DALLAS – An outside audit of Glendale, Ariz., revealed that city officials may have violated state law in hiding the costs of an early retirement program and misleading the city council on how it was being funded.

Employees working under then City Manager Ed Beasley shifted $6.1 million from dedicated trust funds without council authorization between 2009 and 2011, the audit reported.

The city launched the early retirement program on March 6, 2009 in an effort to cover a $14.4 million budget gap, according to the audit. City staff told the council that the program would save $2.2 million if 24 employees took early retirement.  However the costs of the early retirement program were obscured, and a penalty from the Arizona Retirement System was not mentioned until 2011, the audit said. 

Also, the expectation that only 24 employees would take the early retirement incentive appeared arbitrary and unrealistic, according to the audit.

“The origin and the circumstances surrounding the creation of the ERP are vague and unconfirmed as no documentary evidence of its genesis was available,” the audit said.  “While city management promoted the ERP as a solution to the city’s financial problems, it appears they performed limited cost/benefit analysis of the program.”

Glendale’s new city manager, Brenda Fischer, has placed financial services executive director Sherry Schurhammer and assistant city manager Horatio Skeete on paid administrative leave while the audit is being analyzed, officials said. The two worked with Beasley in developing the early retirement program in 2009. The audit is also being sent to the Arizona attorney general’s office.

The audit noted several high-profile early retirements, including that of former chief financial officer Art Lynch, who led the bond issuance for many of the city’s professional sports facilities, including the ill-fated Jobing.com arena. The $180 million arena, built in 2003, has become a financial drain on the city and has led to several credit downgrades.

Lynch had not participated in the early retirement program but was allowed to enter it after the program deadline, the audit found.

“The day after he retired in October 2009 the city rehired him as a ‘consultant’ and he took over his previous duties in which he was paid in excess of $900,000,” the audit said.

The city also ignored or was unaware of a 2004 Arizona law that imposed a charge for unfunded early retirements under the Arizona State Retirement System, according to the audit. In a letter to the ASRS, the city claimed that 11 city employees were taking early retirement instead of the actual 24.

To pay for the early retirement program, the city transferred money identified as “trusts,” the Risk Management and Workers Compensation Funds and the Benefits Trust, the audit said.

Citing two memos issued between city officials, the audit stated that “It is clear from these two memos that at a minimum the city management and staff recognized direct spending out of the funds for non-approved purposes was a violation of state law.”

The current city council ordered the outside audit in February after an internal audit in 2012 raised red flags about the fund transfers.

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