Red flag raised on investments
LISBON – At least two investments of county funds were found to violate policy and state law, according to Columbiana County Treasurer Linda Bolon.
The information came to light during Wednesday’s special meeting of the county investment advisory board, which had been called by Bolon to discuss problems with the investment account she inherited upon taking office in January.
Although no money is known to have been lost, Bolon said the problem resulted in interest income being overstated by $118,779, and at some point county commissioners will have to reduce the county general fund budget by that amount.
Commissioners and Bolon are members of the investment advisory board, along with county Clerk of Courts Anthony Dattilio. During Bolon’s 90-minute presentation, Commissioner Jim Hoppel asked if all of the investments were legal.
“They are not. I have identified at least two, and there may be more,” she said, adding her review was hampered by lack of required documentation.
The investments in question were made by WesBanco, a multistate bank holding company with its headquarters in Wheeling, W.Va. The advisory board in March 2010 authorized former Treasurer Nick Barborak to negotiate a contract with First National Community Bank to invest $5 million in county funds through WesBanco. Barborak believed it would result in more interest income for the county.
Bolon called the meeting to advise the board of the results of her review of the investment account. After reconstructing a paper trail of investments, she examined two particular investments in corporate bonds, which is allowable under board policy and state law.
“There are many counties out there that do this,” she pointed out.
State law restricts public money investments in corporate bonds to those bonds that mature within two years. The problem is the two investments in question exceeded two years.
Bolon launched her review after being advised of the problem by Barborak and that he was unable to resolve it before leaving office in January to begin serving as the county’s state representative.
Barborak had been unable to get a complete accounting of investment income needed to balance his books. Bolon was able to do so after determining the problem had to do with monthly investment income statements provided Barborak, which were confusing as to whether all of the various fees had been deducted.
“The information was there. It was just difficult to locate,” Bolon said, adding that she was able to complete reconstructing the paper trail of investments with information included in the annual investment report.
“You were able to get this problem worked out in in two-and-a-half months? Why wasn’t this problem worked out earlier?” Hoppel asked.
“That’s a question I honestly can’t answer,” said Bolon, who served as county treasurer for six years before leaving in 2006 to become state representative.
Bolon said her task was made more difficult by the lack of CUSIP slips, which are the documents that provide tracking numbers for investments, and other documentation the investment policy requires be on file in the office but was not.
Commissioner Tim Weigle noted that the $5 million invested through the First National Community Bank and WesBanco generated interest income of $66,000 over the past 2-1/2-years, a return of less than 2 percent. “Would you say that is a bad investment?” he asked.
“It’s about the amount of risk you want to assume … With greater yield comes greater risk,” Bolon said.
Halleck said that while they were “sensitive” about the perception politics may play in all of this – all three commissioners are Republicans, while Bolon and Barborak are Democrats – he was concerned why this was never brought to board’s attention before by Barborak.
“I guess I’m disappointed, but I’m glad there’s no money missing,” he said.
Bolon said she would have advised the investment board had she been treasurer at the time.
Halleck compared the situation to a problem a person might have with their checking account. “If your checking account was off … you would go down to the bank and take care of it. That’s what troubles me, as much as anything,” he said.
Hoppel is the only current commissioner who served on the investment board when it authorized Barborak to contract with the First National Community Bank and WesBanco. He alluded to the one thing that was likely on everyone’s mind: The 1993 county investment scandal involving former treasurer Ardel Strabala, who illegally invested millions of county dollars through his son, Stephen. The scandal resulted in the loss of $6 million in public funds and prison terms for both Strabalas.
“We all remember a case that was kept secret and got completely out of control. I guess we’re lucky this time it didn’t get out of control,” he said.
Bolon, who was involved in the Strabala probe as an examiner for the state auditor’s office, said that in fairness to Barborak, he attempted to correct the problem and even spoke with the state auditor’s office about it, but these types of investments are often very complicated.
“This is a colleague who I respect greatly …. but I believe as a public officeholder I’m here to do a job,” she said.
Also present during the meeting was Steve Sant, president of First National Community Bank, who said they contacted WesBanco after being made aware of the problem and assumed it had been resolved since they never heard anything again. He assured the commissioners all of the invested money was accounted for and offered the bank and WesBanco’s help in resolving the problem.
Sant also reaffirmed that no money was missing and all interest earnings were reinvested.
Weigle wondered if they should consider canceling the investment contract, and Bolon indicated that issue as well as the need to update the county’s investment policy are matters they can take up at another meeting.
“We need to consider how we want to handle this in the future,” she said.