The mayor of the small Sebastian County city of Bonanza fielded numerous questions Friday from legislators after a state audit indicated the city's administrative assistant, who is the mayor's daughter, took thousands of dollars from the city just a couple of years after pleading guilty to stealing from the city while serving in the same role.
Arkansas Legislative Audit released a financial and compliance report on the city to the Legislative Joint Auditing Committee on Friday. The report reviewed 2019 through 2021 and noted noncompliance with state law and accepted accounting practices within the offices of Mayor Elmer Nelson and administrative assistant Laurie Denham.
Bonanza, located in western Sebastian County, has a population of approximately 600 residents and operates under the mayor-council form of government with a six-member City Council.
A review of city records for the period Jan. 1, 2018, through May 5, 2022, revealed unaccounted for funds and unauthorized disbursements totaling $216,916 under Denham's watch.
Arkansas Legislative Audit senior auditor Jimmy Locke said the agency issued four different findings against Denham. The report noted numerous payroll issues, including payroll taxes that weren't properly filed, reported and remitted to the Department of Finance and Administration.
"Additionally, the administrative assistant, who also served as payroll preparer, did not always issue payroll disbursements through the payroll system and did not properly report payroll disbursements to herself on her IRS form W-2," Locke said. "Several of these payroll issues were noted in the prior report."
Locke said the current report also contains a shortage finding for Denham, who maintained the bank accounts and accounting records and was responsible for receipting and depositing city funds.
The unaccounted for funds totaled $178,874 and included $173,404 in undeposited water bill payments, as well as $5,470 in undeposited manual receipts from city funds.
Of the $38,042 in unauthorized disbursements, a little more than $16,700 went to salary overpayments to Denham and $21,334 went to gift cards purchased by Denham.
"Of the 125 transactions for gift cards, 39 were altered on the bank statements," Locke said.
"Everything that was there, everything about it, is true," Nelson said. "I was totally unaware of it. She took care of all the books and stuff, and it hit me like a wedge.
"She was there a year before I got voted in, and the City Council made an exception that she could stay and work for me since she was there prior to that. She was there with me for the duration of the time."
Arkansas State Police are investigating, and the case has been turned over to the local prosecutor.
Locke said prior-year shortage findings, covering 2012 through 2016, involved unauthorized salary payments by Denham to herself.
"These findings were referred to the prosecuting attorney, and the administrative assistant pled guilty to theft by deception and paid restitution in full in 2017," he said.
Nelson, who was sworn in in front of audit committee members, said, after Denham was cited the first time, the City Council unanimously voted to reinstate her into the same position.
Locke told committee members it should be noted that Nelson, who was elected in 2016, is Denham's father and that Denham was employed by the city as its administrative assistant until November 2022.
That led to a deluge of questions by legislators.
"She pled guilty to stealing thousands of dollars of taxpayer dollars and you kept her on your staff after she pled guilty to that?" said Sen. Trent Garner, R-El Dorado.
Nelson responded by asking Garner which time he was talking about.
"The first time she pled guilty to a criminal proceeding for stealing taxpayer dollars on the city roll," replied a clearly frustrated Garner.
Nelson said the City Council made the decision to keep Denham on staff.
"What kind of dereliction in common sense and duty did you as a father allow that to happen to the citizens of your city?" Garner asked Nelson. "... Sir, we deal with a lot of issues with people stealing. I understand it can happen to any city or county official. I understand she is your daughter. But the fact that she got found guilty, admitted to that, and then you allowed her to stay there?
"You can blame it on the City Council all you want. You're the mayor, you're her father, and then she defrauded the people of your city again. You're responsible for that as much as she is, sir, and that is unacceptable as an elected official and I hope the people of your town hold you accountable."
Nelson said he only realized his daughter was stealing from the city after the legislative audit.
The audit also issued two findings for the office of mayor.
Locke said an annual audit or agreed-upon procedures report has not been completed and submitted to Legislative Audit for the city's water department for the years 2016 through 2021, as required by law. The second finding was that the minutes of the governing body didn't document the complete review of the prior report and accompanying comments by the governing body, as required by law.
"It should be noted that Legislative Audit does not conduct the financial audit for the water department," Locke said. "Rather, the city is responsible for hiring a private CPA firm for the water department audit."
Rep. Fred Love, D-Mabelvale, questioned Nelson on why an audit wasn't done on the city's water department over the years when his daughter was handling the finances.
"You are supposed to have done an audit on a yearly basis, and your daughter at the same time was stealing from the water department," Love said. "So do you understand how that looks to us?"
Nelson said he understood the perception but noted that he had hired someone to conduct three audits. He said the person he hired completed only one audit over a span of multiple years.
"What I don't get is that she moved from a financial position to a financial position after pleading guilty to theft," Love said. "So after pleading guilty, did nobody think of overseeing the work that she was doing?"
Nelson told committee members that when he became mayor the town was "really messed up" and that so such improvement was made that some details might have been overlooked. He said his daughter was a likeable person who did a lot of work for the town, which was why the City Council was willing to reinstate her.
Love said he understood small town politics but said the issue deserved questions.
"I know that this is your daughter and it's difficult to say, but I find it hard to believe that we move her from a financial position to another position of overseeing finances regardless of the fact the City Council said it was OK," he said. "It doubles down when the mayor is her father and her boss.
"I just hope this doesn't happen again and you put some safeguards in place."
Nelson said the city is working on having monthly audits of the new administrative assistant's work.
Rep. Rick Beck, R-Center Ridge, suggested requiring double signatures on checks.
"Auditing something a month later, it's too late. The milk has already spilt," he said.
Nelson said the city already had a double signature method in place when his daughter was working there.
"We have three people on the council and myself who can sign on for the double signature," Nelson said. "... She made the checks for the week and we would just sign it.
"We didn't pay much attention [to] what we were signing. We just saw a Staples bill and signed it. I didn't know you could embezzle off a Staples bill."
That response left some legislators baffled.
"Maybe you should have someone else audit then," Beck responded.
Elmer Nelson, Mayor of Bonanza, answers questions from the Joint Legislative Audit Committee about a shortage of funds caused by his daughter allegedly embezzling over $200,000 during a committee meeting on Friday, Dec. 2, 2022.(Arkansas Democrat-Gazette/Stephen Swofford)
Rep. Gayla McKenzie, R-Gravette, reads a report on unaccounted for and misappropriated funds by the city of Bonanza during the Joint Legislative Audit Committee meeting Friday. (Arkansas Democrat-Gazette/Stephen Swofford)