Mayor of Wrightsville repaying diverted funds

LITTLE ROCK — Wrightsville Mayor Lorraine Smith illegally diverted $4,619.81 of city money into a personal account over four years - a discovery made during the course of a larger ongoing investigation, federal prosecutors said this week.

Pat Harris, chief of the criminal division for the U.S. attorney's office for the Eastern District of Arkansas, declined to discuss the target or scope of the federal investigation.

But Harris said the U.S. attorney's office made an exception to its policy prohibiting public officials from participating in a pretrial diversion program by allowing Smith to enter the program earlier this year and ordering her to pay the money back to the city.

In the diversion, Smith deposited 15 checks made out to the city of Wrightsville into a personal "building fund" account between May 8, 2002, and April 17, 2006, said Cherith Beck, a spokesman for the U.S. attorney's office.

Smith has repaid all the money, Beck said.

Details of Smith's activities and the pretrial diversion agreement became public only after the city received Smith's first restitution check on April 17, for $2,619.81. The check, city officials said, arrived with a card that said Smith was ordered to pay the money as a result of a criminal proceeding, but no other explanation.

The U.S. attorney's office, at first, declined to publicly confirm or deny the existence of the pretrial agreement with Smith.

Harris said his office made an exception in allowing Smith to participate in the diversion program because she is elderly and willing to acknowledge what had happened and pay the money back.

"She was quite forthright," Harris said of the 82-year-old mayor.

The agreement is contrary to the policy outlined in the U.S. attorney's office Criminal Resource Manual, the agency's policy handbook, which says public officials accused of an offense arising out of an alleged violation of a public trust aren't eligible for pretrial diversion.

Pretrial diversion is an alternative to criminal prosecution, the proceedings of which aren't public record and are generally kept confidential. Participants are placed on probation for an 18-month period and if they comply with particular terms, they are able to have criminal charges pending against them dismissed.

Smith has repeatedly declined requests for interviews and didn't return phone messages left at her home and work Tuesday.

She told City Council members and city residents last week that she didn't know anything about the restitution check and that she had done nothing wrong. She then refused to discuss the issue further, despite pleas from those gathered at the council meeting.

Smith has since retained attorney Brannon Sloan of Little Rock. Sloan was in court Tuesday and unavailable for comment. He didn't return a message left at his office Wednesday, but a woman who answered the phone said she contacted him and he said he might release a statement today.

Neither Harris nor City Attorney William Zac White knew the exact date Smith had entered the diversion program. Both said they thought it was in February or March.

White said he hopes Smith will eventually explain how and why she moved money from city bank accounts.

"The city of Wrightsville would like to know where that money came from," he said. "If the mayor is supposed to take full responsibility for her actions, it would be the mayor's duty to explain it to the city."

The second check for the remaining amount owed hasn't been received.

A retired high school teacher, Smith is only the second mayor of Wrightsville, which incorporated in 1982. She has held the office since 1987.

This isn't the first time she has been accused of mishandling the city's finances.

In a 2007 review of the city's books by the state Legislative Audit Division, auditors said she and four unnamed City Council members were reimbursed $2,600 in travel expenses without the supporting documentation required under state law and city ordinance. The city also didn't report the payments for travel and meals to the Internal Revenue Service, as required.

That audit also found irregularities in the disbursements and deposit records kept by the city's former recorder and treasurer. It also noted that the city's district court didn't keep proper bookkeeping of employee pay and fines and costs.

A procedural review of the city's 2005 and 2006 books also identified $265,949 in city spending that hadn't been approved by the City Council, according to state auditors.

The recorder and treasurer and the mayor are signatories on the city's bank accounts, said City Recorder and Treasurer Patricia Rogers-Ward, who took office in January.

She and Aldermen Tracy Bunting and Sherrie Phillips were elected after promising they would run the city "by the book."

Untangling the city's past andstraightening out its finances are proving difficult, they said.

Rogers-Ward said the records of the previous recorder and treasurer are in disarray and that money in the city's bank accounts has been moved to other city bank accounts and accounts have been closed without her knowledge.

She said she also received notices that the city had bounced eight checks worth $23,018.68 between Dec. 12 and Dec. 26. For at least one of the accounts, she said her office doesn't have a checkbook and she doesn't know why or how the accounts were overdrawn.

She and Smith don't speak to each other outside public meetings, Rogers-Ward said, and Smith has refused to answer questions about the accounts.

The new officials also said they are concerned about the overall state of the city's finances. They said they are unclear about the amount of cash the city has on hand because statements for the bank accounts don't agree with the accounting they've been given in past budgets and financial statements. They also are working on revising a city budget prepared last year that shows expenses exceeding revenue by $15,685.79 in the street fund and $64,708.87 in the sewer funds.

"There's so much stuff that's going wrong around here," said Rogers-Ward, who ran against Smith in the 2006 mayoral election and lost.

Last week, after the city received the unexplained restitution check from Smith, the City Council voted 4-1 with one of its members absent, to hire White to help sort out the city's finances. The vote overturned Smith's veto of the decision. White replaced the city's former attorney, Ron Hope of Little Rock, who had held the job since 1989. The council fired Hope in January, also over Smith's objection.

White is working at a steep price - $25,000 upfront for work already completed through June 1 and $10,000 a month after that, along with a $250 hourly rate for work above a base level of service. He also will be provided office space, a full-time legal assistant and travel expenses from his Heber Springs office, two hours away.

Under the agreement approved last week, White is requiring council members to attend training sessions on topics such as the duties of each official, the actual authority of each City Council member and the procedure for conducting council meetings.

The agreement also requires the city to purchase and install video and voice recording equipment for council meetings and to contract for an independent audit of its finances.

The agreement is without known precedent in Arkansas, said Don Zimmerman, executive director of the Arkansas Municipal League.

"It sounds like they are placing all their faith in their city attorney to help them through all of this," Zimmerman said.

Statewide, city attorney salaries average about $7,600 per year - or about $633 a month - in cities with populations between 500 and 2,500, he said. City attorneys typically work part time.

Wrightsville has a population of 1,368, according to U.S. census data from 2000. Roughly half the population is made up of inmates at two state prisons within the city limits, the Wrightsville Unit and the Hawkins Center for Women.

White said the agreement he asked the city to sign protects his firm from the risk of representing Wrightsville, given the allegations of mismanagement and the state of the city's recordkeeping.

He said he agreed to help the city until the council is able to find a full-time city attorney.

"I was interested in the situation because a well-functioning and responsible government, I hold that dear to me at any level," he said. "I'm there to get the city back on track." Information for this article was contributed by Kristin Netterstrom of the Arkansas Democrat-Gazette.