelines on travel expenses, according to people with direct knowledge of the case.
The sources, who provided evidence to the Office of Management and Budget, a state agency involved in the investigation, say Davies did not follow the approved practice of using a state-issued credit card, or PCard, to pay for hotel stays, travel and meals during trips on official state business.
In November 2015, OMB received written communication from state employees suggesting there was fraud and abuse to uncover in the auditor's office. Then-OMB director Ann Visalli responded, and the employees sought and received whistleblower protection. The tips led OMB to investigate Davies and the Auditor of Accounts office.
At issue is about $7,700 in reimbursements Davies received over four years for expenses she attested were work-related, like hotel stays, meals and mileage while traveling on state assignments.
As the audit office's top staffer, reporting directly to elected auditor R. Thomas Wagner Jr., Davies's job is to analyze similar reimbursements throughout state government to ensure they are for valid work-related expenses and document it in audit reports when they are not. Those audits have called attention to missing or misspent funds in other departments even when they only amounted to four-figure sums.
State policy urges employees to use government-issued credit cards for those kinds of costs whenever possible. Software allows state department and division heads to easily track spending made on the cards, and they can get alerts about spikes or odd patterns in credit card use.
Instead of routinely doing that, the sources said, Davies frequently sought reimbursements to herself directly for her out-of-pocket expenses. Doing so didn't hide the records from the state's public online checkbook, but patterns of those reimbursements are harder for government managers to analyze than credit card charges.
The sources said Davies told employees in the Auditor of Accounts office she did so to avoid other state agencies' scrutiny of her spending. This occurred at about the same time as the spending controversies that enveloped the office of former state Treasurer Chip Flowers.
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In August 2013, The News Journal reported then-deputy treasurer Erika Benner was being investigated for making a series of personal charges on her state-issued credit card. That was the start of a controversy that cost Benner her job and forced her boss, Flowers, to defend his attendance at an NFL game with Benner using tickets purchased with a PCard issued to her. Flowers abandoned his plans to run for re-election in 2014 amid the controversy.
Around May 18, Davies' name and title were removed from the Auditor of Accounts website. They have not reappeared since, and emails to Davies since then produced an autoreply that she is "currently out of the office."
Davies did not reply to several kinds of messages seeking comment. An attorney representing her, Michele Allen, declined to respond in detail to a series of questions about Davies posed by The News Journal.
"Mrs. Davies is still a state employee and she has not been charged with anything," Allen said.
Wagner has sought an outside firm to conduct “a review of all operations” within the auditor’s office, according to John Fluharty, a spokesman for Wagner.
Fluharty declined to say what specifically was going to be reviewed and said he couldn’t comment on why Davies was on leave because it is a personnel matter.
Wagner declined an interview request, saying in an email: “The Chief Administrative Auditor is on paid leave. This is a personnel issue, and as you are aware, I cannot discuss any further.”
The state’s online checkbook, a public database of government spending, shows Davies did not receive any direct reimbursement for work expenses incurred personally in the fiscal year that ended June 30, 2012. She made just three reimbursement requests in the year that ended in June 2013, for a total of $133.65, the records show.
At the same time the Benner-Flowers scandal began to unfold publicly, Davies started making frequent use of the direct reimbursement process that is an alternative to PCard use, records show. In the fiscal year that ended June 2014, she received 20 reimbursements for out-of-pocket expenses totaling $2,120; the next year, she received 21 reimbursements for $3,424 in total. In fiscal 2016's first 11 months, before she went on leave, the online checkbook shows Davies received 16 reimbursement payments totaling $2,085.
The reimbursements came not all at once but in batches throughout the year. On Oct. 10, 2013, the online checkbook shows Davies was paid $517.54 for an out-of-state hotel stay and $25.50 for out-of-state meals. In December 2013, she was paid $558.28 for several categories of expense, including private car mileage, travel both within and out of Delaware, and meals. Then, after a break of several months, Davies was reimbursed $260 in May 2014 and $586 in June 2014. That pattern continued the next fiscal year and into this one.
The records show most of the reimbursements to Davies were for out-of-state travel and associated costs, like meals and hotel stays. She requested $1,578 in out-of-state travel reimbursement in fiscal 2014 and $2,674 for similar expenses in fiscal 2015, according to the spending records.
It was unusual for so much personal reimbursement to happen on the staff of a state financial office, state spending records show. Take, for example, the office of the state treasurer. Like the auditor's office, it's headed by an elected official: Ken Simpler. Wagner and Simpler are the only two statewide Republican elected officials.
In fiscal 2016, state records show, only one of Simpler's six "strategy and administration" staffers made any requests for personal reimbursement for travel expenses, and that was a single request for $44.25 spent on food.
Simpler's deputy state treasurer is Nohora Gonzalez; her position is similar to Davies' in the auditor's office. She has received no reimbursements for out-of-pocket spending since she was hired in July 2015, records show.
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The OMB's official budget and accounting policy that describes how government departments should issue and use PCards notes they are useful specifically for work-related travel. It also notes the PCard system allows departments to closely monitor spending, getting near-instant reports on what employees have spent, and it repeatedly encourages use of the cards to pay for official travel.
"These controls enable the organization to reduce risk, while providing employees the spending power they require," the policy says. "The Travel Card should be used for meals (food, beverage, tax and tips) while traveling on official State business."
The Auditor of Accounts office has investigated cases in which direct reimbursements to other officials raised red flags. In a September 2015 audit of the Delaware College Preparatory Academy charter school PCard and personal reimbursement activity, an audit report authored by Davies noted "unusual direct reimbursement activity" for the board president and executive director.
The board president, the audit noted, was given $11,252.87 in personal reimbursement for 37 different purchases, but in some cases, the purchases were made two years before the president was reimbursed, a delay much longer than state's guidelines call for. "We took exception to the entire $11,252.87 in reimbursements," the audit report said.
The charter school audit report also notes that "the PCard is OMB's preferred choice for travel expenses," but says "direct reimbursement is also acceptable," and a footnote cites the state's Budget and Accounting Policy Manual, or BAM, to support that statement.
The cited section of BAM, though, clearly steers employees to use of the PCard for travel expenses whenever possible. "Payment for all travel-related, approved expenses should be made using the Delaware Travel Card. However, in cases where this option is not possible, travel-related expenses will be reimbursed using a voucher," the BAM says.
OMB policy director Bert Scoglietti declined to answer a question about Davies’ employment status, directing the query to Fluharty. But he acknowledged OMB officials had met with Auditor of Accounts employees who contacted them.
“At the request of the Auditors Office,” Scoglietti said, “OMB staff met with them regarding their internal operations.”
Recently, Davies has been at the center of a debate over the auditing process for charter schools.
Davies has made several appearances in the Legislature to testify in support of a bill by Rep. Kim Williams, D-Newport, that would give the state auditor authority to select the firms that audit charter schools. Currently, charters work out their own contracts with auditors, unlike traditional schools.
She publicly supported Williams's bill over an alternative proposal from Sen. Dave Sokola, D-Newark, which would strengthen the rules charters have to follow in picking auditors but leave them with the authority to do so.
Staff writer Matthew Albright contributed to this story. Contact James Fisher at (302) 983-6772, on Twitter@JamesFisherTNJorjfisher@delawareonline.com.