CAVE SPRINGS -- Cave Springs officials overcompensated employees, made purchases above authorized amounts and mismanaged taxpayer money, according to a report by state auditors.
The city failed to meet the requirements of state law in 22 instances from 2015 through 2016, the report by Arkansas Legislative Audit found.
The city put $61,307 from its street fund into the general fund in 2016, in violation of the law, according to the report released last week. The city did the same thing with $19,709 the previous year, according to the audit.
The audit also found a number of expenses paid without proper authorization by the City Council, though they were not cited as failures to meet legal requirements.
For example, the city recorder-treasurer was overpaid by $14,509 in 2016, the report found. Another example stems from an April 12, 2016, city resolution that authorized the purchase of a vehicle for $23,165. The vehicle ordered, however, came with accessories that added $10,155 to the cost, and the vehicle's base purchase price was $23,500. This resulted in "a disbursement in excess of appropriation totalling $10,490," the report says.
The findings come as the city faces the possible loss of $391,000 out of a $1.7 million general fund budget. The city failed to reauthorize its property tax for 2017, according to city records, so Benton County cannot continue collecting that tax. The lapse also drew mention in the audit report.
In a meeting Aug. 4, County Judge Barry Moehring is to consider the city's request to keep collecting the property tax, said Justin Eichmann, Cave Springs city attorney.
Eichmann said city leaders have worked to straighten out the city's finances and are tentatively planning a meeting as early as next week to go over the audit's findings.
"We have been waiting for this to come and knew it would be bad," Eichmann said of the audit. "It is one of the worst I've ever seen."
Cave Springs put $131,488 of franchise tax money pledged for debt service into its street fund in 2016, according to audit findings. No state law was cited in that instance by the audit report. That was a case of the franchise tax collections going into the wrong account, and the error has been corrected, Eichmann said.
Neither Mayor Travis Lee nor city Recorder-Treasurer Kimberly Hutcheson returned calls requesting comment Monday. Both received messages requesting an interview, a spokesman for the city said. The Benton County city has about 3,800 residents.
Lee and Hutcheson have been locked in a dispute since September, when Lee sent Hutcheson home and blocked her from accessing city computer data. Lee said he did so because Hutcheson had mistreated city workers.
Hutcheson is suing Lee, the six-member City Council and two former council members, saying the mayor and other elected officials won't let her do her job. The lawsuit claims Lee and the council members violated Hutcheson's constitutional rights by punishing her and restricting her ability to do her job. The defendants have denied the allegations.
Most of the instances cited in the audit as noncompliance with state laws involve record-keeping provisions of those laws. For example, the city made electronic payments without using a method approved by the Legislative Joint Auditing Committee, as is required by law, the report says.
The mayor also hired attorneys without City Council approval, the audit said. Council approval of such hires is required, according to the report.
The city also "paid a vendor $1,093 to set up a nonprofit organization, Friends of Cave Springs, for which the mayor, recorder-treasurer and a city employee were officers, in conflict with [the] Arkansas Constitution, Article 12, Section 5," the report said.
Prosecuting Attorney Nathan Smith is reviewing the audit findings, he said Monday. Smith concluded in May that an Arkansas State Police investigation found no criminal intent in the failure to reauthorize the property tax.
Most of the financial problems cited in the report involved putting money in the wrong accounts, not money missing or spent for an unintended purpose, according to Eichmann. The city hired David Williams of Benton County, an experienced auditor, some time ago to try to straighten out its finances, Eichmann said.
"We have a lot of people in city government who have had to learn on the job, and that played a role in the chaos," he said.
The city's finances will not be sorted out quickly, he said.
The City Council fired 10 administrative employees earlier this year and sold the police-equipped Dodge Charger it bought last year to be used by the mayor and other city administrators.
Other problems that were found by the audit but not cited for noncompliance with state law include:
• A former police chief was overpaid by $6,993 for unused sick leave and paying him twice for unused annual leave, for an over-payment of $2,600.
• The mayor entered into a $194,835 contract with an engineering firm without City Council approval.
• The mayor's assistant "was paid a car allowance of $4,800 that was not authorized by the council."
• Two employees, unnamed in the report, who were not eligible for family plan health insurance in 2016 got coverage anyway at a total cost to the city of $8,100.
• In the recorder/treasurer office, "receipts were not deposited timely and intact. Numerous posting errors were noted," and the records were so incomplete that Legislative Audit "could not report receipt tests for all funds for 2016 and 2015."
• The city violated its policy of paying 42 cents a mile for travel and instead paid 57.5 cents, and it reimbursed travel mileage without a documented business purpose or a mileage log.
• Cave Springs put an unspecified amount of money meant for legal fees and information technology services into the street fund.
• City vehicles were used for routine commuting, and that benefit was not reported on the involved employees' W-2 forms as is required by the IRS.
• Payroll records also omit some required documentation. "All eligible employees were not enrolled in retirement plans, and employee retirement contributions were not properly deducted from" workers' paychecks, "reconciled to retirement statements and paid by the city."
A Section on 07/25/2017