UPDATED: Finding for recovery of $25,357 included in City of Hillsboro's 2022 financial audit

Over two years after a much-debated retirement payment to a former Hillsboro Municipal Court clerk, the Ohio Auditor’s Office issued a finding for recovery of $25,357 Tuesday as part of the city’s 2022 calendar year audit.

A press release from the Ohio Auditor’s Office says: “A finding for recovery of $25,357 was issued Tuesday against a former Hillsboro Municipal Court clerk, who was overpaid for unused leave when she retired.

“Diane Seeling, who retired in September 2021, was paid $46,266 in severance, including $32,002 for unused vacation time, $8,097 for unused sick time and $6,167 for unused personal leave.

“However, Hillsboro city policy requires employees to use vacation and personal leave within a 12-month period or lose that paid time off. Auditors determined Seeling should have received $20,909 for her unpaid leave balances, resulting in an overpayment of $25,357.

“Seeling and former City Auditor Alex Butler and their bonding companies are jointly and severally liable for the finding.”

As previously reported, the city of Hillsboro was notified in November 2023 of the proposed finding for recovery by Ohio Auditor of State Keith Faber related to the 2021 collective payout to former Hillsboro Municipal Court clerk Diane Seeling.

"Ohio Revised Code 1901.31(C)(1) provides a municipal court judge the authority to set the compensation for the clerk, unless the court is running a deficit. Financial records of the court going back to 2018 indicate that the court has run a deficit," the auditor's office said. 

"As such, city policy would dictate the clerk only be paid for the vacation time she accrued and did not use that year," Faber's office said. "The sick leave payout is appropriate under city policy, but city policy requires employees to use vacation and personal time in a 12-month period or lose the vacation and personal time. Under city policy, Seeling should have been paid $20,909 for her unused leave balances, which resulted in an overpayment in the amount of $25,357."

The state auditor’s office noted that the Highland County Board of Commissioners initially disagreed with the city's Sept. 17, 2021 request for $18,506 for the county's portion of Seeling's severance payout.

As reported over two years ago, former Hillsboro Municipal Court Judge David McKenna issued an order Sept. 8, 2021 that “the city shall pay accumulated benefits” for a retiring municipal court employee “according to the city policy and bill the Highland County commissioners for their proportional share of the full amount.” 

In response to the request from the city, the commission wrote to Butler on Sept. 14, 2021, saying that “according to section 325.19(c) of the Ohio Revised Code, payout for vacation leave cannot exceed three years vacation plus prorated for the current year.” They estimated the employee’s total “payout” at $28,562.98, of which the county offered to pay “40 percent of those costs, being $11,425.19 according to our agreement.” 

McKenna then wrote a letter to commissioners Oct. 13, disagreeing with the response and estimate drafted by the commissioners office to the city auditor’s office. Highland County Prosecutor Anneka Collins responded with a letter dated Oct. 15, saying the judge’s order was “arbitrary, unreasonable and illegal” and that the county would make “no further payments on this invoice.”

McKenna titled a follow-up letter received by the county Oct. 26 as “Re: improper withholding of end of service pay.” He argued the “County is under a statutory obligation to pay” and “urges the commissioners to correct this error.” Collins then drafted a reply, also dated Oct. 26, in which she alleged that McKenna “misled the commissioners” and that the judge instead made the “error.

“It would be in violation of the law and the public trust placed in us to be good stewards of the county’s finances,” Collins wrote. “This is not an error on the commissioners’ behalf or on the City of Hillsboro’s behalf, but rather your behalf.”

On Dec. 8, 2023, Hillsboro City Law Director Randalyn Worley issued the city's response to the state auditors’ proposed finding for recovery notice. She wrote that the city acted on legal opinions from former City Law Director Fred Beery and a court order by McKenna. 

"Upon Judge McKenna's order, the city of Hillsboro, under the guidance of former City Law Director Fred Beery, executed the payment of $46,266.53 to Ms. Diane Seeling," Worley wrote to the state auditor's office on Dec. 8. "Mr. Beery advised city officials that the court order was lawful and instructed them to comply with the order. The city, in reliance on the legal counsel's recommendation and in adherence to the court order, fulfilled its obligation by compensating Ms. Seeling accordingly.

