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Auditors question clothing allowance for county sheriff’s office

Clothing allowances provided to a small number of employees in the Washington County Sheriff’s Office may not be in compliance with IRS guidelines.
According to a March letter from Blackburn, Childers and Steagall, the auditors became aware of the clothing allowances while preparing the county’s 2012 audit.
Unless certain criteria are met, clothing purchased with an allowance should be included in an employee’s wages as a taxable fringe benefit.
Research has been under way for months on a similar situation regarding employees who drive county-owned vehicles, which also could be considered taxable fringe benefits.
Questions about the clothing allowances were included in the same letter from auditors that mentions the vehicles, but the clothing allowance issue has yet to be discussed by county leaders in public meetings.
Last week, Mayor Dan Eldridge and County Attorney John Rambo both said they were unaware of which county employees receive clothing allowances.
However, Director of Accounts and Budgets Bobbye Webb knew it was members of the WCSO staff, and Sheriff Ed Graybeal said the practice has been in place since before he took office in 1980.
“We’re doing what we’ve done forever and this is the first time it’s come up in 34 years,” said Graybeal, who does not receive an allowance.
A public records request by the Herald & Tribune for information from the last two fiscal years related to the allowances indicates eight to 10 WCSO investigators receive personal checks of $350 twice a year for a semi-annual clothing allowance. Five administrative and high-rank employees within the WCSO receive one check annually for $350 for clothing. The funds come out of the WCSO budget line for uniforms.
Graybeal said clothing allowances are assigned to specific positions within the department and are not doled out based on the individuals holding those positions. They are jobs that do not require the employees to be in standard police uniforms, he said.
The IRS definition of uniform and the method used to provide the funds prompted the questions from the county’s auditors.
Graybeal said officers in the Criminal Investigation Division use the allowance to purchase clothing appropriate to their roles.
“The auditors have never said a word,” he said.
Auditor Melissa Steagall-Jones said issues with the WCSO clothing allowances were discovered during a random pull of invoices during the 2012 audit.
“If the clothing can be worn outside of work, it is considered a fringe benefit and at the end of the reporting period on Dec. 31, an adjustment needs to be made on the employee’s W-2,” she said. Taxes on the increased income would be included on the employee’s personal return, she said.
According to the IRS Quick Reference Guide for Public Employers, “…a detective’s suit jacket and related clothing, since they are suitable for everyday wear, do not qualify as a uniform and are taxable to the employee.”
Receipts submitted from WCSO employees related to the clothing allowance include purchases made at stores such as Kohl’s, Old Navy, JCPenney, Ross, Stein Mart, Mahoney’s, Bass Pro Shops, Lane Bryant, Dress Barn, American Eagle Outfitters, CJ Banks, Tractor Supply Co., Dick’s Sporting Goods, Belk, and TJMaxx.
A taxable fringe benefit is subject to income, Social Security and Medicare taxes. Currently, the checks issued for clothing allowances have no withholding, and no adjustments are made on the W-2 forms for employees who receive them.
Webb said she can’t remember a formal conversation ever being held to put these practices in place.
Under the current system, a file is kept in the Accounts and Budgets Office for each employee. Receipts are sent over from the sheriff’s office, and when the employee reaches the $350 amount, the reconciliation is considered complete and filed.
Webb said if a portion of money goes unspent in an employee’s clothing allowance, it is supposed to be returned to the county. That has never happened, she said.
According to Steagall-Jones, procedures will change going forward.
“I don’t think there was any malice on either side, but we want to make sure the county is in compliance,” she said.
Making adjustments to the W-2 forms that would be reflected on the payroll report is one option for meeting the requirements.
Steagall-Jones said another option is to increase the gross compensation of employees who receive the allowance and consider the allowance as a part of their salaries.
Using the second method, she said, would cost the taxpayers a little more.
Steagall-Jones said the Washington County will need to have a plan in place prior to the 2013 audit.