State audit: Richwood officials misspent federal flood money, paid friends and family

RICHWOOD, W.Va. — As the community of Richwood tried to recover from devastating floods in 2016, the city’s leaders misspent precious dollars from the federal government, according to a detailed report from the state Auditor’s Office.

Three current and former city officials were arrested and arraigned on Friday morning. In addition, the Auditor said former Mayor Bob Henry Baber had been out of town but was expected to turn himself in to State Police.

The Auditor’s Office spent more than a year researching and compiling the 199-page report. This is the latest in a series of controversies involving how West Virginia has handled federal flood relief money.

“While detailed throughout this report,” the Auditor’s Office wrote, “the City engaged in conduct that was incompetent, inattentive and fiscally irresponsible.”

MORE: Executive Summary

MORE: Full report and exhibits

J.B. McCuskey

Auditor J.B. McCuskey and his staff detailed the report’s findings and took questions from reporters and community members in a packed room at Richwood City Hall. Nicholas County Prosecutor Jonathan Sweeney also spoke but answered few questions because a legal investigation is continuing.

“Despite the influx of nearly $3.1 million from FEMA to assist the City of Richwood’s recovery from the devastating floods of June 23, 2016, greed, incompetence and total lack of fiscal management have left Richwood on the brink of bankruptcy,” McCuskey said.

Richwood residents like Cindy Arbaugh, who sat on the front row of the press conference, were appalled.

“The citizens weren’t informed. Every time we tried to find out information, we were never given an answer or everybody was so defensive,” Arbaugh told reporters after  the event.

She said citizens should clean house.

“My opinion is everyone was covering everybody’s back here and keeping the citizens uninformed. Everyone should go within City Hall right at this time. Everyone should go. We should have a clean slate.”

Mayor Chris Drennen and former City Recorder Abby McClung face charges related to the city’s use of millions of dollars in federal flood relief money. Police Chief Lloyd Allen Cogar is accused of mishandling his state-issued purchasing card, including buying tires and services at “Allen’s Discount Tire Store,” which he owns.

In an emergency meeting, Richwood Council members voted to ask Drennen to resign. Cogar, a city employee, earlier in the day told reporters that he was on leave, but council members voted to terminate him during the Friday evening meeting.

MORE: Three Richwood officials arrested, accused of misusing public dollars — including flood relief funds

The troubling audit goes far beyond that..

Leaders of the lumber town of about 2,000 people put thousands of dollars of grant money into their own pockets by hiring themselves, friends or family members for paid flood-relief positions, according to the report.

Many of the same leaders failed to keep track of finances or of purchases made using federal flood dollars, resulting in “complete financial disarray,” the report also concludes.

The allegations are so serious, the report indicates a federal claw-back of the money could result, putting the fragile community into even greater financial peril. The report casts doubt on whether the City of Richwood’s finances can be sustained.

The report calculates $1,991,510 in money received from the Federal Emergency Management Agency may be in jeopardy because of being commingled, because documentation doesn’t exist or because the expenditure was questionable.

That’s the bulk of the federal relief money the community received.

“In the end, over $3 million of federal monies have been provided to the City of Richwood to aid in flood recovery,” the report concludes. “Yet, the city appears to be in more need of financial recovery than before the flood of June 23, 2016.”

Richwood was one of the towns hardest hit by the flooding in 2016, with more than 200 homes hit and roads and infrastructure destroyed.

Following the initial cleanup, much of the attention was focused on consolidation of schools in Nicholas County, where Richwood High School was considered destroyed.

More controversy followed a few months later when City Council members questioned expenditures by then-Mayor Baber, eventually forcing him from office.

The claims against Baber — including his use of a state-issued purchasing card for personal travel, personal cell phone costs and a personal electricity bill — have been detailed, but the allegations in the latest report are much broader.

Financial mismanagement

The city’s finances worsened, the Auditor’s Office wrote, because Baber continually misled other leaders about monetary matters and because the other leaders like the recorder and the finance committee lacked knowledge of the city’s budget situation.

“During the investigation, it became readily apparent that neither the Recorder nor the finance committee ever scrutinized or took independent action to determine the true nature of the city’s finances,” the Auditor’s Office wrote.

The report contends that without permission from Council, the mayor brought on city employees — including his old campaign spokeswoman from when he ran for governor and another woman he considers his stepdaughter — more than doubling the payroll in the weeks following the flood.

“Putting aside the charitable nature and assumed altruistic intent of the Mayor, the Mayor unilaterally chose to use the City’s money as his own,” the report states.

“As was referred to during the investigation, it was as if he was playing Santa Claus for certain families with the public’s money.”

Hiring friends and family

A newly-established Incident Command System, with a core of three local leaders, used “unfettered discretion” to hire themselves, friends and family and spent city money without approval, causing payroll to nearly triple in the six months after the flood, according to the report.

“The leadership of the ICS believed themselves answerable only to themselves, and undertook activities and actions that they themselves selected and chose without concern to the City budget, City Council or the greater recovery of the city,” the Auditor’s staff wrote.

The Incident Command System, established to coordinate local flood relief efforts, added dozens of people who could have been treated as volunteers.

