State Audit Finds Major Financial and Legal Violations in City of Leadwood

Leadwood, Mo. (KFMO) - A state audit of the City of Leadwood has uncovered widespread financial mismanagement, improper use of federal funds, and repeated violations of state law, resulting in an overall audit rating of Poor.

The audit, released by Missouri State Auditor Scott Fitzpatrick, found the Board of Aldermen wasted public resources by authorizing more than $103,000 in bonuses for themselves, the mayor, and city employees. The majority of those payments were made using Coronavirus State and Local Fiscal Recovery Funds (SLFRF), federal COVID-19 relief money that auditors determined was not eligible for such use.

According to the report, between September 2021 and May 2022, 88 percent of all SLFRF funds spent by the city went toward bonuses, rather than allowable uses such as water, sewer, or infrastructure improvements. The bonuses were also not processed through the city payroll system, meaning payroll taxes were not properly withheld or reported.

Beyond the improper bonuses, auditors found the city’s General Fund is in decline, with expenditures exceeding revenues every year from 2021 through 2024. The city does not track beginning or ending fund balances, does not adequately monitor its budget, and deposits restricted street, water, and sewer funds into the General Fund without separate accounting, raising concerns that utility funds are subsidizing general operations.

The audit also documents numerous Sunshine Law violations, including improperly held closed meetings, failure to list legal reasons for closed sessions, discussion of non-allowable topics, missing roll-call votes, and inadequate public notice for meetings held by telephone. Auditors noted the city also lacks a written policy for handling public records requests.

Additional findings include weak controls over the utility system, failure to shut off delinquent accounts as required by ordinance, lack of required annual audits for the water and sewer system, and multiple violations of bond covenants tied to a 2018 financing agreement.

Auditors identified at least $103,360 in wasted public resources and recommended the city seek legal guidance on recouping improperly paid bonuses, strengthen internal financial controls, properly segregate restricted funds, and bring all operations into compliance with state law.

The City of Leadwood has responded that it has begun taking corrective steps, including improving payroll procedures, strengthening financial oversight, and working toward compliance with audit recommendations.