A $500,000 mistake?
If what Human Resources Consultant Mike Gibson told the Wadena County Board Monday morning turns out to be correct, the county has overpaid its employees through a cafeteria plan to the tune of a half-million dollars -- and it's still happening.
Gibson told commissioners he was alerted to the problem when a county employee asked him what should be done about a pending shortfall in the cafeteria funds account. Through investigation, Gibson said, he learned the county's employee benefits manual -- and more importantly their paychecks -- haven't matched the contract that was negotiated between their union and the county since 2005.
That potential error could add up to more than $100,000 per year.
A cafeteria plan is a separate pot of pre-tax dollars an entity like Wadena County can use for certain benefit expenses, according to the Internal Revenue Service.
In 2000, Wadena County established its cafeteria program -- sometimes called a Section 125 program after the tax code provision that allows it.
In that plan, the county sets aside the money to pay premiums on three employee benefits: life insurance, disability coverage and health premiums.
As costs for health insurance began to skyrocket, the county and its unions negotiated a fix, according to Gibson. Through negotiations in 2004, they decided to establish a "base" premium of $478.62 for each employee. As premiums rose, the county was to pay for half of the increase, and the employee was to pay the other half. That cost-sharing was set to start in 2005.
But Gibson said it never did start, and still hasn't.
"When I asked the question, what happens with the extra money? The employee can take it as a taxable dollar, can put it into their retirement funds, there are many options. ... And I thought, well, that's unusual."
Gibson ran that practice past two labor attorneys, who agreed it was unusual. He also contacted former county commissioners who were on the Wadena County Board when the plan was set up. He asked them about it and they said it didn't "sound right at all."
"Somebody may have misinterpreted what should have been done," Gibson said.
Gibson handed out five exhibits to commissioners, including a contract summary which showed the 50-50 split, and a copy of the employee handbook which not only makes no mention of the split, but states the county pays for single coverage medical insurance.
"It flies in the face of what the contract reads," Gibson told the board. "So you've got a benefit book out here that's telling employees one thing, and a contract that tells you something different."
Having uncovered a discrepancy, Gibson, who works on a contract basis for the county, spoke to Wadena County Attorney Kyra Ladd to get her opinion. He said she instructed him he should follow through on his investigation.
But ultimately, Gibson said, the county board has the right to decide how to proceed.
"If this board were to say, no we want to leave it alone, this is our intent, then I'm done," Gibson said.
The board decided to appoint a committee led by commissioners David Hillukka and Bill Stearns, Gibson, Deputy Auditor Deb Mursu, and union reps to try to get to the bottom of the discrepancy.
Gibson said he's willing to follow through with the investigation into the mistake.
"I want it understood that I just want to make sure everybody's doing something right because at first blush, after a lot of looking, it looks like it isn't quite right," he said. "It isn't the employees' fault. It isn't the bargaining unit's fault. People are presuming this is the way it was set up."
Teamsters representative Joanne Derby was also at the meeting, and she said whether or not an error was made, the figures being used now amount to past practices and should stay in place.
"This is how it has been done," Derby told commissioners. "We've had labor agreement after labor agreement signed with the understanding that this is how insurance has been done. There's been an ongoing practice as it has been done."
She pointed out a new two-year contract was just signed, and certain assumptions were made during bargaining.
"We have a contract until the end of next year," she said. "We have taken 0 percent [raises] for a number of years. Had this health insurance been brought up as an issue, negotiations would have been different. ... I guarantee you they could not have afforded to take the 0 percent as they had."
Derby said it's hard to believe an error like this wouldn't have been caught by county or state auditors, or the county board until now.
"There is a real issue here in past practice over a number of years. How the county can say 'we didn't know this was being done,' I find no foundation to that at all," she said.
In a follow-up interview with the Pioneer Journal, Derby said what Gibson learned from the attorneys he consulted is one side of the coin. She said she could find labor attorneys who say the error -- if there was one -- is now part baked into the cake and can't be revisited.
But she said she will serve on a committee to explore the issue, because she, too, wants to get to the bottom of it.
County Board Chairman Rodney Bounds said it's a complicated issue as to how to proceed, and it wasn't going to all get settled on Monday.
"We have a signed contract with the employees for two years," he said. "That's pretty hard to take and undo and say, well, this wasn't done right. I'm not saying something wasn't done right -- don't get me wrong. I don't know."
"You are right, we have a contract," Gibson responded. "But since 2005, we've had a contract that said the employee will accept 50 percent [of the increase]. So we haven't followed the contract unless we find documentation that says it was the intent of the board to have enough room that we'll pay their share. But that doesn't make sense,
But Gibson agreed with Bounds that a fresh set of eyes looking at the problem would be helpful now.
Need for review
Gibson said it's imperative the county board spend the proper money now on attorneys who can get to the bottom of this problem and also to audit the labor contract and employee materials.
"In 2008, I told you you've got to have somebody look at your personnel policies, your contracts and your benefit book. I've been warning you folks since '08. It's never been done," Gibson said. "You've got to pull these books together, or you're going to get in a jam like you are now. I think this has cost you over a half a million dollars. Not you, the taxpayer. That's what I think. OK?"
He continued: "What you have here is you need some legal help now. And I can understand precisely what Mrs. Derby's talking about. When I add up -- when I take the increases in the premium, and then divide that in half, each employee should be paying at least $90 per month more now. It should have been eased into over the years. There were years the premium dropped."
Gibson said if the payroll has been in error for six years, at an estimated cost to the county of more than $100,000, something has to be done.
"I don't like being a messenger like this, because I love our employees," Gibson said. "But I also love our taxpayers. This isn't right, I don't think."