JOINT COMMITTEE ON GOVERNMENT AND FINANCE WEST VIRGINIA OFFICE OF THE LEGISLATIVE AUDITOR Post Audit Division LEGISLATIVE AUDIT REPORT Supreme Court of Appeals of West Virginia Report 4 ISSUE 1: Over a Period of Four Years, the Supreme Court Depleted $29 Million of Surplus Re-Appropriated Funds to a Balance of $333,514. ISSUE 2: The Supreme Court of Appeals of West Virginia Spent Approximately $3.4 Million on Renovations Between 2012 and 2016. Several of the Renovation Projects Do Not Contain Invoice Documentation with Sufficient Detail for Analysis. ISSUE 3: Between 2009 and 2017, the Chief Justices of the Supreme Court of Appeals of West Virginia Allowed 10 Senior Status Judges in the Judicial Retirement System to Exceed the Statutory Compensation Cap 20 Times for a Total of $271,000. Legislative Auditor: Aaron Allred Post Audit Director: Justin Robinson GENERALLY ACCEPTED GOVERNMENT AUDITING STANDARDS STATEMENT We conducted this performance audit in accordance with Generally Accepted Government Auditing Standards (GAGAS). Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. POST AUDIT DIVISION Director, Justin Robinson JOINT COMMITTEE ON GOVERNMENT AND FINANCE WEST VIRGINIA OFFICE OF THE LEGISLATIVE AUDITOR Post Audit Division POST AUDITS SUBCOMMITTEE MEMBERS SENATE MEMBERS President, Mitch Carmichael Ed Gaunch Roman Prezioso Supreme Court of Appeals of West Virginia Report 4 SEPTEMBER 7, 2018 LEGISLATIVE AUDITOR’S STAFF CONTRIBUTORS Aaron Allred............................ Legislative Auditor Doren Burrell.......................... Attorney Justin Robinson....................... Director Stanley Lynch.......................... Deputy Director Melissa Bishop, CPA.............. Assistant Director Adam Fridley, CGAP............. Audit Manager Randolph Mays II................... Senior Auditor Ben Agsten............................... Auditor Christian Baumgarner........... Auditor Marshall Clay.......................... Auditor Peter Roach.............................. Auditor Judith Strawderman............... Auditor Mike Jones, CFE .................... Referencer Nathan Hamilton.................... Referencer HOUSE MEMBERS Robert Hanshaw, Speaker Timothy Miley Eric Nelson Jr. ISSUE 1: page 1 2 ISSUE 2: page 9 ISSUE 3: page 20 APPENDIX A: page 30 APPENDIX B: page 32 APPENDIX C: page 33 APPENDIX D: page 34 APPENDIX E: page 39 APPENDIX F: page 41 INTRODUCTION: page Over a Period of Four Years, the Supreme Court Depleted $29 Million of Surplus Re-Appropriated Funds to a Balance of $333,514. The Supreme Court of Appeals of West Virginia Spent Approximately $3.4 Million on Renovations Between 2012 and 2016. Several of the Renovation Projects Do Not Contain Invoice Documentation with Sufficient Detail for Analysis. Between 2009 and 2017, the Chief Justices of the Supreme Court of Appeals of West Virginia Allowed 10 Senior Status Judges in the Judicial Retirement System to Exceed the Statutory Compensation Cap 20 Times for a Total of $271,000. Transmittal Draft Letter Objective, Scope, & Methodology Number of Appointments by Judge Rule on Retired Judges Admitted to Senior Status Transmitted copy of Independent Contractor Agreement WV-48 Forms for Senior Status Judges Introduction During the June 2018 Post Audits Subcommittee meeting, the Legislative Auditor released a report concerning the spend down of $29 million in excess re-appropriated funds by the Supreme Court of Appeals of West Virginia (the Court) from Fiscal Year 2012 through Fiscal Year 2015. In that report, the Legislative Auditor expressed concern with the Court’s accumulation of appropriated General Revenue Funds, with particular regard to the fact that in just five fiscal years from 2007 to 2012 this surplus fund balance grew from $1.4 million to $29 million. Of equal concern was the fact that this $29 million surplus was subsequently depleted to a balance of $333,514 over the following four years. In this prior report, the Legislative Auditor attempted to account for the spend down by highlighting spending categories that saw significant increases over prior years. This audit report is a continuation of that effort attempting to further account for the spending that depleted the $29 million over the four-year period of Fiscal Years 2012 - 2015. This report also includes an analysis of the Court’s renovation costs to various offices located within the Capitol, including the Justices’ chambers, as well as noting the expenditures for renovations of Court facilities outside of the Capitol. Many of the renovations could be attributed as a portion of the reduction of the $29 million of re-appropriated funds as they occurred during that same period. Finally, this report discusses the Court’s payments to Senior Status Judges. In some instances, these payments were in excess of statutory limits for Consolidated Public Retirement Board (CPRB) annuity recipients. The Court’s process of paying Senior Status Judges as independent contractors appears to be an attempt to exceed those statutory limits. 1 Issue 1: Over a Period of Four Years, the Supreme Court Depleted $29 Million of Surplus Re-Appropriated Funds to a Balance of $333,514. As reported during the June 2018 Post Audits Subcommittee meeting, the Legislative Auditor became aware of concerns regarding the spend down of the Court’s re-appropriated fund balance while reviewing memos written by Justice Loughry responding to questions from other justices concerning his Court vehicle use. In that same report, the Legislative Auditor outlined various categories of expenditures that significantly increased over the prior year. The Legislative Auditor has continued to research the increased spending and reduction of the $29 million of excess funds in an attempt to further account for how this balance was depleted. This analysis does not attempt to account for every expenditure directly attributable to the spend-down as doing so is not practical. The volume of invoices and lack of institutional knowledge regarding the expenditures make it difficult to determine if an expenditure was contemplated for budgeting purposes within the Court’s appropriation request. However, the Legislative Auditor has been able to attribute the spending to specific categories by calculating the difference between what was budgeted each fiscal year and what was actually spent. Any expenditures above that year’s appropriated funds were considered spending from the reappropriated surplus funds. In analyzing the Court’s expenditures by budget category and vendor, we were able to segregate expenditures not in-line with the Court’s usual spending. Although these results are not complete due to a lack of information available and those limitations previously stated, the majority of expenditures could be traced to specific categories and/or vendors. The results of this analysis show that a majority of all re-appropriated funds were spent within two categories, Personal Services (Payroll) and Unclassified/Current Expenses. Where Did the Money Go? Fiscal Year 2012 As the beginning of Fiscal Year 2012, the Court had a surplus re-appropriated fund balance of $29 million. During this fiscal year, the balance was decreased by approximately $6.3 million to $22.7 million. Due to the increase in salaries for judges, justices, and magistrates, the Court’s salary expenses, including all employee benefits and employer taxes, increased by approximately $12.4 million. Approximately $4.6 million of the surplus reappropriated funds were spent on salary increases. Renovations An additional $1.7 million was spent in excess of the budgeted amount, under the category Unclassified/Current Expenses. An overview of the total $24 million spent by the Court in this budget category revealed certain vendors for which the spending could be attributed. Specifically, Neighborgall Construction Company and Capitol Business Interiors were paid $1.18 million and $1.02 million, respectively. Both of these vendors were used by the Court for various renovation projects at the Capitol, including the Justices’ chambers. Thus, the remaining $1.7 million of reappropriated funds depleted in this year could be attributable to the total $2.2 million in payments to these vendors. 2 Summary of Fiscal Year 2012 Spend-Down The Fiscal Year 2012 spend-down of the re-appropriated funds are summarized in the table below: Table 1 Fiscal Year 2012 Spend-Down of Supreme Court Re-Appropriated Funds Expenditures FY 2012 Beginning Balance Salary Increases Renovations Total Expenditures Balance $29,082,340 $4,631,427 $1,702,147 $6,333,574 FY 2012 Ending Balance $22,748,766 Source: Legislative Auditor’s analysis of appropriated funds, re-appropriated funds, and expenditures for Fiscal Year 2012. Fiscal Year 2013 In Fiscal Year 2013, the re-appropriated balance was further decreased by approximately $7.5 million, from $22.7 million to $15.2 million. Payroll related expenses increased an additional $900,491 over the prior year, but with only an additional $1.8 million in appropriations, the Court was still absorbing some of the salary increases from the prior year through its re-appropriated fund balance. Specifically, the Court spent $2.9 million on salaries from the re-appropriated funds. The remaining $4.6 million was expended from the Unclassified/Current Expenses category. Unclassified/Current Expenses The previous Post Audit report noted that expenses increased in areas such as Contractual Services, Computer Services, Office Equipment, etc. during Fiscal Year 2013. The Legislative Auditor’s analysis revealed the following Contractual Services expenditures: Table 2 FY 2013 Contractual Services Noted in Spend-Down Category Amount Drug Courts Senior Status Judges & Magistrates CIP Training Temporary Employee Services Contract Law Clerk for Justice Ketchum Portrait of Justice McHugh Total $978,635 $95,913 $76,330 $41,172 $15,000 $4,000 $1,211,050 Source: Legislative Auditor’s analysis of appropriated funds, re-appropriated funds, and expenditures for Fiscal Year 2013. Computer services and equipment also accounted for much of the spending throughout Fiscal Year 2013. Approximately $1.6 million was spent on multiple vendors. Those vendors 3 making up the largest cost of computer services and computer equipment include the following: • Dell Marketing, LP at a cost of $846,446. • Oracle America, Inc. at a cost of $573,817. • Global Science & Technology, Inc. at a cost of $171,421. At least $1,488,489 of these expenses can be attributed to the spend-down of the reappropriated funds. Adult and Juvenile Drug Courts Due to the Legislative mandate that drug courts serve all counties throughout the State, there was an additional cost to the Court beginning in Fiscal Year 2013. Excluding the payroll and contractual service payments noted above, the Court spent an additional $266,026 on Adult and Juvenile Drug Courts. Renovations Supreme Court renovations continued to be a significant expense. The Legislative Auditor was able to account for approximately $1.67 million of renovation expenses that contributed to the spend-down. Vendors included in this amount are listed in the following table: Table 3 FY2013 Expenses Attributable to the Spend-Down Vendor Amount Neighborgall Construction Company Capitol Business Interiors Silling Associates State Electric Supply Company Electronic Specialty Company Carpet Gallery DSL Sound, Inc. Design Works, LLC Edward Hillenbrand Furnituremaker Total $771,451 $311,267 $169,563 $140,426 $94,821 $55,554 $53,466 $51,592 $19,847 $1,667,987 Source: Legislative Auditor’s analysis of appropriated funds, re-appropriated funds, and expenditures for Fiscal Year 2013. The most notable renovation project expenses during Fiscal Year 2013 occurred within the Capitol. However, requests for additional information made by the Legislative Auditor’s Office concerning the renovations have remained unanswered as of the date of this report. 4 Summary of Fiscal Year 2013 Spend-Down The Fiscal Year 2013 re-appropriated funds for the year is summarized in the following table: Table 4 Fiscal Year 2013 Spend-Down of Supreme Court Re-Appropriated Funds Expenditures Fiscal Year 2013 Beginning Balance Salary Increases from FY2012 Contractual Services Computer Services and Equipment Drug Courts Renovations Total Expenditures FY 2013 Ending Balance Balance $22,748,766 $2,905,376 $1,211,050 $1,488,489 $226,027 $1,667,987 $7,498,929 $15,249,837 Source: Legislative Auditor’s analysis of appropriated funds, re-appropriated funds, and expenditures for Fiscal Year 2013. Fiscal Year 2014 In Fiscal Year 2014, the Court decreased its re-appropriated fund balance by the greatest amount in the four-year period. In this year, the balance was reduced by $13.4 million for a total year-end balance of $1.8 million. Due to the Governor’s request for additional funds to be made available to help with budget shortfalls that year, the Court analyzed its discretionary funds and chose to return $4 million to the State’s General Revenue Fund. The remaining $9.4 million was spent on Payroll, Current Expenses, and Other Assets. Payroll expenses again increased by approximately $2.4 million over the prior year. Approximately $2 million of this increased expense was covered by the surplus reappropriated funds. Computer Services and Equipment continued to be a significant cost as well. Dell Marketing, LP expenditures totaled over $846,000 in Fiscal Year 2014, as well as Global Science and Technology, Inc. at almost $477,000 and Oracle America, Inc. at $422,000. Other areas of spending that can be attributed to the spend-down include an increase in Travel Expenses by $909,000 and an increase in Attorney Legal Services Payments by $1.1 million. Attorney Legal Services cover a multitude of services including, but not limited to, special prosecutors, mental hygiene, and guardian ad litem. Additionally, rental expenses increased during the year by $375,965. The majority of the increase in rent expenses was paid to one specific vendor, General Corp, which increased by over $314,000 from the previous year’s expenditures. The increased payments to General Corp can be attributed to the rental of additional space at the City Center East building. Excluding General Corp, there are sixtyone other vendors to which rent was paid. Therefore, the remaining $62,000 is spread out over those vendors. 5 Renovations Throughout Fiscal Year 2014, renovations for the Supreme Court continued. The most significant renovation expenditures for this year appear to have occurred under the category Other Assets. Vendors paid under this category include Neighborgall Construction Company totaling $644,000 and Geiger Brothers, Inc. totaling $600,000. A little over $433,000 of the amount paid to Geiger Brothers is attributable to the renovations of Justice Davis’ Chambers. Other vendors paid in relation to the renovations include Electronic Specialty Company totaling over $116,000; Design Works, Inc. totaling over $64,000; and Capitol Business Interiors totaling $158,000. Also, during this fiscal year Carpet Gallery received $47,000, which included the $32,000 couch for Justice Loughry’s office. Payments made toward renovations during Fiscal Year 2014 can be attributed to the chambers of Justice Davis, Justice Loughry, and Justice Workman, as well as the 1st floor hallway, the Clerk’s Office, and the 2nd and 6th floors at City Center East. The Legislative Auditor has not received the information requested from the Court concerning City Center East thus, all renovation expenses have not been accounted for in this report. As a result, we cannot specifically account for $1.75 million in expenses paid using the re-appropriated fund balance during Fiscal Year 2014. Summary of Fiscal Year 2014 Spend-Down The spend-down of re-appropriated funds for the year, including the unaccounted-for balance, is summarized in the following table: Table 5 Fiscal Year 2014 Spend-Down of Supreme Court Re-Appropriated Funds Expenditures Fiscal Year 2014 Beginning Balance Returned to General Revenue Fund Salary Increases Computer Services and Equipment Travel Attorney Legal Service Payments Renovations Rental Expenses (Real Property) Unaccounted for Total Expenditures Fiscal Year 2014 Ending Balance Balance $15,249,837 $4,000,000 $1,956,757 $1,745,748 $909,251 $1,058,542 $1,630,373 $375,965 $1,746,527 $13,423,163 $1,826,674 Source: Legislative Auditor’s analysis of appropriated funds, re-appropriated funds, and expenditures for Fiscal Year 2014. Fiscal Year 2015 The Court carried over approximately $1.8 million in unused funds into Fiscal Year 2015. Total expenditures of $133.3 million reduced the Court’s re-appropriated fund balance 6 to $333,514 at the end of this fiscal year. Payroll expenses again increased, this time by $1.45 million. Approximately $912,000 of the remaining surplus re-appropriated funds were spent to cover this increase. The only other area of spending that saw a significant increase was Contractual Services in the amount of $2.7 million which accounts for the remaining $581,000 reduction of the re-appropriated fund balance. These contractual services expenses appear to include, but are not limited to, juror reimbursement, drug courts, and the new e-file system to be used for court filing by outside attorneys. Summary of Spend-Down A summary of the complete spend-down can be viewed in the following table. Unfortunately, there are some expenses that we are unable to extract from the current records. One issue noted is that the majority of all expenses within the Unclassified/Current Expenses category for each fiscal year were purchased on a Purchasing Card. Prior to Fiscal Year 2015, individual purchasing card transaction documentation is not included in the current accessible records for our review. 7 Table 6 Spend-down of Supreme Court Re-Appropriated Funds Expenditures Fiscal Year 2012 Beginning Balance Salary Increases Renovations Total Expenses $4,631,427 $1,702,147 $6,333,574 Fiscal Year 2013 Beginning Balance Salary Increases from FY2012 Drug Courts Senior Status Judges & Magistrates CIP Training Temporary Employee Services Contracted Law Clerk for Justice (3 months) Portrait of Justice Computer Services and Equipment Adult and Juvenile Drug Courts Renovations Total Expenses $2,905,376 $978,635 $95,913 $76,330 $41,172 $15,000 $4,000 $1,488,489 $226,027 $1,667,987 $7,498,929 Fiscal Year 2014 Beginning Balance Returned to General Revenue Fund Salary Increases Computer Services and Equipment Travel Attorney Legal Service Payments Renovations Rental Expenses (Real Property) Unaccounted for Total Expenses $4,000,000 $1,956,757 $1,745,748 $909,251 $1,058,542 $1,630,373 $375,965 $1,746,527 $13,423,163 Fiscal Year 2015 Beginning Balance Salary Increases Contractual Services Total Expenses Fiscal Year 2015 Ending Balance Balance $29,082,340 $22,748,766 $15,249,837 $1,826,674 $911,728 $581,432 $1,493,160 $333,514 Source: Legislative Auditor’s analysis of appropriated funds, re-appropriated funds, and expenditures for Fiscal Year 2012-2015. 