Audit of ex-W.Va. attorney general finds mismanagement of settlement fund
CHARLESTON, W.Va. - The office of then-Attorney General Darrell McGraw didn't properly manage its Consumer Protection Fund during the 2012 fiscal year, according to a legislative audit.
The report, presented last week to lawmakers at committee meetings in Wheeling, says the legislative auditor's office reviewed expenditures from the Consumer Protection Fund from July 1, 2011 to June 30, 2012. It also looked at internal controls and the office's compliance with law and rules concerning its finances.
"I would say there was a serious lack of internal controls," said Legislative Auditor Aaron Allred.
Auditors examined the funds at McGraw's request, Allred said. The report states the office "comptroller" requested the audit after "the previous attorney general lost the most recent election."
During McGraw's 20-year tenure as attorney general, he faced numerous allegations of misspending the money in the Consumer Protection Fund. The fund contains settlement money from consumer protection cases won by the attorney general on behalf of the state.
Opponents criticized McGraw for failing to turn over the money for appropriation by the Legislature and for inappropriately spending money on advertising.
McGraw lost to Republican challenger Patrick Morrisey in 2012. During his campaign, Morrisey accused McGraw of mismanaging the fund.
Morrisey also requested an audit after he was elected, Allred said. Morrisey spokeswoman Beth Ryan said the office appreciates the audit.
"The audit raised some significant issues about how the fund was handled before we entered office," Ryan said. "Since taking office, we have implemented new policies and protocols to address the findings in the audit and ensure the fund is managed in an ethical and appropriate manner."
McGraw repeatedly said he never misspent any money from the Consumer Protection Fund. He said so-called advertising expenditures actually were public education.
Fran Hughes, McGraw's chief deputy attorney general, said Monday in a phone interview the office never misspent any money.
"I'm quite comfortable, even in light of any conclusion that might have been reached, that given the millions and millions upon millions of dollars that we recovered on behalf of the state of West Virginia, that there was no wrongdoing," Hughes said.
"I feel perfectly comfortable with how we handled the consumer accounts."
Hughes, who now lives in Florida, said she had not seen the report and was not contacted by auditors.
The auditors found five problems with the management of the fund and the office practices in general but no evidence any money was spent inappropriately.
There was no way to prove whether the money in the fund was spent correctly because records of how the money was spent were scant, said Stacy Sneed, director of the Post Audit Division of the Legislative Auditor's Office.
"We just couldn't determine . . . if this money came from this case, what they spent that money on, because it was all so commingled," Sneed said.
The report details the extent of the mixed money. Any money from any consumer protection settlement went into the fund; there was no way to prove if the settlement money was actually used for any particular settlement, according to the report.
"The (attorney general's) office does not properly track monies received from court case agreements and does not commit these monies to be used for expenditures relating to the specific court case," the report states.
Auditors couldn't determine if the attorney general had made appropriate payments - totaling almost $800,000 - in 77 cases because there wasn't enough documentation or detail in the state accounting system.
The report states those in charge of managing the account did not properly separate the money and there was no oversight of those in charge of the account.
The "CFO/Comptroller" and the "accounts payable clerk" were in charge of entering the expenditures into the state centralized accounting system while the comptroller was also in charge of approving the expenditures in the system.
No reconciliations were performed for the expenditures made, the report said. It said the comptroller and accounts payable clerk were married. Ryan said Morrisey has hired someone else to oversee finances.
The lack of oversight led to 15 of the 62 transactions examined being in violation of state purchasing rules. Auditors called for better classification of expenditures after it found the office had incorrectly characterized some of its expenses.
Morrisey's office agreed with all of the auditor's findings and is working on improving internal controls, according to an official response included with the report.
Earlier in the year, Morrisey said he was working on new policies and practices for his office to better track the fund. The response to auditors says the attorney general has hired a new chief financial officer to oversee transactions. The person is also working on documenting current accounting practices to strengthen internal controls, the report states.
Money will go to three different accounts within the consumer protection fund, according to the attorney general's response. The consumer protection operating account will hold $12.4 million, in accordance with an agreement reached earlier this year between Morrisey and the Legislature. That money will be used to fund the consumer protection unit, according to the response.
There will also be an account "to hold consumer monies in trust" and another with funds to be turned over to the Legislature. The response gives little detail about those two accounts.
Sneed said the office is taking steps in the right direction, but it will take time to make all of the suggested changes. The office was very open to the auditor's suggestions, Sneed said.
A full copy of the audit is available at www.dailymail.com.
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