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Probe: Deals cost department $175K

| Thursday, May 3, 2012, 10:18 p.m.

An investigation into the financial problems of a Fayette County volunteer fire department alleges that a former fire chief, his girlfriend and the son of a township official were involved in a series of transactions that cost the department between $175,000 and $200,000 in much-needed revenue.

The Washington Township Volunteer Fire Department last year hired the Nottingham Group of Pittsburgh, a forensic accounting firm, to investigate financial problems that reportedly took root during the tenure of Randy Smalley as chief. Department members ousted Smalley as chief in 2004.

Details of the audit were presented last night at a public meeting at the fire department. Among the allegations:

= A portion of $75,000 given to the department by the Federal Emergency Management Agency to purchase pagers, portable radios and protective gear was paid to a company owned by Smalley and cannot be accounted for, the report states. As a result, the fire department was forced to repay part of the grant to FEMA.

= Property owned by the department that had been assessed at more than $100,000 was sold in 2001 to Michael Latkanich, son of township Supervisor Joanne Latkanich, for $35,000.

= A house owned by the fire department was leased to Smalley and his girlfriend, Roxanne Ceccarelli, for 30 months, but records indicate they never paid any rent.

= Investigators were unable to identify the winners of a boat valued at more than $30,000 that was a prize in a 2001 department fundraiser. The investigators' report states fire department members "have alleged that evidence indicates that Smalley did not distribute the boat to a prizewinner, but actually kept it for himself." Investigators could not prove that Smalley kept the boat but the matter is under investigation.

= Investigators cited a possible conflict of interest when Smalley, an electrician, performed more than $13,000 in electrical work for the township without obtaining any bids or estimates from other contractors.

"Based on our investigation, it is our opinion that the evidence indicates that former chief Smalley and other township officials executed transactions for their personal benefit and detriment of the Washington Township Volunteer Fire Department," said James Fellin, a CPA and certified fraud examiner with the Nottingham Group, whose forensic accountants integrate accounting, auditing and investigative skills to probe possible workplace and institutional wrongdoing.

Smalley said he and Ceccarelli had no comment.

These findings carry no legal weight, but fire Chief Rob Bennett said the department has hired an attorney to review the audit and to recommend possible civil or criminal action.

Attorney Joseph Paletta, of Pittsburgh, said he will review the audit to determine whether to press a civil lawsuit or criminal charges in the case. Bennett said copies of the audit will be sent to the Internal Revenue Service, state Attorney General Tom Corbett and Fayette County District Attorney Nancy Vernon.

"It appears to me it is worth pursuing the investigation for more information," Paletta said.

For Smalley, the tide began to turn in 2004 when firefighters realized their 35-member department was broke.

Members booted Smalley from the post he held since 1995 and quickly replaced him with Bennett. Then they appealed to township supervisors for financial help. Supervisors created a financial oversight board to review spending but rejected a request by the department for a tax on the township's 4,400 residents to help bail out the department.

Meanwhile, Bennett and members of the oversight board went about the business of attempting to unravel the department's tangled finances. That was when the Nottingham Group entered the picture.

Bennett said the department's finances have improved and new financial safeguards have been implemented.

In his report, Fellin said more than $63,000 of the FEMA grant was paid to Tri-State Fire Apparatus, a company owned by Smalley. The check from the fire department to Tri-State was signed by Smalley's girlfriend, who, along with Smalley, had complete control of the department's funds, Fellin said. He added that Tri-State only ordered $47,000 in equipment for the department and Smalley has steadfastly refused to account for the remaining funds.

The fire department was forced to repay FEMA $20,100. Bennett said Smalley has repaid $16,000 to the fire department under a deal worked out with the U.S. Attorney's Office in Pittsburgh.

"We could find no logical reason why these funds were funneled through Tri-State," Fellin said.

Fellin also said he discovered "a series of highly irregular transactions" that officials have not been able to explain surrounding the fire department's social club, which later became a tavern named "Slammin' Sammies."

The questionable financial transactions began when the department, at Smalley's urging, voted to sell its social club to Thomas Latkanich, the husband of Supervisor Joanne Latkanich, for $35,000, though the property was valued at more than $100,000.

In October 2000, the department approved a sale to Thomas Latkanich. But when the deal closed in December, his son, Michael Latkanich, was the only name on the deed, according to the audit.

Last June, Michael Latkanich transferred the property to his sister, Rochelle, according to the audit. The property now is up for sale with a listing price of $229,000 after Michael Latkanich unsuccessfully tried to sell the bar on eBay for $240,000, Fellin said.

Fellin's investigation also contended that after the deal was completed, Michael Latkanich failed to notify tax officials of a change in the status of the property from nonprofit to for-profit and did not pay any taxes to the state or township for several years.

"The financial harm that this transaction had on the department is clear and significant, given the financial magnitude of the transaction," Fellin said.

Michael Latkanich could not be reached for comment. His parents, Joanne and Thomas Latkanich, did not respond to requests for comment.

In regard to another transaction, Fellin said Smalley persuaded the fire department to purchase a nearby house and offered to rent it with his girlfriend for $400 a month.

Fellin discovered that Smalley and Ceccarelli never paid rent, which cost the department more than $13,000 in revenue. Smalley later purchased the house for $58,500.

With the improvements to the house the fire department paid for and the closing costs, the department lost $29,000 on the sale, the investigation concluded.

The fire department held a 2001 fundraiser and awarded $32,000 in prizes, including a fishing boat. Fellin said he was unable to verify the identity of the winner because of a lack of records but said Smalley "came into possession of a boat" at the same time.

The investigation also turned up evidence that Smalley, who is an electrician and owner of A & S Electric Co., performed more than $13,000 in repair work at the fire station.

The checks paid to Smalley for the work were either signed by Smalley or Ceccarelli, Fellin said. He said Smalley not only decided what work had to be done, but also set the price he would be paid, which Fellin said was a conflict of interest. He recommended the department file a lawsuit and pursue criminal charges.

Fellin said the department will have to pursue civil or criminal action to recoup funds allegedly lost during Smalley's tenure.

"The inappropriate transactions ... cost the department hundreds of thousands of dollars in badly needed funds," Fellin said.

Fellin said the department's financial picture is much brighter today.

"The department appears to have put many of its problems behind. It has greatly improved its leadership and accountability and has taken several steps to improve both its image and financial health," he said.

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