8 Issue 2: The Supreme Court of Appeals of West Virginia Spent Approximately $3.4 Million on Renovations Between 2012 and 2016. Several of the Renovation Projects Do Not Contain Invoice Documentation with Sufficient Detail for Analysis. The Legislative Auditor analyzed all available invoices provided by the Court for the renovations conducted at the Capitol Building. These invoice documents cover multiple renovation projects including each of the Justices’ Chambers, the Courtroom, various Court restrooms, and other Court spaces at the Capitol. Table 7 provides a top-level breakdown of the total cost associated with each renovation project. The total combined cost of all of these renovations was $3,407,726. Table 7 Supreme Court Capitol Renovation Project Costs Renovation Project Justice Benjamin’s Chamber Justice Walker’s Chamber Justice Ketchum’s Chamber Justice Workman’s Chamber Justice Davis’s Chamber Justice Loughry’s Chamber Unattributed Silling Invoices for Chambers 3rd Floor Men’s Restroom 3rd Floor Women’s Restroom 1st Floor Hallway Saferoom Courtroom Justice’s Conference Room Common Area Clerk’s Office Chief Counsel’s Office Elevator Upgrades Total Total Renovation Cost $264,836 $130,655 $188,931 $112,780 $503,668 $367,915 $374,571 $38,887 $77,725 $79,145 $98,513 $162,596 $300,350 $324,509 $282,793 $90,279 $9,572 $3,407,726 Source: Legislative Auditor’s analysis of renovation invoices provided by the Court. The Legislative Auditor attempted to analyze all of the renovations undertaken by the Court from 2009 to 2016. Currently, the Court has not provided the Legislative Auditor with invoice documentation related to the renovations to the Supreme Court’s law library or the administrative offices located in the Capitol Building’s East Wing. Further, while the Court has provided some of the invoice documentation for the renovations to the Clerk’s Office and the Chief Counsel’s Office, the Legislative Auditor is still waiting to receive a portion of these invoices, which were originally requested on July 25, 2018. 9 In addition, the Legislative Auditor has not yet been able to fully analyze the renovation documentation related to the Court’s leased spaces, such as the extensive renovations undertaken at the Court’s office space at City Center East, located in Kanawha City, but will provide that analysis in a future report. The following report sections provide a breakdown of each renovation project for which the invoice documentation contained sufficient detail. The expenditures for these renovations were allocated by the Legislative Auditor into broad classification types, such as infrastructure (structural work to walls, electrical, plumbing); fixtures (cabinetry, shelves, counters); décor (rugs, marble work, glass work, window treatments and blinds); and furniture. The Five Justices’ Chambers Were Renovated for a Combined Cost of Approximately $1.9 Million. The Legislative Auditor’s analysis determined that the total combined cost of the renovations to the Justices’ Chambers totaled $1,943,357. However, the Legislative Auditor is only able to provide a detailed analysis for $1,568,786 or 81 percent of the total. This is due to a lack of sufficient detail in the invoice documents submitted by the architecture and design vendor Silling Associates, Inc (Silling). Silling Associates, Inc. Silling billed the Court a total of $374,571 for work they conducted on the renovations of the Justices’ Chambers. However, none of the invoice documents submitted to and paid by the Court provide a breakdown for work that was conducted by Silling, nor on which Justice’s chamber the work was conducted. The Director of Finance for the Court indicated that she had attempted to contact Silling to obtain more detail but had not been provided any additional information from the vendor. The Legislative Auditor was informed by the Court’s Director of Finance that Justices Walker and Ketchum used Silling in a very limited capacity, and that Justice Davis did not use their services at all. Further, all of the Silling invoices provided to the Legislative Auditor were submitted between March 3, 2009 and September 10, 2013. Only two invoices, totaling $4,481 were submitted to the Court during Justice Loughry’s tenure as a Justice of the Court. The Legislative Auditor is unable to further attribute these expenses due to lack of invoice detail. 1 Justice Benjamin’s Chambers According to the invoice documentation reviewed by the Legislative Auditor, the renovations to Justice Benjamin’s Chambers cost $264,836. The Legislative Auditor believes that this amount is, to some degree, understated since the full costs of any architectural or design services provided by Silling cannot be attributed. The renovation expenditures included $25,489 for flooring, approximately $38,000 for wood work, and $21,000 for window treatments. The Legislative Auditor allocated the renovation costs into broad categories of expenditures. The largest categories of expenditures for this renovation project were for fixtures 1 Justice Walker had one charge, totaling $450, for work conducted by Silling. 10 (37 percent) followed by infrastructure costs (19 percent). Table 8 shows the total dollar amount spent for each category of expenditure and the percent of the total. Table 8 Breakdown of Renovation Expenditures for Justice Benjamin’s Chambers Expenditure Category Décor Fixtures Flooring Furniture Infrastructure Miscellaneous Painting Total Amount $26,395 $98,748 $25,489 $26,764 $51,497 $11,037 $24,906 $264,836 Percent of Total 9.97% 37.29% 9.62% 10.11% 19.44% 4.17% 9.40% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. Justice Walker’s Chambers The total cost to renovate Justice Walker’s Chambers was $130,655 and includes expenditures such as $9,000 for flooring, over $7,000 for cabinetry, and approximately $23,000 for tables and chairs. The Legislative Auditor notes that Justice Walker “inherited” Justice Benjamin’s Chambers when she replaced him on the bench. Therefore, Justice Walker’s renovation costs are in addition to the $265,000 spent by Justice Benjamin seven years prior, for a total of $395,491. Approximately $9,000 of flooring costs in Justice Walker’s Chambers are attributable to her covering the $25,000 of flooring completed approximately seven years prior in the same chambers under Justice Benjamin. The Legislative Auditor notes that upon leaving office, Justice Benjamin purchased eight pieces of office furniture from the Court for a total of $6,720. The original price paid by the Court for these office furnishings was $10,260. Justice Walker, upon election to the Court, may have needed to replace these items either by purchasing new items or selecting items from the Court’s storage warehouse. The Legislative Auditor similarly appropriated the renovation costs for Justice Walker’s Chambers into broad expenditure categories. The largest category of expenditures for this renovation project was for furniture (23 percent). Since these Chambers had recently undergone extensive renovations, only 16 percent of Justice Walker’s renovations are attributable to infrastructure. Table 9 provides a full breakdown. 11 Table 9 Breakdown of Renovation Expenditures for Justice Walker’s Chambers Expenditure Category Amount Percent of Total Décor Fixtures Flooring Furniture Infrastructure Miscellaneous Total $28,747 $26,435 $9,145 $30,625 $20,686 $15,016 $130,655 22.00% 20.23% 7.00% 23.44% 15.83% 11.49% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. Justice Ketchum’s Chambers The total cost to renovate Justice Ketchum’s Chambers was originally totaled at $193,970 by the Court, which includes approximately $9,100 of work to two Cass Gilbert Desks. The Legislative Auditor notes that Justice Ketchum disputes two charges attributed to his office, totaling $18,098, indicating that the work encompassed by these charges was not done in his Chambers. At least $5,038 does appear to be for work in another Justice’s chamber; therefore, reducing Justice Ketchum’s amount to $188,931. If the remaining $13,060 of work was misattributed, the corrected renovation costs for Justice Ketchum’s Chambers would be $175,871. However, the Legislative Auditor has no way of verifying whether this charge is appropriately attributed based on the available documentation. The renovation expenditures were allocated into broad categories. For Justice Ketchum’s Chambers, the largest expenditure category was infrastructure, which accounted for approximately 43 percent of the total renovation costs for this project. Table 10 shows the total dollar amount spent for each category of expenditure and the percent of the total. Table 10 Breakdown of Renovation Expenditures for Justice Ketchum’s Chambers Expenditure Category Décor Fixtures Flooring Furniture Infrastructure Miscellaneous Total Amount $18,664 $59,312 $10,453 $12,396 $81,782 $6,324 $188,931 Percent of Total 9.88% 31.39% 5.53% 6.56% 43.29% 3.35% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. 12 Justice Workman’s Chambers The total cost attributed to the renovations in Justice Workman’s Chambers totaled $112,780. These renovation expenditures include $12,000 for cabinetry, $35,000 for flooring, and $17,000 for fabrics and reupholstery of various pieces of furniture. An additional invoice for floor repair, costing $5,038, indicates that the work was done in Justice Workman’s Chambers. However, her name is marked out on the invoice and Justice Ketchum’s is written in; this is one of the charges that Justice Ketchum disputes. During the Impeachment Hearing in the House of Delegates, testimony was provided that indicated Justice Workman’s floor required repairs; therefore, it is possible that these charges could be attributed to her office. Thus, Justice Workman’s cost for renovations could be as much as $117,818, not including the Silling invoices. Additionally, since the $374,571 paid to Silling for architectural and design services cannot be attributed to any one Justice’s chamber, as previously stated on page 10 of this report, the Legislative Auditor believes that this total renovation cost is potentially understated. The largest category of expenditure for the renovations to Justice Workman’s Chambers was flooring (32 percent). Table 11 shows the total dollar amount spent for each category of expenditure and the percent of the total. Table 11 Breakdown of Renovation Expenditures for Justice Workman’s Chambers Expenditure Category Amount Percent of Total Décor Fixtures Flooring Furniture Infrastructure Painting Total $14,745 $16,986 $35,605 $18,460 $22,034 $4,950 $112,780 13.07% 15.06% 31.57% 16.37% 19.54% 4.39% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. Justice Loughry’s Chambers The total costs associated with the renovations to Justice Loughry’s office total $367,915. This includes expenditures such as an $8,500 custom sofa upholstered for $23,000 totaling almost $32,000, a desk totaling $3,300, and approximately $20,000 for chairs. The Legislative Auditor notes that only $4,481 of architectural or design service fees from Silling could potentially be attributed to the renovations to Justice Loughry’s Chambers, but it is possible that this amount is higher. While it has been suggested by the Court’s Director of Finance that this renovation project used these services extensively, any additional costs for such cannot be accurately attributed. The largest expenditure categories for the renovations to Justice Loughry’s Chambers were fixtures (36 percent) and infrastructure (29 percent). Table 12 shows the total dollar amount spent for each category of expenditure and the percent of the total. 