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$20K audits fail to find Corn Palace problems

The city of Mitchell pays upwards of $20,000 per year for annual audits, but those audits never caught the mishandling of funds at the city-owned Corn Palace.

The Corn Palace issues were revealed recently in a targeted, one-time audit led by Russ Olson, an audit manager with the South Dakota Department of Legislative Audit. He said the annual audits are broader and could easily have missed the specific findings about Corn Palace finances and procedures.

Olson presented a 20-page report Monday to the City Council. He performed his audit in mid-December, aided by two of his department's staff members, at the request of Mayor Ken Tracy.

That audit, Olson said in an interview Wednesday with The Daily Republic, had much more specific objectives than the city's annual audits.

"We were looking specifically at the control activities of the Corn Palace -- a more focused, directed type of issue," Olson said.

The state's audit revealed former Corn Palace Director Mark Schilling routinely counted money from the city-owned arena and tourist attraction's cash registers alone in his office, failed to keep and maintain proper financial records, and misused a city credit card on multiple occasions.

Tracy asked for Schilling's resignation after Tracy was shown the initial results of the audit earlier this month. Tracy said in an interview Monday he does not have evidence to suggest Schilling stole money or committed any crimes.

In November, the council authorized Gary Larson, a certified public accountant from Pierre, to perform the city's annual audit for the 2013 fiscal year. Larson will be paid $24,000, according to an agreement included in the council's Nov. 18 agenda booklet.

Calls to Larson made Wednesday by The Daily Republic were not immediately returned.

That audit is expected to be performed in the near future, according to Cindy Roth, the city's deputy finance officer.

The city's annual audits may not have caught the issues brought to light by the state's audit of the Corn Palace, but that doesn't necessarily mean there is anything wrong with the city's annual audits, Olson said.

"As auditors, we would all like to catch all these items, but sometimes they just slip by," he said.

Council President Jeff Smith said in an interview Tuesday that the situation should encourage the council to ask more questions during the audit process.

"Internally, it's going to be a requirement that we look at all departments and their procedures as we move forward," Smith said.

According to the city's agreement with Larson, the city's annual audit does not include a detailed examination of every financial transaction, which means "there is a risk that material errors, fraud, or other illegal acts or noncompliance may exist and not be detected."

The state's audit did include a review of all of the transactions in a set time period at the Corn Palace.

"We certainly looked at things in a lot more detail," Olson said.

The state's audit report describes at least seven instances in which Schilling made improperly documented or unusual charges to a city-issued credit card. Those included a $3,587.90 charge to American Airlines Vacations for which the only documentation included was a confirmation statement from the airline, which did not include any details of the destination, travelers or accommodations — a violation of city policy, the report says. The charge was later determined to be for two individuals, Schilling and Assistant Corn Palace Director Jeri Mickelson, for a trip to Las Vegas to attend the Academy of Country Music Awards.

Tracy said he can't explain why the unusual credit card charges weren't spotted by the city's finance office prior to the state's audit.

"There are instances where I think it probably should have been caught and documentation should have been provided before payment was made," Tracy said in an interview Monday with The Daily Republic. "But they weren't, and we have to deal with that."