Au­dit de­tails Cave Springs’ money woes

Re­port shows city mis­man­aged fi­nances; prose­cu­tor re­view­ing find­ings

Northwest Arkansas Democrat-Gazette - - FRONT PAGE - DOUG THOMP­SON

CAVE SPRINGS — Cave Springs of­fi­cials over­com­pen­sated em­ploy­ees, made pur­chases above au­tho­rized amounts and mis­man­aged tax­payer money, ac­cord­ing to a re­port by state au­di­tors.

The city failed to meet the re­quire­ments of state law in 22 in­stances from 2015 through 2016, the re­port by state Leg­isla­tive Au­dit found.

The city put $61,307 from its street fund into the gen­eral fund in 2016, which breaks the law, ac­cord­ing to the re­port re­leased last week. The city did the same thing with $19,709 the pre­vi­ous year, ac­cord­ing to the au­dit.

The au­dit also found a num­ber of ex­penses paid with­out proper au­tho­riza­tion by the city coun­cil, al­though they were not cited as fail­ures to meet le­gal re­quire­ments.

For ex­am­ple, the city recorder-trea­surer was over­paid by $14,509 in 2016, the re­port found. An­other such

ex­am­ple stems from an April 12, 2016, city res­o­lu­tion that au­tho­rized the pur­chase of a ve­hi­cle for $23,165. The ve­hi­cle or­dered, how­ever, came with ac­ces­sories that added $10,155 to the cost, and the ve­hi­cle’s base pur­chase price was $23,500. This re­sulted in “a dis­burse­ment in ex­cess of ap­pro­pri­a­tion to­talling $10,490,” the re­port says.

The find­ings come as the city faces the pos­si­ble loss of $391,000 out of a $1.7 mil­lion gen­eral fund bud­get. The city failed to reau­tho­rize its prop­erty tax for 2017, ac­cord­ing to city records so the county can­not con­tinue col­lect­ing that tax. The lapse also drew a men­tion in the au­dit re­port.

Benton County Judge Barry Moehring is set to con­sider the city’s re­quest to keep col­lect­ing the prop­erty tax in a meet­ing Aug. 4, said Justin Eich­mann, Cave Springs city at­tor­ney.

Eich­mann said city lead­ers have worked to straighten out the town’s fi­nances and are ten­ta­tively plan­ning a meet­ing as early as next week to go over the au­dit’s find­ings.

“We have been wait­ing for this to come and knew it would be bad,” Eich­mann said of the au­dit. “It is one of the worst I’ve ever seen.”

Cave Springs put $131,488 of fran­chise tax money pledged for debt ser­vice into its street fund in 2016, ac­cord­ing to au­dit find­ings. No state law was cited in that in­stance by the au­dit re­port. That was a case of the fran­chise tax col­lec­tions go­ing into the wrong ac­count and the er­ror has been cor­rected, Eich­mann said.

Nei­ther Mayor Travis Lee nor city Recorder-Trea­surer Kim­berly Hutch­e­son re­turned calls re­quest­ing com­ment Mon­day. Both re­ceived mes­sages re­quest­ing an in­ter­view, a spokes­woman for the city said. The Benton County town has about 3,800 res­i­dents.

Lee and Hutch­e­son have been locked in a dis­pute since Septem­ber, when Lee sent Hutch­e­son home and blocked her from ac­cess­ing city com­puter data. Lee said he did so be­cause Hutch­e­son had mis­treated city work­ers.

Hutch­e­son is su­ing Lee,

the six-per­son

City Coun­cil and two for­mer coun­cil mem­bers claim­ing the mayor and other elected of­fi­cials won’t let her do her job. The law­suit claims Lee and the coun­cil mem­bers violated Hutch­e­son’s con­sti­tu­tional rights by pun­ish­ing her and re­strict­ing her abil­ity to do her job. The de­fen­dants have de­nied the al­le­ga­tions.