13 Table 12 Breakdown of Renovation Expenditures for Justice Loughry’s Chambers Expenditure Category Amount Percent of Total Décor Fixtures Flooring Furniture Infrastructure Painting Total $18,552 $131,068 $35,445 $67,411 $107,539 $7,900 $367,915 5.04% 35.62% 9.63% 18.32% 29.23% 2.15% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. Justice Davis’s Chambers The total costs for the renovations to Justice Davis’s Chambers total $503,668. Justice Davis’s Chambers renovations cost more than any other Capitol renovation project undertaken by the Court and includes expenditures such as $8,000 for a chair, $22,000 for flooring and tile work, and $28,000 for a pair of rugs. The largest categories of expenditures for the renovations to Justice Davis’s Chambers are fixtures (38 percent) and infrastructure (35 percent), which includes over $56,000 for glass countertops. Table 13 shows the total dollar amount spent for each category of expenditure and the percent of the total. Table 13 Breakdown of Renovation Expenditures for Justice Davis’s Chambers Expenditure Category Amount Percent of Total Décor Fixtures Flooring Furniture Infrastructure Painting Total $85,454 $192,250 $22,160 $16,950 $177,900 $8,955 $503,668 16.97% 38.17% 4.40% 3.37% 35.32% 1.78% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. 14 Other Renovation Projects Undertaken by the Court Had a Combined Total Cost of $1,464,369. In addition to the renovations to the Justices’ Chambers, the Legislative Auditor also analyzed the invoice documents for other renovation projects undertaken by the Court to its office spaces and facilities at the Capitol. The sections below provide a more detailed analysis of each project. 3rd Floor Women’s Restroom The Court spent a total of $77,725 to renovate the public women’s restroom on the third floor of the Capitol’s East Wing. The majority of this cost is attributable to infrastructure costs (59 percent). Table 14 provides a breakdown of the renovation costs by expenditure category. Table 14 Breakdown of Renovation Expenditures for the 3rd Floor Women’s Restroom Expenditure Category Amount Percent of Total Décor Equipment Fixtures Furniture Infrastructure Miscellaneous Painting Total $896 $1,234 $15,256 $1,263 $45,747 $10,095 $3,234 $77,725 1.15% 1.59% 19.63% 1.62% 58.86% 12.99% 4.16% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. 1st Floor Hallway The Court spent $79,145 on renovations and upgrades to the lighting fixtures in the firstfloor hallway of the East Wing. In addition, the Court paid $47,570 (60 percent) of the total renovation costs to have the marble walls cleaned and polished. Table 15 provides a breakdown of the renovation costs by expenditure category. 15 Table 15 Breakdown of Renovation Expenditures for the 1st Floor Hallway Expenditure Category Architect Décor Fixtures Labor Materials Miscellaneous Printing Travel Total Amount Percent of Total $8,973 $47,570 $10,500 $1,983 $3,437 $2,146 $319 $275 $79,145 11.34% 60.11% 13.27% 2.51% 4.34% 2.71% 0.40% 0.35% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. The Courtroom The Court spent a total of $162,596 to renovate the Courtroom from December 2010 through February 2013. The majority of these costs are attributable to flooring, for which the Court paid $143,017. Table 16 provides a breakdown of the renovation costs by expenditure category. Table 16 Breakdown of Renovation Expenditures for the Courtroom Expenditure Category Amount Percent of Total Architects Décor Flooring Furniture Infrastructure Painting Total $216 $3,548 $143,017 $5,260 $3,625 $6,931 $162,596 0.13% 2.18% 87.96% 3.24% 2.23% 4.26% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. The Justices’ Conference Room The Court spent $300,350 to renovate the Justices’ Conference Room beginning in 2009. This included $18,000 for a cabinet to house a 55” flat panel television, approximately $20,000 for a custom bookcase, and over $34,000 for a conference room table. The largest expenditure category for this renovation project was for furnishings (42 percent). Table 17 provides a breakdown of the renovation costs by expenditure category. 16 Table 17 Breakdown of Renovation Expenditures for the Justices’ Conference Room Expenditure Category Amount Percent of Total Appliances Décor Fixtures Flooring Furniture Infrastructure Miscellaneous Painting Total $11,998 $24,043 $26,247 $23,786 $125,044 $42,360 $28,001 $18,871 $300,350 3.99% 8.00% 8.74% 7.92% 41.63% 14.10% 9.32% 6.28% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. The Common Area The Court spent $324,509 to renovate its common area between 2009 and 2014. The vast majority of these costs, $216,593, (67 percent) were billed to the Court through a change order by Neighborgall Construction. The Legislative Auditor determined that the supporting documentation for this payment provides no details other than attributing the dollar amount to “additional cost for renovation of 3rd floor Hallway Renovation [sic].” The change order references a number of “Drawing Sheets” wherein additional details were supposed to be included, but the Legislative Auditor has not received copies of any “Drawing Sheets.” Table 18 provides a breakdown of the renovation costs by expenditure category. Table 18 Breakdown of Renovation Expenditures for the Court’s Common Area Expenditure Category Amount Percent of Total Décor Fixtures Flooring Infrastructure Miscellaneous Total $76,881 $1,453 $19,491 $224,910 $1,774 $324,509 23.69% 0.45% 6.01% 69.31% 0.55% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. The Chief Counsel’s and Clerk’s Offices As mentioned above, the Legislative Auditor has received and analyzed some of the renovation costs associated with the Chief Counsel’s Office and the Clerk’s Office but has not yet 17 been provided full documentation by the Court. All of the information reviewed relates to architectural, design, or construction services. The Court spent at least $90,279 to renovate the Chief Counsel’s Office and at least $282,793 to renovate the Clerk’s Office. Tables 19 and 20 provide a breakdown of the known renovation costs to the Chief Counsel’s Office and the Clerk’s Office, respectively. Table 19 Breakdown of Known Renovation Expenditures for the Chief Counsel’s Office Expenditure Category Amount Percent of Total Bidding & Negotiations Construction Administration Design Development Expenses not in contract Schematic Design Total $2,409 $28,529 $19,518 $2,761 $37,063 $90,279 2.67% 31.60% 21.62% 3.06% 41.05% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. Table 20 Breakdown of Known Renovation Expenditures for the Clerk’s Office Expenditure Category Amount Percent of Total Construction Administration Construction Documents Consultant Services Design Development Schematic Design Total $25,115 $65,894 $60,047 $95,010 $36,728 $282,793 8.88% 23.30% 21.23% 33.60% 12.99% 100.00% Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. There is Not Sufficient Invoice Detail to Determine the Nature of the Work or, In Some Cases, Where the Work Was Performed for Approximately $522,000 of Renovation Expenses. In addition to the renovation projects detailed earlier, the Court also renovated the public men’s restroom on the third floor of the East Wing, the East Wing Elevators, and the “Saferoom”. However, the invoice documentation provided for these renovation projects does not list any details about what work was performed. When the total costs associated with these renovation projects are added together with the unattributable Silling invoices, the Legislative Auditor determined that the Court paid nearly $522,000 in renovation costs for which it has incomplete or 18 insufficiently detailed invoice documentation. Table 21 provides a breakdown of the total renovation costs of these projects. Table 21 Total Renovation Expenditures Without Detailed Invoice Documentation Renovation Project Amount Silling Associates Inc. “Saferoom” 3rd Floor Men’s Restroom Elevator Upgrades Total $374,571 $98,513 $38,887 $9,572 $521,543 Source: Legislative Auditor’s analysis of renovation invoices provided by the Supreme Court. Issue 2 Conclusion Because of the insufficient invoice detail for the $521,543 spent to renovate a number of the Court’s Capitol facilities, the Legislative Auditor is unable to provide analysis for approximately 15 percent of the total renovation costs incurred by the Court at the Capitol Complex. The Legislative Auditor plans to continue to evaluate the cost of the Court’s renovations at its City Center East facility in Kanawha City, its leased spaces on Quarrier Street in downtown Charleston, and the remainder of the Court’s renovations at the Capitol Complex. The results of those analyses will be provided in a future report. 