An audit of a small town south of Kansas City showed “serious financial mismanagement,” which the state auditor says was caused in part by city leadership that doesn’t have a clear understanding of the city’s budget or financial condition.

State Auditor Nicole Galloway met with residents of Rich Hill, Missouri Wednesday night to share the results of the audit, which was requested by citizens through a petition.

Galloway says the report describes how this has led to inappropriate transfers of money between the city’s funds, including transfers of money from restricted funds. In other words, the city is taking money that is designated for a specific expense and spending it on other things.

“The first step toward responsible financial management is having an accurate and complete understanding of the current financial situation,” Auditor Galloway said. “Constantly moving money from one fund to another results in a perpetual shell game that prevents city leaders from getting an accurate assessment of city finances.

“It’s also inappropriate because these dollars are designated for a specific purpose and moving them to a new fund with a new label does not free up the money to be spent in ways other than it was originally intended,” she said.

For example, in 2014 Galloway says the city transferred $40,000 from a utility fund to the street fund with no explanation, and then, a year later, deposited $50,000 in restricted street money into the city’s general fund. These constant transfers lead to public dollars that are not well-managed or accounted for, and were made because of negative ending balances for multiple city funds over the past two years.

Auditor Galloway also questioned whether residents were being charged fair and appropriate amounts for city utilities, like electricity, water and trash service. City officials have not completed a formal cost study of utility rates, which would allow them to adjust rates to appropriate amounts. Instead the city is collecting utility revenue beyond what is necessary and then transferring the additional revenue to other city funds, potentially to cover budget shortfalls in other areas, even though the city is only supposed to spend utility funds on utility-related expenses.

The report found the mayor did not follow the appropriate steps by removing the previous fire chief from office last year without approval of the city council, and appointed a new chief, also without approval of the council.

Auditor Galloway also noted the city has not been meeting its obligation to submit an annual financial report to the State Auditor’s Office, and contracts aren’t always enacted or kept when the city makes agreements with outside providers or vendors.

The city received an overall performance rating of poor, which means the State Auditor’s Office will return next year to follow-up on report findings. A complete copy of the audit report for the city of Rich Hill is available online here. http://app.auditor.mo.gov/Repository/Press/2016117192892.pdf

Rich Hill gained notoriety after a 2014 documentary of the same name was released. The city, with an estimated population of 1400 people, is located about 75 miles south of Kansas City in Bates County. An audit of the municipal court was issued in August.