BARDSTOWN, Ky. (WDRB) -- A newly-released audit recommends Bardstown city leaders make key changes to better protect taxpayer dollars after Mayor Dick Heaton says a now-former city official took thousands of dollars from the city's coffers.
In February, the mayor said Bardstown's now-former chief financial officer had embezzled about $764,000 in taxpayer funds between April 2013 and September 2019.
WDRB News is not naming the employee in question because no charges have been filed.
Don Thrasher, who serves as chair of the Nelson County Republican Party, said he and other taxpayers were stunned by the allegations.
"Most of them just shake their head in anger and say, 'Typical Bardstown,'" said Thrasher. "I was shocked at the amount, and clearly, when you have that much money, you want to know the who, what, when, where and why."
A newly-released audit, completed in June and held from the public until last week, gives some of those details.
(To read the audit, click here.)
Linda Gray, a Louisville-based certified public accountant, explained her findings to Bardstown City Council Oct. 13.
"The city has had a key accounting employee retire in November of 2018 who had many years of experience," she said. "The former CFO took advantage of this by circumventing the established internal controls, segregation of duties and procedures in place."
According to the audit, Gray discovered that the CFO used a variety of methods to conceal the missing funds:
- Cash was taken from the payments made by the customers before a deposit was prepared and deposited in the bank.
- Expense reimbursements without proper documentation and approval totaling $899 were included on paychecks.
- Payments were made by the city on behalf of the former CFO/OTA to the 401K pension plan in excess of the amount withheld from the former CFO/OTA’s wages. The excess payments totaled $700 in the fiscal year ended June 30, 2019, and $100 in July 2019.
- An iPhone XS Max was purchased on a city credit card for $1,449 for personal use of the former CFO/OTA.
- On several occasions, vacation pay was paid before the vacation days were accrued. No one verified or approved these transactions.
- A $1,600 pre-payment credit was recorded on the former CFO/OTA’s cable account that could not be traced to an actual payment.
The audit shows the city's missing tax receipts mostly grew annually from 2013 to 2019.
Source: City of Bardstown, Audited Financial Statements, For the Year Ended June 30, 2019
The CFO was fired last October when the city discovered the "irregularities." According to the audit, $134,121 in missing funds have been recovered by the city along with the iPhone.
Kentucky State Police are investigating the missing money, and Heaton said a criminal indictment is likely. He said he's been seeking an update on the investigation from KSP for months.
Heaton said KSP investigators examined the audit before allowing the city to make it public.
"This crime was the act of one rogue employee who concocted a scheme to undermine the checks and balances of prudent accounting practices that were previously in place," the mayor said during a recent Council meeting.
However, the audit tells a different story and says poor city practices may have made the city vulnerable.
Gray concluded her audit with a list of recommendations:
- Discontinue the practice of accepting cash payments, as cash is always susceptible to theft.
- Multiple employees should be involved in counting and depositing cash receipts.
- The handling of cash should be segregated from the recording of cash.
- All receipts should be deposited daily, and any new customer accounts be created promptly.
- The access to daily deposits should be limited by locking it in a separate safe.
Additionally, she recommended better approval and review of employee expense reimbursements. She also recommended the city hire an additional employee, with an accounting degree, to help safeguard against abuse.
Heaton said the City of Bardstown already complies with some of the recommendations. The city has hired a qualified accountant to work with its new CFO.
Heaton also said the city has significantly changed the way its employees handle cash. The CFO no longer handles cash paid by ratepayers, he said.
Bardstown, Kentucky. (WDRB Photo)
"I want to assure the citizens of Bardstown and Nelson County that we are committed to being good stewards of the city's funds," Heaton said in the Oct. 13 meeting. "Our City staff should be commended for the hard work that was done to uncover this illegal activity, identify all the missing funds, and make many changes to our day-to-day operations and accounting processes and procedures."
However, the city still hasn't improved the way it handles Occupational Tax Receipts. The mayor said a software upgrade will likely be needed. He also said the city doesn't plan to follow Gray's recommendation that it discontinue the practice of accepting cash payments. He said paying with cash is "part of the nature" of Bardstown.
To Thrasher, who considers himself a critic of Heaton's leadership, that's concerning.
"If they don't want to follow the recommendations of the auditor, then they can probably expect the same results," he said.
Meanwhile, the mayor said, despite the unfortunate situation involving the former CFO, the city's finances are in good shape. He said the embezzlement began before his term as mayor, and he said critics should consider the "whole body of work" of his administration.
Copyright 2020 WDRB Media. All Rights Reserved.
