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Forensic Audit of South Carolina Hospitality Association's Books Reveal
Funds Equalling Nearly $500K Cannot be Accounted For

 No Link to Tom Sponseller Found

By Noelle Phillips, The State, Columbia, S.C.McClatchy-Tribune Regional News

March 09, 2012--Nearly a half-million dollars cannot be accounted for at the S.C. Hospitality Association, and its leaders vowed Thursday to change the trade organization's money management practices.

A forensic audit found $480,944 that was "identified as either misappropriated or of questionable nature," said Rick Erwin, the association's board of directors chairman who is serving as interim executive director.

That equates to about $3,000 a week being drained from the association's finances between 2009 and 2011, the period covered by the audit.

The auditors also discovered that the woman who is the focus of a federal investigation into the missing money was being paid $70,000 annually, which is $30,000 more than what the board thought would have been a fair salary, Erwin said.

"What we heard is shocking," Erwin said of the audit. "It is sickening. And it is inexcusable. It happened because there was little oversight and accountability by the management of the association and governing board over many years."

The Hospitality Association's board of directors met Thursday afternoon when most members heard for the first time just how much money was missing. Hours later, the board members stood grim-faced behind Erwin as he read a statement about the missing money and the board's plans to change its business practices.

The audit, conducted by Columbia accounting firm The Hobbs Group, is not complete. It will be shared with the Secret Service and the U.S. Attorney's Office, Erwin said. He said he recently had met with officials from the U.S. Department of Treasury and the Secret Service, an arm of the Treasury, to answer their questions.

Rachel Duncan, the Hospitality Association's former accounting director, is the target of the federal investigation into the missing money, an agent in charge of Secret Service's Columbia office has confirmed. Duncan, 41, of Lexington, worked at the association for about 10 years until she was dismissed once the investigation came to light. Erwin said the audit indicates she was responsible for the missing money.

"That's what it looks to be," he said.

Duncan's attorney, Greg Harris, declined to comment on the audit's findings or the federal investigation.

The ongoing investigation became public after Tom Sponseller, the group's former chief executive officer was reported missing Feb. 18. Sponseller, 61, was found dead Feb. 28 of an apparent self-inflicted gunshot to the head. Columbia police found his body behind two locked doors in a room off the parking garage of the Lady Street building where the association has its office on the 12th floor.

The Hospitality Association ordered the audit after Sponseller went missing. The Secret Service agent did not rule out Sponseller's involvement but said he "was not the initial target of the investigation."

The Hospitality Association's auditors "have not discovered any direct evidence implicating Tom Sponseller," Erwin said. Sponseller earned about $90,000 annually.

Asked if Sponseller should have known about the missing money, Erwin said, "Absolutely, Tom should have known."

The board had a small insurance policy to cover losses from theft and embezzlement, but it appears it will only cover about $20,000 of the missing money, Erwin said. The rest is potentially a total loss.

Until she was fired Feb. 28, Duncan was in charge of the association's finances, including payroll, Erwin said.

Erwin said the audit shows Duncan misappropriated money through written checks, deposits and expenses. He said he did not know whether Duncan gave herself the large salary boost or if Sponseller had approved it.

"That number was way above where it was supposed to be," he said.

Mark Hobbs, managing partner of The Hobbs Group, said auditors found a starting point for money missing in 2009 although the possibility exists that money started being mishandled as early as 2007. He said the amounts taken escalated over the next three years and the transactions showed a consistent pattern, he said.

Erwin declined to comment further about the federal investigation.

The Hospitality Association's board relied on Duncan and Sponseller to present regular financial reports on the organization's annual budget, which was $1.1 million in 2011, Erwin said. But it did not conduct outside audits, something the board will change, he said.

The board promised to order annual audits, to reconcile its books monthly and to use professional accounting oversight. The board also will monitor the money, Erwin said.

Erwin announced the creation of a financial accountability committee to develop and implement "best practices" standards for the organization's finances. The board also will establish checks and balances so that no single employee has complete oversight of the books. Job duties will be separated among different employees to maintain accountability, he said.

The board will have a restructuring committee to look at the overall work at the association and ways to improve. It also will begin a search for a new executive director, Erwin said.

Despite the missing money, Erwin said no one ever complained that the board was failing in its mission to promote the hospitality industry in South Carolina. Besides lobbying the legislature on behalf of hotels and restaurants, the association hosts conferences and events to promote the state's $14 billion tourism industry. This weekend, for example, it is hosting a high school culinary competition in Charleston.

"Have we lost the confidence of our members when our members look at a $480,000 theft? I would imagine so," Erwin said. "But I would say this: It has not come to my attention that any of our membership has not received a service they asked for."

Reach Phillips at (803) 771-8307. Reporter John Monk contributed to this report.


(c)2012 The State (Columbia, S.C.)

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