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Iowa auditor releases report on Armstrong finances

By Staff | Sep 28, 2017

In a report dated March 28, 2017 and released to the public yesterday, Iowa Auditor of State Mary Mosiman detailed issues with the City of Armstrong’s finances.

$88,600.00 is the estimated amount for undeposited utility collections. Another 12,050.10 in improper and unsupported payouts, including late fees, penalties and interest to the IRS and other providers and vendors, creates a total of over $100,000 in loss to the City for improper financial management by the city council and staff


The beginning

The City first contacted authorities in November 2016, citing the lack of cash deposited for the pool and utility billings for several months. Nov. 29, the Emmet County Sheriff’s office removed financial records from city hall. Included in the items the Sheriff’s department seized was an envelope containing a significant amount of cash, uncounted and undeposited.

Mosiman said in the report, “As a result of the concerns identified and confusion regarding the cash collections, we determined it was appropriate to perform a special investigation.”

The City contacted the Auditor’s office to perform an audit for the fiscal year ending June 30, 2016. However, the City was unable or unwilling to provide financial records in order to complete an audit. The next step is to compile the financial information, but the Auditor’s office was unable to complete this, also due to a lack of records provided. Finally, the Auditor’s office completed an examination.

“An examination is designed to focus on the financial processes of a city to help ensure accountability and compliance,” said Mosiman

The examination was complicated by the assertion by city officials that a May, 2016 upgrade to the computer operating system caused a computer failure and resulted in the City losing all financial information stored in its accounting system. This was exacerbated by the fact that the City had no backup for its information.

Mosiman stated, “We were unable to verify the computer failure [and] we were unable to locate sufficient records in City Hall.”

The City was also unable to locate paper copies of a general ledger and utility reports which might have been printed before the alleged computer failure.

Staton and Evans receive

$2,622.45 in improper payments

The Auditor’s special investigation determined former city clerk Mary Kate Staton and former maintenance worker Tylor Evans, who live together as partners, received $2,622.45 in unsupported and improper payments, mostly in the form of checks written by Staton to herself or to Evans. Evans also received four overtime payments, which were unsubstantiated and the Auditor said were impossible to place with a specific pay period. A fifth overtime payment was issued to Evans Sept. 12, 2016, but not approved by city council.

Payroll checks were part of Staton’s duties.

May 9, 2016, Staton received a wage increase of $0.75 per hour. May 10, she received $520 for 693.3 hours of back pay at $0.75 per hour. No support or documentation was available to explain this payment nor could city officials provide additional information.

Aug. 11, 2016, $210 was withheld from Evans’ payroll check. The report states, “Check number 21888 was issued to an individual,” instead of to an entity that might garnish Evans’ check.

The state Child Support Recovery Unit filed an order for income withholding against Evans on Aug. 16, 2016. Staton filed an additional petition for child support from Evans in Winneshiek County Sept. 7, 2017, according to court records.

The city provides up to $400 per year for dental and optical expenses for each employee. Staton and Evans each received $400 for vision and dental reimbursement on Sept. 12 and Oct. 11, 2016, respectively, but there was no documentation to substantiate any vision or dental expenses. The payments were also not included in their taxable wages.

Staton received a $300 check July 12, 2016 for a cell phone allowance. However, the City did not have a cell phone allowance policy.

Staton issued herself a check for $605.82. The check was cosigned by Mayor Greg Buum, but not approved by the city council. The Auditor was unable to determine what the payment was for because there was no documentation and city officials did not provide an explanation for the payment.

Staton issued checks to Evans in the amount of $601.76 on Nov. 14, 2016 and $325.87 on Dec. 14, 2016 without documentation of what the payments were for, approval by the city council, nor an explanation by the city council for the payments.

Staton was paid $936 Oct. 16, 2016 for 72 hours of paid time off. City policy states no more than 40 hours of unused PTO, which would have been $520 at Staton’s pay rate, should have been paid.

Late fees, penalties

and interest

In addition to $574.65 to vendors, which had no documentation of what they were for, nor approval by the city council, nonpayment of bills and fees resulted in nearly $8,000 in late fees, penalties and interest. Of this, $6,408.35 was for the IRS 941 reports for 2016, and $982.94 has accrued for late fees, penalties and interest for the 941 reports for 2017. The city’s credit card, AgSource, Ringtel, Stanley Propane, One Source, and the IMWCA comprised the additional fees.

Moving Forward

The Auditor also reviewed the procedures used by the City to perform its financial duties, and recommended practices and procedures for the City to use in order to prevent a severe issue in the future.

“These procedures provide the actions of one individual will act as a check on those of another and provide a level of assurance errors or irregularities will be identified within a reasonable time during the course of normal operations,”?Mosiman wrote in the report.

The Auditor provided 23 recommendations of better practices to the City, some of which are changes bringing the City into compliance with Iowa Code.

Copies of the report were filed with the Emmet County Sheriff’s Office, the Division of Criminal Investigation, the Emmet County Attorney’s Office, and the Attorney General’s Office.