State audit says $1.5M gone from 1 Arkansas city's accounts; FBI, IRS look into vanished fees, fines

Rep. Andy Mayberry, R-Hensley, is shown in this file photo.
Rep. Andy Mayberry, R-Hensley, is shown in this file photo.

The FBI and the IRS are investigating about $1.57 million missing from accounts in the city of Farmington, a legislative auditor told lawmakers Friday.

The money was from court fines, costs and fees and city general fund revenue that wasn't deposited between 2009 and December 2016, the auditor said.

Jimmy Story resigned on Dec. 5, 2016, as Farmington's court clerk and city finance director after working for the city for 21 years, said Dusty Breedlove, a staff auditor for Arkansas Legislative Audit.

The audit of Farmington has been sent to Prosecuting Attorney Matt Durrett's office, the U.S. attorney's office in western Arkansas and the two federal agencies, Breedlove said during a meeting of the Legislative Joint Auditing Committee.

Farmington, with a population of about 6,800, is several miles outside Fayetteville in Washington County.

After the committee's meeting, Story's attorney, Kim Weber of Rogers, said that "we disagree with the amount" attributed by legislative auditors to Story.

Asked whether Story or somebody else took the money, Weber said, "I cannot comment on that."

The federal investigation will come to an end in the next few weeks, she said.

During the committee's meeting, Rep. Andy Mayberry, R-East End, noted the size of Farmington's population and said the missing money "seems like just an outstanding amount of money for a city of that size to be missing, and no one noticed that there's something amiss."

Farmington Mayor Ernie Penn said, "The only thing that we saw was the trend of the revenues from court fines decreasing."

"But that was justified by the court clerk and the police chief that the number of tickets being issued [was declining]," he told lawmakers. "I am more shocked than anybody here. When I saw the final figure, I was devastated. I just couldn't imagine that happening over a seven-year period of time."

Penn said only part of the missing money would have gone back to the city.

"Fortunately, we've always budgeted very conservatively on any kind of revenue estimations each year, and our expenses, we maintain them at a very level amount. They may increase 2 [percent] to 4 percent a year," Penn said.

Farmington has $3.2 million in reserves, he said.

"I think that is good fiscal responsibility for a city our size," the mayor said.

Penn said Story is under federal investigation and "we anticipate resolution here pretty soon."

Breedlove said legislative auditors reviewed selected financial records and transactions of Farmington at the request of Durrett's office. The prosecutor's office later asked for the assistance of the FBI and the U.S. attorney's office, the auditor said.

Story started working with the city in 1995. He was the sole employee responsible for receipting and depositing revenue; reconciling bank statements; and entering and editing information in the court system, Breedlove said.

Farmington was audited by Arkansas Legislative Audit until 2007. Then the city was audited by a private accounting firm from 2007-15 and received a "clean" opinion from the firm, he said.

Przybysz and Associates of Fayetteville is the accounting firm and Farmington pays the firm more than $5,000 a year for its audit, said Melissa McCarville, Farmington's business manager.

The accounting firm issued a report in February that disclosed about $34,000 to $70,000 in cash was not deposited in the city's general fund bank account between December 2010 and November 2016, Breedlove said.

Legislative auditors' review of court fines, costs and fees found that defendant payments were not entered into the court system at the point of collection and not reconciled to the deposits, Breedlove said.

Instead, defendants were issued handwritten receipts and the payments were later given to Story for entry into the system and deposit into the city's bank account, he said.

"Because the payments were not entered into the system at the point of collection, Story had the opportunity to not deposit the cash and create adjustments to reduce the balance due from the defendants," Breedlove said.

For example, at the point of collection, a defendant was issued a handwritten receipt for payment of a $320 fine, but the payment was not entered into the system nor deposited in the city's bank account, he said. Instead, cash was given to Story, who is believed to have reduced the balance due from the defendant and concealed the funds not deposited, Breedlove said. The defendant was found guilty and paid the fine, so there was no reason for an adjustment to be made, the auditor said.

Story is thought to have made this particular type of adjustment more than 4,700 times, more than $927,000 in total, Breedlove said. Story is believed to have made four more types of unauthorized adjustments in the system to reduce balances due, Breedlove said. In total, Story used more than 14,000 unauthorized adjustments to fabricate reasons that $1.53 million in fines, costs and fees weren't entered into the system and were not deposited, Breedlove said.

"It should be noted that, according to city personnel, Story also destroyed court records," he said. "Because all records were not available for review, the staff cannot determine if funds in addition to the $1.53 million was actually misappropriated."

But Weber said that some of the records were not destroyed on the basis of Story's initiative, and some of the adjustments were authorized by a district judge.

Legislative auditors also compared the general fund's cash register receipts to revenue recorded in the financial accounting system and deposited by Story. The review indicated cash receipts of more than $43,000 were not deposited, he said. The revenue processed through the cash registers included various fees and other miscellaneous revenue, he said.

Penn said, "We have increased staff, and the clerk has delegated the cash transactions to another person." The city took other steps recommended by Arkansas Legislative Audit to guard against future problems, he said.

Sen. Linda Chesterfield, D-Little Rock, asked Penn to consider contracting with another accounting firm.

Rep. Bob Johnson, D-Jacksonville, said Farmington officials should consider asking Arkansas Legislative Audit "to come in, and make sure that this auditor hasn't missed something."

Penn said Farmington officials will discuss these options.

Rep. Kim Hammer, R-Benton, said he wanted the committee's co-chairmen to consider bringing in the private auditing firm for questions. The committee's co-chairmen are Sen. Jimmy Hickey, R-Texarkana, and Rep. Richard Womack, R-Arkadelphia.

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Farmington Mayor Ernie Penn is shown in this photo.

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Jimmy Story (shown in this file photo) resigned on Dec. 5, 2016, as Farmington’s court clerk and city finance director after working for the city for 21 years

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