Santa Cruz County has initiated a lawsuit against the state of Arizona and its audit office, contending that their negligence and “subpar” auditing practices led to significant losses after the former treasurer was implicated in embezzling around $40 million from public funds.

The lawsuit, filed on November 14 in Maricopa County Superior Court, claims the county was unaware of former treasurer Elizabeth Gaffer’s efforts to conceal the theft between 2014 and 2024. The county alleged that if proper audits had been performed, they would have uncovered the scheme much earlier.

In their complaint, the county seeks at least $40 million in damages. This action follows a civil suit they filed against Gaffar three months prior in Pima County Superior Court. The Arizona Attorney General’s Office opted not to comment, and the Auditor’s office did not respond to inquiries.

Gaffar is accused of pilfering $39.4 million in total. The county reportedly is open to settling its $45 million claim, which also accounts for lost interest and expenses incurred during investigations into the misappropriated funds.

The complaint states that the audit general’s “gross negligence” facilitated Gaffar’s theft, alleging she began with minor amounts before escalating to larger sums, including $11.3 million within a single year.

Santa Cruz County criticized the state’s auditing practices as “substandard,” noting the failure to examine random bank samples or financial statements properly. The auditors only reviewed final bank statements as of June.

The county emphasized that if there had been more thorough examinations of savings accounts, the fraudulent transfers made by Gaffar would likely have been evident. They asserted that by only checking year-end bank statements, the state’s auditors failed to recognize critical signs of ongoing fraud.

Allegations of Concealment

Moreover, the county accused the state of neglecting to analyze daily warrant items in their annual audit reports. Gaffar was responsible for preparing reports that would align the county’s cash settlements with other financial accounts. Allegedly, she distorted vendor payment records to mask discrepancies between reported and actual account balances.

As the fiscal year ended on June 30, the county noted that payments processed on that date did not appear in the general accounts until July 1. This timing bolstered Gaffar’s claims regarding substantial discrepancies in the treasurer’s report.

The county argued that if the auditor had diligently reviewed daily warrant line items, they would have seen various outstanding items that Gaffar had concealed.

Some treasurers in different counties had cautioned the state about the dangers of only examining year-end bank statements, highlighting a potential for fraud that could go unnoticed. For example, the Coconino County Treasurer’s office requested more frequent audits.

The county stated that implementing this simple check could have helped auditors detect Gaffar’s theft earlier.

Concerns Over Evidence Ignored

The county further alleged that Gaffar fabricated bank statements to obscure the amounts wired into her personal accounts. Evidence suggests that she used a business address unrelated to the actual locations of the accounts, thus masking her activities from auditors.

A report from the Auditor’s Office indicated they lack authorization to obtain detailed county treasurer financial information, relying on the treasurer to provide accurate data. In 2023, Gaffar allowed JPMorgan Chase to submit financial documents for an ongoing audit, but the state had supposedly failed to request anything beyond June’s statements.

Discovery of Missing Funds

Claims of lost funds emerged in April, associated with the state’s failure to adhere to accepted audit standards. The issues came to light after JPMorgan Chase reported multiple fraudulent transactions amounting to $375,000. This prompted investigations by the FBI, the Department of Justice, the Arizona Auditor’s Office, and Santa Cruz County.

Subsequently, the county filed a civil lawsuit against Gaffar and her family on August 1. The suit named multiple defendants, including Gaffar’s relatives and several businesses associated with them.

Investigative efforts included insights from Coconino County Treasurer Sarah Benatal, who had visited Santa Cruz County several times. She found several discrepancies during her visits, such as the reliance on unverified documents instead of authentic bank statements.

Gaffar, a Democrat, had served as county treasurer since being elected in 2012, winning re-election in 2016 and 2020 without opposition, until the recent allegations were unveiled.