19 Issue 3: Between 2009 and 2017, the Chief Justices of the Supreme Court of Appeals of West Virginia Allowed 10 Senior Status Judges in the Judicial Retirement System to Exceed the Statutory Compensation Cap 20 Times for a Total of $271,000. During the ongoing audit of the Court, the Legislative Auditor became aware of an audit conducted by the Internal Revenue Service (IRS). In April 2017, the IRS began conducting an audit of the Court’s 2015 federal employment tax returns. The scope of the audit covered the Court’s payroll processes and procedures, travel reimbursements and related policies, payments to independent contractors, educational reimbursements, and the classification of employees. One of the findings of the IRS audit dealt with the Court inappropriately designating certain employees, including Senior Status Judges, as independent contractors. The audit, which concluded in January 2018, resulted in the Court paying a settlement to the IRS totaling $227,541 in relation to eight notices of adjustment for workers inappropriately classified by the Court as independent contractors, in 2015 - the only year covered by the IRS audit, who should have been treated as employees for tax purposes. Based upon other concerns, beyond issues of state and federal taxes, the Legislative Auditor directed the Post Audit Division to conduct an audit of the Court’s practice of designating certain employees as independent contractors. The Legislature Authorized the Court, by Statute, to Empanel a Slate of Retired Judges to Serve as Senior Status Judges to Fill in for Active Judges, as Needed. In 1991, the Legislature authorized the Court to create a panel of retired judges admitted to senior status from retired circuit judges and Supreme Court Justices. These Senior Status Judges serve as temporary replacements in circuit courts throughout the State when an active Circuit Judge is absent from duty or caseloads necessitate the services of these Senior Status Judges. The Court was required to promulgate rules governing the eligibility, compensation, and assignment of these judges. Subsequently, the Court issued an Administrative Order, entered on June 9, 1991, governing Senior Status Judges, a copy of which can be found in Appendix C. In establishing eligibility, the Court’s order indicates that to qualify for senior status, one must: • be receiving benefits under the Judicial Retirement System pursuant to W.Va. Code, Chapter 51, Article 9; or • meets one of the following criteria: o served in the judicial office with the eligibility equivalency for judicial retirement under W.Va. Code, Chapter 51, Article 9, but retires under Public Employees Retirement System pursuant to W.Va. Code, Chapter 5, Article 10; o has served in the judicial office for one full term and retires at the end of that term under the Public Employees Retirement System; or o has served in the judicial office for more than one full term and subsequently receives benefits under the Judicial Retirement System or the Public Employees Retirement System. Additionally, the judge must be a bona fide resident of the State of West Virginia and is prohibited from being engaged in a substantial law practice (e.g., association with a law firm or 20 full-time law practice). Limited law practice would disqualify a retired judge admitted to senior status from assignment to duty in any circuit where he or she engages in practice. Furthermore, to qualify for senior status, a judge or justice must agree, in advance, to comply with the provisions of the Rule on Retired Judges Admitted to Senior Status as promulgated by the above Administrative Order. Senior Status Judges Receive a $435 Per Diem for Their Service but Are Prohibited by Statute from Making More Than Active Circuit Court Judges. When the system of senior status for retired judges was established in 1991, the Court set compensation rates for Senior Status Judges on a per diem basis. The initial per diem rate was $200. There were subsequent raises to $225 in 1995, $300 in 2000, $350 in 2007, and $400 in 2010. Effective July 1, 2011, the per diem rate was raised to $435. For service rendered in a judge’s circuit of residence, judges must bill in half-day increments ($217.50). In addition, Senior Status Judges are entitled to receive reimbursement for necessary and related travel and/or other necessary expenses. The Court’s 1991 order also established a compensation cap for Senior Status Judges. While the Court wanted to incentivize retired judges to accept these appointments to senior status, neither the Court, nor the Legislature, desired for retired judges to earn more than active Circuit Court Judges. Therefore, the court established a compensation cap and wrote, “… the per diem and retirement compensation of a retired judge, admitted to senior status shall not exceed the salary of a sitting judge.” W.Va. Code §51-9-10 mirrors the Court’s 1991 Administrative Order on Retired Judges Admitted to Senior Status by indicating, “…the per diem and retirement compensation of a senior judge shall not exceed the salary of a sitting judge...” The salaries for judges are set by the Legislature in statute. W.Va. Code §51-2-13 sets the salary of a sitting Circuit Court Judge. From July 1, 2005 until July 1, 2011 the annual salary was $116,000. Since July 1, 2011, it has been set at $126,000. Therefore, the cap established by statute for a Senior Status Judge participating in the Judges Retirement System was $116,000 prior to July 1, 2011 and $126,000 after that date. Any judge serving as a Senior Status Judge whose combined compensation and retirement benefits reaches the cap is required to cease receiving their monthly retirement annuity or forego additional assignment or compensation as a Senior Status Judge. The Legislative Auditor Reviewed All Senior Status Judges Appointed by the Court from 2009 Through 2017. The Legislative Auditor requested that the Court provide a list of all Senior Status Judges from 2009 through 2017, a copy of which can be found in Appendix D. The Legislative Auditor determined that over this 9-year period, 34 judges had been appointed to senior status. The Legislative Auditor’s analysis shows that 16 judges were appointed five or more times over this period. This includes six judges who have been appointed every year since 2009. Table 22 provides a breakdown of these appointments. The Legislative Auditor reviewed the Court’s handling of Senior Status Judges appointed between 2009 and 2017. Based upon an analysis of these appointments, as well as the compensation and retirement benefits for each respective judge, the Legislative Auditor identifies the following issues: 21 1. The Court has allowed certain Senior Status Judges to receive compensation in excess of the statutory limit set in W. Va. Code for Judges also receiving retirement benefits. 2. From 2012 to 2016, the Court engaged in a practice of converting some Senior Status Judges from employees to independent contractors to enable them to continue to receive full retirement benefits after they were no longer eligible for those benefits as a result of exceeding the statutory compensation cap. 3. Although the Court ceased the practice of converting employees to independent contractor status in 2017, certain Senior Status Judges are still being allowed to exceed the statutory compensation cap. The Legislative Auditor obtained the annual retirement annuity amount for each Senior Status Judge from the West Virginia Consolidated Public Retirement Board (CPRB). The retirement benefits received by each Judge from 2009 through 2017 were then added to the total per diem compensation for their service as a Senior Status Judge to determine if the statutory cap on allowable compensation had been exceeded. Of the 34 Senior Status Judges from 2009 to 2017, 10 judges (29 percent) were paid in excess of the cap, and six (17 percent) were paid over the cap on more than one occasion. This includes Judge Thomas Keadle who exceeded the cap for three consecutive years from 2013 through 2015, and Judge John Henning who exceeded the cap three out of four years between 2013 and 2016. Table 22 provides a breakdown of judges who exceeded the statutory compensation cap and the amount by which it was exceeded. 22 Table 22 Breakdown of Judges Who Exceeded the Statutory Compensation Cap Judge's Name John L. Cummings John L. Cummings Fred L. Fox Andrew N. Frye John L. Henning John L. Henning John L. Henning John S. Hrko Thomas H. Keadle Thomas H. Keadle Thomas H. Keadle Arthur M. Recht James J. Rowe James J. Rowe Larry V. Starcher Larry V. Starcher Thomas W. Steptoe Thomas W. Steptoe Year 2011 2014 2011 2012 2013 2015 2016 2016 2013 2014 2015 2012 2016 2017 2012 2013 2012 2014 Total Overpayment $942 $10,976 $13,773 $1,995 $23,818 $783 $10,551 $3,953 $27,962 $24,518 $21,570 $278 $7,033 $55,064 $9,930 $9,930 $35,925 $12,000 $271,000* Source: Legislative Auditor's calculations based upon wage earnings from WV State Auditor's Office My App1 and retirement benefit amounts provided by CPRB. *Difference due to rounding. In 2011, two judges’ total retirement plus compensation exceeded $121,000 2 by a total amount of $14,715, all reported on a W-2. On July 1, 2011 the allowable compensation went from $116,000 to $126,000. For calendar year 2011, for purposes of analysis, the total allowable compensation was prorated to $121,000. This compensated for half a year at $116,000 and half at $126,000. From 2012 to 2017, nine judges received a combination of retirement benefits and compensation in excess of the statutory cap of $126,000. These nine judges exceeded the cap a combined 16 times by a total of $256,286. Table 23 displays each instance of overpayment from 2009 through 2017 and whether such compensation was reported as W-2 or 1099 income. 2 On July 1, 2011, the total compensation of Circuit Court Judges was increased by $10,000 to $126,000. Since this occurred mid-calendar year, we allocated 50%, or $5,000, of this increase to the retirement cap as our analysis is on a calendar year basis. 