Public officials are increasingly scrutinized for public funds expenditures and for the process followed in making those expenditures. It is not difficult to understand that a public official that misappropriates public funds should be personally liable. But, should the public official who spends public money to obtain goods and services on behalf of the public entity be likewise held personally liable? Public officials should be aware that Ohio courts say in certain instances the answer is “yes”. Public officials who authorize or execute payment on an illegal contract could be held personally liable for that sum of money.

How does a public official prevent illegal expenditures and/or address such a situation? In short, public officials should recognize the scope of their legal authority, statutory requirements for expending public funds, and adhere to sound internal control practices. Public officials faced with potential personal liability for making an illegal expenditure should consult their legal counsel.

The Ohio Auditor of State’s “Finding for Recovery”

Often, the first determination of whether a public official has expended funds illegally comes from the Auditor of State. The Ohio Auditor of State is empowered to determine “whether any public money has been illegally expended, any public money collected has not been accounted for, any public money due has not been collected, or any public property has been converted or misappropriated.” (Emphasis added.)1

In general, the Auditor of State reviews the express statutory authority (or charter provision) that the public official relied upon in making the expenditure, the contracting process followed by the public official, and whether the expenditure was made for a “proper public purpose.”2

In such an instance, the Auditor may choose to make a “finding for recovery” against the public official. Pursuant to R.C. § 9.24(H)(3), a “finding for recovery” is defined as follows:

“Finding for recovery” means a determination issued by the auditor of state, contained in a report the auditor of state gives to the attorney general pursuant to section 117.28 of the Revised Code, that public money has been illegally expended, public money has been collected but not been accounted for, public money is due but has not been collected, or public property has been converted or misappropriated. (Emphasis added.)

While the Auditor of State reports the illegal expenditure, the county prosecutor, Ohio Attorney General, or other appropriate official sues the public official in their personal capacity to recover the funds. The Auditor of State’s determination that money has been illegally expended is prima facie evidence of the facts in the recovery action. What this means is that the person against whom the recovery action is instituted bears the burden of proving that the money was not illegally expended. This is at times an insurmountable burden to overcome in the courts.

Public Officials’ Expenditure for a “Proper Public Purpose”

While public officials have broad discretion to determine the goods and services necessary to execute their governmental function, such expenditures of public money should be for a “proper public purpose.” The determination of what constitutes a public purpose is primarily a legislative function, subject to review by the courts when abused, and the determination of the legislative body of that matter should not be reversed except in instances where such determination is palpably and manifestly arbitrary or incorrect.3

The Auditor of State issued AOS Bulletin 2003-05 on October 20, 2003, in order to set forth the auditor’s interpretation of McClure and the standard by which the Auditor would audit public entities in this respect. Because the Auditor’s findings are given deference in the courts, public officials with a finding for recovery reported against them may want to review this Bulletin. For example, the Auditor of State has determined that the purchase of alcohol with public funds does not constitute a proper public purpose or, in other words, the Auditor has determined that such an expenditure of funds even pursuant to an approved legislative authority policy is “palpably and manifestly arbitrary.”

In such an instance, the public official should understand that even if the legislative authority approved the expenditure, the public official could be held personally liable to repay those public monies.

Expenditures that Exceed Statutory or Municipal Charter Authority

It is axiomatic in Ohio law that public officials only have that authority expressly granted by statute (or charter) or that power necessarily implied therefrom. For example, in certain construction contracts, public officials without the authority to contract are “personally liable” and the public entity “shall not be liable thereon.”4 So, whether the public official is prohibited expressly or lacks the necessary authority for the expenditure, the public official can be personally liable.

In Bower v. Village of Mt. Sterling,5 the court found city counsel members personally liable for the expenditure of funds made without a certified contract.

Ohio law requires that the availability of funds be certified by the fiscal officer in order to create a valid contract. Conversely, “[e]very such contract made without such a certificate shall be void, and no warrant shall be issued in payment of any amount due thereon.” A public official is held personally liable for an expenditure pursuant to a void contract.

R.C. § 5705.45 states as follows:

Any officer, employee, or other person who . . . authorizes the expenditure of any public funds on any such void contract, obligation, or order, . . . shall be liable to the political subdivision for the full amount paid from the funds of the subdivision on any such order, contract, or obligation. Such officer, employee, or other person shall be jointly and severally liable in person and upon any official bond that he has given to such subdivision, to the extent of any payments of such void claim.