Opinion ID: 6264496
Heading Depth: 2
Heading Rank: 1

Heading: prerequisite to levying a surcharge

Text: The first issue presented in this appeal is whether a County Controller who has actual or implied knowledge of the questionable nature of a claim which has been presented for approval must first refuse payment pursuant to 16 P.S. § 1752 as a prerequisite to levying a surcharge on that item pursuant to 16 P.S. § 1730. Both the trial court and the Commonwealth Court found that a controller, who possesses such knowledge, must refuse payment before he or she can issue a surcharge. We agree. Section 1752 provides as follows: If the controller does not approve a claim, bill or demand presented to him, he shall within thirty days forward it to the county commissioners together with his notice that he has refused to approve the same and his reasons therefor. The county commissioners shall consider the claim, bill or demand and, if they consider that it should be paid by the county, they shall so notify the controller. If the controller thereafter continues to refuse his approval no payment shall be made thereon by the county except pursuant to an order of court upon a proper issue thereto directing the controller to approve payment. 16 P.S. § 1752. Section 1730, on the other hand, sets forth the post-audit functions of the controller as follows: Filing reports (a) The reports of the controller or auditors shall be filed among the records of the court of common pleas of the county. (b) The amount of any balance or shortage, or of any expenditure of a kind, or made in a manner, prohibited or not authorized by statute, which causes a financial loss to the county shall be a surcharge against any officer against whom such balance or shortage shall appear, or who by vote, act or neglect, has permitted or approved such expenditure, but no elected or appointed official of a county shall be surcharged for any act, error or omission in excess of the actual financial loss sustained by the county, and any surcharge shall take into consideration as its basis the results of such act, error or omission and the results had the procedure been strictly according to law. The provisions hereof limiting the amount of any surcharge shall not apply to cases involving fraud or collusion on the part of officers, nor to any penalty enuring to the benefit or payable to the Commonwealth. 16 P.S. § 1730. The Controller argues that the above provisions of the County Code do not support the finding that the refusal to pay is a prerequisite to levying a surcharge and that the construction given these statutes by the Commonwealth Court is contrary to the protection of the public because such an interpretation seriously undermines the effectiveness of the Controller to check unauthorized expenditures and significantly reduces the accountability of those in county government who are entrusted with public funds. It is the Controller’s contention that the Commonwealth Court’s interpretation of the relevant provisions of the County Code creates an unworkable system of county government and deprives the public of a mechanism by which to recoup unauthorized or illegal expenditures. In the alternative, she argues that even if a prerequisite refusal to pay does exist, such requirement should have been excused here because she had been denied an auditor. In support of its finding that a prior refusal to pay is a prerequisite to levying a surcharge, both the trial court and the Commonwealth Court noted that Section 1752 provides for early judicial intervention into disputes between the Controller and the Commissioners thereby avoiding the necessity for surcharges long after county funds have been perhaps erroneously expended. In addition, early discovery of misspent funds helps protect the public treasury. We agree with this rationale and would add, as the trial court so aptly noted, that the imposition of surcharges should be reserved for those situations involving personal gain, favoritism, fraud or other instances where the questionable nature of a claim would not have come to the attention of the controller at the time such claim was originally presented. Most importantly, we agree with the Commonwealth Court’s conclusion that this interpretation of the County Code would foreclose the likelihood of a controller, who knows of the questionable nature of a claim, from avoiding giving notice to the claimant, thus permitting these claims to accrue and then subsequently surcharging county officials for amounts in excess of the original claim merely as a retaliatory tactic. 3 Accordingly, we hold that where a controller has actual or implied knowledge of a disputed claim, a prior refusal to pay a disputed claim is a prerequisite to levying a surcharge thereon. We will now review, seriatim, the particular surcharges levied against the Commissioners regarding the contracts entered into with Felice Associates, Inc.; R.B.A. Professional Data Systems, Inc.; and Bedway Security Agency, Inc., to determine whether the Controller could be charged with the requisite knowledge of the questionable nature of the particular claim prior to her approving payment thereon. FELICE ASSOCIATES, INC. Felice Associates, Inc. (Felice) has provided labor relations consulting services to the County of Washington since 1972. The original contract entered into between Felice and the County, dated July 13, 1972, set the rate of compensation at $45.00 per hour. In September, 1980, Felice sent a letter to the Commissioners requesting a $5.00 per hour increase for its services. The Commissioners agreed to this increase, but failed to provide the Controller a copy of the letter agreeing to this increase. From September 1980 to February 1984 vouchers were submitted and approved at the increased rate of $50.00 per hour. In February 1984, the Controller notified the Commissioners that she would process invoices at the rate of $45.00 per hour, but that she would be happy to honor an amendment to the