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Audit Report Finds Conflict of Interest

Manteo town hall.

MANTEO – Former town commissioner Hannon Fry may have broken the law when he “derived direct benefit of $12,500” and failed to disclose his conflict of interest related to a town contract he was involved in administering, and he should be required to repay the money, the state auditor has found.

Hannon Fry

The matter has been referred to the district attorney to determine if there’s enough evidence to pursue criminal charges, according to State Auditor Beth Wood’s report, which was published Tuesday. Town officials said they will comply with the auditor’s recommendations and cooperate with law enforcement.

Fry conceded in November after the municipal election resulted in a tie vote with Jason Borland who had challenged the three-term commissioner. Fry did not return a call for comment.

The money at issue came from a former mayor, Lee Tugwell, owner of contracting company Tugwell Transport. Tugwell negotiated a $50,000 verbal contract with a private property owner who permitted the town to store dredged materials related to a navigation project. The property owner was paid $25,000, and the remainder was split between Tugwell and Fry, according to the auditor’s report.

The report also found that, as a result of the $12,500, which Fry and Tugwell described as a “gift,” the town may have overpaid for the dredging contract and the commissioner may have violated state law barring public officials benefiting from public contracts.

Tugwell wrote a $12,500 check from his corporation’s bank account to Fry on Dec. 22, 2017, the day after his corporation received $25,000 from the town for the dredging project, according to the report.

“Let me be clear, that money was all given to me, and I am allowed to spend my money in any way I see fit and for whatever reason I see fit,” Tugwell told state investigators. The former mayor said the “gift” to Fry was not public knowledge “… because people would start connecting it to [the Commissioner] got paid for some of this dredging project,” according to the report.

Tugwell did not return a message seeking comment.

Multiple allegations

The state auditor’s investigation was prompted by “multiple, varied allegations” via her office’s tips hotline concerning the $743,000 Doughs Creek Canal dredging project, which began in November 2017 and wrapped up in August 2018. During the investigation, concerns were raised regarding a town commissioner using state funds for his personal benefit.

The project involved dredging the canal, barging the dredged material, including sediment and debris, from the canal to a transfer site and then trucking the material from the transfer site to the town’s public works site. The transfer site consisted of two privately owned, adjacent parcels the town had leased from separate companies for $50,000.

The auditor’s report also found that Shannon Twiddy, the town’s finance officer, did not ensure that three payments related to the project totaling $50,000 were reasonable and necessary. Tugwell had submitted three invoices for payment, one invoice for $25,000 from the former mayor’s corporation, one for $12,500 from the limited liability company owning the first parcel and one for $12,500 from the limited liability company owning the second parcel.

Shannon Twiddy

Twiddy failed to follow policies before approving the three invoices Tugwell had submitted, according to the report, and the payments were made in the absence of a written contract specifying terms and conditions, services to be provided, and amounts to be paid.

Twiddy, according to the report, did not question the lack of a written contract when adding the $50,000 to a budget amendment the Manteo Board of Commissioners approved Oct. 18, 2017. The budget amendment contained the description, “Third Party Observer/ Lease of Klimkiewicz property.”

“The Town may have overpaid for the lease of the parcels of land used during the Doughs Creek dredging project. The Town paid $50,000 for the use of the land; however, only $25,000 of that amount was paid to the landowners. The remaining $25,000 was split between the former Mayor and a Town Commissioner,” according to the report.

Twiddy told investigators she processed the payments without adequate documentation because she had worked with the former mayor, the $50,000 expenditure matched the approved budget amendment and the environmental consulting firm had approved the expenditure “based on the understanding that the $50,000.00 cost … was accounted for in the Doughs Creek Canal Dredge Project Budget as approved by the state.”

Twiddy also approved the vendor applications for each of Tugwell’s limited liability companies on Dec. 19, 2017, without questioning that Fry had signed as “agent” on both applications.

Twiddy, who has worked for the town since August 1993, declined to comment on the matter, according to Town Manager James Ayers.

The report also recommends that the town manager take disciplinary action against the finance officer and provide additional staff training to ensure compliance with “established policies and procedures.”

The town in its Dec. 11 letter in response to the auditor’s draft report said it would honor the auditor’s recommendation, seek return of the disbursed money, put in place a conflict of interest and ethics training program for appointed and elected officials and follow personnel laws regarding any disciplinary action affecting the finance officer. The town pledged full cooperation with the state auditor and any law enforcement agency.

About the Author

Catherine Kozak and Mark Hibbs

Catherine Kozak has been a reporter and writer on the Outer Banks since 1995. She worked for 15 years for "The Virginian Pilot." Born and raised in the suburbs outside New York City, Catherine earned her journalism degree from the State University of New York at New Paltz. During her career, she has written about dozens of environmental issues, including oil and gas exploration, wildlife habitat protection, sea level rise, wind energy production, shoreline erosion and beach nourishment. She lives in Nags Head. Mark Hibbs is editor of Coastal Review Online. A native of coastal North Carolina, Mark joined Coastal Review Online in 2015, after more than 20 years with the Carteret County News-Times, where he served as a staff writer and photographer, business editor and assistant to the editor. Mark has won numerous awards for his reporting, including numerous N.C. Press Association awards, the American Shore and Beach Preservation Association's Friend of the Coast Media Award and the U.S. Small Business Administration’s 2009 Small Business Journalist of the Year Award for the Southeast Region. Mark is a graduate of the University of North Carolina at Wilmington.