Missouri city owes $1.2 million in state fines after years of financial mismanagement
CHULA, Mo. (KCTV) - A small Missouri city owes nearly $1.2 million in state fines after years of financial mismanagement left residents in the dark.
State Auditor Scott Fitzpatrick announced on Tuesday, Nov. 25, that the City of Chula failed to file seven years of required financial reports.
He noted that the city operated with virtually no oversight of its accounting functions.
“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,” Fitzpatrick said.
Residents request investigation
Fitzpatrick noted that Chula residents requested the audit after growing concerned about their city government’s operations.
The audit rated the city “fair” but identified significant weaknesses in financial controls and procedures.
The Auditor said the city’s single City Clerk handles all financial responsibilities without adequate supervision from the Board of Aldermen.
Key Findings
Missing Financial Reports: Fitzpatrick indicated that the city failed to file annual financial reports with his office, as required by law. Daily fines continue to accrue.
Hidden Bank Account: The Auditor said he discovered a city bank account overlooked by the Board of Aldermen. The account held nearly $50,000 and covered expenses for the annual street fair, community center rentals and maintenance costs - all without oversight.
Outstanding Checks to Family: The audit uncovered 25 city-issued checks that total more than $1,500. The checks were issued to the City Clerk’s family members between 2010 and 2017 and remain outstanding.
Budget Delays: Fitzpatrick said the city failed to prepare and approve its budget on time for fiscal year 2024. The budget was not approved until December 2023 - nearly 6 months after the fiscal year began.
Sunshine Law Violations: Lastly, the audit revealed that the Board of Aldermen failed to comply with Missouri’s open meetings law consistently and approved an ordinance when a quorum was not present.
No Evidence of Fraud
While the audit identified serious vulnerabilities, Fitzpatrick said no evidence of actual fraud was found.
However, he noted that the lack of oversight created conditions where fraud could occur undetected.
Financial Consequences
As of June 30, the Auditor indicated that the city owed nearly $1.2 million in fines to the Missouri Department of Revenue. Because Chula does not impose sales or use taxes, the state has not recovered any money.
If the city implements a sales tax in the future, the Department of Revenue said it would begin to collect the debt. This means that residents could be forced to pay higher taxes to cover the years of mismanagement.
City Response
Fitzpatrick said city officials have responded 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,” he added.
Additional Violations
The audit found the city also failed to:
- Maintain required annual audits of its water and sewer system
- Publish semiannual financial statements as required by law
- Establish a records management and retention policy for electronic communications
What’s Next
The audit provided recommendations to establish proper financial oversight and transparency. Residents who demanded the investigation now have a roadmap for holding elected officials accountable.
Fitzpatrick noted that daily fines will continue to accumulate while the city works to implement reforms.
KCTV5 has reached out to the City of Chula for a statement and awaits a reply.
The complete audit report is available HERE.
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