November 26, 2022

Donalds Hobby

World Finance Reviews

How to Regain Citizens’ Trust After a Financial Scandal

In the spring of 2020, José Madrigal applied for the job of city manager in Durango, Colorado, a community of about 20,000, by far the biggest city in rural La Plata County and the location for a few key scenes in the film “Butch Cassidy and the Sundance Kid”. The job was posted after financial irregularities in the community had prompted the resignation of the longtime Durango finance director, Julie Brown, in October 2019. (She subsequently pleaded guilty in November 2020 to two felony charges related to $712,000 in embezzled funds).

In September 2020, Madrigal was hired and began the arduous job of fixing the multiple financial vulnerabilities in the city and—equally important—restoring faith in the city government that had been forfeited thanks to ongoing press about the scandal.

“Trust is broken over seconds and regained over years,” says Madrigal, who has been working 12-to-14-hour days over the last two years to fix Durango’s internal process and rebuild the confidence of shaken residents.

Madrigal’s challenge is far from unique. Government financial scandals are, sadly, not rare, and they leave a lot of cleaning up to do. A few examples:

  •  In Stonecrest, Georgia, City Manager Janice Allen Jackson is focusing on the changes needed following the January 2022 resignation and guilty plea of former Mayor Jason Lari, based on charges that stemmed from misuse of federal funds received during the pandemic.
  • In Cincinnati, the new Office of Ethics and Good Government was set up in January following economic development improprieties that resulted in the arrests and suspensions or resignations of three out of nine councilmembers. One pleaded guilty; one was found guilty in early July and is seeking a mistrial, and the third is awaiting trial.
  • In Buncombe County, North Carolina, County Manager Avril Pinder is implementing changes needed following the federal indictment and guilty pleas of four high-level Buncombe County officials and a contractor in 2018 and 2019. A former county commissioner also pleaded guilty in 2020.

Kelly Richmond Pope, a professor of accounting at DePaul University in Chicago, believes that fraud schemes are no more likely in government than the private sector, but that large government cases have some commonalities. They often involve power and privilege, unfettered access to money and the “blind trust” of employees and citizens.

In 2017, she produced and directed the documentary, “All the Queen’s Horses,” which told the story of Rita Crundwell, the former comptroller of Dixon, Illinois, who was convicted in 2012 of embezzling $53.7 million, the largest municipal fraud to date in U.S. history.

Whatever the government, many of the steps taken to repair the damage from financial scandal are similar, including:

  • Efforts to fix internal control weaknesses.
  • Listen to criticisms that come from concerned residents.
  • Increase the transparency of financial information.
  • Encourage employees and elected officials to speak up when they see potential problems.

Madrigal worked from that playbook. His first step, when he took the job, was to talk to government critics, including business leaders, who had been raising questions about financial irregularities. Other one-on-one conversations were held with each of the city’s councilmembers, along with an intense effort to speak with groups of residents.

“My first 90-day plan was really reaching out to the community,” he says.

There was a lot to fix internally, as well. He quickly discovered that Durango lacked the financial technology he was familiar with from prior government management roles in Texas. The city’s annual comprehensive financial report was a year late, much of the financial staff had left following the resignation of the finance director, and there was minimal public access to financial information.

Additionally, Madrigal addressed the need to build better internal controls. The former finance director had full authority to write checks with no formal signoff or approval processes. Madrigal set up approval processes and made sure that controls over finances were separated out.

The city manager also identified a sense of complacency and an unwillingness to bring up problems and set up a fraud hotline to report questionable activities anonymously. “Bad habits are hard to break,” says Madrigal. He learned he couldn’t just say “that’s not right,” but had to teach employees why past practices needed to be changed.

Madrigal is optimistic for the future, and the most vocal critics of government have supported his actions. A poll is planned for next year to solicit a broader view of how city leadership is doing.

No One-Size-Fits-All Approach

Naturally, though the steps Madrigal took can be utilized in other places, there’s no one-size-fits-all solution to dealing with the impact of a scandal. In Stonecrest, a recently incorporated Georgia city, the city attorney’s investigation into the mismanagement of federal CARES Act funding led to some changes in city structure even before the mayor’s January 2022 resignation and guilty plea.

For example, in April 2021, following a request from the Stonecrest city council, the Georgia legislature passed and the governor signed legislation that established a new city charter that limited mayoral authority and created a council-manager form of government. This resulted in a reduction of the mayor’s powers in the six months prior to his resignation and allowed the new acting city manager, Janice Allen Jackson, to concentrate on community outreach, strategic planning, building a new staff and increased transparency. (Jackson became the city manager in January 2022).

In Cincinnati, where city councilmember arrests were sparked by bribery and kickback charges related to economic development deals, the new Office of Ethics and Good Government, recommended by an Economic Development Reform Panel, is focusing on situational ethics training for councilmembers and employees.

It also expanded a fraud, waste and abuse hotline and created a “city business list” that provides public information about development deals along with information about individuals who have financial interest in them. The Ohio city also prohibits campaign contributions for people on the list. 

Restoring faith is particularly difficult when the factors involved in scandal have been in place for a very long time and have come to be the face of the government. In Buncombe County, Durango and Dixon, problems were connected to high-level officials who had been in top positions for many years and who had operated with the apparent trust of elected officials and employees.

Until her resignation in 2017, Wanda Greene had served as county manager in Buncombe for 20 years. Also convicted were two assistant county managers—one who also served as planning director and the other who replaced Greene as county manager when she resigned. Six people total were convicted.

When she became Buncombe’s new county manager in March 2019, Pinder put a top priority on fixing culture issues in the workplace. Her job, she felt, was emphasizing values and deconstructing departmental silos that reduced a sense of shared responsibility for the integrity of the county.

“I went on a tour of the departments and met with as many employees as possible to talk through my expectations —that if they see something, they have to say something.”

In Buncombe County, a survey in January provided a baseline that shows residents’ attitudes toward the government. The results were “better than I thought,” says Pinder. “It’s not great, but it’s not in a toilet either.”

“This is a marathon not a sprint,” she says. “You can’t come in and expect overnight that one or two changes are going to do it. It’s about culture. It’s about being intentional and being consistent. So, you’ve got to give yourself grace and know that you’re working on the right path.”