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Audit uncovers $6.9M fraud scheme by former Pierce County Housing Authority employee

A sign on a door points to the main entrance of the state auditor's office in Olympia.
Rachel La Corte
The Associated Press (file)
A sign on a door points to the main entrance of the state auditor's office in Olympia.

The State Auditor’s Office released a fraud report Monday morning detailing $6.9 million in misappropriated funds within the Pierce County Housing Authority (PCHA). It’s believed to be the largest misappropriation on record in the state, propagated by the authority's former finance director.

PCHA helps provide clean, affordable housing for more than 4,000 low-income people each year. It’s a steward of state, federal and private dollars with an annual budget of roughly $34 million.

“It is a shameful, shameful breach of trust,” State Auditor Pat McCarthy said, during a news conference at the Pierce County Library administrative center, a few miles from the housing authority headquarters. “It was accomplished by deliberately circumventing accountability safeguards.”

Cova Campbell, PCHA’s former finance director, was terminated in August after a routine audit uncovered several hundred thousand dollars in unauthorized wire transfers from the organization to her personal bank account. After a monthslong review, Monday's report concluded that Campbell misappropriated a total of $6,948,277 in public funds between March 2016 and July 2019.

“She had full access to all financial systems with little oversight," McCarthy told reporters Monday. 

PCHA has filed a report with the Federal Bureau of Investigation and the U.S. Department of Housing and Urban Development Office of Inspector General, which are investigating this case, according to the state and the housing authority.

The authority also filed a lawsuit against Campbell and her husband, Mark, in Pierce County Superior Court, accusing the couple of using those funds for personal purchases, including real estate in Oklahoma where Mark Campbell resides. Auditors discovered attempts by the Campbells to hide their activities, including falsifying accounts and invoices, according to court documents.

“These schemes could not have been discovered without the actions of the State Auditor’s team,” the lawsuit states.

The state’s fraud report has been forwarded to the FBI and the HUD Office of Inspector General. In an email to KNKX, the Seattle FBI field office did not confirm or deny a federal investigation.

“The FBI is aware of the allegations but is not able to provide any further information,” wrote Steve Bernd, of the agency's Seattle public affairs division.

A spokesman for the inspector general didn't immediately respond to an email request for comment. 

The state also released financial and accountability audits, which both include findings based on what's detailed in the fraud report as well as court documents. 

Of the $6.9 million in misappropriated funds, the state's report shows nearly $3.7 million was wire transferred to either Campell's personal bank account or a title company and out-of-state bank. Wire fraud is a federal crime that carries a sentence of up to 20 years in prison and fines of up to $250,000 for individuals.

In October, Pierce County Superior Court Judge Kitty-Ann van Doorninck ordered a freeze on the Campbells’ bank and retirement accounts, blocking them from transferring funds or selling assets while PCHA attempts to recoup what it lost.

The audit report released Monday states the authority's insurance policy only covers $500,000 in losses resulting from employee theft. 

In court documents, Cova Campbell took full responsibility for the criminal activity, saying she intends to make full restitution. However, she claims her former boss, PCHA Executive Director Charlie Gray, orchestrated the scheme. She says Gray, who was disappointed with her work performance, requested Campbell divert funds into a private account and give them to him in exchange for her continued employment.

Court documents provide this account of the series of events:

Sarah Walker, a fraud investigation manager for the state, said her office identified “a significant number” of wire transfers made by Cova Campbell during a routine audit of the housing authority in July.

In her formal declaration filed in October, Walker said the office reviewed bank statements from January 2017 to August of this year and identified additional unusual transfers. The amounts were significant: two for $275,000, one totaling half a million, and another for $150,000.

Upon further review, the auditor discovered those transfers happened around the same time that Cova and Mark Campbell purchased property in Wagoner County, Oklahoma —  with values ranging from $200,000 to $500,000. 

The State Auditor’s Office also identified losses related to vendor payments between January 2015 and July 2019.

“We established the payments in question were deposited into Cova Campell’s (Hunter) personal bank account instead of the named vendor,” according to Walker’s declaration.

The state also identified and reviewed other “risky” vendor payments.

