Of all the questions that I’ve fielded over the past two years about the situation in the city of Tower, the most common has been this: Is there evidence that anyone benefitted personally from …
Of all the questions that I’ve fielded over the past two years about the situation in the city of Tower, the most common has been this: Is there evidence that anyone benefitted personally from the draining of city assets?
For most of this period, I could only repeat the response given by city officials— i.e., there’s no evidence of it at this point.
That answer may have to be recrafted because there now is evidence, which has been forwarded to law enforcement and the state auditor, that unauthorized payments may have been made to the former clerk-treasurer.
For more on that, keep reading. But before I get to those details, it has to be noted that the handling of city finances over the two years leading up to the dismissal of the former clerk-treasurer included so many red flags that it is amazing the city’s auditors didn’t raise even more questions than they did.
One thing to remember, however, is that auditors are not tasked with looking for fraud, embezzlement, or unauthorized payments. They’re tasked with assessing only the accuracy of the financial documents that the city is preparing. To do so, they’re simply taking a sampling of invoices, receipts, contracts and other records, selected more or less randomly. Cases of fraud and embezzlement are commonplace throughout America, including in the public sector, and standard audits rarely uncover such activity. That requires the hiring of a forensic auditor, something the city has not yet done.
Yet it wouldn’t take a forensic auditor to recognize all the red flags that have been waving in Tower for some time. Such warning signs include the decline in the city’s available cash. This was masked for about two years by the systematic draining of city reserves, mostly without the knowledge of the former city council. As we have reported at various points, almost every city account was affected. While the draining of the ambulance reserves has received the most attention, since it involved several hundred thousand dollars, it appears the former clerk-treasurer drained more than $100,000 from the city’s storefront account, nearly $25,000 from the city’s police car replacement fund, nearly $25,000 from the city’s streets account, and nearly $30,000 from the city’s fire department fund. And it appears another $17,000 was drained from the city’s sick leave account. All in all, the former clerk-treasurer made many dozens of fund transfers, constantly shifting money back and forth. Most, if not all, of these cases were without the required council authorization. While some transfers restored money to accounts, the net result was a city piggy bank that was essentially run dry. It’s not clear when or if any of these funds will be restored to their proper accounts.
I’m not suggesting that these funds were drained to go into someone’s personal bank account. City audits from 2017 and 2018 suggested that a lot this money was being used to cover sizable deficits in many city projects. Which isn’t to say things are fine. Showing deficits in public projects has actually been one way that public sector embezzlers have moved money to themselves. We have no evidence that this happened here, perhaps because no one has examined the outflow of funds from these public projects (it would be a big job). So, again, the lack of evidence certainly isn’t definitive. The fact that projects so consistently ended up with sizable deficits over the past several years is troubling, however, for a number of reasons, among them that it suggests chronic project mismanagement.
Another warning sign is when the person actually in charge of the financial reporting is reluctant to provide regular financial reports or spread the financial duties around to ensure more checks and balances— which was a chronic problem under the former clerk-treasurer. The former council rarely saw any financial information from the city and the former clerk-treasurer repeatedly fought requests for more financial transparency from the new council. That’s changed remarkably since the hiring of the new clerk, Victoria Ranua.
The city’s lack of what’s known as “segregation of duties” has been another continuing issue cited by the city’s auditors. Former city officials largely ignored the auditors’ concerns, suggesting that they could never achieve the proper level of segregation given their small staff. Yet other very small organizations, such as the Vermilion Country School, have adopted practices that address this concern. It’s one the city of Tower could eliminate from its auditor’s management letter, as well, if city officials take it as a priority.
The lack of segregation may have made it possible for the former clerk-treasurer to benefit from payments to which she wasn’t entitled. Based on payroll records we’ve received through a public records request it appears that the former clerk-treasurer systematically added a $45 per month bonus to her paycheck dating back nearly to the time she assumed the position. The extra payment was variously described as “Fire Department Head” or “Wastewater Meeting Pay,” but in our review of city minutes from the years around when these payments began, we could find no council authorization for this extra pay, nor does the relevant union contract call for such payments.
What’s more, through much of her tenure, the former clerk-treasurer was paid hourly, so she would have presumably been paid her usual wages for any extra hours she worked on the wastewater board’s behalf. Perhaps most troubling is that the former-clerk-treasurer continued to collect the pay bonuses even when other members of the office, such as the deputy clerk, were assigned to the wastewater meetings. The deputy clerk, by the way, was not paid extra for covering those meetings.
The truth is, we may never get to the bottom of this mess because so much money was moved around so many different ways that it’s like trying to follow the pea in a shell game. What’s more, the vast majority of receipts that came into the city were entered in the city’s software program as cash sales, without so much as a note or any other information indicating who the money was from or why the city was receiving it. Such lazy bookkeeping has, understandably, given the new clerk-treasurer fits.
We realize there are some in the community who still labor under the impression that the city’s financial situation was better under the former council and city clerk. Those are people, without exception, who are misinformed. What existed before in Tower City Hall was a chaotic system run out of the clerk’s office with virtually no oversight from a council that had been browbeaten into submission. The city’s financial disaster was already apparent to its auditors by early 2018 and they did what they could to alert the council to the problem, as we reported at the time. Unfortunately, their warnings fell on deaf ears.
So, did anyone end up with extra money in their pockets that they weren’t entitled to? There is certainly some evidence for that now, although we’ll wait to see how prosecutors decide to proceed before making a more definitive suggestion. But one thing we can say for sure is that the city of Tower was headed for a train wreck. At least now, there’s hope for a turnaround.