"In light of these circumstances, we kindly request that the Auditor of State refrain from making a Finding for Recovery against the city of Hillsboro. The decision to make the payment was based on legal advice, and the city acted in good faith under the belief that it was following a lawful court order."

However, the nearly 100-page state audit for 2022 began with the finding for recovery on its opening page, citing the city personnel policies for vacation leave (“to be taken within 12 months following the employee’s anniversary date”) and personal leave (“32 hours to be used in a calendar year”); the city ordinance for vacation leave (“allows for payouts of vacation leave the employee’s current salary rate”); and the Ohio Revised Code (which “provides a municipal court judge the authority to set the compensation for the clerk, unless the municipal court is running a deficit. Financial records of the court going back to 2018 indicate that the court has run a deficit. As such, city policy would dictate the clerk only be paid for the vacation time she accrued and did not use that year.”)

“Under city vacation policy, Diane Seeling should have been paid $20,909 for her unused leave balances, which resulted in an overpayment in the amount of $25,357,” the audit says. “Under Ohio law, public officials are strictly liable for all public money received or collected by them or their subordinates under color of law. … City Auditor Alex Butler received or collected the money used to make the erroneous payment.

“In accordance with the forgoing facts and pursuant to the Ohio Revised Code Section 117.28, a Finding for Recovery for public money illegally expended is hereby issued against Diane Seeling and Former City Auditor Alex Butler and his bonding company Travelers Casualty and Surety Company of America, jointly and severally, in the amount of $25,357 dollars, in favor of the City of Hillsboro’s General Fund.”

In addition to the finding for recovery, auditors wrote that during the course of the audit, they “did identify certain deficiencies in internal controls … that we consider to be material weaknesses.” Those involved budgetary information in the accounting system and financial reporting.

According to the audit, auditors “noted that several funds’ estimated receipts in the accounting system did not match the final certificate of estimated resources. Additionally, the beginning unencumbered balances were under reported by prior year encumbrances. The City should implement the appropriate procedures, such as periodic reconciliations of budgetary information within the accounting system to formally approved budgets, to ensure that budgetary information is properly presented.”

The city responded that they “will ensure all budgetary filings are submitted to the County Auditor.”

For the financial reporting material weakness, auditors said they found “various errors … in the financial statements, most of which were the result of errors in year-end processes during the conversion of the cash basis financial records to financial statements presented in accordance with generally accepted accounting principles. Of these variances, the City misclassified unearned revenues in the prior audit period in the American Rescue Plan Act fund. 

“We also noted misclassifications of debt balances,” the audit says. “These amounts were material and required correction within the financial statements. The remaining variances were deemed to be immaterial and correction was waived by the audit team and management. These variances included overstated income taxes receivable and related unavailable revenue, misclassified intergovernmental revenue, misclassified net position balances, and overstated ending cash balance for the municipal court.

“Additionally, errors were identified within budgetary figures on the budgetary statements. Material errors were corrected in the budgetary statement of the General Fund and Street Fund.”

The city responded that they “will continue to work with our compiler to ensure that transactions are properly recorded during the year.”

The city also received two material citations, the audit says. The first is regarding Ohio Revised Code 5705.41(D), which “states that no orders or contracts involving the expenditure of money are to be made unless there is a certificate of the fiscal officer that the amount required for the order or contract has been lawfully appropriated and is in the treasury or in the process of collection to the credit of an appropriate fund free from any previous encumbrances.

“We noted one payment for $138,837.51 in the Storm Sewer fund for 2022 construction that was not encumbered in the proper period,” auditors wrote. 

The city said they “are putting measures in place to make sure contracts are understood and to encumber amounts in the proper period.” 

Finally, the city was cited under ORC 5705.39, which “states that total appropriations from each fund shall not exceed the total estimated resources. 

“The City had appropriations in excess of estimated resources in the General Fund, Storm Sewer Maintenance Fund, and the General Bond Retirement Fund,” the audit says. “The City should implement the appropriate procedures, such as periodic comparisons of estimated resources to appropriations, to ensure that appropriations are limited to estimated resources to ensure improper spending does not occur.”

The City said they “plan to provide amendments in our accounting system to the County Auditor.”

To read the audit in its entirety, go to: https://ohioauditor.gov/auditsearch/Reports/2024/City_of_Hillsboro_2022….