Embezzlement is up in rural Iowa

DES MOINES - Extra paychecks, self-help books, bottles of whiskey and beer - all were charged to taxpayers living in small, rural communities and taken - according to state investigators - by the people entrusted to keep the municipal books.

And, according to statistics kept by the Iowa Auditor's Office, this type of municipal fraud is happening, or at least coming to light, much more often than in the past.

Between 1996 and 2005, the Auditor's Office conducted seven special investigations into the finances of cities with populations of fewer than 700 in which money came up unaccounted for or missing.

Since 2006, there have been 32 such investigations with similar results. That's nearly five times as many in about half the time.

Officials point to several factors for the increase: a tough economy, a weak state law and the willingness of citizens to step forward in the wake of the Central Iowa Employment and Training Consortium, or CIETC, scandal of 2006.

But they acknowledge that their efforts likely fall short.

“I don't think for a second that we're getting all of it that's out there,” state Auditor David Vaudt said.

Typical case

A typical special investigation looks a lot like the one that was undertaken last year in the small Muscatine County town of Stockton and that wrapped up this summer.

On June 30, the Auditor's Office released a report that identified $65,324 in city money that was either misused or otherwise unaccounted for.

The report laid the blame squarely on the shoulders of Larry McCoy, a former city clerk who had worked for the Muscatine County city since 1997 and resigned in February 2010 as state auditors went through the city's financial records.

According to the audit report, McCoy spent city money on Internet and satellite television services for his personal residence, fuel for his personal vehicle and shopping trips to Wal-Mart Stores in Davenport and Muscatine, where he bought groceries, a pair of sunglasses, computer games and alcohol.

McCoy also cut extra payroll checks to himself and former Stockton Mayor Doug DeWitt, the report said.

Muscatine County Attorney Alan Ostergren subsequently filed charges against McCoy, whose trial is set for Sept. 26. McCoy's attorney, David Treimer, did not return a call left with his office.

“One of the challenges with cases like this is you have people who don't have criminal records, and you're dealing with, essentially, a property crime,” Ostergren said. “These are not the types of crimes that people typically go to prison for, even though there is anger in the community about what happened.”

Common threads

McCoy's story might be unique in Stockton history, but his position and the tactics he is accused of using to bilk taxpayers are very familiar to Deputy Auditor Tami Kusian, who specializes in municipal fraud investigations.

The small town cases usually involve a single person, such as a city clerk, who is responsible for payroll, receivables and expenditures for the entire municipality. The elected officials charged with oversight generally trust their clerk and have likely known him or her - and the clerk's family - for years. This, Kusian said, leads to lax or non-critical oversight.

Additionally, she said, the embezzlement goes on for years before someone catches on and an investigation begins. The Stockton case, for example, covered just more than six years.

One of the largest small-town special investigations in recent years concerned Alburnett City Clerk Amber Franklin and the misuse of $102,980 of city funds over nearly four years.

Franklin used some of that money, according to an audit report that was released in October 2010, to pay for unauthorized purchases from Menards, Barnes & Noble and Sam's Club. The latter included purchases of “gourmet loaves, pumpkin pies, medicine and cleaning supplies.”

More oversight

Kusian said the CIETC case, which started after a state auditor's report questioned the state's handling of more than $1 million in federal employment training and placement money, appears to have emboldened whistle-blowers to push for a special investigation when they think something fishy is happening with local government finances.

Vaudt thinks there needs to be changes to the state law on how audits are carried out if the state wants to make a bigger dent in municipal fraud.

State statute requires cities with 2,000 or more residents to file an annual audit with the state. Cities between 700 and 2,000 people have to file one every four years, and cities of less than 700 population don't have to file an audit at all. Citizens, however, can petition the state to force an audit or investigation.

The Auditor's Office previously pushed legislation that would require more reporting requirements of smaller towns, but it has never been able to navigate the legislation through a General Assembly wary of pushing unfunded mandates onto cities, particularly the smallest ones that have the most limited resources.

Vaudt said he may try again this year with a proposal that won't require full audits from small towns but will make sure that their books are reviewed more frequently.

Changes opposed

He said the Iowa League of Cities has been a key opponent of the legislation and rallies its lobbying effort against it whenever it has come up in the past.

“This is something that is certainly a black eye whenever it comes up,” said Alan Kemp Executive Director for the League of Cities. “No one likes to see this less than the city clerks who aren't doing anything wrong.”

Still, Kemp said, the League has fought more stringent requirements because it simply costs too much. He said a better way to curtail public malfeasance is more training of elected officials and making sure that there are more than just one set of eyes on municipal accounts.