Morgan County fraud case "sophisticated"

Jan 8 2011 - 10:42pm

MORGAN -- A majority of the $400,000 former Morgan County Council administrator Garth Day is accused of stealing from the county came in two transactions following elaborate schemes, says Lynn Wood, Morgan County's former independent auditor.

"Fraud can be cleverly disguised. This was fairly sophisticated fraud. He was using local banks to launder money," Wood said. "Garth's MO was to set up a separate bank account and keep things on the books for only a fleeting moment."

Day allegedly used an alias, listed a fictitious post office box and disguised his voice to carry out a scheme that eventually led to 43 counts in 2nd District Court including theft, money laundering, communications fraud, forgery, failure to keep/pay public money and official misconduct.

When the economic downturn made it obvious that Hidden Hollow, a local subdivision under development, was in financial trouble, then-Council Chairman Sid Creager asked Day to retrieve $540,000 from an escrow account held at a Morgan bank. The county intended to use the money for sidewalks, curbs and gutters that the subdivision developer was unable to finish.

In July 2009, Day retrieved the money, deposited it in a newly created "Morgan County RDA" account at Centennial Bank in Ogden and then cut a $410,000 check to County Treasurer Bonnie B. Thomson.

Explanation

Day had a logical explanation for sending less money to the county, Wood said. Day told Wood the subdivision had completed more infrastructure than originally thought, so the county would need less money to finish improvements.

That transaction left $130,000 unaccounted for, but Wood believes there was a small balance in the Centennial Bank account when that institution was closed by regulators in March 2010. The closure will make it difficult to retrieve any remaining funds quickly, he said.

Second transaction

The second transaction, Wood said, involved the Stoddard bridge.

In March 2010, the county council authorized $1.5 million in excise tax road bonds for a road pavement and maintenance program organized by Day.

Day withdrew $265,000 of that money, Wood said, and used it to open a "Joint Highway System and Bridge" account to be used by both the county and the Utah Department of Transportation at an Ogden Chase Bank. Wood said Day cut a check to UDOT as county matching funds with a portion of the funds from the account before closing it out. In the meantime, he said, UDOT has yet to return money to the county.

During a special audit of road projects in August, Wood was able to get bank statements for the account only through Day. County Attorney Jann Farris said Day was not authorized to open either bank account.

"I'm not blaming the auditor for this," Farris said. "With the documents Lynn Wood was provided by Garth, he did things properly."

An alias

To cover his tracks with the $265,000 account, Day allegedly used the alias "Alex Baker" to pose as a UDOT official handling a $2 million grant for use on the Stoddard bridge.

"Alex Baker" signed letters on UDOT letterhead, complete with a phone number that Thomson used to actually speak with Day, who was allegedly disguising his voice during the conversation.

Day also allegedly forged invoices for an environmental assessment supposedly done as preliminary work on the Stoddard bridge.

Wood called the forgeries on UDOT letterhead and other UDOT forms "outstanding."

They were outstanding enough that Wood believed them when looking at them during the special audit. Despite the audit that cleared Day of any wrongdoing, Wood found some things that bothered him and he issued recommendations for changes in procedures.

"When separate checking accounts are set up that require disbursement by cashiers check, the normal county procedures for revenues and expenditures are more difficult," Wood said in an Aug. 12 letter to the county. "We recommend that all separate bank accounts for road funds, including bond proceeds, should be closed. These revenues and expenditures should go through the existing county accounts. This should provide the details and separation required without the need for separate bank accounts."

Checking invoices

Despite the favorable audit report pairing transactions with proper paperwork, Thomson wasn't quite convinced that any work had been done on the Stoddard bridge as claimed by the forged invoices.

"Bonnie's the hero," Wood said of Thomson. "She had a woman's intuition that I didn't have. She started calling on the invoices, and that unraveled everything. I'm glad he got caught."

Thomson's catch was typical of many fraud cases. According to a 2006 Association of Certified Fraud Examiners report, 34 percent of fraud cases are detected by employees, customers or vendors while only 12 percent are found by external auditors.

Detection praises

Wood praised county officials for finding the two major transactions in Day's elaborate fraud and money laundering scheme within 13 months, well under the typical 18 months it takes to detect fraud.

In addition to the Chase and Centennial bank account transactions, Day is also accused of opening various credit card accounts and obtaining fraudulent bank loans. Day's misdeeds could amount to as much as $700,000, some of which could be recovered, Farris said.

County officials have already filed an estimated claim of more than $400,000 with the Utah Counties Insurance Pool based on a malfeasance clause.

 

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