Santa Cruz County Sues Arizona Auditor Over Alleged $40 Million Embezzlement

On By Littum

game

Corrections and Clarifications: An earlier version of this article misidentified an agency that investigated Santa Cruz County’s past taxrwho is accused of embezzlement.

Santa Cruz County is suing Arizona and the state auditor general, alleging their inaction and “substandard” audits had devastating consequences after its former treasurer was accused of embezzling about $40 million in public funds.

The complaint was filed Nov. 14 in Maricopa County Superior Court against the state and Arizona Auditor General Lindsey Perry. In it, the county alleged that the auditor general failed to note former treasurer Elizabeth Gutfahr’s actions to conceal the alleged theft of funds from 2014 to 2024, including inflating daily warrants entries and fabricating bank statements.

“Gutfahr’s scheme would have been discovered years ago if the auditor general had conducted his audits properly,” the county said in its complaint, which seeks at least $40 million in damages.

The suit was filed three months after the county filed a civil lawsuit in Pima Superior Court against Gutfahr. Criminal investigations continue. The Arizona Attorney General’s Office declined to comment on the case. The National Audit Office did not respond to a request for comment.

Gutfhar is accused of stealing $39.4 million in public funds. The county said it is willing to settle that claim for $45 million, which also accounts for $1.3 million in lost interest and other fees and costs incurred to cover the missing funds.

The county said in its complaint that the auditor general’s “gross negligence” encouraged Gutfahr. The complaint alleges she stole smaller amounts early in the scheme before ramping up to embezzle as much as $11.3 million in one year.

The county called the state auditor’s practice “substandard” and pointed to its failure to review a random sample of bank and accounting records. The agency only reviewed end-of-year bank statements from the months of June.

The county said this practice allowed Gutfahr to allegedly steal millions of dollars undetected.

“Had the Auditor General simply looked at almost every savings account statement for almost any other month … Gutfahr’s fraudulent wire transfers to Rio Rico Consulting would have stood out like a sore thumb,” the county said.

How Gutfahr hid her alleged embezzlement

The county also blamed Arizona for failing to analyze the daily warrants line item in annual audit reconciliation reports sent to the state, the county said.

Gutfahr was responsible for preparing reports on the county’s cash reconciliation process, which compares the ledger to other accounts such as bank and investment statements to ensure balances match.

During this process, she allegedly misreported the line item of daily warrants, payment to vendors or third parties, to fill the gap between the amount reported in the general ledger and the actual amount in the county’s accounts.

With the fiscal year ending June 30, the county said there are sometimes minor discrepancies at the end of the fiscal year with payments that ended June 30 not being posted to the general ledge until July 1 . The county said this allowed Gutfahr to claim the large discrepancy between the actual and reported cash balances in her treasurer’s reports was due to the timing of the warrants’ posting to the general ledger.

“Had the Auditor General taken this step to actually confirm what Gutfahr was telling about the daily warrants, the Auditor General would have seen that the various ‘warrants’ that Gutfahr claimed were outstanding had actually already been posted to the ledger in June, not July ,” the county said.

Treasurers in several counties have warned the state that it risks cases of fraud if it continues to check only year-end bank statements, the county said.

One such entity was the Coconino County Treasurer’s Office, which asked the state to randomly select three months of bank statements for audit.

“Had this simple procedure been implemented as a standard practice in all Arizona counties, the Auditor General would likely have discovered Gutfahr’s theft,” the county said.

The county accuses the state of not admitting evidence

The county also accused Gutfahr of fabricating bank statements to help hide the mounting amounts connected to her personal accounts.

Evidence of medical treatment included use of her business mailing address in Tumacacori and a Rio Rico address for UBS Financial Services Inc. instead of the bank’s actual Phoenix address. The statements also changed the name of the financial advisor and the phone number assigned to the account, among other changes.

“The renal auditor, failing to exercise reasonable care, failed to recognize the clear indications that they were fabricated,” the county said.

In an Aug. 26 report, the auditor general’s office said it lacked the authority to independently obtain detailed financial information from the county treasurer’s office directly from a financial institution and required the treasurer and county staff to help obtain that information.

The county pushed back, noting in its complaint that the auditor’s office can contact bank representatives to verify the information provided by counties in their financial reports and to ask the county to authorize banks to provide information.

In 2023, Gutfahr allegedly authorized JPMorgan Chase to provide the state with financial documents for an ongoing audit. But the state did not request any savings account statements for any month other than June, the county said.

The County discovered the loss of funds after the bank flagged irregularities

The county discovered the loss of funds in April and blamed the state’s failure to adhere to the “generally accepted and common auditing standards and practices” for not catching the embezzlement sooner.

The loss of funds was discovered after JPMorgan Chase reported 11 fraudulent transactions totaling $375,000 to the county. The findings prompted Federal Bureau of Investigation, Department of Justice, Arizona Auditor General’s Office and Santa Cruz County investigations.

After an investigation, the county filed a civil lawsuit against Gutfahr and her family on Aug. 1.

The county alleged Gutfahr has several other businesses that either helped her embezzle public funds or own assets purchased with county funds.

Also listed as defendants in the lawsuit are Gutfahr’s husband, son and daughter-in-law and their numerous businesses.

The investigation included consultation with Coconino County Treasurer Sarah Benatar, who visited Santa Cruz County several times. In one case, she found that the county treasurer’s office did not write accurate reports, failed to reconcile bank statements and relied on screenshots of bank statements instead of original documents.

Gutfahr, a Democrat, was elected county treasurer in 2012 and re-elected in 2016 and 2020. Before the embezzlement allegations came to light, she ran unopposed in the 2024 election.

Previously, she worked in real estate in Santa Cruz County.

Grab the reporter at [email protected]. The 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.