By Lynn Kutter
ENTERPRISE-LEADER
FARMINGTON -- Former city finance director and court clerk Jimmy Story is accused of misappropriating more than $1.5 million over a 8-year period by receiving revenues for Farmington District Court and the city's general fund but not depositing the money into the appropriate bank accounts, according to an investigative report issued by Arkansas Legislative Audit.
The report, issued Friday morning in Little Rock, was released to the public during a meeting of the Legislative Audit Committee. Farmington Mayor Ernie Penn and city business manager Melissa McCarville attended the meeting to answer any questions.
The report states that Story was the sole employee responsible for preparing and making bank deposits, reviewing and reconciling bank statements and entering information into the court's case-management system. He also was the only city employee authorized to enter and edit information in the court system.
It shows that $1,528,393 in revenues was not deposited into the District Court account from Jan. 1, 2009, to Dec. 6, 2016. Another $43,629 was not deposited into the city's General Fund over the same period.
Story, a 21-year employee with Farmington, resigned Dec. 5, 2016.
The report has been forwarded to the FBI, IRS, Fourth Judicial District Prosecuting Attorney and U.S. Attorney's Office with the Western District of Arkansas.
Story's attorney, Kim Weber of Rogers, on Friday acknowledged Story is under federal investigation.
"We disagree with the amount attributed to my client," Weber said, declining to elaborate.
She said she expects the federal investigation to "come to a head" within the next few weeks.
A spokesman with the U.S. Attorney's office said the matter is under investigation and the office could not issue a comment at this time.
The Legislative Audit report states that a review of court and city financial records revealed internal control over the receipting, recording and depositing of revenues was deficient. Specifically cited was a lack of segregation of duties and fiscal oversight allowed court and General Fund revenues not to be deposited and preventing management from detecting the misappropriation of funds.
Defendant payments were not entered into the court's computer system when they were paid and were not reconciled to deposits.
"Because the payments were not entered into the system's receipting module at the point of collection, Story had the opportunity to create adjustments to reduce the balance due from defendants," the report states.
The report states auditors found that Story made five types of unauthorized adjustments to the court's system to reduce the monetary balance that was due from defendants and conceal the funds not deposited.
He used more than 14,000 illegal adjustments to fabricate reasons that fines, costs and fees collected were not entered into the system. The report notes that Story destroyed court records, according to city personnel.
More than $900,000 of the missing money came from making unauthorized adjustments to the case file, such as showing that the judge had suspended or partially suspended fines, fees or costs.
Penn on Friday afternoon said he was questioned by about 10 legislators at the meeting.
He said one legislator asked him, "You didn't have someone looking over his shoulder?"
Penn said his reply was, "No sir, we didn't."
Another legislator wondered how a town the size of Farmington would not notice that amount of money missing.
Penn said there had been questions asked the last few years about why court revenues had decreased, but Story and the Police Department were able to justify the decrease in revenues because the number of tickets issued had declined over the years.
Declining tickets made sense, Penn said, because the city now has seven traffic lights along U.S. 62, which means not as many vehicles are speeding through town. In addition, officers are patrolling more throughout the community, he said.
Penn said he still is shocked by the news, noting he completely trusted Story and the job he was doing for the city.
The bottom line, Penn said, is that "He (Story) stole cash from people who paid their fines in cash over an extended period of time."
Penn emphasized that no money is missing from the city's operating budget. The money missing is cash that was paid at City Hall.
"We did not lose any money from our bank accounts. None of those have been compromised," Penn said.
City staff discovered the discrepancies after Story's resignation. Penn said Story's replacement was reviewing the court's case-management system to make sure she remembered how to use it. She knew of a fine that had been paid in cash by a relative but then didn't see where that revenue showed up on the bank deposit.
McCarville then saw discrepancies between the amount of money that went through the cash register and what was actually deposited in the bank.
Penn said McCarville told him, "I think he's been stealing money."
After more reviews, the city took its findings to the Washington County Prosecuting Attorney's Office. It was then recommended to notify the FBI and request a Legislative Audit.
Penn agreed with the audit's findings that the city's internal controls were deficient, saying, "Yes, there were probably more safeguards we could have done or had in place that could have prevented this."
The city has a limited office staff of three, but Penn said that is not an excuse.
He said he assured the Legislative Audit Committee the city would put in place or already has put in place all recommendations made by the auditors to avoid this in the future.
In a written response from the city to the Legislative Audit Committee, the city notes it has added a deputy court clerk's position. Duties have been segregated through the city's four-person office staff so that no one person has complete control over deposits, cash, reporting or reconciliations.
Other safeguards are that the city is now using the bank's automated cash management system and has new cash control procedures that include the mayor and city clerk.
All payments will go through the city cash register or the court's case-management system and receipts will be computer generated by the system. Manual receipts will rarely be used.
The city's answer also states the mayor's position will become full-time in the next election cycle, 2019, adding another another person to office staff.
The audit report notes that the city was audited by Joint Legislative Audit Committee until 2007, when it began using a private certified public accounting firm, Przybysz & Associates of Fort Smith.
Penn said the city began using a private firm because of its loan with the Arkansas Natural Resources Commission. The commission required the separate audit and the city decided to use only the one firm, instead of having two audits done each year.
Now, Penn said, his recommendation to Farmington City Council will be to return to legislative audits, even if the city has to have two audits each year.
Penn expressed his appreciation to city staff during the investigation.
"I'm proud of our city staff. They found some of the issues and pursued them on their own. They've conducted themselves very professionally with the FBI and Legislative Audit," Penn said.
General News on 10/18/2017