The current mayor and the former city clerk of a tiny town in north-central Iowa are identified in a state audit as being responsible for embezzling over $37,000 dollars in city funds. State Auditor David Vaudt says his office’s special investigation of the City of Scarville covered a period between 2006 and 2011.

“What we found was the former city clerk was giving herself extra payroll and other checks and the mayor was making cash withdraws from the city’s bank account and also sold (the city’s) tractor and kept the proceeds from that,” Vaudt says.

Scarville, located in Winnebago County, had a population of just 72 residents according to the 2010 Census. Vaudt says Scarville Mayor Michelle Hermanson may’ve implicated herself in the case along with former city clerk Jolene Carter.

“The mayor is the actual person who contacted us because the new city clerk had seen some payments she was concerned about that were made by the former city clerk,” Vaudt said. “Then, when we came in to do the investigation, we found both the former city clerk and the mayor had done improper things with the city’s finances.”

 The Iowa Legislature took action this year to address a raft of embezzlement cases in the state’s small towns. Governor Branstad signed the measure into law, which will take effect in July 2013. Vaudt says the law will allow his office to conduct annual audits of cities with a population below 2,000 and annual expenditures of $1 million.

Small towns with less than $1 million in expenditures will receive “surprise” audits on a periodic basis. Currently, Iowa towns with fewer than 2,000 residents are not required to be audited.

In the past five years, state auditors were asked to review the books in 32 different cities that had fewer than 700 residents. The amount of fraud uncovered in those communities totaled $1.4 million.

Copies of the Scarville audit report have been filed with the Iowa Division of Criminal Investigation, the Winnebago County Attorney’s Office and the Iowa Attorney General’s Office.

See the full audit report here:  Scarville audit PDF