When North Carolina’s state auditor heard that $2.3 million had gone missing from the Wake County Register of Deeds office over eight years, she wanted to know how no one noticed.
While criminal investigators looked to see if the money was stolen, state auditor Beth Wood ordered a review of the private company that Wake County hired to conduct the county’s annual audit: South Carolina-based Elliott, Davis, Decosimo.
“When I heard how simple the embezzlement went down, I thought, how could anybody with half a brain miss that?” she said. “I was convinced that [the external auditor] had not done his job.”
The firm “didn’t go through the door” of the registry, Wood soon discovered.
But that’s not the disturbing part, she said.
What should alarm county leaders across the state, Wood said, is that Elliott, Davis, Decosimo audited Wake County in accordance with industry practices. The company did what it was supposed to do, she said – and still didn’t detect the missing money.
“We looked at their work,” Wood said. “They were absolutely by the standards. We found nothing wrong.”
Register of deeds offices across the state – each county’s epicenter for legal and real estate transactions – conduct millions of dollars worth of business each year, much of it in cash, but the officials elected to lead them largely operate with little oversight.
Now in Wake County, four former deeds employees, including longtime Register Laura Riddick, are charged with embezzling a total of $1.3 million over a span of eight years. The rest of the missing money remains unaccounted for.
Wood says the Wake deeds scandal serves as a cautionary tale to government and organization leaders across the state. Many have been left wondering: Who was supposed to be checking in on this relatively obscure office to ensure the proper safeguards were in place?
The answer, Wood said in a recent interview, is county commissioners and a county’s internal auditors – even though registers of deeds may not be seen as directly accountable to commissioners because they are separately elected. To detect fraud, she said, leaders will need to order audits of specific departments.
“This is what I have been telling people ever since: There was unwarranted reliance put on the typical annual financial statement audit,” Wood said.
County leaders may think the standard annual audit they pay for every year looks closely at cash transactions going in and out of every department. It doesn’t.
What annual audits look at
Wood said firms like Elliott Davis, when conducting general financial statement audits, will focus on ensuring that the county’s biggest revenue collection sources are operating correctly.
And in the grand scheme of county business, deeds offices don’t collect enough money to warrant a thorough inspection during a general financial statement audit. Banks and credit rating agencies are more concerned that the county effectively manages debt, collects taxes and pays its bills.
Take Wake County as an example. It has an annual budget of $1.26 billion.
Wake took in more than $841 million in property tax revenues last year and $177 million in sales taxes. So the $6.9 million in cash of the $29 million that flowed through the deeds office last year would have been “immaterial” to auditors, Wood said.
External firms that conduct general audits of county books mostly “just confirm cash” for creditors, she said. “Wake says they have this much cash. The banks confirm, ‘Yep, they did.’ ”
The state auditor’s office, which Wood has occupied for nine years, has the authority to audit almost any government entity or contractor. After receiving a tip on her hotline, Wood recently audited the Wake County Sheriff’s Office and found that 56 employees were wrongly paid twice for work at the State Fair.
But Wood said she’s never received a complaint about any deeds office. Audits of agencies like those are driven by complaints, she said. The only way the embezzlement in Wake would’ve been detected is through a department-specific audit, Wood said.
“It’s not the huge accounts people steal from. It’s the ones under the radar,” she said.
What the law says
When it comes to oversight of elected offices like sheriff’s departments and registers of deeds, the lines of authority are tricky.
County commissioners are responsible for setting the budget for all county departments. But commissioners often hesitate to probe the office of another elected official.
State law authorizes county finance officers to “supervise the receipt and deposit of money by other duly authorized officers or employees.” But in Wake County, neither Wake’s internal auditors nor its finance officer ever inspected the deeds office to see if cash received matched the number of transactions the office conducted.
Since finance directors report to county managers and county managers report to county commissioners, commissioners could instruct the county manager to authorize an audit, Wood said.
The state association of county commissioners said it doesn’t compile information about whether counties do additional audits beyond what is required.
10 years is ‘too long’
Wake County officials have noted that Riddick was viewed as a competent leader and good financial steward.
Investigators believe Riddick, a Republican, began embezzling in 2010, when Republicans controlled the Wake Board of Commissioners. Former Republican commissioners Paul Coble and Tony Gurley declined to comment, and others haven’t responded to requests for comment.
Democrats took control of the board in 2014, the year chairwoman Jessica Holmes was first elected.
“We were all shocked to learn that any individual department hadn’t been audited in a number of years,” Holmes said in an interview. She learned of the missing cash last year.
“We should be auditing all departments, regardless of who’s leading them, how nice someone is or how well run a department is perceived to be,” she said.
John Stephenson, director of Wake’s internal auditing team, told commissioners at a September meeting that his team of three full-time employees and two part-time employees didn’t prioritize the registry because it appeared to be a well-run office.
“When you say I should’ve known here or I should’ve gone there, to me, (between) missing money and making sure people get their food stamps or making sure people get their services, I’m always going to make sure people get those services because that’s what this government is for,” Stephenson said at the time.
Wood acknowledged she doesn’t know the workload of Wake’s internal auditors. But, she added, “Ten years is too long ... For them not to go over there doesn’t make sense to me.”
Charles Szypszak, professor of public law and government at UNC-Chapel Hill, agreed that “the auditing processes should’ve caught it earlier.”
“More than auditing the accounts, they ought to make sure the system that’s in place wouldn’t allow someone to take cash that isn’t accounted for,” he said.
Now that news of the Wake County scandal has gotten out, Wood hopes more county leaders take a closer look at departments that handle cash. She thinks they might find something.
“I would bet there’s some butt-puckering going on across the state,” Wood said.