By Peggy Senzarino, Mason City Globe Gazette

SCARVILLE, Iowa — A special state audit says Scarville Mayor Michelle Hermanson misused thousands of dollars of grant money meant to renovate the city’s basketball and tennis courts to pay her personal bills.

The report released Wednesday by State Auditor David Vaudt says Hermanson also kept $800 from the sale of a city tractor, wrote other checks to herself and used city money for gas in her personal vehicle.

The report also says former City Clerk Jolene Carter issued 20 paychecks to herself totaling nearly $8,000 that she did not earn and wrote dozens of other checks to herself that appear to be questionable.

No criminal charges have been filed against the women pending the completion of an investigation by the Iowa Division of Criminal Investigation, according to Winnebago County Attorney Adam Sauer.

The special investigation centered on the period between Jan. 1, 2006, through March 31, 2011. City officials requested the investigation as a result of concerns regarding unauthorized payments.

Hermanson has been mayor of Scarville, population 72, since 2004. Carter has been city clerk since Jan. 1, 2006.

According to the auditor’s report, Hermanson said Carter was hired because she was studying accounting.

Carter verbally submitted her resignation in August 2010. But she remained with the city until Dec. 31, 2010.

The city’s primary sources of revenue include local option sales tax and road use tax money and property taxes collected by Winnebago County and remitted to the city. Revenue is also received through dues for fire protection from Logan and Norway townships, mowing services from Five Star Co-op and rent from a building owned by the city.

Hermanson contacted the auditor’s office on April 28, 2011, with concerns regarding payments made by the former clerk. According to Hermanson, the new city clerk had discovered some transactions that concerned her.

The auditor’s office identified $37,069.42 in improper and unsupported disbursements and undeposited collections.

This amount includes $21,387.74 of improper disbursements, $12,881.68 of unsupported disbursements and $2,800 of undeposited collections.

The improper disbursements include unauthorized payroll checks issued to Carter totaling $7,447.78 and other checks issued to Carter for a total of $4,708.61.

The improper disbursements also include $7,028.54 in cash allegedly withdrawn from the city’s bank accounts by Hermanson. Hermanson also allegedly withheld $2,000 in cash from a deposit to a city bank account and did not deposit $800 in cash from the sale of the city’s tractor.

One questionable transaction involved a $4,500 grant check from the John K. and Luise V. Hanson Foundation. The grant was to be used to pay for repairs to the city’s tennis and basketball courts.

On June 29, 2007, the check was taken to the bank for deposit but only $2,500 was deposited. According to the report, $2,000 was taken out in cash. Hermanson signed the bank document.

On July 11, 2007, Hermanson withdrew $500 cash from a city bank account. There was no notation regarding the nature of the withdrawal.

A $2,000 deposit was recorded on July 21, 2007. The deposit slip noted the proceeds as “community foundation.” The deposit was a grant from the Community Foundation of Waterloo/Cedar Falls and Northeast Iowa.

Hermanson submitted a progress report relating to the grant that stated the funds were to pay for tennis court renovation, purchase of basketball hoops and the purchase of cement, paint and other supplies. Review of the city’s bank statements showed no checks to any vendors for basketball hoops, hardware or supplies.

The report also states that the city’s tennis and basketball courts do not appear to have been improved recently.

Documentation is not available to support how the cash Hermanson allegedly withdrew from the city’s money market account was spent.

During an April 3, 2012, interview with investigators from the auditor’s office, Hermanson said she kept $6,500 of the cash related to the grants and used it for personal bills. She also said the city projects were not completed.

She also admitted the report to the community foundation was falsified.

The investigation by the Iowa Division of Criminal Investigation, the county attorney’s office and the state auditor is continuing, according to Sauer.

He said he had no timetable on when charges might be filed.

Sauer said he issued a news release without filing charges because the auditor’s report was releasing its report.

Phone listings for Hermanson and Carter have been disconnected, according to an Associated Press report.