PIERRE, S.D. (KELO) — State government officials are tight-lipped about how $1.78 million was allegedly stolen from the South Dakota Division of Child Protection Services over a 13-year period. When asked, their common answer is they don’t want to interfere with the criminal case.
Lonna Carroll, 68, was arrested July 17 after a grand jury indicted the former program assistant on two counts of aggravated grand theft. Her arraignment is scheduled for August 27.
The matter surfaced after employees in the state Department of Social Services found financial discrepancies in February. When the situation was brought to her attention, Governor Kristi Noem immediately called state Attorney General Marty Jackley. Jackley held a news conference on July 18 to announce that Carroll had been indicted and arrested.
Noem defeated Jackley in the 2018 Republican primary election for governor, but they are now working together.
“She’s taken it very serious, she’s been cooperative and she’s put up no roadblocks for me with respect to it, and I would include the Department of Social Services with that – they’ve assisted with this every step of the way – and so has Legislative Audit,” Jackley said at the arrest announcement, referring to the state Department of Legislative Audit.
Jackley said he’s also been in contact with Republican Rep. Mike Derby and Republican Sen. Jean Hunhoff, who co-chair the Legislature’s Appropriations Committee.
“I know that some legislators are informed. I would tell you that I personally called the head of Appropriations to inform them of this investigation and what was occurring, and so they’ve been informed on it, but it will be up to them to make their own decisions on what they do with this,” Jackley said.
State Social Services Secretary Matt Althoff isn’t answering questions. He instead issued this statement: “As the Attorney General said, employees at the Department of Social Services discovered suspicious financial activity and reported it to the Division of Criminal Investigation. DSS staff cooperated completely with the investigation.
“DSS utilizes both internal and external audits, reconciliations, and internal controls to safeguard public funds – additional safeguards have already been implemented, and we continue working to identify further prevention and detection methods.
“As this is an ongoing criminal case, DSS cannot comment further.”
Governor Noem issued this statement after the indictment against Carroll was announced:
“I want to thank the Attorney General for investigating and prosecuting this matter, which began under the previous two administrations, at my request. As the Attorney General said, I directed this issue to him for criminal investigation as soon as it was brought to my attention. My administration began implementing new processes in 2022 that ended this illegal activity, and our state employees discovered it and reported it appropriately.
“We have already and are continuing to implement additional checks and balances to prevent this. My administration has also undertaken the implementation of modern financial systems that will provide further controls and audit functions to safeguard taxpayer funds.”
A special review by Legislative Audit documented that deposits totaling more than $900,000 were made at American Bank & Trust in Pierre allegedly by Carroll, who returned later to withdraw the money in cash. Carroll closed those accounts in March 2023 when she retired.
It remains unclear who opened those accounts.
Jackley said DCI agents used other records to arrive at the $1.78 million. He said there were more than 560 individual transactions from January 2010 through March 2023.
“I don’t know that an audit, additional audits, would have necessarily discovered the situation of theft where you have an employee sliding themselves into a dual supervisory position. That may or may not have come up, if signatures would have been noticed, et cetera,” Jackley said.
“I’m just pointing that out,” he continued. “This scheme was a situation where what you generally had going on is an employee making a request, positioning themselves to also be that level of supervisory approval, intercepting checks, going to separate banks, switching at some level sources of those funds and resources – so the question is whether or not that would have been identified in either protocol reviews or an audit, and again, that is not my place.”
State Auditor General Russell Olson met with the Legislature’s Government Operations and Audit Committee on July 31 regarding the annual state government audit, which included a finding that Social Services hadn’t followed proper safeguards. He was cautious about providing details, however.
Olson said the manual calls for a new claim to have a supervisor’s approval before payment is made, but controls weren’t adequate to prevent the person entering the claim from also approving the claim without further review.
Republican Rep. Tim Reisch asked, “Is this the first time that this particular finding that someone’s who got the authority to request payment also has the authority to approve payment?” Olson replied, “If I could, I would prefer based on the fact there’s ongoing litigation that the details of that not be discussed at this time.”
Several other GOAC members hit Olson with related questions. Republican Rep. Hugh Bartels suggested the panel should take a different angle.
“I come out of the financial world that CPA audits similar to what these gentlemen do, and they do look at procedures and controls, and so do these gentlemen and ladies, and it’s done in a very professional manner. But I think the problem that they’re talking about now is an IT problem that normally isn’t discovered when you review procedures,” Bartels said.
“If someone has too many permissions, that’s not something that a financial audit’s gonna catch,” he continued. “In the financial world, we have what we call IT audits and we hire companies that don’t even have CPAs in them to do them, to look for those types of problems. So I think this is probably something we need to adjust as we go forward and do some more IT-based audits and I think that pounding this to death isn’t going to be very productive when it’s really two different types of reviews.”
He went on, “So that’s just my knowledge of how audits work. I’ve done it for forty-plus years, and they don’t just look at those types of controls – and we’ve got a I think 38-year-old system, computer system, they’re running the state on and we’re in the process of a three-year project to update that. I think this committee going forward really needs to look at the controls that are being put in place on the new system and how those will be reviewed on a regular basis on who has permissions to do what. And I think that’s the focus that this group should take.”
Republican Sen. David Wheeler eventually circled back to Reisch’s original line. “This finding came about because of a criminal investigation — is that correct?”
“This finding came about based on issues that were noticed that led to the investigation, yes,” Olson replied.
“From my understanding,” Wheeler said, “the process was that DSS noticed some problems, they got the attorney general involved, the attorney general got DLA involved, and then that whole process led to this finding?”
“Yes,” Olson answered, “again DSS — from the special review that we did, DSS became aware of it. Ourselves and the attorney general were informed immediately at that time and it was an ongoing thing that we looked at — but yes, it did expose a lack of internal control in their system that was addressed.”
Wheeler then asked, “How long has this lack of internal control been in place?” Replied Olson, “At this time I would prefer not to (answer.)”
Wheeler returned to another of Reisch’s questions. “Has this lack of control been found in other places?”
Olson answered, “In other places other than where? This is part of a system that is used by DSS, the FACIS (Family and Children Information System.) And that’s what this comment is addressed to… There aren’t other agencies that use this system. This is a DSS system.”
Wheeler said he was referring to the ability of one person to enter a claim and then approve it without any other employee also giving approval. “Is that kind of lack of control been seen either in the department DSS specifically or other agencies?” he asked.
Olson replied, “Certainly if we would have found a situation like that or detected a situation like that we would have had a comment dealing with the other agencies that had those systems. We’ve had various comments over the years that have dealt with internal controls, how things were set up, but specifically to this system, no.”
The back and forth wound on. Eventually, Olson referred to a meeting between his office and other state government officials. “It was requested at that time,” he said, “that we limit our discussions.”
