No paper trail leaves questions in Elizabethtown audit of underpaid taxes and credit card use | Eastern North Carolina Now

    Publisher's Note: This post appears here courtesy of the Carolina Journal. The author of this post is Theresa Opeka.

    The former town manager for the town of Elizabethtown in Bladen County, did not have payroll taxes withheld and possibly used the town's credit card for non-valid town purposes. That's according to an audit released by North Carolina State Auditor Beth Wood's office.

    Her office received four allegations that former town manager, Eddie Madden, did not have payroll taxes withheld. Investigators reviewed the tax withholdings for Madden for tax years 2018 through 2020. They found that:

• Federal Income Tax withheld was deficient by $28,892 (98% of what was required).
• North Carolina Income Tax withheld was deficient by $1,384 (9% of what was required).
• Social Security Tax withheld was deficient by $1,200 (5% of what was required).
• Medicare Tax withheld was deficient by $129 (2% of what was required).

    As a result, the town is liable for the amount required to be withheld.

    Madden held the position from February 2008 through March 2021.

    WHO MADE CHANGES IN THEIR PAYROLL SYSTEM?

    According to the audit, two changes made in the town's payroll system resulted in the required amount of payroll taxes not being withheld in accordance with state and federal regulations. Madden told investigators that he did not authorize the changes.

    In December 2015, Madden's federal income tax withholding was changed in the payroll system from $236.32 per pay period to $0.00 per pay period. Then, in April 2016, the federal income tax withholding was changed from $0.00 per pay period to $8.30 per pay period. According to the former finance director, the only two employees with access to make changes in the payroll system were the former finance director and the former town accountant. Both denied making the changes to the system.


    Additionally, the payroll system did not capture the identification of who made the changes in the system. There were no initials or other identifying information on the report which would indicate who made the changes.

    Wood's office recommended that:

• The finance director should ensure that no changes are made to the payroll system without proper authorization.
• Town management should upgrade the payroll system to ensure that there is an audit trail that identifies everyone who makes changes to the payroll system.
• The town council should ensure that the town has procedures in place to accurately withhold payroll taxes for all employees.

    Auditors also discovered that the town could not provide supporting documentation for charges made to the town's credit card assigned to Madden. As a result, the town potentially paid for purchases that did not have a valid town purpose. The audit revealed that the town did not have adequate processes in place, including written policies and procedures, regarding the use of credit cards. To comply with state law, receipts, and a documented business purpose must accompany all credit card expenditures.


    $8,448 IN UNDOCUMENTED CHARGES TO TOWN CREDIT CARD

    From January 2019 to April 2021, Madden's town-issued credit card was used to make 137 purchases totaling $14,117. Investigators reviewed all purchases and found that the town could not provide supporting documentation for 119 purchases (87%) totaling $8,448. Specifically, 64 purchases totaling $5,173 had an itemized receipt but lacked documentation to support a valid town purpose, and 55 purchases totaling $3,275 had neither an itemized receipt nor documentation to support a valid town purpose.

    As a result, the town possibly paid for purchases that did not have a valid town purpose.

    Auditors recommended the town council should establish a comprehensive policy for credit card usage that includes but is not limited to, requirements such as:

• Itemized receipts for purchases.
• A documented town purpose for purchases.
• Validation that the purchases were included in the town's budget.
• Review of all credit card documentation (including receipts and the documented business purpose) before approval of the payment of a credit card bill.

    The town council should ensure the finance director and town employees follow the comprehensive credit card usage policy. They should also ensure that no financial obligation of the town is being paid without supporting documentation that ensures the obligation was budgeted for and is for a valid town purpose.

    The mayor, mayor pro tem, and council did accept the findings regarding the payroll taxes not being withheld. They said the town and Madden had corrected all payroll taxes in accordance with federal and state requirements and that Madden paid all taxes before the completion of the audit. Also, as of April 2021, no changes have been made to any employee's withholding in the payroll system without written authorization from the employee. In addition, town management is in the process of replacing the town's financial software with new software that will have a paper trail of any changes made in the payroll system and who made the changes.

    But the town disagreed with the findings on the credit card use. They say they were confident that Madden supplied proper documentation to the finance director during his tenure, and they were able to verify through records provided by the credit card company all charges made by Madden during this time period as authorized and approved purchases.

    Wood's office said this is misleading because the records provided by the credit card company would not include the business purpose for the credit card charges. So the town would not have documentation to ensure the charges were for valid business purposes.

    Madden also told WECT that the credit card wasn't solely for his use and "was the only credit card assigned to the administration and planning departments and was used to pay for budgeted expenses."


    The town also said they have established a policy that no charges to the town's credit card are to be paid without an itemized receipt, and if the employee lost the receipt, they would need to sign a statement with a detailed list of what was purchased.

    They are also in the process of preparing a Fiscal Policies and Procedures Manual that will include policies and procedures for the use of the town's credit card.