23 Table 23 Instances of Overpayment from 2009-2017 # Year Retirement Benefits W-2 Wages 1099 Wages Total Wages Limit Overpayment 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 2011 2011 2012 2012 2012 2012 2013 2013 2013 2014 2014 2014 2015 2015 2016 2016 2016 2017 $84,127 $90,750 $94,500 $86,625 $102,000 $94,500 $84,133 $86,625 $102,000 $87,603 $94,500 $94,500 $84,133 $94,500 $84,133 $94,500 $78,750 $94,500 $37,815 $44,023 $27,840 $39,653 $33,930 $30,668 $30,233 $40,367 $33,930 $38,280 $29,918 $26,970 $31,320 $31,320 $30,450 $35,453 $54,283 $86,565 ----$5,655 ----$36,758 $35,453 $26,970 --$11,093 $26,100 $16,530 $11,330 $21,750 $21,968 ------- $121,942 $134,773 $127,995 $126,278 $135,930 $161,925 $149,818 $153,962 $135,930 $136,976 $150,518 $138,000 $126,783 $147,570 $136,551 $129,953 $133,033 $181,065 $121,000* $121,000* $126,000 $126,000 $126,000 $126,000 $126,000 $126,000 $126,000 $126,000 $126,000 $126,000 $126,000 $126,000 $126,000 $126,000 $126,000 $126,000 $942 $13,773 $1,995 $278 $9,930 $35,925 $23,818 $27,962 $9,930 $10,976 $24,518 $12,000 $783 $21,570 $10,551 $3,953 $7,033 $55,065 Source: Legislative Auditor's calculations based upon wage earnings from WV State Auditor's Office My Apps and retirement benefit amounts provided by CPRB. *$10,000 Increase to JRS Limit on July 1, 2011, $5,000 (50%) of the increase applied to 2011 calendar year. The Legislative Auditor noted that in six of the instances between 2012 and 2016, judges exceeded the compensation cap through W-2 wages in the total amount of $86,189, but the other ten instances included compensation received through both a W-2 and a 1099. These ten instances resulted in judges exceeding the cap by a combined total of $170,098. The Legislative Auditor observed that in each of the years reviewed, only a small number of Senior Status Judges exceeded the compensation cap. The vast majority of Senior Status Judges were below the statutory cap. Table 24 compares the total number of Senior Status Judges appointed by the Court from 2009 through 2017 with the number who exceeded the cap. 24 Table 24 Number of Senior Status Judges Who Exceeded Statutory Limits by Year Year Number of Judges Appointed to Senior Status Number Exceeded Statutory Limit 2009 2010 2011 2012 2013 2014 2015 2016 2017 17 14 15 14 16 17 21 18 17 0 0 2 4 3 3 2 3 1 Source: Legislative Auditor's calculations based upon wage earnings obtained from WV State Auditor's MyApps and retirement benefit amounts provided by CPRB. During the time of these overpayments, other Senior Status Judges were well below the cap and would not have been in excess of the sitting judge’s salary if they had been selected to fill the same appointment. In each of the years reviewed, the Legislative Auditor determined that there were at least ten judges who did not exceed the cap. The Legislative Auditor conducted an analysis of the remaining unused eligibility days for each year’s panel of Senior Status Circuit Court Judges. The Legislative Auditor calculated the total dollar amount below the cap for each year’s panel of judges and divided the total by the per diem compensation rate of $435. Based on this analysis, the Legislative Auditor determined that the Court’s panel of Senior Status Judges retained between 233 and 1042 combined days of unused eligibility in the same year another judge was allowed to exceed the compensation cap. Table 25 provides a breakdown of the total unused eligible days in each year where the cap was exceeded. 25 Table 25 Average Number of Days Other Senior Status Judges Were Available Year Number of Judges Under Statutory Limit Total Amount Under Statutory Limit Ave. Number of Available Days Total Eligible Days 2011 2012 2013 2014 2015 2016 2017 13 10 13 14 19 15 16 $302,706 $101,177 $163,360 $156,604 $275,214 $269,739 $453,105 54 23 29 26 33 41 65 696 233 376 365 633 620 1042 Source: Legislative Auditor's calculations based upon wage earnings from WV State Auditor's Office My Apps and retirement benefit amounts provided by CPRB. In addition to the unused days which accumulated among the Senior Status Judges, there have been other avenues open to the Court to assure the statewide continuity of judicial services. The June 9, 1991 Administrative Order by the Court states the following: Section(e) Assignment of Duty subsection (4) Nothing in this rule shall preclude the recall or assignment to active judicial service of any retired judge or justice who has not been admitted to senior status but who agrees to serve,… This provides an additional population from which the Court may secure coverage, assuming there is no one in the Senior Status Judge pool who would be willing to cover a particular jurisdiction. It is also within the purview of the Court under the State Constitution, Article VII, Section 3, to be able to assign a judge from one circuit court to another for temporary service. In 2012, the Court Began Converting Senior Status Judges from Employees to Independent Contractors When Exceeding the Statutory Compensation Cap. The Legislative Auditor determined that between 2009 and 2011, the judges who exceeded the compensation cap set in West Virginia Code did so through wages earned as an employee of the Court, whose wages were reported on a W-2 form. Beginning in 2012, however, the Court began the practice of converting these judges from employees to independent contractors. The Legislative Auditor conducted an interview with the Director of Finance Division with the Court. She indicated that the practice of converting Senior Status Judges from W-2 employees to independent contractors was in place prior to the start of her employment with the Court. According to the Director, the Court’s Payroll Division and the recusal assistant actively monitored the accumulated compensation for judges and initiated the conversion when they were at the statutory cap. She stated that the Payroll Division would notify the recusal administrative assistant when a judge was about to exceed the allowable level of compensation, triggering the conversion from employee to independent contractor. 26 For Senior Status Judges nearing the salary of a sitting judge, the Chief Justice and the Senior Status Judge signed a WV-48 form from the State of West Virginia Purchasing Division which theoretically changed the Senior Status Judge from an employee to an independent contractor. However, as found by the IRS audit, these individuals were not independent contractors and were in fact still employees of the Court. Importantly, the Legislative Auditor notes that the Senior Status Judges received the same per diem as independent contractors as they did when they were treated as employees. The judges received a letter explaining the theoretical transition from employee to independent contractor, a copy of which can be found in Appendix E. A letter to one judge in 2013 began: Enclosed is a copy of the Independent Contractor Agreement. I have given the original to . . . the Director of Financial Services. Your “retirement” allowed per diem may run out on May 7th, depending on your work days. Thereafter, please submit an invoice for your $435 per diem for your service after May 7, 2013 directly to [the Director of Financial Services]. From 2012 to 2017, the Legislative Auditor identified ten instances in which the conversion to independent contractor status allowed a Senior Status Judge to exceed the statutory compensation cap. Table 26 provides a breakdown of each judge who received wages reported on a 1099 when exceeding the cap, the amount of those 1099 wages in excess of the cap, and the number of occurrences. Table 26 Number of Appointments by Judge (2009-2017) Last Name First Name Times in Which 1099 Wages Received in Excess of Cap Henning Keadle Steptoe Cummings Frye John L. Thomas H. Thomas W. John L. Andrew N. 3 3 2 1 1 Total Amount Over Cap $35,152 $74,050 $47,925 $10,976 $1,995 Source: Legislative Auditor's calculations based upon wage earnings obtained from the WV State Auditor’s MyApp1 and retirement benefit amounts provided by CPRB. The Court’s Director of Finance indicated that it was common knowledge that the Court engaged in this practice to get around the statutory cap and allow a Senior Status Circuit Court Judge to continue to receive their retirement while serving. Quoting the Director of the Division of Finance, "I was told so they would not stop receiving their pension". The Director of the Finance Division indicated that each time a Senior Status Judge was changed from an employee to an independent contractor, a WV-48 form was executed. While this practice of allowing Senior Status Judges to exceed compensation limits established by statute seems to have been common knowledge of both the Court and the judges, it 27 should not be assumed that this practice was never questioned or considered improper. The Director of the Court’s Division of Finance informed the Legislative Auditor that Justice Thomas McHugh, when presented with compensation for services rendered as a Senior Status Judge appointed by the Supreme Court to fill Justice Joseph Albright’s unexpired term, immediately returned the payments that were in excess of the limit. She indicated that Justice McHugh thought that it was wrong to accept the payments while continuing to receive retirement benefits, indicating that at least one judge was aware of the limits established and that the practice of being paid in excess of those limits was not proper. The Court continued the theoretical conversion of these employees to independent contractors until the IRS audit. Prior to the release of the IRS audit, then-Chief Justice Allen Loughry entered an Administrative Order dated, May 19, 2017, in which he attempted to legitimize the Court’s practice of allowing Senior Status Judges to exceed the statutory cap. Chief