“For many of the ICS members, their rate of pay greatly exceeded their rate of pay prior to the flood,” the Auditor’s staff wrote. “Indeed, many of the ICS members were unemployed prior to the flood and/or being paid near minimum wage rates. Yet, after the flood, they paid themselves rates equal to nearly $80,000 salaries.”

The number of city employees on June 23, 2016, the day of the flood, was 27.

By July 8, 2016, the number of employees grew to 63.

Net payroll for the period of Jan. 1, 2016, to June 30, 2016, was $231,782.

Net payroll after the flood, that July 1 to Dec. 31, was $696,688.

The leaders of the Incident Command System were identified as former Mayor Jeromy Rose, his friend Jon Cox, who relocated from Colorado to help with flood relief,  and Chris Drennen, who had recently been elected as city recorder.

They put together a team of 23 people, who were paid $468,455 in wages. FEMA has not approved or paid any of the payroll.

“While the original intent of an ICS may have been good-intentioned, it quickly became an opportunity that was exploited by the three leaders of the Richwood ICS,” the Auditor’s Office wrote.

“The excessive size of the ICS was unnecessary, and the excessive amount of money paid to hand-selected friends and family members detracted from any semblance of a legitimate, workable organization.”

Among the ICS employees were city employee Abby McClung, who signed off on most of Richwood’s expenditures, and H.C. Spencer, the son of longtime councilwoman Ann Spencer.

“In short, the leadership of the ICS was able to create a closed system wherein everyone that had signatory authority over City funds or who was in position to oversee those funds became part of the ICS,” the Auditor’s staff wrote.

Rose, Cox and Drennen also took on salaries for their ICS roles. The three leaders together drew $217,825.24 in gross pay.

The largest amount went to Cox, who drew $136,341.88 in gross pay. Rose made $36,303.75 gross.

Drennen, who started serving as mayor when Baber was forced from office, was paid $45,179.61 for her ICS work. That was in addition to her pay as an elected city official. The recorder position paid $400 a month.

Baber also tried multiple times to pay himself under the ICS, the report states.

“The salaries paid to these ICS members are one of the primary reasons for the City’s financial distress,” the Auditor’s Office wrote.

“At the time they decided to pay themselves, the ICS leadership team (including Mayor Baber) were all under the misbelief that FEMA was going to reimburse them within 90 days for these salaries. hence, the expansion and size of the ICS did not appear to concern the ICS leadership as they thought the City would eventually be made whole.”

Besides the payroll obligation, the ICS hired vendors for flood recovery work under emergency, no-bid contracts.

Four primary vendors hired to conduct debris removal and other work were high school classmates of Rose and Cox, according to the report. They made almost $550,000 with another $150,000 still invoiced to be paid.

Unpaid obligations

Over all this time, the city failed to remit federal and state taxes in multiple instances, also failing to remit payments to the Consolidated Public Retirement Board even though those were recorded on employee pay stubs, the report concluded.

The Auditor’s report suggests the City of Richwood owes $526,016 in federal taxes and $67,357 in state taxes.

Former City Clerk McClung, in an interview with state investigators, indicated sometimes the money just wasn’t available.

“I don’t think it was really a decision not to pay them,” she told officials with the Auditor’s Office and with the State Police. “It was the City did not have the funds in the account to pay them.”

FEMA riddles

In some cases, the report indicates, the city drew down money from the Federal Emergency Management Agency for specific repairs but wound up using separate, outside help to do those projects.

Richwood also secured a low-interest, $512,544 Community Disaster Loan from FEMA, intending to provide a financial cushion during the flood recovery.

“Although a CDL is intended to be drawn down on an ‘as-needed’ basis,” the Auditor’s Office wrote, “the City drew down the entirety of the loan upon the monies becoming available.”

City leaders, including Mayor Baber, reportedly described the loan as forgivable. But it accrues interest at $17.55 a day. So the loan amount outstanding as of June 30, 2018, was $523,408.

Of the overall $2.6 million of public assistance money Richwood received from FEMA, the report calculated, the city is unable to demonstrate or account for more than 23 projects.

It was months before city leaders came up with any system for tracking federal dollars.

“Stated another way,” the Auditor’s staff wrote, “the City did not have an accounting/tracking spreadsheet of FEMA expenditures for nearly 18 months after the food, and after more than $2.3 million had been provided and expended by the City of Richwood.

“While the absence of an accounting system is unsurprising given the poor financial records of the City as a whole, the inability to provide a true and accurate accounting is problematic given the requirement that the City must account for all expenditures to FEMA, or risk having to repay all monies back to FEMA.”

Federal oversight; no bailout likely

The report suggests further review by federal officials.

“Potential misconduct and questionable action with project worksheets necessitates review by the FEMA Office of Inspector General and may result in disqualification of monies,” the report concluded.

But the Auditor’s Office also observed that Richwood seems to believe a bailout is right around the corner.

“While a host of negative colloquies could be stated for the absence of governance by the elected officials in the City of Richwood,” the report states, “the most applicable may be they put their head in the sand and hoped that their self-induced money problems would magically disappear.”

Executive Summary (Text)

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