Audit finds plenty of improper spending in Iowa’s Sixth Judicial District

By Paul Brennan | Iowa Watchdog

DES MOINES, Iowa — A state audit has revealed $775,716.72 in improper spending by the Sixth Judicial District Department of Correctional Services. Most of that money was spent supporting a nonprofit organization whose executive director was also the agency’s director.

The report released by State Auditor Mary Mosiman also identifies a further $158,094.17 in potentially improper liabilities.

As impressive as those numbers are, the audit report only covers four years, July 1, 2008 to June, 30, 2012. Some of the problems the report identifies have been going on for decades.

The Sixth Judicial District Department of Correctional Services, part of the Iowa Department of Corrections, is headquartered in Cedar Rapids. It administers pretrial services, probation, parole and work release programs for the counties of Benton, Iowa, Johnson, Jones, Linn and Tama.

Gary Hinzman, a former Cedar Rapids chief of police, served as director of the agency from 1989 until he retired in May 2013, and was widely praised for his leadership.

At the time, the public was unaware of an internal review of the district’s finances by the DOC.

The DOC’s internal review was launched in early 2012, after Hinzman unexpectedly requested an additional $800,000 in funding from the agency.

The DOC review concluded the district’s budget shortfall was actually closer to $1.5 million. It also uncovered enough irregularities that DOC Director John Baldwin asked the auditor to examine the district.

The auditor’s report notes the district’s improper spending may actually be higher than the six-figure numbers cited above. The report states it was impossible to determine the exact amount, since “adequate records were not available.”

Despite the district’s inadequate — and in some cases, nonexistent — records, some things were immediately obvious.

The district was awarding pay raises beyond what its budget could support.

The district also improperly spent more than $210,000 on vacation benefits.

Irregularities in the sick leave program were discovered as well.

But the vast majority of the improper spending uncovered by the audit — $563,113.27 of the total amount — was the result of the district’s involvement with the Community Corrections Improvement Association.

CCIA is a nonprofit organization founded in 1991 by Hinzman and other civic-minded citizens in the Sixth Judicial District. Its stated purpose is “to maintain, develop, increase and extend the facilities and services of community based correctional service agencies of the State of Iowa”. Although that suggests CCIA will be supporting correctional services departments throughout Iowa, it has only ever been active in the Sixth District.

Since CCIA’s original bylaws said its executive director must be the person serving as director of the Sixth Judicial District Department of Correctional Services, Hinzman held both positions from 1991 to May 2013 and is still CCIA’s executive director. CCIA changed its bylaws before Hinzman’s retirement from the district to allow him to continue serving.

The audit report notes an additional area of overlap between the two organizations: three members of the district’s current board of directors also serve on CCIA’s board of directors.

In his letter to the auditor requesting the audit of the district, Baldwin pointed out the importance of the relationship between the district and CCIA: “The District also supports, in some form or fashion…CCIA. I do not believe you can understand the District’s financial system without a complete review of the CCIA functions and where their funding is obtained.”

The relationship between CCIA and the district has been very beneficial to CCIA. It has also been very costly to Iowa taxpayers.

The audit uncovered CCIA employees included on the district’s payroll records “exclusively for the purpose of receiving the same health and dental insurance benefits provided to district employees.” Those employees remained on the district’s payroll records until July 2013.

CCIA reimbursed the district for the insurance premiums, although exactly how much is impossible to determine. This is due to the district’s failure to keep records in this matter and the informal way the district determined the amount CCIA needed to pay.

The report finds such informality and lack of written documentation to be common in the District’s interactions with CCIA.

Since its formation in 1991, CCIA’s offices have been located in one of the district’s buildings in Cedar Rapids. There is no written agreement governing this arrangement, and CCIA pays no rent. The report estimates that for just the four-year period it covers, CCIA should have paid the district approximately $119,000 in rent.

In addition to the office space, CCIA has also had free use of the district’s office supplies and equipment, including its computer system. Also, some of CCIA’s cell phones were included in the district’s cell phone plan. The report states that CCIA reimbursed the district for phone-related expenses “on a sporadic basis.”

CCIA was even using email addresses that are part of the DOC system. The report notes this tends to create the impression that CCIA is an official state agency.

CCIA also has had free use of the district’s vehicle fleet. The Sixth District has the largest vehicle fleet of any of the state’s eight judicial districts. According to the report, “it appears the District maintains more vehicles than would otherwise be necessary because CCIA uses some of the vehicles.”

CCIA doesn’t reimburse the district for gas or any other vehicles-related expenses. A CCIA representative told auditors that a “verbal agreement” allows the organization to use the vehicles for free and that “the District and CCIA have always operated under this verbal agreement.”

In examining the district’s vehicle fleet, the audit also uncovered a costly and confusing written arrangement between the district and CCIA.

In 2009, four Dodge Chargers were purchased. The purchase agreements identify the district as the purchaser, but CCIA took out a loan to pay for the vehicles. The District then “leased” the cars from CCIA. The arrangement lead to the district paying CCIA both the purchase price of the cars and almost $14,000 in interest.

The auditors asked both the district and CCIA to explain this arrangement, but “an explanation was not provided.”

The bulk of the improper spending involved district employees administering CCIA programs. The audit found approximately $444,000 had been paid to District employees doing work CCIA employees should have been doing instead.

CCIA runs worthwhile programs. But if the Sixth District ran those programs, as other judicial districts do, it would receive fees paid by those who participate in the programs. Instead, CCIA gets that income.

CCIA did pay for some district employees to travel to out-of-state conferences and training events.

The report also mentions CCIA fundraising on behalf of the district. Unfortunately, auditors “were unable to determine what amount, if any, of the funds collected as a result of the fundraising activities were provided to the District in financial support of District programs.”

Contacted by Iowa Watchdog for his reaction to the auditor’s report, current District Director Bruce Vander Sanden said he is “appreciative of the auditor’s efforts.” He said he will carefully review the report and work with the District’s board of directors and the DOC “to make any necessary adjustments.”

Asked if these adjustments included such things as CCIA paying rent, Vander Sanden declined to comment on specifics.

Iowa Watchdog also reached out to CCIA for comment, but hadn’t heard from its spokesperson by the time of publication.

In addition to whatever adjustments the district may make, there’s also the possibility of action being taken by another state agency. The auditor filed a copy of her report with the Iowa Attorney General’s Office.

Contact Paul Brennan at pbrennan@watchdog.org

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