Audits show that many towns don't have enough oversight of financesIn Veblen, most everybody knew Tamra Joyner. The mayor had known her since Joyner was a girl. There was no reason to suspect that Joyner, the finance officer, was stealing from the city. At least not until the town got a loan from the federal government and, in the process, was required to undergo an audit.
By: Seth Tupper, The Daily Republic
In Veblen, most everybody knew Tamra Joyner.
The mayor had known her since Joyner was a girl.
There was no reason to suspect that Joyner, the finance officer, was stealing from the city. At least not until the town got a loan from the federal government and, in the process, was required to undergo an audit.
LaVonne Jacobson, Veblen’s mayor then and now, recalled this week what it felt like to be confronted with evidence of the betrayal.
“I was left speechless, to tell you the truth,” she said. “When a state auditor hands you a check that very definitely has been altered, it scares the dickens out of you.”
As the mayor feared, the deception went far deeper than one check. Joyner took nearly $150,000 from Veblen — a town of fewer than 300 residents in northeastern South Dakota — between 1995 and 2001. After the crime was discovered, she was fired and convicted of grand theft by embezzlement.
Numerous local governments all over the state have suffered similar betrayals since then. It happened most recently in Frankfort, also in northeastern South Dakota and home to about 200 residents. The town generated statewide headlines earlier this month when its former finance officer pleaded guilty to taking between $50,000 and $60,000 from the city and the community center.
Yet despite the media attention given to such crimes, many small towns continue to operate in the same trusting way as Veblen and Frankfort did before the thefts were revealed. Complete financial control is often given to a lone finance officer — sometimes a part-time employee with little or no training — and no oversight is conducted.
That doesn’t lead automatically to embezzlement, but it does put a city at risk for criminal activity or mistakes. Auditors try to warn against such a lack of internal control by issuing an audit finding described as a “lack of proper segregation of duties.”
In general terms, that’s a situation in which one or a few people are given too much control over a local government’s money and bookkeeping. Many local governments are reminded of the problem year after year in their audit reports.
A Daily Republic review of the 128 current audit reports from South Dakota cities made publicly available by state officials revealed that 87 of them — 68 percent — contained a finding of a lack of proper segregation of duties. Many of the cities had been cited for the problem numerous years in a row, and while most of those cited were small towns, some were larger towns such as Sturgis and Brandon.
Auditors understand that small towns have limited resources and therefore have to depend on one or a few people to manage their everyday affairs. Small-town boards often lack the money to hire more financial help, and the board members themselves are sometimes too busy to check in on the finance officer.
Perhaps because auditors know the difficulties that small towns face, the solution auditors recommend is usually vague.
“We recommend that municipal officials be cognizant of this lack of segregation of duties for revenues and attempt to provide compensating controls,” reads the identical language from many audit reports, “whenever and wherever possible and practical.”
Still, the language is there for a reason, according to state Auditor General Martin Guindon.
“It’s there to point out that risk to those board members,” Guindon said, “so that they know about it and hopefully do something to try to compensate for that risk.”
So why do so many small towns fail to install safeguards? Veblen Mayor Jacobson said it’s probably not due to their inability to hire or recruit help. Instead, it’s the sense of trust and politeness that rules small-town life.
“Everybody knows everybody, and you just trust them,” Jacobson said. “You trust them, and you don’t question things as closely as you should. … You kind of think, ‘Jeepers, I hate to bring it up, because they’ll think I don’t trust them.’ ”
After Veblen’s former finance officer was jailed — she’s since been released and again resides in Veblen, where she’s making restitution payments of $50 per month — the town instituted some new policies.
Mayor Jacobson now pays far more attention to the minutes, which she said the finance officer had been doctoring to conceal criminal activity. Audits are now scheduled every few years, even if they’re not required by state or federal laws. And every month, one of the City Council members reviews the bills to make sure they match the finance officer’s records.
They’re just “little things,” Jacobson said, but they might have prevented a big crime if they’d been done sooner. When asked if she has any regrets, Jacobson was emphatic.
“You better believe it,” she said. “That taught us a nasty lesson.”
Bart Hildreth, dean of the Andrew Young School of Policy Studies at Georgia State University, said every local government should install safeguards like those enacted by Veblen — no matter how small the government.
“It’s hard in a small town when you know everyone, you know the person, you know who their parents were, you know who their children are,” Hildreth said. “But you’ve got to depersonalize this. It should be in place for the most revered person in town, as well as one of the newest people in town, if they’re entrusted with managing public funds.”
Furthermore, Hildreth said, it’s “not an effective response” for town leaders to argue that “we’re just too small or we don’t have enough money.” Many protective measures can be instituted at no cost and in little time.
According to Hildreth, those protections include following up on a bill to make sure it’s legitimate, conducting random internal audits of transactions, and setting up an audit committee consisting of board members or interested citizens to meet regularly and review a sample of transactions.
Whatever the methods, Hildreth said, it’s important to do something to minimize the risk of wrongdoing or mistakes.
“Implicitly, by not doing anything, they’re saying that they’re willing to take that risk,” Hildreth said.
Exceptions in state law may make small towns particularly vulnerable. South Dakota does not require towns with less than $600,000 in annual revenue to be audited regularly, though cities with annual revenue between $100,000 and $600,000 are required to conduct an internal control review — a more limited review than an audit — at least every five years.
Counties are required to undergo audits at least once every two years. The counties need more scrutiny, state officials have decided, because they collect all of the property-tax revenues that eventually flow to other entities such as schools and cities.
Schools, like counties, also are required to be audited at least every two years, regardless of their revenues. It’s thought that schools need the extra scrutiny because their records are relied upon to help determine state and federal funding levels.
Local governments can, of course, choose to have audits conducted more often than the law requires, and concerned citizens can request an audit by state officials if there is suspicion of misconduct or errors.
Guindon, the state auditor general, said the signs of misconduct are easy to miss if nobody is looking, but the methods are often rudimentary.
“One of the most common things that happens in these criminal cases is that people just start taking money — they just start writing checks to themselves,” Guindon said. “It’s easy to do when you’re the only one in the finance office.”
Veblen Mayor Jacobson doesn’t need to be reminded of that. She said all small-town councils that rely on one or a few employees to handle their finances should take measures to prevent embezzlement.
And for those who think it couldn’t happen to them, she has a warning.
“That’s what we thought, too. And it backfired on us.”