Attorney General files suit to recover $83K for North Spencer County Schools

Audit: Heritage Hills extracurricular school treasurer must repay missing money

ROCKPORT, Ind. — Indiana Attorney General Greg Zoeller’s Office has filed a lawsuit in Spencer County to recover more than $83,000 from a former extracurricular school treasurer who, according to an audit, misappropriated school funds from Heritage Hills High School and Middle School in Lincoln City, Ind.  The Attorney General’s Office is seeking to freeze the former treasurer’s financial assets so that funds are available to reimburse the school corporation.

Named as defendant in the Attorney General’s lawsuit filed July 12 in Spencer County Circuit Court is Melissa Isaacs, who from June 2007 to February 2013 was extracurricular school treasurer at Heritage Hills middle and high schools in the North Spencer County School Corporation, where she was in charge of collecting school fees and depositing them.

According to a  June 27 certified audit report by the State Board of Accounts, Isaacs misappropriated $71,922.88 in school funds over a six-year period from 2007 to 2013, largely by failing to deposit money she collected into the school bank account and writing checks to herself that weren’t authorized.  Isaacs already has partially reimbursed the school system $22,502.17, including approximately $15,000 she repaid 56 days after her employment there ended, but she still owes the school system $49,420.71, the audit found.

In their investigation of the missing and misappropriated school funds, the State Board of Accounts examiners incurred another $34,134.43 in auditing costs. The Attorney General’s lawsuit seeks the auditing costs and the remaining missing funds, a total $83,555.14, from Isaacs.

“Although the vast majority of government workers are diligent and honest, when one individual who handles school money embezzles it instead, it creates mistrust toward all public employees by taxpayers, parents and students. My office will use all the legal tools in our toolkit to make this defendant pay back what she owes to the school system and the public,” Zoeller said.

The State Board of Accounts audit found that Isaacs collected textbook rental fees, extracurricular activity fees, proceeds from athletic ticket sales, parking permit fees and school lunch receipts, but did not always deposit them into school accounts as she was required to do.  The audit also found Isaacs issued unauthorized checks to herself.  Moreover, the school corporation incurred charges for bank research necessary to facilitate an investigation of missing and misappropriated funds by Isaac.

The audit noted that Isaacs was released from her duties as extracurricular school treasurer on February 21.  Fifty-six days later, on April 17 — the day that an exit conference was scheduled between school officials and the State Board of Accounts field examiner — Isaacs went to a local bank and dropped off six school bank bags of money, mostly $100 bills, totaling $15,002.17.  The bank notified the school principal and the amount was applied toward paying back Isaacs’ misappropriation.  Previously, Isaacs had reimbursed the school for another $7,000 in unauthorized checks she had issued to herself, the audit said.

Zoeller’s office on July 12 also obtained a temporary restraining order in Spencer County Circuit Court against Isaacs to prevent her from selling, transferring or concealing financial assets, including real estate, nine vehicles, three trailers, bank accounts and retirement accounts. The court granted the temporary restraining order, which is in effect until a court hearing at 11:30 a.m. Monday, July 22, on the Attorney General’s motion for a preliminary injunction, which if granted would replace the TRO and freeze Isaacs’ assets indefinitely until the overall lawsuit is concluded.  The purpose of the temporary restraining order and injunction is to preserve whatever assets are available so that the State is able to recover something later to reimburse the North Spencer County School Corporation’s treasury for the amount owed.

If the court eventually enters a civil judgment against Isaacs, then the Attorney General’s Office can pursue a civil collections action against her to garnish wages, attach liens, or take other actions any creditor can take against a debtor to collect on a debt.

Also named in the Attorney General’s lawsuit is RLI Insurance Company of Peoria, Illinois, that provided employee-theft insurance coverage of $50,000 per school year over the extracurricular treasurer position.  By naming the company as a defendant, the Attorney General’s Office hopes to recover insurance to reimburse the school treasury. Any amount not covered by insurance would be Isaacs’ personal responsibility.

Decisions about filing criminal charges in audit cases are solely the jurisdiction of county prosecutors, not the Attorney General. Whether a public employee is civilly responsible for repaying misappropriated funds is a separate issue from whether they are criminally responsible for a loss. Through his role as collection agent for the State, the Attorney General has legal jurisdiction to file civil lawsuits to recover public funds based on State Board of Accounts certified audit reports.

Since January 2009, the Attorney General’s Office has collected more than $2.4 million from former local government officials whom the State Board of Accounts found had misappropriated public money. Many of the acts of misappropriation occurred because an individual had the ability to divert or embezzle public funds with no oversight or supervision. Earlier this year, the Legislature passed a bill that Attorney General Zoeller had recommended, House Enrolled Act 1333, which authorized a legislative study of requiring internal accounting controls – such as dual signatures – on public employees who handle public money.  Zoeller noted that if two or more employees were required to sign off on large transactions involving public funds, then misappropriation and embezzlement would be more difficult for one individual to commit without being detected.