Small city employees exploit lack of financial controls for personal gain

May 7, 2025

A pair of small towns in Eastern Washington lost tens of thousands of tax dollars to employees who spent the money shopping online and on other unallowable purposes, the Office of the Washington State Auditor has found. 

Auditors identified misappropriations totaling $79,252 in Hatton and $12,659 in Mesa. Both towns have a population of less than 400. The fraud investigation reports published this week document financial weaknesses similar to those occurring in other small cities and local governments, where employees have access public funds without appropriate reviews. 

“Establishing proper financial controls can be challenging, but it’s not nearly as hard as explaining to your neighbors how their hard-earned tax dollars were lost. No matter how small your government is, there are ways to protect your finances,” said State Auditor Pat McCarthy.  

In both Hatton and Mesa, the town clerk-treasurer was able to make purchases and conduct other transactions without a review by another person. For example, the Mesa clerk-treasurer used her city-issued debit card in 2022 and 2023 to make $12,659 in personal purchases for groceries, decorations, on an online clothing site, for vehicle loan payments and other items. 

The former Hatton clerk-treasurer used a variety of misappropriation schemes, including paying himself for hours in excess of his approved work schedule. He resigned his position during the audit, in October of 2024, but still had access to the town’s bank account, and made $3,612 in personal online bill payments in October and November.   

The former Hatton clerk-treasurer also identified himself as the town fire chief when acquiring $1.3 million in wildland firefighting equipment from the Department of Natural Resources. While inventorying the equipment, auditors found a $32,000 defibrillator and a vehicle were missing. 

Additionally, auditors identified $7,133 in misappropriations related to Hatton’s former mayor, including paying her annual salary in advance – which is not allowed by law – and failing to recoup the pay when she resigned later the same year. 

Similar gaps in financial checks and balances also lay behind small-city misappropriations the State Auditor’s Office reported in 2024, including two, six-figure cases in the towns of Cusick and Morton. 

“At the Auditor’s Office, we’ve made a special effort to reach out to small cities and help them improve their financial controls,” said McCarthy. “My hope is that these troubling new examples of weak controls will inspire more city council members, mayors and members of the public to learn what can be done to protect their communities’ resources.” 

The Office publishes two key resources with specific guidance for small governments and their leaders:  

SAO is also offering free training for governments across the state, focused on improving internal controls. This video from Pend Orielle County shows how the training can help local governments: Watch the video on YouTube.  

In the past six months, the Office has visited three locations across Washington and trained almost 150 people representing more than 40 different governments. Four more internal control training sessions are scheduled this summer, in Mason, San Juan, Kittitas and Benton counties.  

The fraud investigation reports published this week will be forwarded to Adams and Franklin county prosecutors. Each town also had accountability audits that found additional areas for improvement in their operations. The full reports and related accountability audits can be found online: 

Media questions: Assistant Director of Communications Adam Wilson, Adam.Wilson@sao.wa.gov, 564-999-0799