Santa Cruz County plans to take legal action against the state, alleging that “gross negligence” by the Arizona Auditor General allowed the county's former treasurer to embezzle public funds for a decade.
The complaint, filed Aug. 19, blames negligent audits conducted by the Auditor General between 2014 and 2024 for failing to uncover alleged theft by former county Treasurer Elizabeth Gutfer.
Gutfal is accused of stealing $39.4 million in public funds. The county says it is willing to settle for $45 million, including $1.3 million in lost interest and other fees and costs accrued to find the missing funds.
“The Auditor General's annual reports never indicated that any money was embezzled from the Treasurer's bank account and regularly misrepresented the actual value of the county's assets,” the county said in the notice.
The county criticized the auditor general for conducting annual audits of the county finance department that “fell below generally accepted auditing standards for many years.”
The county said this includes releasing audit results that are less detailed than previous years and only auditing fiscal year-end financial statements rather than a random selection of the treasurer's financial documents as part of the county's annual audit.
“Prior to 2020, the Auditor General's Office would physically visit the county courthouse, shadow employees for a full day, and conduct comprehensive audits,” the county said. “Currently, the Auditor General does not visit the county courthouse, only evaluates limited areas of financial statements, and routinely focuses on irrelevant or immaterial details when conducting audits.”
A spokesman for the Arizona Office of the Auditor General was not immediately available for comment.
County says audit report avoids liability
The notice of claim was filed a week before the Arizona Auditor General released its investigation report.
The auditor's investigation alleged that the county agency that oversees the county treasurer did not inspect the monthly cash reconciliation reports. In a statementThe county argued that the auditor general rushed the report to deflect attention from its own “failures.”
The county criticized the auditor general for overlooking Gutfer's theft allegations, alleging that the office “failed to apply fundamental auditing principles in its oversight of the Santa Cruz County Treasurer.”
The report was released without consulting county staff, which the county said goes against practice of the auditor general meeting with the agency being audited before he can challenge the state's findings.
The county also noted in the report's cover letter that the auditor general's investigation into the embezzlement allegations was not conducted in accordance with generally accepted auditing standards and was “more limited in scope than necessary to reliably detect all misappropriation of public funds or to issue an opinion on internal controls.”
“The fact that this long-standing practice was not followed here is just another example of the Auditor General failing to fulfill his basic audit duties and attempting to avoid financial responsibility to the residents of Santa Cruz County,” the county said.
The county said it intends to pursue a notice of claim against the auditor general before a jury to determine the extent of the auditor general's liability in the embezzlement case.
How was the theft discovered?
Gutphard's theft charges came to light in April after the county's bank, JPMorgan Chase, reported 11 fraudulent transactions totaling $375,000 to the county. The discovery prompted an investigation by the federal Department of Justice, the Department of Justice, the Arizona Office of the Auditor General and Santa Cruz County.
According to court documents, Gutfer evaded detection for 10 years by falsifying investment statements, misrepresenting fund totals on financial statements and misappropriating funds in certain months.
During an annual audit by the Arizona Auditor General, state officials reviewed financial statements from the end of June of the previous fiscal year, allowing Gutfer to avoid misappropriating funds in June and July, prosecutors allege.
As a result of the investigation, the county filed a civil lawsuit against Gutphard and her family on Aug. 1.
The investigation included consulting with Coconino County Treasurer Sara Benatar, who visited Santa Cruz County several times, where she discovered the county treasurer's office was not creating accurate reports, had failed to reconcile bank statements and was relying on screenshots of bank statements instead of the originals.
“Had the Auditor General properly audited the County's finances, he would have noticed similar problems,” the county said in the lawsuit.
Investigations by the FBI and Department of Justice are still ongoing.
Contact the reporter sarah.lapidus@gannett.comThe Republic's coverage of Southern Arizona is funded in part by a grant from Report for America. Support Arizona news coverage with a tax-deductible donation. supportjournalism.azcentral.com.
