Q&A with Steve Smith
I was elected to the EWUA Board a little over five years ago. In 2020, I served as Vice President. I, then, served as President for 2021 and 2022. While I was President, we began providing services to the Doe Bay, Olga, Rosario, and the Highlands water systems. The idea was that this would benefit all water systems by having a larger pool of workers so that the organizations would all be more resilient. We raised employee compensation to a living wage. We purchased housing to provide lodging for some of our employees and did that by making some land transactions so that the money for it did not come from the water rates. We transitioned to a new enterprise system that integrated multiple systems, including accounting. We also added sensors to our aquifer wells to better monitor the health of the aquifer. My focus had been on system-wide improvements. I enjoyed working with the Board and the General Manager (GM) to make all of those things happen. In late 2021, I sold property that I owned within the EWUA service area. At the time, the Board valued my contributions and designated me as a “member representative” Board member. The bylaws allow for two such member representatives on the Board.
I served in that capacity from December 2021 to June 2023, when I was removed by less than a unanimous vote of the Board on less than 24-hours’ notice –in violation of the bylaws. Why? It was because I learned of financial mismanagement and stood up for the members in demanding accountability, So, I was voted off the Board.
I have watched Board members take actions (or fail to act) that I think has enabled financial mismanagement. Member money has been misappropriated by the GM; Board members have excused this; and, a subset of the Board concealed this from fellow Board members, the forensic accountant, and the members.
Yes. I am a member of an entity that is a member and have the authority to exercise the member rights accordingly.
1. The General Manager, Dan Burke, took money in excess of what was authorized and wrote checks to himself without Board knowledge or authorization.
2. About $283,000 has been spent via credit card during 2021 and 2022, often without receipts.
3. There are numerous financial irregularities.
4. Access to the financial records by Secretary-Treasurer Tenar Hall was obstructed by the GM and the officers of the Board.
5. The Board repeatedly failed at performing its oversight responsibilities.
At the beginning of 2023, then-treasurer, Tenar Hall, questioned whether General Manager (GM), Dan Burke, was misspending EWUA money. These questions ultimately resulted in the retention of a forensic accountant by the Board in the hope and expectation that the review would exonerate the GM. However, the final report issued by Acuity Forensics found that the GM had written checks to himself in excess of what was authorized by the Board, that the Board had failed in its duty of financial oversight, and that some on the Board had attempted to hide information from the forensic accountant.
More details on Acuity Forensics’ findings:
“During my engagement, I confirmed that Mr. Burke’s cash out of PTO [paid time off] appeared to be noncompliant with the employee handbook and also appeared to be noncompliant with check writing procedures for EWUA. In addition, I found that during the entirety of his employment, Mr. Burke never allocated any of his time to paid time off. This included sick time, holiday time, and other personal time taken. It is my professional opinion that at least a portion of Mr. Burke’s payout of PTO was effectively an overpayment of payroll (because there were more hours to “cash out” than should have been available had he properly deducted his personal time during the previous two years of employment).”
Final Forensic Report by Acuity Forensics, page 2
“It is my professional opinion that Mr. Burke’s payout of PTO not only violated the check-writing procedures in place at the time of the payments, but that his PTO bank was likely significantly overstated at the time of his payout. As such, the PTO payouts likely represent an overpayment of payroll.”
Final Forensic Report by Acuity Forensics, page 5
“Based on my review of the charges, I identified several expenditures that warranted extra scrutiny. Members of the EWUA board attempted to obtain those receipts and found extreme difficulty in this exercise. I learned that the receipts supporting the credit card charges are not retained with a copy of the statement, making it difficult for any review of the underlying documentation. This exercise also revealed that EWUA had no receipts for several charges (and thus staff or Board Members had to request those receipts from the vendors directly). I noted that $42,000 of these credit card charges were in the “Suspense” account ledger of your accounting system, denoting that they were never posted to a budgeted expense line item. I noted thousands of dollars of charges to home goods stores like Costco, Pottery Barn, Etsy, Target, Home Depot, Amazon, and Bed Bath & Beyond.”
Final Forensic Report by Acuity Forensics, page 3
What’s more, when receipts were obtained, they revealed a pattern of potentially excessive spending, as follows:
● $2,384 for 2 pendant lights for the office.
● $480 for a single black out curtain for employee housing.
● Purchase of a $2,923 Apple MAC Computer for General Manager, followed by the purchase of a $974 Apple iPad for General Manager (sent to his personal home).
