‘Breach of contract’: City’s ex-auditing firm says it did its job, will defend against lawsuit

An official with one of the companies being sued by the city of Yukon says his company did nothing wrong, and will defend itself against the lawsuit.

Derrel White, the managing partner for FSW&B, says his company did its job by providing a forensic audit of the city’s finances.

FSW&B were named in a lawsuit filed by the city of Yukon earlier this month that charges that the company provided an audit that was not accurate and led the city to overspend its budget in 2015.

The overspending nearly bankrupted the city, leaving less than $3,000 in its reserve accounts by early 2016.

It also led to the resignation of then-City Manager Grayson Bottom.

The city has accused the Stillwater-based accounting firm of breach of fiduciary duty, professional negligence and breach of contract.

White said his company did its job and did not breach its contract.

“Their claim against us, if any, is breach of contract. … We are going to vigorously defend it and believe it will be dismissed without merit,” White said.

White also said city officials got their financial information through monthly statements and should have been aware of their financial status.

“The city council, until this happened, was disinterested in the financial statements. Now they want to know every single thing,” he said.

“They weren’t relying on the audits to make any decisions. … The audits are forensic, they are after the fact. They got monthly statements presented to them. They knew that they had been on a big-time spending spree for four years. If they didn’t, they should have,” White said.

White also said he was surprised by the lawsuit and suspects the city doesn’t plan to litigate the issue, but is looking for a payment of liability funds from the company’s insurer.

“They don’t intend to litigate this, but we do. We intend to aggressively defend our position,” he said.

White said that may mean a countersuit.

“From Day 1, they have tried this in the media. We’re looking at what our options are and what our suit may be against the city of Yukon,” White said.

Attorneys representing the city of Yukon filed a lawsuit Nov. 9 in Canadian County District Court against FSW&B as well as R.S. Meacham CPAs and Advisors.

The lawsuit seeks in excess of $75,000 from each company.

According to the court documents, the city claims that Meacham was hired in July 2011 to provide financial advice to city.

FSW&B were hired in 2012 to conduct the city’s audits.

In 2015, the city became concerned that the financial audits and statements were in error and hired another firm, Crawford and Associates, to conduct a forensic audit.

According to the court documents, that audit found numerous errors.

“For instance, the city improperly used monies that were restricted for specific uses for general operations,” the filing states.

The lawsuit claims that Meacham negligently prepared accounting books, records and financial statements for the city.

“The financial statements prepared by R.S. Meacham contained numerous material misstatements, departures from generally accepted accounting practice principals and omitted disclosures,” the document reads.

The document claims that FSW&B audited the statements and issued an audit incorrectly concluding that the 2015 financial statements were free of material misstatements and incorrectly reported there were no compliance issues of any internal control deficiencies.

The city is suing both companies, claiming breach of fiduciary duties as well as professional negligence.

Representatives of Meacham did not return calls seeking comment.

In addition, a countersuit against Bottom is pending, said City Manager Jim Crosby.

Crosby said the city is trying to recoup the money spent on the two companies’ work.

“The city’s position is that we paid them for a job they didn’t perform properly. Their work had to be redone,” Crosby said.

FSW&B was paid more than $105,000 in fees, according to documents provided by the city of Yukon through an open records request.

R.S. Meacham was paid $186,950 between fiscal year 2012 and 2016, according to the city documents.

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