Yukon audit: 10 ways auditors say the city mismanaged money and conduct

A forensic audit of the City of Yukon has uncovered decades of governance, financial, and operational issues. North American Forensic Accounting LLC (NAFA) conducted the investigation to assess financial operations, identify risks, and review allegations of misconduct.

A Culture of Poor Leadership and Weak Oversight

NAFA’s report found that Yukon has suffered from years of poor leadership and mismanagement, creating a culture where employees felt that “as an employee, you don’t question anything.” This lack of accountability extended to serious allegations, including inappropriate relationships on city property during work hours, which NAFA said were dismissed without proper investigation.

Despite these administrative failings, NAFA noted that “critical city services are being provided without risk of interruption,” attributing this to the dedication of the majority of city employees. However, the report warns that “these critical findings and unmitigated risks continue to put the city at risk financially.”

Key Governance and Policy Failures

The city was found to lack fundamental governance policies, including a Code of Conduct, Code of Ethics, and Conflict of Interest Policy. This absence created an environment where employee concerns were ignored, and financial oversight was weak. The city also discontinued its employee “Concern Line,” removing an essential avenue for whistleblowers to report misconduct.

Financial Mismanagement and Missing Controls

One discovery was Yukon’s failure to implement past audit recommendations. Issues included:

1. Incomplete cash reconciliations
2. Poor tracking of fixed assets
3. Unauthorized fund transfers
4. Budget amendments improperly filed with the Oklahoma State Auditor

Diversion of City Funds

A concerning finding was the diversion of $185,000 in city funds to the Yukon Community Support Foundation (YCSF) without proper authorization. This nonprofit, meant to support community projects, was being financially supported by the city without oversight.

Additionally, the report found that a city contract for leasing advertisement space on a water tower had its revenue diverted to YCSF instead of being recorded as city income. NAFA identified an internal city email directing this diversion, raising concerns about transparency and accountability.

Failure to Investigate and Cover-Up Culture

One case involved allegations of an inappropriate relationship between a senior city official and a subordinate. When complaints about this relationship surfaced, the issue was not formally investigated.

Instead, a memo from the city’s mayor was found in electronic records stating that a “pre-investigation” had determined that no further investigation was necessary—effectively closing the matter without any formal inquiry.

NAFA auditors could not find supporting documentation for the alleged "pre-investigation" and suggested that leadership ignored the issue.

Discovery of Explicit Materials in City Files

Evidence of inappropriate behavior came from explicit materials found in city storage. Handwritten notes detailing sexual encounters between city employees were discovered in old storage boxes. The forensic auditors determined that these notes and employee interviews provided enough evidence to warrant a full investigation—one that was never conducted.

More Details: Yukon audit: a closer look at sexual misconduct found in report

Payroll and HR Irregularities

The report also highlighted payroll discrepancies, including the overpayment of $34,895 in vacation benefits to a former city manager. This overpayment resulted from undocumented practices that ignored the city’s policies.

Additionally, the city lacked a formal investigative process for employee complaints, allowing issues like misreported work hours and personal use of city assets to go unaddressed. NAFA noted that complaints against senior management were often dismissed or investigated by the very individuals accused, a serious conflict of interest.

Misuse of City Vehicles and Fuel

The report found significant anomalies in the FuelMaster logs, indicating that city fuel was likely used for personal vehicles. One senior official reported using a city vehicle for only “5% personal use”—but analysis showed fuel usage patterns inconsistent with that claim. Employees also reported witnessing city fuel being used in personal vehicles.

Lack of Competitive Bidding and Vendor Oversight

Another major issue was the city’s long-standing relationships with certain vendors, some spanning over 30 years without competitive bidding. NAFA noted that in one case, a vendor was paid $28.9 million over two decades without clear evidence of a bidding process. NAFA said these long-term vendor relationships raise concerns about favoritism and lack of transparency.

IT and Record-Keeping Failures

Yukon’s record-keeping practices were found to be incomplete and outdated, increasing risks of financial mismanagement. Key issues included:

1. No audit trail for the city’s digital archive system (Laserfiche)
2. Lack of badge swipe tracking for physical building access
3. Missing ordinance codifications, some delayed by over three years

Recommendations for Reform

NAFA provided extensive recommendations to help Yukon restore financial integrity and accountability, including:

1. Implementing a Code of Conduct and Ethics Policy for all employees
2. Reinstating a whistleblower Concern Line to allow employees to report issues safely
3. Performing a full payroll audit to review all vacation and sick time payouts
4. Conducting a forensic review of the Yukon Community Support Foundation to determine the extent of financial irregularities
5. Reevaluating vendor relationships to ensure transparency in bidding and contracts
6. Strengthening IT controls and financial reconciliation procedures

NAFA warned that there is “no quick fix” for the deep-rooted problems in Yukon’s government, stating that the “impact on the organizational culture and the real or perceived harm from past misdeeds” will take time to repair.

View the full report:

Response:

The current Mayor of Yukon, Brian Pillmore, released a statement following the audit.

View it here: Yukon audit: how the city's mayor is responding