Santa Cruz County is suing Arizona and the state auditor general, claiming their inaction and “substandard” audits had devastating consequences after the former treasurer allegedly embezzled some $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 province alleged that the auditor general failed to spot former Treasurer Elizabeth Gutfahr’s actions to conceal the alleged theft of funds between 2014 and 2024, including inflating daily warrant line items and fabricating bank statements.
“Gutfahr’s scheme would have been discovered many years ago if the Auditor General had properly conducted his audits,” the province said in its complaint, which seeks at least $40 million in damages.
The lawsuit was filed three months after the county filed a civil lawsuit against Gutfahr in Pima Superior Court. The criminal investigation is still ongoing. The Arizona attorney general’s office declined to comment on the lawsuit. The Auditor General did not respond to a request for comment.
Gutfhar is accused of stealing $39.4 million in public funds. The province 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 in uncovering the missing funds.
The province said in its complaint that the auditor general’s “gross negligence” emboldened Gutfahr. The complaint alleges she stole smaller amounts early in the scheme, before embezzling as much as $11.3 million in one year.
The county called the state auditor’s practices “substandard” and pointed to the inability to review a random sample of bank and financial statements. The agency only checked the year-end bank statements for the months of June and July.
The county said this practice allowed Gutfahr to steal millions of dollars undetected.
“If the Auditor General had simply looked at almost every savings account statement in almost every other month… the fraudulent transfers from Gutfahr to Rio Rico Consulting would have been particularly striking,” the province said.
How Gutfahr hid her alleged embezzlement
The county also blamed Arizona for not analyzing the line item for daily warrants in the annual audit reconciliation reports submitted to the state, the county said.
Gutfahr was responsible for preparing reports on the county’s cash reconciliation process, which compares the general ledger to other accounts, such as bank and investment statements, to ensure balances match.
During this process, she allegedly misreported the line item for daily warrants, the payment due to vendors or third parties, to close the gap between the amount reported in the general ledger and the actual amount in the county’s accounts.
Santa Cruz County Courthouse.
Because the fiscal year ended on June 30, the province said there are sometimes minor discrepancies at the end of the fiscal year with payments that were settled on June 30 and not placed on the general roll until July 1. The county said that allowed Gutfahr to claim the large discrepancy between actual and reported cash balances in her treasurer’s reports was due to when the warrants were placed on the ledger.
“If the Auditor General had taken this step to actually confirm what Gutfahr told him about the daily warrants, the Auditor General would have seen that the various ‘warrants’ that Gutfahr claimed were outstanding were in fact already on the ledger were booked. in June, not in July,” the province said.
Treasurers in several counties have warned the state that fraud is occurring if it continues to audit only year-end bank statements, the county said.
One of those entities was the Coconino County Treasurer’s Office, which asked the state to randomly select three months of bank statements to audit.
“Had this simple procedure been implemented as standard practice in all Arizona counties, the Auditor General would likely have discovered Gutfahr’s theft,” the county said.
County accuses state of failing to admit evidence
The county also accused Gutfahr of fabricating bank statements to conceal mounting amounts of money transferred to her personal accounts.
Evidence of doctoring included the use of her company’s mailing address in Tumacacori and a Rio Rico address for UBS Financial Services Inc., instead of the bank’s actual Phoenix address. The statements changed, among other things, the name of the financial advisor and the telephone number assigned to the account.
“The Auditor General, failing to exercise reasonable care, failed to recognize the clear indications that they were fabricated,” the province said.
In an Aug. 26 report, the Auditor General said it did not have 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 assist in obtaining that information.
The province indicated in its complaint that the accounting firm may contact bank representatives to verify the information provided by the provinces in their financial reports and to request that the province authorize banks to provide information.
In 2023, Gutfahr reportedly authorized JPMorgan Chase to provide the state with financial documents for an ongoing audit. However, the state has not requested bank statements for savings accounts for any month other than June, the county said.
County discovered the money loss after the bank noticed irregularities
The county discovered the loss of money in April, blaming the state’s failure to comply with “generally accepted and common auditing standards and practices” for not discovering the embezzlement theft earlier.
The loss of funds was discovered after JPMorgan Chase reported 11 fraudulent transactions worth $375,000 to the county. The findings prompted investigations by the Federal Bureau of Justice, the Department of Justice, the Arizona Auditor General’s Office and Santa Cruz County.
After an investigation, the county filed a civil lawsuit against Gutfahr and her family on August 1.
The county alleged that Gutfahr had several other companies that helped her embezzle public funds or own assets purchased with the county funds.
Gutfahr’s husband, son and daughter-in-law and their numerous companies are also named as defendants in the lawsuit.
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 failed to prepare accurate reports, failed to reconcile bank statements and relied on screenshots of bank statements rather than 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 was unopposed in the 2024 election.
Previously, she worked in the real estate industry in Santa Cruz County.
Reach the reporter sarah.lapidus@gannett.com. The Republic’s reporting on southern Arizona is funded in part by a grant from Report for America. Support news reporting in Arizona with a tax-deductible donation at supportjournalism.azcentral.com.
This article originally appeared on Arizona Republic: Santa Cruz County sues Arizona accountant after alleged embezzlement of $40 million
