The law — passed unanimously by the Iowa Legislature during its 2012 session — would require small towns, with fewer than 2,000 residents and a budget of more than $1 million for two fiscal years in a row, to undergo audits on a more regular basis.
Cities that fit the requirement also would be subject to periodic exams at least one time during an eight-year period, the law says. The law becomes effective July 1, the first day of fiscal 2014.
The changes were proposed after state auditor David Vaudt found that, in a study of fraud investigations over two periods of six years (with the most recent period ending in 2011), fraud in small towns had increased 350 percent, while fraud in other towns generally remained consistent.
Marge Hortman took over as city clerk for the 126-resident town of Masonville after the former clerk, Christine King, was accused of mishandling more than $84,000 by the state auditor in a report released last month. King was fired after that report was released.
Hortman said cities Masonville’s size often are trusting of their employees, which prevents them from putting the appropriate checks and balances in place. Hortman, who also serves as a city clerk for two other small towns, said she supports the law.
“I welcome it. I think it’s a great way to keep the checks and balances,” Hortman said. “I think it’s a great idea just to keep things in check, at least then it won’t go so long if someone is doing something wrong, and it won’t go so many years without him or her being caught.”
Hortman said insurance only covered $10,000 of the money they lost and, though first-degree theft charges have been filed against King, the city is not counting on the money being returned, which will be a financial strain.
Things are even more uncertain in the 289-resident town of Stockport, where former city clerk Beverly Runyon was accused of misusing $48,000 in a report released by the auditor last month.
Haylee White, Stockport’s new city clerk, said those with the city aren’t sure how much money they will be able to get back or whether charges will be filed. The town has, however, already put the appropriate checks and balances in place to prevent it from happening again. White said she also supports the new law
Similar changes have been made in Buffalo, where a state audit released in January led to former assistant city clerk Kimberly Kauffman being accused of more than $9,000 in improper disbursements. Though Buffalo City Attorney William McCullough said the city hasn’t determined whether fraud or human error was to blame, that employee has paid restitution.
In each of these cases, the employee in question lost their job and has since been replaced. Only one of those employees has had criminal charges filed against them.
Vaudt said most fraud issues in small towns come from a lack of segregation of duties in small communities, which often leave one person in charge of everything, with little oversight.
Even though the law doesn’t go into effect for a few months, Vaudt said his office has been working on new procedures with cities so his office is prepared.
Vaudt said while fraud cases may increase temporarily because of the increased enforcement, he hopes the legislation will eventually dissuade people from committing fraud by proving they can get caught.
“I will tell you, in many cases the frauds I used to think would be generated by people who had a perceived need, like a spouse lost employment or an illness, but we find that a lot more of it is greed instead of need,” Vaudt said. “People want to live a higher lifestyle than they are.”