State auditor demands former city employees repay more than $54,000

Published 2:50 pm Wednesday, June 5, 2019

Today State Auditor Shad White announced his office has issued demand letters to two former City of Pascagoula employees this week. Robert Parker, former city comptroller, and Joseph Huffman, former city manager, received demand letters for exercising improper financial management of bond proceeds. The total amount of both demands is $54,215.17 and includes all investigative costs and accrued interest.

In December 2014 and again in June 2017, the City of Pascagoula entered bond agreements totaling over $27 million. The bond proceeds should have been deposited into a bank account separate from the general fund account to ensure adherence to bond terms, which mandated the bond revenue be spent on infrastructure and other specific projects in the city.

After receiving a complaint, audit investigators determined Parker and Huffman knowingly and improperly transferred bond proceeds into the City’s general fund account. This practice caused the city to forego over $31,500 in interest revenue which would have accrued in the appropriate account. It also created the illusion of a budget surplus. While payments for bond debt were made in a timely fashion, and no money was stolen from the City of Pascagoula, mixing bond money into the general fund account is improper.

“The taxpayers of Pascagoula should know that $14 million is not missing from their bank account, but millions in bond money was spent on general operations in 2014 and 2017,” said White.

“These laws about bond money exist for an important reason. They exist to make sure policymakers don’t tell the public they are taking on a bond debt for one purpose but then actually spend the money on something else. They exist to avoid confusion about how much a city or county actually has to spend on general expenditures, like salaries and administration. The law about spending bond money was not followed in this case, creating a lot of turmoil in Pascagoula.”

District Attorney for the 19th District Angel Myers McIlrath said, “The State Auditor’s Office conducted a thorough investigation into the City of Pascagoula’s finances, as a result of concerns brought to them and my office by Mayor Maxwell. The Grand Jury, after having heard the details and outcome of the investigation, determined that there was no criminal wrongdoing and I am confident in their decision. The fact that the Grand Jury did not find any criminal conduct does not preclude the State Auditor from pursuing civil remedies based on their investigation.”

The demand letter issued to Parker is worth $47,395.91, and the letter issued to Huffman is worth $6,819.26. Each amount corresponds to the amount of foregone interest revenue during the tenure of each man at the City of Pascagoula, respectively.

The employment of Parker and Huffman was covered by a $50,000 and $162,000 surety bond, respectively. Surety bonds are similar to insurance designed to protect taxpayers from corruption.

If either man fails to pay the full amount of the demand within 30 days of delivery, the case will be referred to the Mississippi Attorney General to be litigated.

Facts about the case include:

The City of Pascagoula entered bond agreements in December 2014 and June 2017 to improve infrastructure and construct other projects. The total bond amount was $27.5 million.

The revenue from bonds was improperly deposited into the general fund account instead of a separate account. The bond proceeds, which were required to be spent on specific projects at specific times, were mixed into the general fund account.

The adding of bond proceeds to the general fund account created the illusion of budget a surplus. When a new administration was elected in 2017, city officials discovered the mixing of funds. This prompted the new city administration to commission a forensic audit conducted by Collins, Barr, & Hembree, Ltd. in July 2018. The Auditor’s office was notified in August 2018.

Investigators from the Office of the State Auditor determined all bond payments were made punctually and in full. All funds have been identified, and no public money is missing or has been stolen. A Jackson County grand jury determined neither Joseph Huffman nor Robert Parker “wilfully divert[ed], or aid[ed] or assist[ed] in diverting any such fund, or any part thereof, to any purpose other than that for which such bonds were authorized to be issued” (MS Code 1972 Annotated §21-33-317).

The Auditor’s office has been informed that the current administration of the City of Pascagoula has now established a separate fund to hold bond revenue and will complete the process of separating bond proceeds from the general fund money by September 2019.

While neither Huffman nor Parker face criminal liability, the Mississippi Office of the State Auditor determined the pair did not accurately portray the financial condition of the City of Pascagoula to city leaders. Huffman and Parker improperly accounted for bond funds, creating civil liability. By depositing bond proceeds into the general fund, Huffman and Parker became liable for causing the City of Pascagoula to forego interest revenue which would have accrued if the money had been kept in the separate account.

Huffman and Parker’s actions created confusion about how much unencumbered money was available in the general fund. At times over the past five years, there was less money in the general fund than would be necessary to cover the obligations of the bonds. Put differently, at various times, removing all bond money from the general fund account would have created a deficit. Thus, some bond money was spent on non-bond purposes.

The interest the City of Pascagoula is owed formed the basis of the demands against Huffman and Parker. They owe $6,819.26 and $47,395.91, respectively. If they fail to pay the demanded amount back to the City, the Auditor’s office will turn the matter over to the Mississippi Attorney General to be litigated.