The scene at the Aug. 3 audit committee meeting as TGM's Roy Geiser explained the report. Committee members Dennis Trencher, at left, and Diane Tenhoopen, to Geiser's right, would resign at the meeting's end.
Dewey Beach Mayor T.J. Redefer at the Aug. 3 audit committee meeting. Commissioners Paul Bauer, Dale Cooke and Gary Persinger were in attendance.

Citizen charged with theft of document; two audit committee members resign

Two Dewey Beach audit committee members resigned following a meeting Friday, Aug. 3.

"I don't feel that the town is taking seriously the problems with finance, the police department, the beach patrol," said Diane Tenhoopen, who resigned after being on the committee for about four years.

Dennis Trencher, who was on the committee about two years, also resigned. In the end, the report that was the topic for the meeting was not approved by the committee.

In March 2018, Salisbury, Maryland accounting firm TGM Group completed phase I of an "agreed-upon procedures" report for Dewey Beach town government. The report revealed the Dewey Beach Police Department had been receiving property from a federal military surplus program without town oversight or proper accounting. In addition, the Dewey Beach Patrol competition team had an off-the-books bank account and was accepting donations without nonprofit status.

TGM recommended a further look at police and beach patrol finances, and the council voted to allow TGM to investigate, short of an actual audit.

The phase II report, the subject of the Aug. 3 meeting, was given to town officials in late July. It has not yet been released to the public, although the public is able to attend audit committee meetings and review the draft there.

According to Tenhoopen, the mayor and commissioners were allowed to edit the latest report from TGM prior to the audit committee viewing it.

"They never told us what changes were made before we got it," Tenhoopen said. "They didn't even tell us they did it, I only happened to become aware."

The agreed-upon procedures report is separate from Dewey's annual audit, prepared by TGM after the close of the fiscal year June 30.

Theft charge

Although the draft report was available to anyone who attended the Aug. 3 meeting to review, photograph, etc., it was apparently not free for anyone to take home.

Reporters from two news agencies, including Sussex Living, took copies when they left the meeting, without protest. Mayor T.J. Redefer said no one at the meeting was aware the documents had been taken by the reporters.

Jeffrey Smith, of the Dewey Citizens For Accountability, also took a copy of the draft, and that was noticed.

According to Smith, committee chair Larry Silver confronted him in the parking lot after the meeting and demanded the document. Smith refused, and, Smith said, Silver charged at him in an effort to take it. After exchanging words, Smith left with it.

Dewey Beach Police Department Sergeant Cliff Dempsey said that Smith was being charged with theft and disorderly conduct following an incident at the audit committee meeting, in which a complaint was investigated and witnesses interviewed. As of Aug. 8, Smith had yet to turn himself in, although Dempsey was under the impression he planned to do so.

Both news outlets were asked to return the draft copies, according to Dempsey. Silver did not return phone calls and Redefer refused to comment on the situation.

When asked to cite the law that makes a document available for inspection by the public at a public meeting private property, neither Dewey Beach solicitor Fred Townsend, Dempsey nor Redefer responded.

Whether the town can claim that a draft shown to the public is privileged is not clear. However, the town apparently considered the report a draft that has not been approved for public release.

Four negative findings

The draft report found four "deficiencies in internal control." Those are material, or important, weaknesses in financial policies and procedures.

The first found that financial duties were not segregated among employees in Dewey Beach, which weakens the town's ability to detect and prevent financial errors and improprieties. The second found the government's had poor accounting policies and procedures, resulting in financial reports that were not timely or accurate.

Further, the town "does not prepare periodic reconciliations for many of its assets, liability, revenue and expense accounts throughout the year," and recommended that all accounts be reconciled accurately and on time.

Finally, TGM found that Dewey's police and lifeguard operations were not properly communicating with town administration on finances.

"As part of the town's prudence in the management of public funds we recommend ... elected officials take ultimate responsibility to ensure that the managers who report to them fulfill their responsibilities in implementing and maintaining a sound and comprehensive internal control framework," states the report.

"They just got a pretty bad audit and I'm not sure that they really understand the meaning of it and the effect of it," said Tenhoopen, who works in financial services and was once an auditor at Bank of America. "I just don't feel like they're doing enough, and it's been going on now for a year."

Town officials were given the opportunity to respond to each of the four findings. For the division of duties, they said "it would not be cost effective for the town to add additional personnel to ensure complete segregation of duties in the finance department."

Instead of hiring a financial manager to implement proper accounting policies and procedures and complete timely and accurate reconciliations, the town has hired Milford CPA firm Luff & Associates to perform accounting duties. However, it's unclear if Luff will have full control over the town's financial processes or only those activities town officials see fit to allow.

"My understanding is that they are just helping them with reconcilements on accounts," Tenhoopen said.

The mayor and council pledged to gain a further understanding of government financial standards and to use that knowledge to implement better internal controls.

Nonexistent lifeguard charity

The March TGM report described a Dewey Beach Patrol competition team bank account that had no oversight from the town.

The lifeguard department, headed up by Captain Todd Fritchman, was able to supply an Employer Identification Number to TGM, but no letter of tax-exempt status. TGM was could not find any record of the organization with the IRS. A search of Delaware corporate records found 36 entities with "Dewey Beach" in the name, but none that was obviously associated with the beach patrol.

"That's one of the reasons I left," Tenhoopen said. "The amounts were so tiny that the IRS isn't going to look at it ever, but it's still significant that they misrepresented a 501c3."

Follow the surplus money

The off-the-books police account deals with much bigger numbers – over $3 million worth of free military surplus from the Defense Logistic Agency's Law Enforcement Support Office, obtained over many years. Most of the surplus became town property after one year, and an unknown amount of property was subsequently sold.

The March report found that town officials had no oversight of the police department's income from the LESO program, although the department did sometimes use accounts managed by the town. Many of the sales were made for cash, and police sometimes used a department safe to hold that cash. It's unknown if that practice continues.

At the Aug. 3 audit committee meeting, TGM said the police department turned over receipts, dating from 2015 on, from the sale of LESO equipment. However, TGM opted not to review them due to the amount of time and money it would take.