A Portland auditing firm has determined the Association of Oregon Counties (AOC) has misappropriated as much as $900,000 meant for county road programs to cover increasing losses in its general operations over the past five years.

And now the AOC hopes its 35 member counties will help pay it back, officials at the association said Tuesday.

The money should have been spent on road programs, the accounting firm Moss Adams said in an August report reported on by the Oregonian. But general operations funds were commingled with road funds, the accounting firm said. Road money spent on operations amounts to unauthorized loans, Moss Adams auditors said.

The AOC, in its defense, said the organization has overspent money and not kept up with its dues structure, forcing its bottom line to fall every year.

Payback options

The AOC board met Monday and unanimously agreed to ask counties help pay back the money — on a volunteer basis — in a lump sum or over a period of 10 years, at a 2 percent interest rate, said McKenzie Farrell, communications director for the AOC.

If Curry County opts to chip in, it could pay a one-time lump sum of $9,896; if county commissioners agree to pay it over time, it would total $1,093 a year for 10 years. All the counties also have the option of not paying; the responsibility to recoup the difference would fall to the AOC, Farrell said, most likely through tight budgets and possibly reevaluation of the dues schedule.

The amounts for each county were determined by the same formula used to determine member dues, Farrell said, which include a base fee, a county’s population and the assessed valuation of property in that county.

Jackson County is the only county that is not an AOC member, but it, too, will be asked to chip in as it has received services in past years, Farrell said.

“The board views it as ‘services provided,’” she said. “They’re trying to make it as equitable as possible.”

Fallon noted that the decision as to how the debt would be paid was promulgated by AOC members, not association officials. And it is unknown how the shortall will affect the AOC’s 2019 budget, either, as that is still being crafted.

“I think they want to move forward, make sure everything is done correctly, make sure it doesn’t happen again,” she said. “They’re taking steps to ensure that.”

Curry County Commissioner Court Boice, who has served on the AOC board for the past five months, agreed.

“It looks like all the counties want to do what they can to overcome this,” he said. “There’s going to be a lot of accountability with the new CEO. I think we’ve made some steps so this won’t happen again. Got my fingers crossed.”

What happened?

According to the Moss Adams report, the AOC has run an annual $160,000 deficit in its general operations fund for the past 14 years. That eventually depleted the road fund and its cash reserves.

The report also indicated the AOC “lacked basic financial controls, staffing and procedures.”

According to the Oregonian, the organization has slashed payroll. Its long-time executive director has “retired under pressure.” The organization has instituted an austerity plan. And it has asked Moss Adams to help build a new budget and audit its accounts to see if fraud was involved.

The Oregonian article goes into depth about who started to notice discrepancies and when.

Casper Lehner, the information technology director for the road program, told the executive team in an Oct. 12, 2017, email that he could not decipher the budget documents left behind by one of the many people who were leaving the organization, the Oregonian reported.

“The vast majority of line items have no parallel in my documents, either whole or partial,” the paper reported. “Currently I see no way to verify any of this information and all attempts to do so have resulted in further complication and contradiction.”

Mike McArthur, who was hired in 2004 and “retired” as executive director July 31, told the Oregonian, “It’s a mystery to me,” he said. “I don’t understand the accounting for the various funds. We pay these guys (accounting firm Grove Mueller & Swank) $20,000 a year to look at our books and they tell us they’re OK. Then all of a sudden there’s a big problem.”

He said he views the problem as a “bookkeeping issue” and not a downward financial spiral, the Oregonian reported.

And in Curry ...

Curry County Administrator Clark Schroeder initially said he would favor whatever option would cost the county the least amount of money, but noted after he heard the AOC board’s decision that he needs to examine it more closely before making a recommendation to commissioners.

“This money was used for AOC efforts, and without any charge of malfeasance, any private gain to be had … we’ve already received the benefit,” he said. “So, should you pay for the services you’ve already used?”

The AOC was started in 1906 as a lobbying arm for the state’s 36 counties, but has branched out to provide an array of services aimed at helping counties do their work, including insurance services, technical assistance, veterans’ aid and training and education, its website reads.

“This is our voice at the legislature,” Schroeder said. “This is why you develop and associations, so 36 counties don’t pepper the legislature with 36 different voices and requests. The AOC represents the best interests of the counties, the bills that come through, all these different committees — transportation, health, land use, legislative law issues — they lobby for the best interests of the counties. No county is an island. We would get less done if we didn’t pool our interests. We’re buying into grouped lobbying efforts, expertise and oversight.

“Without the AOC,” he added, “we’d have little or no say or influence or knowledge of what goes on in the legislature.”

The road program is run as a separate department and provides accounting software to helps road departments manage projects. It is funded by AOC dues, fees and grants.

The situation at the AOC has been going on for about 14 years, according to Moss Adams, and further investigation will involve working backward through the books to figure out where things went astray.

And then what?

The Curry County Board of Commissioners will now have to determine what option to take — if any — with the least risk and exposure to the county, Schroeder said.

“Ultimately,” he said, “it’ll be up to the county boards: Do they want to pay this? And I’ll be curious to see if this hurts AOC membership. Other small counties … ‘Is this something we want to be a member of? Do we jettison our membership?’ Ultimately, that will be a county board decision.”

Curry County paid $17,662 in dues and fees to the AOC this year, including mandatory dues of $8,343. It also opted to pay $5,174 for public land fund services, $4,105 for federal land management subcommittee work, $392 in PERS alliance dues, $1,028 in veteran’s dues and $258 in “video lottery defense fund dues,” the county’s annual bill shows.

The annual AOC meeting is slated Nov 13-15 in Eugene; Schroeder, Commissioner Court Boice, County Attorney John Huttl, Roadmaster Richard Christensen and possibly the commissioner-elect plan to attend.

There, they will attend meetings to address roads, upcoming legislative issues — and network to exert influence for bills that might affect the county’s interests.

“There are conflicting interests,” Schroeder said. “What’s good for rural counties is very different than what’s good for very urbanized counties. They have to take that into consideration. There’s always winners and losers.”

The quagmire in which the association finds itself is not on the formal agenda, but might be brought up during business discussion regarding next year’s budget, Farrell said.