Justice Loughry invoked the administrative authority granted to the Court in the Constitution claiming that: …in certain exigent situations involving protracted illness, lengthy suspensions due to ethical violations, or other extraordinary circumstances, it is impossible to assure statewide continuity of judicial services without exceeding the payment limitations imposed by the statutory proviso. After Justice Loughry’s Administrative Order, the Court stopped converting Senior Status Judges from employees to independent contractors. As a result, the Court continued enabling these judges to receive compensation in excess of the statutory cap. In fact, one judge exceeded the cap by over $55,000 in 2017 through wages reported on a W-2. The Legislative Auditor recommends that the Supreme Court of Appeals of West Virginia comply with West Virginia Code and cease all compensation in excess of the statutory limits. West Virginia Code Requires Both the Consolidated Public Retirement Board and the Retiree to Correct Overpayment of Benefits. W.Va. Code §51-9-18 governs all instances of overpayments, underpayments, and the corrections of errors that may arise under West Virginia’s judicial retirement systems. W. Va. Code §51-9-18(e) states: … If any error results in any member, retirant, beneficiary, entity or other individual receiving from the system more than he would have been entitled to receive had the error not occurred the board, upon learning of the error, shall correct the error in a timely manner. If correction of the error occurs after annuity payments to a retirant or beneficiary have commenced, the board shall prospectively adjust the payment of the benefit to the correct amount. In addition, the member, retirant, beneficiary, entity or other person who received the overpayment from the retirement system shall repay the amount of any overpayment to the retirement system in any manner permitted by the board. On August 21, 2018, the Legislative Auditor met with CPRB to discuss issues related to these Senior Status Judges. At the meeting, CPRB informed the Legislative Auditor that it was never made aware of any issues concerning judges receiving compensation in excess of the 28 statutory limit. As such, the Legislative Auditor concludes that no judge who exceeded the statutory compensation cap has notified CPRB and corrected the overpayment. Therefore, the Legislative Auditor recommends that the judges who received compensation in excess of the statutory cap between 2009 and 2017 and the Consolidated Public Retirement Board comply with W. Va. Code §51-9-18 and correct all issues of overpayment. Issue 3 Conclusion The Supreme Court of Appeals of West Virginia serves a critical governmental function as the final interpreter, arbiter, and upholder of the law in the State. As such, the Court should exercise great care to ensure that it operates within the confines of those laws. While arguments can and have been made with respect to the legality of the Court’s practice of allowing Senior Status Judges to exceed West Virginia Code’s compensation caps, the IRS audit made clear that the Court’s conversion of employees to independent contractor status ran afoul of federal tax law. This error, and others, on the Court’s part resulted in the IRS forcing the State to pay over $200,000 in taxes for calendar year 2015 that it should have previously paid. Further, it is the opinion of the Legislative Auditor that circumvention of State law, even where legally permissible, should be a matter of last resort rather than a matter of convenience. While the Administrative Order issued by then-Chief Justice Loughry argues that it was necessary to allow Senior Status Judges to exceed the statutory limits, the Legislative Auditor questions whether it was truly necessary “to assure statewide continuity of judicial services” when the Court’s panel of Senior Status Judges retained hundreds of unused days of eligibility each year. The Post Audit Division plans to continue its evaluation of the Court’s use of independent contractors and other Senior Status Judges (such as Magistrate and Family Court Judges). These issues will be presented to the Post Audits Subcommittee at a future interim meeting. Recommendations 3.1 The Legislative Auditor recommends that the Supreme Court of Appeals of West Virginia comply with West Virginia Code and cease all compensation in excess of the statutory limits. 3.2 The Legislative Auditor recommends that the Judges who received compensation in excess of the statutory cap between 2009 and 2017 and the Consolidated Public Retirement Board comply with W. Va. Code §51-9-18 and correct all issues of overpayment. 29 Appendix A WEST VIRGINIA LEGISLATURE Joint Committee on Government and Finance 1900 Kanawha Blvd. East, Room E?l32 Aaron Allred Charleston, wv 25305-0610 1.121113125313131; Legislative Manager (304) 347-4800 $1 304) 347-4819 FAX ?1:83:53? 5?5: :i 13-: September 5, 2018 Barbara H. Allen, Interim Administrative Director Supreme Court of Appeals of West Virginia Capitol Complex 1900 Kanawha Blvd, East Bldg. 1, Room E-100 Charleston, WV 25305-0830 Dear Ms. Allen: This letter is to transmit a revised draft copy of the Post Audit Division's fourth report on the Supreme Court of Appeals of West Virginia. Based on our conversation with Chief Justice Workman, we have revised the total cost of renovations to her chambers from $163,127 to $117,818. The draft previously provided was done so to inform the Court of the issues contained in the report prior to its release. Unfortunately, due to the anticipated release date of the report being less than two weeks away, this draft was provided prior to it going through our internal review process that would normally have caught such an error, which in this case resulted from a miscalculation. The copy of the report currently being provided with this letter has also yet to be fully subjected to this review process, which is currently ongoing. However, as part of our effort to keep the Court informed and be transparent in our process, we felt it prudent to provide this draft correcting the error noted by the Chief Justice as well as an issue noted in your September 4, 2018 letter. Significant changes made in this draft are provided in a listing also enclosed with this letter. Once this report has been fully reviewed and revised, a ?nal draft version will be submitted to the Court for its inspection. After much consideration, the Legislative Auditor has determined it best to release this report prior to our scheduled exit conference on September 12, 2018. We encourage the Court to contact us with any issues or concerns related to this draft report prior to its release, which we anticipate being Friday, September 7, 2018. Any issues brought to our attention prior to Noon on Friday, September 7, 2018 will be addressed in the report prior to its release. Any issues after that time will be addressed through a corrected version of the report after its release. Thank you for your cooperation and attention to the matter, and please contact us should you have any questions or concerns. 30 Sincerely, Justin Robinson Enclosure Cc: Justices, Supreme Court of Appeals of West Virginia Sarah B. Massey, Esq., Associate Administrative Counsel 31 Appendix B Objective, Scope, and Methodology The Post Audit Division within the Office of the Legislative Auditor conducted this review as authorized by Chapter 4, Article 2, Section 5 of the West Virginia Code, as amended. Objectives The objectives of this review were to: • • • Provide a detailed breakdown of the Court’s spend down of approximately $29 million in reappropriated General Revenue Funds between FY 2012 and 2015; Provide a detailed breakdown of the renovation costs for all renovation projects undertaken by the Court at the State Capitol Complex; and Determine to what extent the Court’s practice of using Senior Status Circuit Court Judges is appropriate and in compliance with West Virginia Code. Scope The scope of this review consists of the all documentation regarding the Court’s renovation projects at the Capitol building, which encompasses thousands of individual invoices. In addition, the scope consists of the line-item budget amounts for each year from FY 2012 through FY 2015. For Issue 3, the scope consists of reviewing the Senior Status Circuit Court Judge appointments made by the Court and the compensation and retirement annuity benefits paid to each judge from 2009 through 2017. Methodology Post Audit staff gathered and analyzed several sources of information and assessed the sufficiency and appropriateness of the information used as evidence. Testimonial evidence was gathered through interviews with various agencies that oversee, collect, or maintain information. The purpose for testimonial evidence was to gain a better understanding or clarification of certain issues, to confirm the existence or non-existence of a condition, or to understand the respective agency’s position on an issue. Such testimonial evidence was confirmed by either written statements or the receipt of corroborating or physical evidence. Audit staff analyzed various source documents that were either provided to us by the Court, or publicly available through wvOASIS. In addition, information was obtained using the Legislature’s Impeachment Proceedings webpage, and information provided by the Consolidated Public Retirement Board. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. 32 Appendix C Number of Appointments by Judge (2009-2017) Judge Henning Hrko Starcher Steptoe Stone Vickers Chafin Cummings Frye Holliday Jolliffe Keadle Recht Fox Knight McHugh Pomponio Perry Rowe Canady Jr. Cookman Gaughan Jordan Taylor Zakaib Cline Egnor Jr. Halbritter Hott Madden O’Hanlon Schlaegel Pancake Marks Number of Appointments 9 9 9 9 9 9 8 8 8 8 7 5 6 5 5 5 4 3 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 Source: List of Senior Status Judges provided to the Legislative Auditor, by the Court. 