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Full ‘forensic audit’ of Fairmont rejected

FAIRMONT — Among the full slate of agenda items the Fairmont City Council will face at its meeting Monday are updates on a trio of topics that have cultivated a host of conspiracy theories at the coffee shop and on social media: a forensic audit of several areas of the city’s finances; criminal matters not prosecuted within the statute of limitations; and an investigation to determine which, if any, city staff knew about the aforementioned criminal matters.

While the council’s agenda offers no advance information about the criminal matters or the investigation, the docket reveals that the scope of the forensic audit has been greatly diminished following an Oct. 30 conference call between city staff representatives and audit staff from the Minnesota Office of the State Auditor and its respective legal representatives.

The State Auditor’s Office reviewed potential issues presented during the conference call and determined that the only appropriate area it would review would be the transfer of proceeds from the Fairmont Municipal Liquor Store. The timeline of the audit would run for 17 years, from January 2002 to January 2019, when funds from the liquor store were no longer being used for the dredge fund, and the audit would identify what the liquor store proceeds were used for during that period.

The OSA estimates the cost of such a review at $5,000, but the city would be billed for the actual time and costs incurred by the OSA, whether that amount is higher or lower than the estimate.

The council will vote Monday on whether to proceed with the liquor store audit.

Council members Ruth Cyphers initially raised the issue of a forensic audit at the council’s Aug. 26 meeting. She offered no specific reason other than “the taxpayers deserve to know all is well.” Although an outside firm audits the city’s financial records every year, Cyphers pushed for a “deeper look” into the books because the city uses the same independent auditing firm every year. A forensic audit focuses on reconstructing past financial transactions for a specific purpose, such as concerns of fraud, whereas a normal audit is typically focused more on compliance or the performance of the organization or individual.

Then-city administrator Mike Humpal said city staff would be “100 percent supportive” of the procedure to show there were no irregularities in the city’s financial records. Paul Hoye, city finance director, said the city uses the same respected auditing firm every year, but different personnel examine the accounts each time.

On Oct. 30, Cyphers, Hoye, Mayor Debbie Foster, City Clerk Patty Monsen and the city’s legal counsel participated in a 90-minute conference call with four auditors, two general counsels and a special investigations director from the OSA. The call focused on a document, provided by Cyphers, which included multiple alleged employee misconduct items that the OSA said it would not review.

The council’s agenda, available on the city’s website — www.fairmont.org — includes a redacted version of Cyphers’ list with private personnel data removed. However, at the Oct. 28 City Council meeting, Cyphers publicly stated the areas she wanted investigated included the liquor store; Housing and Redevelopment Authority; human resources; vacation time; release agreements with Al Pelzer, Larry Reed, Molly Meyer, Pat Parsley and law enforcement; the airport; water park; tax-increment financing districts; the dredge fund and the new water treatment plant.

She declined to elaborate on any possible irregularities in those areas, saying only that it would be discussed during the conference call.

Cyphers’ redacted list includes some additional information about the type of issue that prompted her to seek a forensic audit. In the case of the liquor store, “constituent was in the office of the manager, complained about handwritten bookkeeping rather than computer.” Another item questioned the checks and balances on the liquor store’s nightly deposit, which is done by the Fairmont Police Department.

The list also stated that the liquor store proceeds were “a dredge fund originally. Then the funds were supposed to be for the lakes. Questions that it has been used as a slush fund … take profit and suspected that money is using (sic) for other things.”

No additional data was offered to support those claims.

In a related item concerning the dredge fund, the audit request stated that “liquor store money and donated funds were put in the fund. When the dredge was removed all this money was removed … what happened to this money? Lakes Foundation very frustrated with no action over the years by the city.”

Under the “airport” heading, some information is redacted, but there is a claim that, “until recently,” budgets were never presented to the (airport advisory) board and there was a lack of direction to the current manager. Also under the heading is a cryptic statement, “Found 15 bottles of empty bottles of booze in the attic.”

In the human resources area, Cyphers requested a payroll audit of dismissed, retired and resigned employees and release agreements for four individuals whose names were redacted but were associated with the airport, downtown variance, liquor store and law enforcement. She also questioned vacation time.

“It seems people are taking more vacation than they are allowed and/or cashing it in,” the list states.

Cyphers also claimed that “one of the mayors and councilor tried to get all the wages and pensions published and this was never done.” She adds that the City Attorney supposedly oversaw human resources for the city, but no one even knew it.

The annual operating loss at the Fairmont Aquatic Park and the “poor management team” at the city’s water treatment plant were other complaints in the forensic audit request, as well as the “$31 million plant built by a firm that said we needed a water treatment plant when employees said we didn’t when all we needed was an upgrade.”

Items under the “tax increment financing” heading raised more questions, including how many have been “forgiven” and if the number of recipients in Fairmont compare with state records.

“People who have sent threatening emails to council members and then followed through with their threat, most are affiliated with tax increment list,” Cyphers’ audit request states. “Recently, many tax increments were paid, when they knew the administrator was potentially leaving.”

No other substantiating information was given.

The OSA determined that it would be inappropriate for it to audit the Housing and Redevelopment Authority, specifically Burton Lane and Poetter’s Circle, because those properties are owned by the HRA, not the city. Hoye wrote in a Nov. 21 memo to the council that the HRA board could request an audit, but the OSA did not feel further review would be necessary as there have been three years of clean audits with no concerns.

The City Council meeting will be televised live at 5:30 p.m. Monday on cable channel 13, or it can be viewed on the city’s website.

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