The city of Cortez has officially completed its 2019 financial audit, meaning the city is now out of the high-risk audit category, according to City Manager Drew Sanders.

The audit marks a critical moment for Cortez, which has struggled to put its financial records on track since a case of embezzlement and a faulty financial software conversion disrupted city operations three years ago.

“This is a really important milestone,” Sanders said. “This takes us out of the woods. The nightmare of the embezzlement is over.”

In April 2019, city staff announced that a faulty software conversion in 2016 led to inadequate financial documentation, preventing Cortez from receiving proper audits from 2016-19. The backlog of audits meant the city could not apply for state grants and caused the county to withhold property taxes.

As staff worked to remedy the situation and neared completion of the 2016 financial audit, then-City Manager John Dougherty announced in July 2019 that it had been discovered that a former city employee had embezzled funds from the city. Former Finance Director Katheryn Moss later pleaded guilty to embezzling $63,642 from the city between Jan. 1, 2016 and Dec. 31, 2018.

The Colorado Bureau of Investigation directed staff to leave all records alone during its embezzlement investigation, halting the audit recovery process.

The financial audits have been a priority for Sanders since he became city manager in May 2021.

“The condition of the financial records was not in a good enough position that we could really even audit them,” he said. “So a lot of that had to be rebuilt, re-reviewed, and put in a modern, best practice format, that could even be reasonably audited.”

Also in May 2021, the city hired Atlas CPAs and Advisors, a large auditing firm with experience in similar situations. Atlas and city staff completed the 2017 and 2018 audits by March 2022, but because of the uncertainty caused by the embezzlement, Atlas delayed giving an official opinion on the audits until completing the 2019 audit.

Now that 2019 is finished, Atlas is working on the opinion for all three years.

“So in 14 months time we have completed three audits, where it took them four years to do one before,” Sanders said, referring to the time spent on the 2016 audit.

He praised the city’s finance department for its work, collaborating closely with the auditing firm, fixing journal entries, finding documents, making system adjustments and more.

“It was a massive amount of work on their part,” Sanders said, also applauding finance director Kelly Koskie’s leadership.

Next steps include completing the 2020 and 2021 audits. The city also has taken steps to mitigate the risk of this happening again, Sanders said, including software updates, policy updates and separating duties by those who handle city money.

The good news is that the old financial records are now in “tiptop shape,” Sanders said.

“Those records are in order now,” he said. “That’s a big deal. That’s what the public expects, and that’s what we owe them.”