33 Appendix D I• SUPREME COURT OF APPEALS OF WEST VIRG!NIA ADMINISTRATIVE ORDER RULE ON RETIRED JUDGES ADMITTED TO SENIOR STATUS WHEREAS, The Supreme Court of Appeals has been authorized and empowered to create a panel of retired judges admitted to senior status from among former circuit judges and Supreme Court justices of this State, and to promulgate rules providing for such judges and justices to be assigned duties as needed and as feasible: IT IS THEREFORE ORDERED that there is hereby established, effective June 9 1 1991, a system of senior status for retired judges, pursuant to w.va. Code§ 51-9-lo. (a) Eligibility. (1) Former �udge or Justice. senior status, one must: To qualify for (A) be receiving benefits under the Judicial Retirement System pursuant to w.va. Code, Chapter 51, Article 9; or (B) meets one of the following criteria: (i) served in the judicial office with the eligibility equivalency for judicial retirement under W. Va. Code, Chapter 51, Article 9, but retires under Publ�c Employees Retirement System pursuant to w. Va. Code, Chapter 5, Article 10: (ii) has served in the .judicial office for one full term and retires at the end of that term under the·Public Employees Retirement System; or (iii) has served in the judicial office for more than one full term and 34 WVSCT_HJC_000001 subsequently receives benefits under the Judicial Retirement System or the Public Employees Retirement System. (2) Residence. To qualify and to remain qualified for senior status, one must be a bona fide resident of the State of West Virginia. (3) Practice of Law. (A) Engagement in a substantial law practice association with a law firm or full?time law practice) shall diSQualify a retired judge or justice from eligibility for senior status. (B) Engagement in a limited law practice no association with a law firm or part?time practice) shall not disqualify a retired judge or justice from eligibility for senior status, but shall disqualify a retired judge admitted to senior status from assignment to duty in any circuit where he or she engages in practice. (4) Ethics Code. A judge admitted to senior status shall be bound by the prevailing canons of judicial ethics and by the prevailing rules on complaints against judges and justices. (5) Training. Senior status judges are required to attend the judicial training conferences and will be reimbuISed for expenses as active judges. (6) Compliance with Rule. To qualify, a retired judge or justice must agree in advance to comply with the provisions of this rule. 35 (7) Other Considerations. The Supreme Court of Appeals may take into account such other considerations as it deems pertinent age, health, etc.). application. Application for senior status shall be submitted to the Administrative Director of the Supreme Court of Appeals, on the form prescribed by the Administrative Director. The applicant shall provide all the information called for by the form; Provided, however, that the Supreme Court may require the applicant to submit additional information. Application may be made within one year before the applicant's anticipated date of eligibility or at anytime after the applicant's date of eligibility. admission; Oath; Revocation. Admission to senior status shall be a privilege: admission may granted or denied by the Supreme Court, in its discretion, acting in administrative conference and recording such action in an administrative order duly entered; admission may be for indefinite duration or temporary duration of a specified period. Before commencing service, a judge admitted to senior status shall take an oath of office, and file such oath with the Administrative Director. The Supreme Court may, for failure to comply with provisions of this rule or for incapacity, revoke senior status, by acting in administrative conference and recording such action in an administrative order duly entered. Chan 0 Ci stances' W'thdr wal. A judge admitted to senior status shall forthwith inform the 36 Administrative Director of any change of circumstances bearing on his or her senior judicial status, and may at anytime by written notice withdraw from senior status. to Duty. (1) The Chief Justice may, by order duly entered, assign a judge admitted to senior status to such judicial duties in such courts as the Chief Justice deems appropriate and as consistent with applicable provisions of law. (2) No retired judge admitted to senior status who has been defeated in an election for a circuit judgeship shall be assigned to duty in the circuit where he or she was defeated. (3) All judges admitted to senior status are hereby generally assigned and empowered-to perform marriages and to administer oaths in any county of this State. (4) Nothing in this rule shall preclude the recall or assignment to active judicial service of any retired judge or justice who has not been admitted to senior status but who agrees to serve, all subject to any applicable rules or provisions of law. ow (1) Per Diem. (A) Compensation for service by a judge admitted to senior status will be at the rate of $200 per day. (B) For service within the circuit of residence, service will be billable in half?day increments; for service outside the -4- 37 circuit of residence, service will be billable in full-day increments. (C) Provided, however, that the per diem and retirement compensation of a retired judge, admitted to senior status shall not exceed the salary of a sitting judge. (2) Expenses. Reimbursement for travel and/or other necessary expenses incurred during assigned service will be made according to the prevailing Supreme Court regulations. (3) Allowances Form. Statements for per diem and expense allowances under subdivisions (1) and (2) of this subsection must be submitted to and approved by the Administrative Director, on the form prescribed by the Administrative Director. (4) Staff Support. Insofar as feasible, a judge admitted to senior status, while on assignment, must rely on the services of regular staff personnel of the court of assignment; Provided, however, that upon good cause shown and advance approval by the Administrative Director, a judge admitted to senior status may arrange, consistent with prevailing Supreme Court regulations, for temporary workers to provide secretarial and/or court?reporting services. ENTER, this (5 day of /j1991. A a a. 'Thdmas B. Miller 4r CHIEF JUSTICE 38 Appendix E SUPREME COURT OF /\?PEALS srnTE OF WEST VlRGIMIA STEVEN D. CANTERBURY AO,\lli'l!STRA TII/E OIRECl'OH ,\OlltlNISTRATIVE Of-FICE BUII.Oll'JG I, ROOM E-100 1900 l1me11ls. rvfa. Troy will be handling all conlrncc payments. As an independent contractor, you m::iy have to pay income tax directly to both lhc State and fcclernl governments. Please continue to submit yom expense� of the Senior Status Allowance form to me. The expenses will continue to be processed in the same \vay. I have not heard about any appointments by the Governor. Thank you so much for continuing to serve. The Comt appreciates yom dedication and willingness lo mnke sun: llrnt Juslic.e is nol delayed in the 26111 Circuit. Please let me know i [you have ,my questions. 1 nm looking forward seeing ni lhe Spring Judicial Conference. v� 8ince0// i/( /l,.•·U--- / � \l 1leen S. Gross DcpL1Ly Administrative Director KSG/mg Enclosure cc: ·--......sue Troy S h::m nn r1 Green 39 WVSCT_HJC_000021 'NV 118 (rev. 06/08/12) State o'f West Virginia Purchasing Division Purchase Order tft________ _ WVf-'IMS Account tJ________ WVFlrvlS Vendor# /1/9011/ , agree to perforrn the following services In,.... · to 31 .D..!,t��-n�Li.......,L' j,. o 13 (i; ). c I 3 ""L(3 5·. Ci O Therateofpayshallbe dp._.. per not to exceed j . __ �-·_. • l.t.-,-,-. for the entire term of the contmct. h /.;._,_ $ Date(s)ofService: from - ·) J, NOTE: Any anticipated travel must be incorporated Into the va11dor's fee, No travel will be reimbursed by the State and is the sole responsibility of the vendor. The following certification must be completed and s191,ed if the venclor Is a full-time employee of the State of West Virginia, Please ch eel< the appropriate box below: I am not currently a full-time employee of l110 State of West Virginia; � □ I am currently a full-time employee of the Slate of Wes.t Virginia (complete certification below). It Is hereby certified that the ssNices to be performed under this agreement will not interfere with or detract from the full-time duties of the employee and the 0mount of annual comp0nsation received by _ ____________(above named vendor) from the State of We�t Virginia for full-time employment during the current fiscal year will be$ ____. The vendor serves as_J�.,, J I <·.i:.,,,·Lu�,.,. 51,-L 1:,(.(,.....:1., • �;,L--' with theUtreof _, w�,.Si.tk J-;�,Ll tl'oJll/;nJ if , certified by __ ___-,---__,,.-,_____ __ (I (Supor,,,.r., IIIOMIUroJ GENERAL TERMS AND CONDITIONS:The General Terms and Conditions for Agency Delegated Master Terms and Conditions located on the 1:1 urchaslng Division's website at http://www,state,wv,us/adminlpurchase/ rcA.pdf, ("Terms and Condillons") are hereby made a part of lhis agreement and are specifically incorporated herein by refernnce, By signing this agreement, Vendor certifies that it l1as reviewed the Terms and Conditions, fully understands them, and agrees to be bound by their provisions. APPROVED BY: : 40 10.li.61 WVSCT_HJC_000020 Appendix F wv.,:! (rJJJChflli!!!vtcil1l1!.i•"•!!l.!!JI 13 hc1by mudo pn,1 ol 1110 ourcomont. Provklall lhtil, lho Aouncy maolG 1110 clolinillon ol n Covo,011 1:nllly ('15 Cl1 H § 100.103) nncl will lie :ll�cfoslno Proloutt:tl I lcallh lnformnllon (•10 cm §1G0,103) lo 1110 vendor. APPROVED BY: Agency tJ. V. ,[;;_,,�-c...,.__.,,J:-- /J1 �. L.�---a::...-==--- -- ·(t,//ri,:,e:1 �vr,,:,�., 11r,,,c,"'}1_ .J..U'\; C 'rAI ---�• S(Wo} t..> S - -,;