● Significant purchases for 4-wheel drive vehicle accessories.
Final Forensic Report by Acuity Forensics, page 6
“It is my professional opinion that the lack of a proper budget, along with a lack of proper financial accounting (e.g., monthly budget to actual reports) led to the overspending of EWUA funds.”
Final Forensic Report by Acuity Forensics, page 6
“I noted that the entry of financial transactions into the accounting system did not contain proper information or were not properly coded to an expense account.”
Final Forensic Report by Acuity Forensics, page 9
“During the course of my engagement, I became aware of information that had not been provided to me at the outset of my work. Specifically, this included the concerns of current and former Board members and their findings related to the General Manager’s potential overpayment of payroll. During an Executive Session meeting on May 16, 2023, I expressed my concern about the limited information that had been provided to me and indicated that I wanted to better understand these issues and examine additional documents before providing a written professional opinion. That subsequent information and detailed examination of documents materially changed the preliminary opinion I provided to EWUA in May 2023.
“In addition to my findings, this report contains recommendations for improved internal controls at EWUA. It is my professional opinion that the General Manager position at EWUA has too much control over the finances without proper oversight by the Board.”
Final Forensic Report by Acuity Forensics, page 2
The Board enabled the problems, obstructed and bullied Tenar as she tried to do her job until she resigned, hid information from the forensic accountant that they had hired, removed me from the Board when I tried to protect members’ interests, and is hiding all of this from the members.
We don’t know for sure, as there are a number of transactions that do not have supporting documentation. However, the report shows undocumented credit card transactions, inaccurate accounting entries, and payroll payouts in excess of what the Board authorized.
First, it is important to know who is on the Board.
Today, the Board consists of:
It is the Board’s responsibility to provide oversight, which includes making sure that the records are in order and that the members’ money is properly managed.
It is the duty of the Board to inform the members and take actions to protect the members’ interest.
Tenar and Steve have exhausted every option in our attempts to cause accountability and responsible oversight. Rather than follow standard oversight protocols, the Board has chosen to “shoot the messengers.” In our opinion, the only way to stop the mismanagement of money and change the culture of bullying that currently exists is to recall the directors of the Association Board who have failed in their duties to the members.
You can visit RecallWater.com to see the supporting documentation.
We have tried for months to cause the Board to do the right thing. I believe we have exhausted every option available except going to the membership for a recall of the Board.
We ask you to look at the evidence and, if you are disturbed by what you see, recall the Board. It is the only effective way of preventing misuse of your co-op member money. We sometimes hear of corruption and are frustrated that there is little we can do about it. However, this is one of the times when, together, we have the ability to act. In my opinion, anything short of recalling current Board members will not fix the problem.
Current Board members have decided that the General Manager is irreplaceable and, in order to retain the GM, have become complicit in the wrongdoing.
The Board bylaws provide, at Article VI D, that:
● Three percent (3%) of the members may petition the Board for removal of the director/Board member.
● The petition is forwarded to the Board, which shall provide notice of a special members’ meeting. The meeting notice to the members must be sent at least 20 days in advance of the meeting and must be within 35 days of the submission of the petition. The removal shall be voted upon at the special members’ meeting.
● A vote of a majority of the members voting will retain or remove a director so long as at least 10% of the members participate in the vote. Participation may be via proxy.
Nothing. Neither of us are on the Board. Neither are running for the Board. We are doing this because we both believe it is important to correct the financial mismanagement, to protect the members' money by proper oversight, and to restore proper functioning of the Board. Member rates were raised 22% in 24 months (11% for 2022 and another 10% for 2023). Over the last 24 months, the bank balances have dropped from $1.6 million to less than $700,000. EWUA has not put any new pipe in the ground nor replaced any of the 7 miles of asbestos concrete pipe that is in the ground.
No. Ron Claus has not participated in enabling the financial mismanagement or its cover-up. We are asking for the removal of the remaining Board members.
EWUA is a nonprofit private corporation. It files taxes as a 501(c)(12), which is a member cooperative. The directors are elected by the members. Both parties are acknowledging RCW 24.03A as the governing law.
One of the most common questions I get after showing people the evidence is, “Why is the Board still supporting the GM?”
That is a really good question. But since they will not hold the GM accountable and are putting his interests ahead of yours as members, they need to be removed from the Board.
I am pursuing this recall because I cannot stand by and let all this happen within our Association.