State will appeal denial of recovery of allegedly misappropriated school funds

Indiana Attorney General Curtis Hill has announced plans to appeal a Lake County ruling that prohibits the state from recouping more than $841,000 in funds allegedly overpaid to two Munster school officials.

Lake Circuit Judge Marissa McDermott issued an order granting summary judgment to former School Town of Munster superintendents William J. Pfister and Richard A. Sopko, whom Hill’s office sued after a State Board of Accounts report revealed a total of $841,398.03 in allegedly misappropriated overpayments. The SBOA conduct a special audit of Munster schools after it received a letter Kathleen M. Maicher – an attorney representing the school district – had sent to the Lake County prosecutor.

Maicher’s letter raised suspicions about “potential irregularities” regarding the “benefits and severance payments to be paid” under Pfister and Sopko’s contracts. The letter also stated the school’s director of financial operations “had long held a suspicion that both administrators were ‘double-dipping’ … .”

The results of the subsequent audit for the time between July 1, 1999 and June 30, 2014 revealed $463,922.75 in alleged overpayments to Pfister during his time as superintendent and $377,475.28 to Sopko during his tenure as assistant superintendent and superintendent. The funds in question included annuity payments, cash bonuses, investment allotments, salaries and stipends and community relations fringe benefits. The audit also founds the superintendents were liable for $10,0532.32 in costs incurred by the SBOA.

Thus, Hill’s office filed a complaint in May 2017 to recover $473,976.07 from Pfitser and $387,528.60 from Sopko. The largest portion of alleged overpayments came through the superintendents’ annuity payments, for which Pfister allegedly received an excess of $359,728.94 and Sopko allegedly received an excess of $311,198.75.

The SBOA traced those excess payments back to the annuity language of Pfister and Sopko’s contracts, which called for contributions to the Indiana State Teachers Retirement Fund “plus each year an additional” 4 percent and 3 percent, respectively, “toward an annuity of his choice.” The board maintained that language meant the superintendents could only receive 4 and 3 percent annuity payments annually.

The superintendents, however, claimed in their response to the SBOA report that the “plus each year” language indicated a contractual intent to create a compounding benefit that increased each year. Thus, the language justified Pfister’s 38 percent annuity payment in the 2011-2012 school year and Sopko’s 36 percent annuity payment in the 2012-2013 school year.

Similarly, McDermott wrote in her March 27 findings of fact that the school district’s accounts payable vouchers reflected the increasing annuity payments were “due to the phrase ‘plus each year an additional __ percent’ being construed to mean that the percentage was compounded each year.”

“No evidence has been designated by any party that any member of the Board disallowed any of the Vouchers for annuity contributions for Sopko or Pfister,” McDermott wrote. “The Board meeting minutes, designated as evidence and uncontroverted by the State, show that the Board voted to approve the annual Vouchers.”

Further, McDermott wrote in her conclusions of law that because there was no evidence that Pfister and Sopko took steps to conceal the payments made to them, the statute of limitations to recover on those payments began running when the payments were made. McDermott granted summary judgment to the superintendents on those grounds.

Hill’s office announced Thursday that it would appeal the summary judgment ruling, which prohibits the state from collecting damages arising before May 23, 2012.

“This ruling completely disregards the SBOA audit report process,” Hill said in a statement. “Cases arising out of SBOA audits are especially important to the state because their purpose is to protect public funds.”

“The state must always be able to recoup taxpayer dollars and root out fraud committed by public officials and employees,” Hill continued. “We must hold those who violate the law accountable, and we must ensure that those who take wrongful advantage of their positions of trust do not profit from ill-gotten gains.”

McDermott allowed the case to proceed as to any payments not excluded by the statute of limitations, and on the state’s claims for its own costs.

The judge also granted summary judgment to Ohio Farmers Insurance, an insurance company that McDermott said issued $15,000 in commercial crime policies to Munster Schools between 1997 and 2008. McDermott wrote Ohio had moved for summary judgment on Count VII in the state’s complaint, but that count relates to Westfield Companies, another insurance provider.

The complaint also reveals that Westfield, not Ohio Farmers, issued the crime insurance policies during the dates at issue. The count against Ohio Farmer’s, Count VIII, references $130,156.10 in five public official bonds issued between 2003 and 2010. All state offices were closed Friday, so clarity could not be provided on which insurance company moved for summary judgment, or which policies were at issue in the summary judgment motion.