The audit found that the city spent nearly $1 million from the self-insurance reserve fund for general government expenses. The city has since provided documentation to justify about half of the expenses, leaving just over $400,000 that needs to be repaid to the fund, Mayor Frank Kuntz said.
The City Council voted on Thursday to repay $300,000 of it immediately. The rest will be repaid within the next two years.
The report by the state Auditor's Office, released Monday, also found that the city could not document that it equitably spent more than $1 million on services that cross multiple departments, and specifically found that the mayoral, city council and executive offices spent $165,322 in money that was restricted to utility funds.
"All this stuff is tied to trying to bail the city out of the Town Toyota Center mess," Kuntz said, who was not in office in 2011. "Did we (the city) take money out of the insurance fund to pay legal fees? Yes. But desperate times call for desperate measures. Did they (city officials) know it was wrong? Yes, I think they did."
The audit covers Jan. 1 to Dec. 31, 2011, during Mayor Dennis Johnson's last year in office. Contacted at home Friday, Johnson said he did not know that the insurance fund should not have been used for the legal expenses. He said the city hasn't been self-insured for years, but the reserve fund remained in place to cover insurance-related settlements.
"It was my impression that it was usable funds and we were not breaking any restrictions," he said.
He said the city did not have enough money in its general fund to cover its legal bills.
"That reserve fund was there and there wasn't anything saying we couldn't use it," he said. "There were no red flags. I don't think we ever put the city in jeopardy because of it."
Kuntz said the city is addressing all of the concerns raised in the audit. In addition to paying back the insurance fund, the city plans to hire another accountant next year to help set up new financial policies and internal controls.
The audit states that the health of the city's general fund has deteriorated over the past three years. In 2011, the city incurred a large amount of legal fees related to its contingent loan agreement with the Greater Wenatchee Regional Events Center Public Facilities District over the financing of the arena.
The two primary findings in the audit are that the city spent $911,760 from the insurance fund to pay for general fund expenses, and that it did not have proper records to support $1,042,234 in costs that are shared between several departments.
Juan Esparza, audit manager for the state Auditor's Office in Wenatchee, would not characterize the findings against Wenatchee. But he said anytime the state auditor makes a finding against a government agency, "it's serious."
"The dollar amounts from restricted funds that were used in this case were concerning," he added.
The city must adopt a fair and equitable method for distributing the shared costs between departments, and state law prohibits money that is restricted for certain uses, such as utilities and self-insurance, to be used for other things, the audit said.
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