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Professional Insights

Audit uncovers fraudulent activity in a small municipality in Arkansas

Aug 05, 2025 · 2 min read · AICPA & CIMA Insights Blog

During the May 2025 meeting of the AICPA’s Government Performance and Accountability Committee, Ross Baldwin, CPA, CGMA, CFE, CIA, presented a financial and compliance report submitted by the City of Bonanza, Arkansas, that revealed fiscal irregularities and governance failures.

The following contains highlights from the presentation.

With a population just shy of 600, Bonanza hires a private CPA firm — as opposed to employing the Arkansas Legislative Audit (ALA) — to conduct annual audits of the city’s water department. Consequently, from 2016 to 2021, the department failed to submit required annual audits or agreed-upon procedures reports to the ALA; city council minutes also did not reflect past audit report reviews, as the reports were not made available for review. Both actions are required by Arkansas state code.

Audit procedures were disregarded, and bank statements were altered for personal gain.

According to the City of Bonanza Financial and Compliance Report, released by the Arkansas Legislative Joint Auditing Committee in December 2022, from January 1, 2018, through May 5, 2022, Bonanza experienced a total financial shortage of $216,916, attributed to a city administrative assistant who was also acting as a payroll preparer. The city employee was also the mayor’s daughter. This included $178,874 in unaccounted-for funds (mostly from undeposited water bill payments) and $38,042 in unauthorized disbursements. The latter included 36 extra payroll checks, totaling $16,708, representing salary overpay to the city employee, and $21,334 in gift card purchases from retailers like Home Depot, Lowe’s, and Hotels.com.

Findings by state auditors noted improperly reconciled bank accounts and inaccurate cash balances due to posting errors, unrecorded checks, and undocumented adjustments. Numerous payroll issues were also discovered, such as failure to properly file or remit payroll taxes, as well as the disbursement of payroll funds outside the payroll system.

Issues were found through revenue confirmations with the State of Arkansas, review of bank transfers, and examination of manipulated bank statements.

Previous unauthorized salary payments totaling $13,138 had been made by the same person between 2012 and 2016. After pleading guilty to theft by deception in October of 2016, she was ordered to pay $5,443 in restitution.

During a meeting of the Legislative Joint Auditing Committee held in December 2022, the mayor disclosed that the city council had unanimously voted to reinstate the administrative assistant after her initial theft case. The mayor also claimed to be unaware of his daughter’s later misconduct. She was later charged with one count of theft of approximately $38,000, a Class B felony.

Incidents like the one involving Bonanza highlight the need for better internal controls, consistent audits, and responsible decision-making by governing bodies.

About the expert

Ross Baldwin, CPA, CGMA, CFE, CIA, is senior auditor for the Arkansas Legislative Audit, with years of experience auditing numerous entities, including institutions of higher education, school districts, counties, and municipalities. In 2017, Baldwin graduated from the AICPA Leadership Academy and is involved with the Arkansas Society of CPAs, where he currently serves on the board of directors as well as its finance and policy committees. In addition to being a CPA and having earned the Chartered Global Management Accountant® designation, he is a Certified Fraud Examiner and Certified Internal Auditor.

About the AICPA’s Government Performance and Accountability Committee

Comprising 12 volunteer committee members, and in collaboration with staff at the Association of International Certified Professional Accountants®, the Government Performance and Accountability Committee advises government officials, regulators, and stakeholders, advocating issues that matter to the accounting and finance profession. If you’d like to learn more about GPAC, please email Lori Sexton.

Ross Baldwin, CPA, CFE, CIA, CGMA

As a senior auditor for Arkansas Legislative Audit (ALA), Ross has experience in state and local government auditing of numerous entities, including institutions of higher education, school districts, counties, and municipalities. His experience was utilized during ALA’s implementation of two auditing software systems. In 2017, Ross graduated from the AICPA Leadership Academy and is involved with the Arkansas Society of CPAs, where he currently serves on the board of directors as well as the finance and policy committees. Ross earned a Master of Business Administration degree from the University of Arkansas, Little Rock, and a Bachelor of Science in Business Administration degree, with a major in accounting, from Arkansas Tech University. He is a certified public accountant, Certified Fraud Examiner, Certified Internal Auditor, and Chartered Global Management Accountant.

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