County’s investment practices questioned

LISBON – A state audit of Columbiana County’s finances that included a special look at investments was critical of the former treasurer’s management of the investment program.

Released Dec. 24, the routine audit for 2012 contained eight non-compliance citations, seven of which addressed problems in former Treasurer Nick Barborak’s management of an investment program under his control.

No funds were lost, nor did the audit suggest anything criminal occurred, but the state said the investment records were “maintained haphazardly,” and that Barborak failed to follow state law in administering the various aspects of the investment program.

Examiners from the state auditor’s office were in the middle of conducting a routine annual review of the county’s finances in 2013 when they were asked to take a special look at investment problems brought to their attention by current Treasurer Linda Bolon.

Bolon succeeded Barborak as treasurer in 2013 after he was elected state representative. Prior to taking office on Jan. 1, Bolon was advised by Barborak that he had been unable to reconcile interest income earned from a $5 million investment account dating back more than two years. Bolon corrected the bookkeeping problem, which resulted in county investment income being overstated by $118,770.

During the course of correcting the problem, Bolon also uncovered a host of other issues with how the investment account was being administered, which is when she contacted the state.

Many of the non-compliance citations in the state audit addressed issues originally raised by Bolon during her review. The following are the seven citations related to administration of the investment program:

– The state said the investment records were “maintained haphazardly” and in many instances were incomplete, so much so that examiners were unable to confirm if the investments were owned by or in the county’s name.

– All investments were not in the county’s name. The investment statements listed First National Community Bank (FNCB), which administered the investments on Barborak’s behalf through a third party (WesBanco), with Barborak’s name appearing on the second line. The heading on the schedule of transactions listed only FNCB and made no mention of Barborak.

The state said all investments should be in the name of the county, and the county investment advisory board could monitor this to make sure it is being done. The advisory board consists of the treasurer, the three county commissioners and county clerk of courts.

– Those doing the investments are required by state law and the county’s investment policy to acknowledge they are aware of the policy by signing off on a copy of the policy.

The state was unable to find any such documentation confirming that WesBanco, FNCB or the other local bank used for county investments were aware of the county’s investment policy. While a contract was located that stated WesBanco was provided with a copy of the policy, none of the seven brokers/dealers that purchased investments through WesBanco signed off on the investment policy.

– Barborak failed to issue a copy of the monthly investment portfolio report to advisory board members. He did file a monthly report with the state treasurer as required, but it lacked cost amounts, settlement dates, coupon rates, expenses paid, income received, and a list of transactions that may have affected inventory.

– The state determined six investments were made for longer periods than allowed by law for those particular financial instruments. Bolon reported finding eight such investments that exceeded the required time limits.

– Barborak failed to complete his continuing investment education requirements for 2011 and 2012. During that period, he was required to complete a total of 24 hours continuing education requirements but only completed 16.5 hours, of which six hours were carried over from the previous two-year period.

Barborak’s failure to complete his continuing education requirements restricted the type of investments he was allowed to make. The state determined $5 million in investments were made in corporate bonds, commercial paper, notes and government bonds, in violation of those restrictions.

– Barborak failed to balance the investment account for 2012, resulting in interest income for the county being overstated by $118,779. This forced commissioners to reduce their general fund balance accordingly to reflect the loss in expected revenue.

Barborak was contacted for this story and pointed out he was the first one to question WesBanco’s reporting practices, “both with the bank and the state auditor’s office. After we were able to get them to change the way they reported to us, problems persisted. In fact, they (WesBanco) continued to make improper investments well into 2013,” he said, in an email.

He noted the investments netted a profit for the county and the problem was only with the one investment account. “The county has since terminated its relationship with WesBanco. I am glad that this matter has been resolved and that the county has moved on,” Barborak said.

As for failing to complete the necessary continuing investment education requirements, Barborak said he was current through 2012 and had decided against spending taxpayer money to take more classes after being elected state representative in November 2012.

Barborak said he also provided the advisory board with quarterly investment reports, and the monthly reports were on file in his office and available for public inspection.

An accompanying management letter from the audit included seven more non-compliance citations against the county and four recommendations, two of which applied to issues involving the treasurer’s office.

The one citation was for investment advisory committee’s failure to meet every three months as required by state law. Although the committee met the required four times in 2012, they did so in May, October, November and December. The treasurer, as committee chairman, generally schedules the investment meetings.

The other citation was over Barborak’s failure to attend or have his designee attend at least three hours of training on Ohio’s Public Records Law. Each elected official or their designee is required to undergo the training at some point during their term in office.

Barborak said he attended the public records training after being appointed treasurer in 2007 but did not do so again after winning election to a full term as treasurer in 2008. He noted the treasurer’s term actually begins in September of the following year, which means he had until September 2013 to fulfill the requirement, but by then he was serving in the Ohio House.