The Indianapolis Bond Bank said it has put new internal controls in place in response to allegations that two of its former employees embezzled nearly $400,000 over several years.
In addition to reporting the fraud and taking steps to prevent future abuses, bond bank executive director Sarah Riordan stressed that the missing funds were limited to unrestricted Bond Bank operational funds budgeted for payroll and benefits.
She said she is hopeful it won’t have broader implications or fallout for the bond bank’s reputation.
The bank serves as the debt issuance and management arm for the city and its related entities including special taxing districts, political subdivisions, and building/leasing authorities. It has issued nearly $13 billion in bonds since 1985 and currently has $3.6 billion of debt outstanding.
“Upon taking office, Mayor (Joe) Hogsett made clear to all agencies working in and with city government that identifying waste, fraud, and abuse of taxpayer dollars is a top priority and those responsible should be held accountable,” Riordan said. “After discovering evidence indicating a possible decade-long effort by two individuals to fleece taxpayers, our office immediately reported it to law enforcement and has fully cooperated with this investigation.”
Hogsett took office in 2016.
Riordan said that the bank has taken several corrective actions since the alleged misconduct was reported. It has three people reviewing all payroll functions, and all health insurance enrollments are now reviewed and approved by the executive director. Outside auditors review employees’ historical benefit leave balances. It has also changed operational budgeting for payroll and benefits and increased the frequency of budget-to-actual reviews.
In 2017, Riordan discovered the possible evidence of fraud or abuse in the Bond Bank’s payroll and benefit records beginning as far back as 2008.
Jacqueline Fitzgerald, 54, is charged with six counts of theft and two counts of insurance fraud, and Monica Durrett, 56, is charged with five counts of theft and one count of insurance fraud. While employed at the bond bank, the employees are believed to have claimed inappropriate benefit leave payouts and carried insurance on ineligible dependents. Fitzgerald also allegedly received unauthorized bonuses and incentive pay.
Riordan immediately terminated the employees she had reason to believe were involved and notified law enforcement of potential fraud on June 26, 2017. The Bond Bank said it made all its records available to the Marion County Prosecutor for review and worked with investigators in a year-long investigation.
The people involved were administrative employees that had office management responsibility, were not actively involved in the bond issuance process, and didn't handle bond proceeds or debt service payments, according to the bond bank. Bond payments and services go through the bond bank's trustees, which include Bank of New York Mellon and US Bank.
“The alleged misconduct did not involve and had no effect on any restricted funds, which include bond proceeds, debt service payments, debt service reserves or any other restricted funds,” Riordan said.
“I don’t think [the allegations] will have a big impact from a market perspective,” said Howard Cure, director of municipal bond research at Evercore Wealth Management, LLC. “It is a relatively minor amount and the security and financial statements of the bond bank really haven’t changed.”
The bank launched a dedicated information platform for bond investors at the end of June. Riordan said that the new platform will improve the efficiency of continued disclosure.
It is rated Aaa and AAA respectively by Moody’s Investors Service and S&P Global Ratings. Fitch Ratings rates it AA and Kroll Bond Ratings rates it AA-plus.