agreement. The Commissioners entered into a formal agreement with Felice in September 1984 setting the hourly rate at $50.00 and making the increase retroactive to September 1980. In the 1983 Annual Report, the Controller surcharged the Commissioners in the amount of $1155.00 which represented the number of hours invoiced in 1983 multiplied by five. By agreement of the parties, this amount was reduced to $1135.00. Clearly, the Controller knew or should have known that the vouchers being submitted at $50.00 per hour were in excess of the contract rate. The Controller was in possession of the original contract which set the rate of compensation at $45.00 per hour. However, she continued to approve vouchers submitted at the rate of $50.00 per hour, without question, for more than three years. We conclude, as did the trial court and the Commonwealth Court, that the Controller, therefore, should have known that the vouchers being approved were in excess of the contract rate. Accordingly, we affirm the dismissal of the surcharges imposed as a result of the Felice contract. R.B.A. PROFESSIONAL DATA SYSTEMS, INC. R.B.A. Professional Data Systems, Inc. (RBA) provides data processing and information management services to the County of Washington. There were two written contracts entered into between RBA and the County, one of which covered programming services and equipment to the Domestic Relations and the other one for leasing equipment. During 1983 and 1984, a number of services were performed by RBA which did not fall within either of the two existing contracts. Nevertheless, the Controller approved several invoices submitted by various personnel which covered services rendered by RBA. Following the filing of the 1983 Annual Financial Report, the Controller surcharged the Commissioners in the amount of $16,544.90 representing the total payments made to R.B.A. for which there was no written contract. . The trial court found as fact that whenever any of the departments experienced a problem with the County’s computer system, or were in need of service or programming thereon, they would contact the Computer Manager for the County, Jack Welty, who would initially attempt to correct the problem. However, if he needed further assistance, he would contact RBA to get an estimate of the amount of work required and the cost. RBA would then either submit its estimate to Mr. Welty or directly to the manager of the department requesting the work. The matter would then be submitted to the Commissioners for approval. Interestingly, in December 1983, the Controller herself contacted Jack Welty requesting that some changes be made to the computer program in her office. Mr. Welty and the Controller then met with a representative of RBA to discuss the work to be performed. Thereafter, RBA sent a letter to the Controller confirming that the services she requested would cost $1,500 to $2,000. The Controller authorized the work without first seeking the approval of the Commissioners. Following performance of the required services by RBA, the Controller approved a voucher payable to RBA, but the Commissioners refused to honor the voucher because they had not authorized the work. Thereafter, the Controller levied the surcharges at issue here against the Commissioners for allegedly authorizing vouchers for payments to RBA based upon the approval of other department managers. While the Controller submitted that other departments were not required to seek approval from the Commissioners before engaging RBA’s services, the evidence belied this contention. The Controller consistently approved, without objection, the payments which are the subject of the current surcharges. Pursuant to 16 P.S. § 1801, copies of all contracts entered into on behalf of the county are to be filed in the controller’s office. Thus, had the Controller performed her statutory duty to verify all claims she would have checked the files and would have realized that the County had not entered into any contract for these services. See, 16 P.S. § 1750. Accordingly, we conclude that the Controller should have known that these services were not covered by any contract prior to her approving payment thereon and is, therefore, precluded from levying surcharges against the Commissioners on the basis of their payments made to RBA for these services. BEDWAY SECURITY AGENCY, INC. On November 14, 1984, the County entered into a contract with Bedway Security Agency, Inc. (Bedway) whereby Bedway was to provide security guard service at the County Health Center at the cost of $5.75 per hour. On November 7, 1985, the parties signed an addendum to that agreement continuing services indefinitely. In her 1985 Annual Report, the Controller surcharged the Commissioners in the amount of $36,252.18 for their failure to bid the contract for guard services. 4 While the trial court found that the services supplied by Bedway were not exempt from the bidding requirement, it nevertheless dismissed the surcharges on the basis of the Controller’s failure to refuse payment prior to issuing the surcharge. The Controller approved all vouchers submitted to her and all monies due under the contract were paid to Bedway. Then, in 1986, the Controller surcharged the Commissioners for all payments made in 1985 pursuant to the contract. The Controller never notified the Commissioners that she questioned the legality of the contract with Bedway. Indeed, her continuing approval of all vouchers submitted for Bedway’s services quite clearly evinced that she had tacitly approved the contract. The Controller was in possession of the agreements entered into with Bedway. Had shq withheld her approval of any vouchers when such were first submitted as she is required to do under 16 P.S. § 1752, the validity of the contract could have been determined prior to monies being paid from the County treasury for an entire year. The surcharges imposed by her on the basis of the Bedway contracts were, therefore, properly dismissed. 5