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Corn Palace audit shows Schilling mishandled funds

An audit shows funds were mishandled by former Corn Palace director Mark Schilling. The Mitchell City Council is reviewing the audit at Monday night's meeting. (Sean Ryan/Daily Republic)

A state audit report released Monday says former Corn Palace Director Mark Schilling routinely counted money from the city-owned arena and tourist attraction’s cash registers alone in his office.

Schilling also failed to keep and maintain proper financial records and misused a city credit card on multiple occasions, including when he made more than $3,500 in improperly documented charges for a trip to Las Vegas to attend the Academy of Country Music Awards, the report says.

The Daily Republic was unable to reach Schilling prior to Monday’s Mitchell City Council meeting for comment on the findings.

The 20-page report was presented Monday night to the City Council by a representative from the South Dakota Department of Legislative Audit, which conducted the audit of the Corn Palace’s finances and operations in mid-December. Mayor Ken Tracy asked for Schilling’s resignation after he was shown the initial results of the audit earlier this month.

“At this point, we certainly don’t have any evidence that money was taken from the city,” Tracy said in an interview Monday with The Daily Republic. “I have said time and time again that (Schilling’s) resignation was asked for not because I have evidence that he took any money, but simply for failure to follow the procedures set forth by the city.”

The South Dakota Division of Criminal Investigation is also looking into the matter, Tracy said in an interview earlier this month.

Despite the detailed report, Tracy said he does not have evidence to suggest Schilling stole money or committed any crimes.

“I would like to believe that he didn’t,” Tracy said.

The state’s report found the Corn Palace’s internal controls over the money collected at the concession stands was “not adequately designed or functioning properly to safeguard assets or prevent and detect errors, fraud or abuse.”

Schilling, who was director of the Corn Palace for 13 years, told the auditors he normally took the cash tills from the cash registers, along with a detailed record of the transactions, to his office and counted the cash, checks and credit card transactions by himself, with no one else present, the report says. He would then discard the detailed transaction records from the registers.

On Dec. 13, auditors had a Corn Palace employee perform a flash report on all of the cash registers, which the report says is done by turning a key to a certain function to show the net sales on the register’s screen. A flash report on one of the registers found the net sales to be $4,320.26, but records of a later count recorded the net sales at $3,142.76 -- a difference of $1,177.50.

Due to a lack of proper record-keeping, auditors were unable to ascertain the reason for the difference.

“They simply could not track and determine what specifically was going on with the money,” Tracy said. “Was it deposited somewhere else later? We just don’t know.”

The report details at least seven instances in which Schilling made improperly documented or unusual charges to a city-issued credit card.

On Nov. 7, 2012, Schilling made a $3,587.90 charge to American Airlines Vacations and 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 found 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. Mickelson told the auditors that the tickets to the awards show were a gift from Romeo Entertainment Group, an entertainment agency that has helped the city find acts to perform at the Corn Palace. Accepting the free tickets was also a violation of city policy, the report says.

A $440 charge was made at Emeril’s New Orleans Fish House in Las Vegas with no supporting documentation, and was made during the trip to Las Vegas for the awards show, the report says.

Other charges made by Schilling noted in the report include a $70 charge to Allegiant Air; a $52.99 charge made to Directed-Smartstart, an app to remotely start a vehicle; a $123.49 charge made to Chula Vista Resort; a $50 charge made at Ruby Tuesday in Mitchell; and four charges totaling $1,019.43 made to, to pay for four sets of luggage.

Schilling later paid the city back with a check for $1,019.50 for the sets of luggage, but personal use of a city-issued credit card is a violation of city policy, the report says.

The report also notes Schilling traveled to various locations 15 times between Nov. 7, 2012, and Nov. 8, 2013, but only requested reimbursements for meals on two occasions -- both for trips to Las Vegas.

Tracy said he is unable to explain why the unusual credit card charges were not spotted by city officials 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. “But, they weren’t and we have to deal with that.”

Tracy said he was unaware prior to the audit that Schilling both counted money from the concession stands by himself and discarded detailed transaction records.

“That is unacceptable,” Tracy said.

In 2012, the Corn Palace’s concessions revenue totaled $481,996.59, or 41 percent of the facility’s total operating revenue. Schilling was being paid an annual salary of $66,059, as of the city’s required annual publication of its wages and salaries in January.

Since Schilling’s resignation March 3, the city has implemented policies to ensure at least two people are involved in counting the money and that detailed records of transactions are kept, Tracy said.

The report makes several other recommendations, including obtaining cash registers with the ability to reconstruct individual transactions, ensuring each register is balanced out each time a deposit is made and documenting and retaining records of all voided sales.

“We’re going to take a look at each and every recommendation and see how we can best implement that as we go forward,” Tracy said.

The city asked the state for the audit after Tracy was informed by multiple sources -- including Mickelson, the assistant director of the Corn Palace -- who he said told him there were certain procedures at the Corn Palace that needed review.

“I appreciate the fact that those people had the guts to come to me and tell me what was going on,” he said.

Mickelson has since taken over for Schilling on an interim basis.

The Corn Palace’s internal controls for money collected at donation boxes and vending machines were also inadequate, the report says. One of two change funds, used to exchange larger bills from the concession stands for smaller denominations and containing $3,575, was not properly monitored by a security camera.

The report also says the vouchers for payment to artists, performers and promoters for entertainment at the Corn Palace did not always include the contracts as supporting documentation for the payment. Auditors were able to find written agreements for only 10 of the 34 sponsorships for the Corn Palace for 2013. The lack of written agreements resulted in the city not being paid $2,000 in promised sponsorships, the report says.

Tracy said those sponsors have since been contacted and have paid the $2,000.

“We just have to have better record keeping and better follow-up,” he said.

Tracy said he would have addressed all of the issues brought to light by the report as soon as he became mayor had he known what was happening.

“Should I have known exactly what was going on? Maybe so,” he said.

As a result of the audit, Tracy said the city is in the process of implementing most, if not all, of the recommendations made by the state, as well as reviewing other city departments to ensure money is being properly handled.

“We will look at our procedures in each and every department to ensure this can’t happen elsewhere,” Tracy said.