South Whidbey parks director Terri Arnold likely violated multiple state laws when she set up a new credit-card payment system for the parks district without approval, Island County Treasurer Linda Riffe said Wednesday.
Arnold signed a contract for Merchant Choice Payment Solutions to handle the parks district’s credit card services on July 10.
Riffe said the parks district then gave sensitive data — the county treasurer’s bank routing number and other account information — to Merchant Choice. The illegal move, she said, compromised the treasurer’s bank account and put public money at risk.
Riffe has contacted the Washington State Auditor’s Office to warn officials of the problem. She also shut down the account, which is also used by 24 other taxing districts in Island County beyond the South Whidbey Parks & Recreation District.
County officials discovered the problem when unauthorized charges started appearing on the county’s account with Whidbey Island Bank.
At a special parks board meeting Wednesday, Riffe appeared with her two assistants to address the board directly.
Parks Commissioner Jim Porter said it was obvious there had been violations.
But he also said officials in the treasurer’s office should have said something sooner, when Peggy Hockett, office manager for the parks district, called the county to get its account number.
“When Peggy first asked for the account number, that should have raised a red flag, and the staff person might have said, ‘You can’t do that,’” Porter said.
Ana Maria Nunez, Riffe’s assistant, said that the day Hockett first called, she asked for the bank account but did not say what it was for.
“If I’d known then, I would not have let it go by,” Nunez said. “I am sorry it has come to this.”
Arnold ended the discussion by saying she didn’t blame anyone for what happened, but did not accept responsibility for any action by parks staff.
“We’re all very sorry this happened,” Arnold said.
E-mails and other public records obtained by the Record, however, show there was little time for the county to stop parks district officials at the time of the Hockett phone call. The contract was signed the same day.
Public records also show increasingly acrimonious contacts between the parks district and the county after the trouble was found.
Arnold tried to shift blame for the problem when it was discovered by county officials on Aug. 21.
In an e-mail to Riffe on Aug. 27, Arnold said the treasurer’s office should have alerted junior taxing districts, such as the parks district, of the process used by the treasurer’s office when accepting credit-card systems.
Arnold closed by writing: “This experience has made me very sad and disappointed in our local government partner.”
The e-mail brought a pointed response.
Riffe, in her reply said Arnold should know the laws that govern the operations of park districts.
“Even without knowing the statutes, you are not a signator on the [county] treasurer’s bank account and had no authority to give the bank routing and account number out. Even without knowing the statutes, you should have known that.
“We have an excellent working relationship with all of our junior taxing districts, and they often call us with questions or request assistance, which we are happy to provide,” Riffe added.
“I am sorry that did not happen in this instance and that you chose a path of yelling at me on the telephone and blaming others rather than accepting responsibility and moving on toward correcting the problem.”
Riffe also recounted what she was told by the Washington State Auditor’s Office. She listed the state laws that had been broken:
“Giving out an account number that was not yours to give; allowing, through contract, debits to the treasurer’s account; allowing PayPal to be a credit card vendor, which is not sanctioned by state government; signing a contract with a company that uses an out-of-state bank for processing.”
Riffe notified parks commissioners of the problem on Aug. 26, taking the unusual step of sending a letter to the home of each parks commissioner, as well as to the district office.
Parks officials said they decided to pick a new credit- card company for a good reason: to save money.
Hockett, the district’s office manager, was searching for ways to save money and zeroed in on the 3- to 4-percent fee charged by credit-card companies for people who signed up for one of the many programs the district offers.
In June, she was approached by a saleswoman from Merchant’s Choice Payment Solutions in Coupeville with an offer to provide services at a lower fee than currently available from Whidbey Island Bank.
“I did not know that I was doing something wrong,” Hockett said. “When Tony at the treasurer’s office asked me, I faxed the letter of acceptance with Merchant’s Choice and e-mailed all transactions since we opened the account. There was no conversation about switching, which I believed then was OK.”
Riffe, however, said such a move takes more than talk.
“Remember, all public monies flow through the county treasurer,” Riffe said. “It is my paramount responsibility to strictly adhere to statutory requirements. No one has the authority to change banks without my express authorization.”
“The system we have in place at the county level is needed to prove oversight of the various districts,” Riffe noted. “Someone has to maintain checks and balances over public money, and that’s me. I’m the gatekeeper.”
Riffe said that nothing like this has ever happened before during her eight years in office.
“We have good relationships with our districts and do all we can to keep them out of trouble,” Riffe said. “But the parks director never called me — she’s been around long enough to understand basic procedures — and apparently did not even tell her board of directors they were doing this.”
Arnold did not seek the park board’s approval on the contract with Merchant Choice.
Parks board member Matt Simms, who serves as treasurer, did not attend Wednesday’s meeting. Simms has missed every regular park meeting since March, though he attended a special meeting in June.
Arnold said Thursday the board has previously given her permission to sign vouchers and construction documents on park improvement projects.
“I believed, at the time, that I had the authority to sign the contract and neglected to read all the statutes involved,” Arnold said.
She also acknowledged her role in the problem.
“I guess, when you strip it all away, it’s laid at my feet,” Arnold said.
After the county’s account was compromised, officials began working with Whidbey Island Bank to set up a new one. New deposit books and stamps must also be printed, and a temporary account has been set up for deposits before the new books are printed.
The process of getting a new account established will cost $1,800. The bill for roughly $1,200 of that amount will be sent to the parks district.
Arnold said she and Hockett plan to meet with Riffe to discuss finding better ways to streamline the district’s financial operations.
“Legally,” Arnold noted.
Listed below are the 24 taxing districts in Island County whose deposit accounts were closed by Island County Treasurer Linda Riffe when the parks district provided their deposit account number to a third party:
Admiral’s Cove Water District, Bayview Beach Water District, Camano Annex, Camano Vista Water District, Cemetary District 1, Clinton Water District, Crocket Lake Water District
Fire District 1, Fire District 2, Freeland Water District, Holmes Harbor Sewer District
Island County Fair, Juniper Beach Water District, Lagoon Point Water District, Ledgewood Water District, Mainstreet Sewer District, Penn Cove Water/Sewer District, Port of Coupeville, Port of South Whidbey, Rhodena Beach Water District, Saratoga Water District
Scatchet Head Water District, South Whidbey School District and South Whidbey Parks & Recreation.
