State Auditor’s Office uncovers $7 million misappropriation

Dec 16, 2019

TACOMA – Today, the Office of the Washington State Auditor released its report on a major fraud investigation involving the Pierce County Housing Authority. The finding, nearly $7 million in misappropriated public funds, is the largest case of its kind on record for a Washington local government.

The State Auditor's Office (SAO) investigation found that the authority's former finance director used a variety of schemes to misappropriate $6,948,277 in funds since 2016. SAO detected the misappropriation during a routine financial audit, when auditors questioned wire transfers of large sums of money out of state.

Today's fraud report will be forwarded to the Office of Inspector General for the U.S. Department of Housing and Urban Development and the FBI, which is conducting a criminal investigation into the case. The housing authority ended the finance director's employment in August.

“This was a shameful breach of the public trust that harms the very people who need affordable housing options the most,” said State Auditor Pat McCarthy. “I'm proud of our auditors for finding this misappropriation. And I want to thank the housing authority's board and staff for helping us conduct a thorough investigation.”

“The State Auditor's report provides insight into how this breach of public trust occurred. The Housing Authority has implemented new, stricter controls to protect both the agency's and the public's assets and integrate ongoing oversight and monitoring to assure those controls are consistently maintained,” said Housing Authority Chair Sally Porter Smith. “Our staff, management and Board of Commissioners are dedicated to our mission of safe, clean and affordable housing. We will re-build the trust and confidence of our housing clients, landlords, renters and our community.”

The former finance director first began making fraudulent purchases on the housing authority's credit cards in March 2016. In July 2016, she made the first of 78 transactions that disguised transfers to her own account as batched payments to legitimate vendors. In this scheme, she substituted her own bank account number for the vendors' account numbers.

In 2018, she transferred housing authority funds to a bank in Oklahoma, where she had purchased property the same month. In 2019, she began directly wiring housing authority funds into her personal Washington bank account.

The former finance director stated to SAO that she was responsible for these misappropriations. However, she said had been directed by the housing authority's executive director to misappropriate the funds and to provide him with a share in cash. SAO found no evidence to support that assertion.

The SAO investigation revealed concerted efforts by the former finance director to circumvent accountability and detection. Details, including a breakdown of the amount obtained through each scheme, can be found in the full fraud investigation report.

That report can be found at the SAO website. In addition, SAO released reports on two related audits of the housing authority. One is an accountability audit. The other is a financial audit.

Each report includes recommendations to address the issues identified, and the housing authority's full response to those issues.