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Auditor's report finds concerns

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Part of investigation into cyber-thefts of payroll funds

By The Staff

FRANKFORT - As additional funds were recovered during the past week and as litigation continues, state auditor Crit Luallen has released a special examination report on the electronic payroll theft in Bullitt County.

After Bullitt County lost nearly $416,000 in June from its on-line payroll account, Luallen’s office began in investigation into the incident and lessons that could be passed along to other counties.

Through its investigation, the auditor’s examination revealed that the county did not have procedures in place to respond to questionable transactions on its on-line account.

At the same time, it noted that the treasurer had made inquiries with the bank in late June when the improper transactions were occurring.

The cyber-theft occurred when the county’s payroll account was breached through the use of passwords. The money went to banks throughout the country with a majority of the funds leaving the United States.

The FBI is still investigating the situation.

“There are several instances where questionable batches were noticed by county staff or questionable transactions were brought to the county’s attention from the bank; however, there was no formal process in place to ensure that these instances were fully resolved to the satisfaction of county management,” according to the report.

Eight individuals had access to the on-line account but only three - county judge, treasurer and assistant treasurer - used the system on a regular basis.

The account with First Federal Savings Bank was initiated in August 2007 and was used for its payroll transactions.

During its investigation, the auditor’s team found that while was a centralized e-mail address for all county employees, many were still using other accounts.

“Without centralized e-mail accounts with properly established spam blocking software in use, it increases the susceptibility of the county to known malicious software (viruses, Trojans, worms, hoaxes, etc.),” according to the report.

The county has recovered a portion of its lost funds.

According to Greg Schreacke, president of First Federal, additional funds were recovered last week to bring the total to $116,846.

The Kentucky Association of Counties would provide another $160,000 through insurance coverage.

Schreacke said the county had been fortunate to recover 66 percent of its lost funds.

“We have continued to work very hard in recovering the money stolen from the fiscal court,” Schreacke said in an e-mail response.

He added the auditor’s report backs up his claims from the beginning that fiscal court failed to perform basic accounting review responsibilities and lacked the computer protection to guard against such cyber-theft.

The county has filed a lawsuit against First Federal seeking to reclaim the lost funds.

Fiscal Court recently approved the selection of PBI Bank as its new financial institution.