By Boris Ladwig
and Laura Lane
Herald-Times

SPENCER – Despite years of warnings from state agencies about inadequate financial controls, ineffective oversight and bloated budgets, Owen County officials burned through more than $4 million in cash reserves in six years.

Now the county coffers in this community southwest of Indianapolis with a population of about 20,000, are bare.

County leaders have cut positions. And they plan to raise the local income tax to the maximum allowable by law.

While multiple Owen County officials have been convicted of financial crimes in the past few years, one for defrauding the county of hundreds of thousands of dollars, the bulk of the county’s fiscal problems is a result of overspending, according to a Herald-Times analysis of a decade of financial and audit reports.

The audit reports, from the Indiana State Board of Accounts, reveal a troubling pattern of inadequate checks and balances in various departments. The reports are littered with warnings about lack of training, lack of oversight, lack of control systems and lack of segregation of duties as well as overdrawn cash balances and financial reporting errors.

“There was no evidence that a proper internal control structure existed in the County,” auditors wrote in 2018. “The failure to establish these controls enabled material misstatements to remain undetected.”

Reports in the past six years identified deficiencies in the auditor’s office, the treasurer’s office, the clerk of the circuit court’s office, the board of commissioners, the county highway department, the county’s annual financial report and the sheriff’s department, where auditors detected missing gun permit applications.

State auditors notified county officials of the problems in conferences. For example, the findings of the 2018 report were shared on Sept. 18, 2019, with Owen County Auditor Patty Steward, Owen County Treasurer Diane Stutsman, Own County Commissioner President Jeff Brothers and Owen County County Councilman Verl Keith.

Despite state officials’ repeated warnings, the problems persisted.

At the beginning of 2015, Owen County officials had more than $4 million in their General and Rainy Day funds reserves. At the end of last year, it was all gone. The General Fund is the county’s main operating fund and pays for such services as the sheriff’s and health departments.

The balance in the county’s General and Rainy Day funds on Dec. 31, 2020, was negative $2,490.47, according to Gateway Indiana, a government finance database from the State of Indiana and the Indiana Business Research Center at Indiana University’s Kelley School of Business.

The last time Owen County generated a surplus in its General Fund was 2013. A slight shortfall of about $91,000 followed in 2014, but the county was still in good financial shape, with reserves of nearly $4.2 million at the end of that year.

However, in 2015, the county spent $1 million more than it received in revenue, reducing its reserves to just over $3 million. The overspending continued through 2020, at the end of which county officials had spent so much money that all of their savings were depleted.

Between 2015 and 2020, county officials, on average, spent nearly $700,000 more per year than they received in revenue.

Owen County officials’ overspending occurred during an economic expansion that allowed most nearby counties to shore up their finances. In the same stretch during which Owen County officials depleted their reserves, four of the five neighboring counties more than doubled theirs.

Monroe County’s General Fund reserves grew from $8.7 million at the end of 2014 to nearly $18 million at the end of last year. Morgan County more than tripled its reserves to $14 million.

Government finance experts recommend that governments keep some reserves for cash flow reasons and to prepare for potential revenue shocks from recessions or natural disasters.

The Government Finance Officers Association recommends government units keep reserves of least two months worth of spending, or 16.7% of annual spending, though, on average, they keep between 20% and 30%. For Owen County, the minimum recommended General Fund reserves would be nearly $1.3 million. A reserve of 30% would mean nearly $2.3 million.

On Dec. 31, 2020, among 88 Indiana counties, only Owen County had a negative balance in its General Fund. Data for 2020 for four Indiana counties were not yet available, though they all had healthy reserves at the end of the previous year.

Some of the Owen County audit reports identify deficiencies with an introductory sentence that reads, in part, “Similar comments also appeared in (a) prior report.”

Justin Ross, a public finance expert at Indiana University, said the reports make it look as though Owen County is dealing with a “systemic” or “cultural” issue.

He said minor problems, such as a government official forgetting to sign a timecard, happen frequently, but a county with major deficiencies in one department after another year after year may point to a larger problem.

On the other hand, Ross said, state regulations focus primarily on enabling officials to detect potential criminal behavior, but the system does not necessarily make it easy for government officials to determine how much money they actually have.

Owen County’s elected leaders are in a tough spot, he said, because the planned income tax hike won’t immediately generate more dollars. That means they may have to continue shifting money around from one fund to another, or institute further cuts.

In a small county, that may prove difficult, since some departments have few employees to begin with. And while county leaders may be able to cut a position in the auditor’s office, Ross said they can’t very well eliminate the auditor.

“You can only go so far,” he said.

Owen County residents now face the prospect of paying hundreds of dollars more a year in income taxes because county officials spent more than they should have – after several years in which the residents saw county officials taken to criminal court for malfeasance that also undermined the county’s finances.

Six years ago, Angie Lawson, a former Owen County auditor, county council member and Republican Party leader, was sentenced to 20 months in federal prison after pleading guilty to illegal use of county credit cards.

Lawson used county money to make more than $340,000 in personal purchases, mostly at Walmart stores, from 2010 until she was caught in 2014, court records show. Lawson bought food, jewelry, liquor, gift cards and presents for her grandchildren, had the bills sent to a post office box and diverted county funds to pay them.

In 2017, police arrested Donnie Minnick, who was in his second term as an Owen County commissioner and president of the three-member board. He was charged with deceiving county officials, profiting from selling his tractor-semitrailer rig to the county and with keeping $2,500 from an old county-owned semi he sold for scrap.

Former Owen County Highway Department Superintendent Joe Pettijohn, who was called to testify against Minnick at his trial, also was charged with theft, official misconduct and conflict of interest in 2017.

That incident involved a hydraulic backhoe Pettijohn was accused of selling to the county through a middleman, making a $4,700 profit in the process. In June 2019, Pettijohn pleaded guilty to a misdemeanor conflict of interest charge. Other charges were dismissed.

This summer, the county council hired Jeff Peters, founder of Peters Municipal Consulting, to help get the county’s fiscal house in order. He told The Herald-Times the county should be able to cover its bills, and even build a small amount of reserves this year, thanks to some dollars that have accumulated in riverboat gambling and economic development funds.

And if county officials adopt the income tax hike, those additional dollars should begin to arrive in January. That tax increase is projected to generate about $3 million annually.

This story was made available through Hoosier State Press Association.