“These records showed a complex scheme involving multiple vendors being used to divert public funds into a personal bank account,” court records state, in amounts ranging from roughly $61,000 to just under $140,000.

Campbell says she’s “deeply remorseful” of her actions, though insists that further review of the executive director’s involvement in the scheme will reduce her liability. She says she faced “extreme pressure” from Gray to divert money between 2016 and 2019. 

Campbell claims Gray’s plan was to take funds used for maintenance on apartments owned by PCHA and use fake invoices from existing vendors, according to court documents, before transferring funds into Campbell’s personal bank account. She says he allowed her to keep some of the money so long as his request was fulfilled.

She also claims Gray showed her how to alter PDF invoices, asked her to hold the funds in her account while he gauged any potential suspicions from board members, and instructed her to send cash through confidential interoffice mail.

The organization placed Gray on administrative upon learning of Campbell’s allegations. He remains on leave while the federal investigations are ongoing. Elinor Ottey is serving as the interim director.    

In response to Campbell's allegations against her former boss, the housing authority said “presently nothing but the word of an admitted thief suggests that (Gray) shares any culpability for Ms. Campbell’s embezzlement,” records state. “Mr. Gray’s involvement, if any, in Ms. Campbell’s theft has no bearing on her own liability to repay every dime of the funds she stole from PCHA,” the authority states in court records.

Kathleen Cooper, the spokeswoman for the state auditor, said her office exercised due diligence in investigating Campbell's claims. The audit report released Monday revealed no evidence supporting them. Auditors interviewed Gray in October, as part of their investigation. They also examined his personal bank records, among other tests in response to Campbell’s allegations against her former boss.

“We did not find any evidence that indicates the Executive Director was involved in, or benefitted from, the misappropriation,” the report states. “We did find evidence that contradicts some of the statements the former Finance Director made in her deposition.”

Monday's report is the second instance of high-profile state audit findings this year. In May, McCarthy traveled to Central Washington to publicly announce the findings in financial and accountability audits of the City of Wapato. The reports followed months of outcry from citizens and a fraud investigation that found the city had misappropriated more than $300,000 between 2011 and 2017.

In an interview with KNKX in May, McCarthy said governments function better when officials shine a bright light on what they’re doing, even when there are issues. 

Like many instances of fraud, McCarthy said Monday, this one started small but grew rapidly. Sally Porter Smith, chair of the authority’s board of commissioners, acknowledged the board’s mistakes that created an environment for fraud to occur.

But she says the agency is acting swiftly to respond to recommendations from the state.

“The most important thing is that we acted immediately to protect our assets to prevent further loss,” Porter Smith said. “We will need to do a good assessment in restructuring to rebuild.”

Fellow board member Mark Martinez says the losses, while painful, haven’t crippled the authority’s ability to administer rental vouchers or serve its clients and landlords — which amount to hundreds of affordable housing units and properties countywide.

“We’re still here,” Martinez said. “We’re not planning to go anywhere. We will get through this, hopefully stronger and a little better at what we do. And we’ll continue again as long as we’re needed.”

PCHA board members say they have hired a national firm with extensive experience in housing, to “re-engineer” internal controls as recommeded by state auditors. They said the authority started working to recoup the lost funds as soon as the theft was discovered, including working with an attorney in Oklahoma.

“At this point, we have no idea what we’ll be able to recover,” Martinez said.

McCarthy says the case of the Pierce County Housing Authority is a cautionary tale for elected boards that oversee public entities.

“Be engaged,” she told KNKX. “Don’t just go and sit on a board to sit on a board.”

Walker, the fraud investigator for the state, said stewards of public resources should seek training to identify the red flags in situations like these. She also said public bodies must institute a culture of oversight for people with ready access to all financial systems.

And, McCarthy stressed, it's important to create a space for people within the organization to say something if they see something.

“The public depends on that,” she said. “Fraudsters can be very clever. They can weave certain stories and create opportunities to steal, and that’s exactly what this woman did. Shame on her, really.”

Kari Plog is a former KNKX reporter who covered the people and systems in Pierce, Thurston and Kitsap counties, with an emphasis on police accountability.