Most of the in­stances cited in the au­dit as non­com­pli­ance with state law in­volve record-keep­ing pro­vi­sions of those laws. For ex­am­ple, the city made elec­tronic pay­ments with­out us­ing a method ap­proved by the Leg­isla­tive Joint Au­dit­ing Com­mit­tee, as re­quired by law, the re­port says.

The mayor also hired at­tor­neys with­out coun­cil ap­proval, the au­dit said. Coun­cil ap­proval of such hires is re­quired, ac­cord­ing to the re­port.

“The city paid a ven­dor $1,093 to set up a non­profit or­ga­ni­za­tion, Friends of Cave Springs, for which the mayor, recorder-trea­surer and a city em­ployee were of­fi­cers, in con­flict with [the] Arkansas Con­sti­tu­tion, Ar­ti­cle 12, Sec­tion 5,” the re­port said.

Pros­e­cut­ing At­tor­ney Nathan Smith is re­view­ing the au­dit find­ings, he said Mon­day. Smith con­cluded in May that an Arkansas State Po­lice in­ves­ti­ga­tion con­cluded that month found no crim­i­nal in­tent in the fail­ure to reau­tho­rize the prop­erty tax.

Most of the fi­nan­cial prob­lems cited in the re­port in­volved putting money in the wrong ac­counts, not money miss­ing or spent for an un­in­tended pur­pose, ac­cord­ing to Eich­mann. The city hired David Wil­liams of Benton County, an ex­pe­ri­enced au­di­tor, some time ago to to try and straighten out its fi­nances, Eich­mann said.

“We have a lot of peo­ple in city govern­ment who have had to learn on the job and that played a role in the chaos,” he said.

The city’s fi­nances will not be sorted out quickly, he said.

“The city’s passed a re­vised bud­get and make quar­terly bud­get re­vi­sions un­til they are out of this,” he said.

The City Coun­cil fired 10 ad­min­is­tra­tion em­ploy­ees ear­lier this year and sold the po­lice-equipped Dodge Charger it bought last year to be used by the mayor and other city ad­min­is­tra­tors.

Other prob­lems in­volv­ing city fi­nance found by the au­dit but not cited for non­com­pli­ance with state law in­clude:

■ Over­pay­ing a for­mer po­lice chief by $6,993 for un­used sick leave and pay­ing him twice for un­used an­nual leave for an over-pay­ment of $2,600.

■ The mayor en­tered a $194,835 con­tract with an en­gi­neer­ing firm with­out coun­cil ap­proval.

■ The mayor’s as­sis­tant “was paid a car al­lowance of $4,800 that was not au­tho­rized by the coun­cil.” Two em­ploy­ees un­named in the re­port who were not el­i­gi­ble for fam­ily plan health in­sur­ance in 2016 got cov­er­age any­way at a to­tal cost to the city of $8,100.

■ In the recorder/trea­surer of­fice, “re­ceipts were not de­posited timely and in­tact. Nu­mer­ous post­ing er­rors were noted,” and the records are so in­com­plete “we could not re­port re­ceipt tests for all funds for 2016 and 2015.”

■ The city violated its pol­icy of pay­ing 42 cents a mile for mileage and paid 57.5 cents, and re­im­bursed travel mileage with­out a doc­u­mented busi­ness pur­pose or a mileage log. Cave Springs put an un­spec­i­fied amount of money meant for le­gal fees and in­for­ma­tion tech­nol­ogy ser­vices into the street fund.

■ City ve­hi­cles were used for rou­tine com­mut­ing and that ben­e­fit was not re­ported on the in­volved em­ploy­ees’ In­ter­nal Rev­enue Ser­vice’s W-2 forms as re­quired by the IRS,.

■ Pay­roll records also omit some re­quired doc­u­men­ta­tion. “All el­i­gi­ble em­ploy­ees were not en­rolled in re­tire­ment plans, and em­ployee re­tire­ment con­tri­bu­tions were not prop­erly de­ducted from em­ployee’s pay­checks, rec­on­ciled to re­tire­ment state­ments and paid by the city.”

Lee

Hutch­e­son

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