New report released by Auditor Fitzpatrick finds the City of Chula has accrued nearly $1.2 million in state fines and is lacking in oversight and basic accounting controls and procedures

A new report from State Auditor Scott Fitzpatrick finds the City of Chula has racked up nearly $1.2 million in fines from the state, and city officials need to make significant improvements to the basic operations of their city government. The audit, which was requested by the residents of Chula, gives the city a rating of "fair" and finds the municipality has inadequate oversight over its accounting functions and significant weaknesses in its accounting controls and procedures.

"The lack of oversight and segregation of duties in the City of Chula makes it extremely vulnerable to potential fraud. And even though the Department of Revenue will only recoup the nearly $1.2 million in fines the city has accrued if it imposes a sales tax in the future, citizens should be concerned their city officials have neglected their statutory obligations and allowed a debt to accrue that could cripple the city's finances," said Fitzpatrick.

Fitzpatrick added, "I know many of the residents of the city were worried about how their government was operating, and now we have given them recommendations that can make city operations more effective, efficient, and transparent. The good news for the people of Chula is city officials have responded to our audit recommendations with a comprehensive plan to address the issues we identified. Now it's up to them to put this plan into action and for citizens to hold their city officials accountable if they don't follow through."

The audit report finds the city's Board of Aldermen has not established adequate oversight over many of the city's accounting functions. Because the city has only the City Clerk to handle all of its financial responsibilities, the city is not able to segregate duties to ensure transactions are accounted for properly and assets are adequately safeguarded. As a result, it is necessary for the Board to provide timely reviews of the work performed. However, the Board was not providing adequate supervision and was instead trusting the City Clerk to perform her job functions without review. While the report found no evidence fraud has occurred, it does recommend the city establish oversight over the city's financial accounting functions.

The report also notes the city did not file annual financial reports with the State Auditor's Office as required by state law for each of the 7 years ended June 30, 2024. As a result, information regarding the city's financial activity and condition is not available to citizens, and a daily fine is actively accruing on the city. According to the Department of Revenue, the city's total fine is $1,159,000 through June 30, 2025. Because the city does not impose a sales or use tax, the department has not recouped any money from the city, but indicated if the city imposes such a tax in the future, the department would begin recouping the fine from any tax distributions it would make to the city.

The report also identified the existence of a city bank account that was overlooked by the Board of Aldermen. As a result, activity and operations within this account occurred without oversight from the Board. During the year ended June 30, 2024, account activity included $33,416 in receipts and $21,502 in disbursements for an ending balance of $49,869, and covered the city's annual street fair, periodic community center rentals, and other utility and maintenance costs of the community center. Account activity appeared reasonable for community center operations, but the report recommends the city establish oversight over the account.

Another issue identified by the audit concerns the city's failure to have established procedures for following up on outstanding checks. As of June 30, 2024, at least 192 checks totaling $63,919 were outstanding for up to 18 years. The majority of the outstanding checks, 138 checks totaling $58,232, were issued to the City Clerk. The City Clerk indicated she did not cash all checks because she has a separate full-time job, she lost track of their accumulation over time, and she no longer possesses all of the checks. The city also issued 25 checks totaling $1,562 to the City Clerk's family members from 2010 to 2017 that remain outstanding.

Additionally, the report found the city did not timely prepare and approve a budget for the fiscal year ended June 30, 2024. The budget was presented to the board and approved on December 14, 2023, almost 6 months after the fiscal year started. The city has also failed to obtain annual audits of its combined waterworks and sewerage system as required by state law, and it does not publish or post semiannual financial statements as required by state law.

Other findings in the audit include a failure to consistently comply with the Sunshine Law by the Board of Aldermen, the Board approving a new ordinance during an open meeting when a quorum was not present, and the city's lack of a records management and retention policy that includes electronic communication.

The complete audit is available online here.