Auditor Fitzpatrick releases audit report showing the City of Leadwood awarded more than $100,000 in improper bonuses while the city struggled financially and needed significant infrastructure improvements

A new report from Missouri State Auditor Scott Fitzpatrick shows city officials in Leadwood handed out more than $100,000 in improper employee bonuses during the same period of time the city was struggling to balance its budget and needed to make improvements to its sewer system. The audit gives the city the lowest possible rating of "poor" and also notes officials need to operate more transparently and make significant improvements to their budgeting process and accounting controls and procedures.

The report, which looked primarily at the two fiscal years that ended March 31, 2023, when Ed Austin served as mayor and Kendra Boyer served as city clerk, found the city's Board of Aldermen voted on three different occasions to pay improper bonuses in violation of the Missouri Constitution to themselves and city employees with federal Coronavirus State and Local Fiscal Recovery Funds (SLFRF). At the time the Board voted to award the improper bonuses, the city had received $117,540 in SLFRF funding. The $103,360 in bonuses approved by the Board represented 88% of the city's total grant expenditures for that period of time. The report notes the bonuses ranged from $1,000 to the largest total bonus of $10,624. Some of the bonuses were "voted" on via text message, during improperly noticed "telephone meetings".

"When a city is deficit spending, struggling to stay afloat financially, and failing to address pressing infrastructure needs, it is outrageous that more than $100,000 in funds was used improperly to line the pockets of city officials. There are plenty of ways these funds could have been used to benefit the city and the residents of Leadwood and city officials even admitted the city's sewer system needed improvement at the very time these bonuses were paid out. Citizens of Leadwood should be furious, and while the current leadership is not responsible for this unjustifiable decision, they should implement our recommendations and ensure nothing like this can happen again in the future," said Auditor Fitzpatrick.

The city would receive a second SLFRF grant of approximately $120,000 and spent the majority of those funds on sewer upgrades, which the report notes is an acceptable use of the funds. The report also notes two of the three votes to issue the bonus payments took place during closed meetings in violation of the Missouri Sunshine Law. Additionally, the bonuses were not processed through the city payroll system and reported on the employees' W-2 forms, appropriate employee payroll taxes were not withheld from them, and the employer share of payroll taxes was not paid.

The audit report also found the financial condition of the city's General Fund is declining and the Board is not adequately monitoring the city's financial condition and has poor budgeting procedures. As the report points out, General Fund expenditures exceeded revenues for fiscal years 2021-2024 and the pattern of spending in excess of revenue indicates General Fund balances will continue to decline. Additionally, the city does not prepare annual budgets that contain all information required by state law. The report also recommends the city make improvements to its accounting controls and procedures, including performing adequate and timely bank reconciliations.

Another finding in the report points out the city is violating the Missouri Constitution and state law by depositing certain funds into the General Fund. City personnel do not separately identify state motor vehicle-related money or related transactions in the General Fund and cannot ensure the money is only used for street-related expenditures as required by the constitution. The city is also comingling the water and sewer funds with the General Fund, making it hard to identify which money is for restricted use in compliance with state law. Additionally, the city did not maintain a listing of refundable customer security deposits to reconcile to balances held in the General Fund.

Finally, the report found the city violated Missouri's Sunshine Law by not listing the reason for going into closed meetings, discussing topics not allowed, and failing to document roll call votes. The audit found neither the meeting minutes nor the meeting notices listed the specific reason or section of law allowing the closed meeting for 39 closed meetings held. Additionally, during 24 of the 39 closed meetings reviewed, the Board discussed topics that were not allowable. Open meeting minutes did not properly note a closed meeting took place for 14 of 25 regular meetings. The audit report also found the city has not adopted a written policy regarding public access to city records, as required, or developed a log to track Sunshine Law requests.

The complete audit report is available here.