ELK RAPIDS — A former village council president abrogated his duties, another council member knew of a costly error months before it was made public, and three key staff members were delinquent in protecting taxpayer dollars, an attorney tasked with investigating a 2021 payroll error, says in a recently released report.

The failings by some Village of Elk Rapids elected, appointed and hired officials do not warrant criminal prosecution, Traverse City attorney Scott Howard states in a report provided to council members Monday morning and posted publicly on the village’s website about 24 hours later.

“While there were significant failings here in responding to the overpayment after it was discovered in October 2021 . . . these failings do not rise to the level of criminal behavior, and there is no legal basis to move forward with any criminal prosecutions,” the report states.

In October 2021, a double payroll payment was debited from village accounts and paid out to 37 village employees and elected officials, the report states, costing the village $32,595.29.

Of that overage, $17,418.72 has so far been paid back, with $15,176.57 still listed as an “account receivable” on the village’s books — meaning, a bill that’s owed and yet to be paid.

The double payment happened when former treasurer Kerri Janisse mistakenly submitted payroll debit messages to two banks, Alden and Huntington, records show.

Janisse, Village Manager Bryan Gruesbeck and Village Clerk Kaitlyn Szczypka were aware of the error almost immediately, notified heads of the police, public works and harbor departments, asking them to tell employees not to spend the money.

Despite internal discussions, no corrective action was taken by any of the three staff members and the error was only made public when a resident, Teri Kuffner, began asking questions nearly a year later, after she said she heard anecdotal stories of the extra paychecks.

By then Janisse had changed jobs, becoming the village’s planning and zoning administrator and a new treasurer, Kristine Davis, had been on the job for several months. Kerri Janisse also in November of last year, married Jim Janisse, who was, in 2021, the longtime village council president seeking re-election.

A community outcry came next, the Record-Eagle filed an extensive Freedom of Information Act request for internal communications, and the village council voted at a special Oct. 25 meeting to task Howard with investigating what happened.

Janisse lost his bid for re-election to local business owner and former member of the library board, Karen Simpson, 537 to 460, according to a Nov. 9 posting on the door of village offices.

Simpson was sworn, along with other council members, at a regular meeting Monday night.

In the meantime, over the past month, Howard stated in the report that he and another attorney, Lauren Teichner, have now conducted 14 interviews, reviewed financial documents, internal communications and news articles, and reported the following: Community concerns regarding whether Jim and Kerri Janisse conspired to cover up the error are unsubstantiated.

“This failure has raised some suspicion within the community that his (Jim Janisse’s) silence was an attempt to protect his wife, Kerri,” the report states. “This suspicion is unsubstantiated by any evidence that we are aware of, but common sense again raises such questions.”

Gruesbeck, Kerri Janisse and Szczypka failed in their responsibilities, took no corrective action, did not tell council members about the error, did not have a contingency plan if the money was not recovered and, to varying degrees, failed to protect taxpayers’ money, according to the report.

Gruesbeck’s oversight of staff was deficient, Kerri Janisse downplayed her role at times and tried to shift the blame to others, and Szczypka exhibited a sense of helplessness, rather than taking action, the report states.

“The buck stops with the Village Manager,” the report states. “It is clear from our investigation that Bryan’s oversight and management of the overpayment issue – and the Village’s overall finances at the time of the overpayment – were deficient.”

In February 2022, the village’s new treasurer, Kristine Davis, reached out to the village’s municipal software provider, BS&A, seeking a mechanism for employees to pay back the money.

“I please need your help!” an email from Davis to BS&A support states. “Back in November our bank randomly double paid several employees with their normal direct deposit net amount. We are in the process of setting up a repayment plan to have these extra funds returned. My question is – what is the best way to set this up?”

What Davis did not know, according to the report, was the double payment wasn’t a “glitch,” a “hiccup,” or a random bank error and she would not discover the full extent of how many employees were impacted or how much the mistake amounted to until May 2022, while preparing for the village’s annual audit.

Neither Gruesbeck, Janisse nor Szczypka informed Davis of the double payroll mistake, which happened about 10 days before Davis started her job Nov. 1, 2021, it noted.

“She told us that if she had known the full extent, or had been tasked with the responsibility to correct the error after she started, she would have taken action on this right away,” the report states, crediting Davis for her cooperation.

Nevertheless, Davis took action and mailed a letter to employees stating they could pay back the money in one lump sum or as a payroll deduction. That effort was erroneously squashed days later on May 18, 2022, when Davis sent a second letter informing employees that the village wanted the money back, but the statute of limitations had run out for them to demand it.

“Unfortunately, Kristine’s letter and email to all staff on May 18, 2022, mistakenly expressed her belief — as well as the belief of all other Department Heads who discussed it at the time — that the Village is ‘beyond the 6 months and not legally able to request these wages from you,’” which, the report states, wasn’t entirely correct.

“On the contrary,” the report states, “the Village could have still requested the waged be repaid through a future payroll deduction, but it would have to have been on consent of the individual employees.”

The error snowballed, as neither staff nor elected officials knew this aspect of the statute or contacted an attorney — not Howard or anyone else — for advice.

Instead, the issue continued to languish from May through October of this year and the deadline to force repayment from employees, as stated in a 2015 state statute, to repay the money passed.

Jim Janisse, then village president, and Laura Schumate, who was and continues to be a council member, learned in May about the $32,595.29 payroll error, but neither informed other council members, demanded a report from staff or informed the public, records show.

Jim Janisse, the report states, told investigators after learning of the statute of limitations, assumed nothing else could be done, so did not speak to Gruesbeck, other council members or seek legal advice.

Schumate, the report states, told investigators she also felt deterred by the statute of limitations and assumed that the issue was being handled by staff in the best way possible and did not alert other council members or the public.

“As far as we can tell, as a result, from May 2022 until October 2022, the issue was not touched by those responsible, or really even thought about anymore,” the report states.

The overpayment continues to be listed as an account payable, insurance will not cover the loss, employees are being encouraged to pay the money back and, if they don’t, they could have tax issues to untangle for themselves.

That’s because those employees who don’t or haven’t yet paid back the money will receive amended W2’s from the village, copies of which will be sent to the Internal Revenue Service. The assumption would be that those employees had not yet paid taxes on the extra amount.

Howard, in the report, recommended village council members take some form of disciplinary action against responsible staff — letters of reprimand, at a minimum.

Howard also recommended rethinking the way the village manager and the treasurer are supervised, issuing clear instructions to staff to contact counsel with even daily questions, modifying the employee handbook with a specific payroll overage policy, forming a finance committee, encouraging the deputy treasurer to take a more active role in payroll, and ensuring that the staff provides the council with regular – and more detailed – financial reports.

Howard also responded to community questions regarding whether nepotism was a root cause of the overpayment.

“We recommend Village Council consider whether spouses and/or family members should not be allowed to work for the same Village department at the same time, or for the Village as a whole at the same time,” the report states. “By having an express nepotism policy, some of the issues and concerns that have become a focal point in this matter may have been avoided or minimized.”

Staff members are being encouraged to repay the money if they haven’t already. All council members, who are paid $90 a meeting, have repaid their portions, Howard said.

Residents and council members appeared to agree on at least one point during Monday’s meeting: The inaction, lack of transparency and lack of oversight was worse than the mistake.

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