Arizona and its chief auditor hit back at Santa Cruz County in a legal filing accusing officials of negligence and other wrongdoing after a former county official embezzled roughly $38 million in public funds over a decade-long span.
The lawsuit comes in response to legal action brought by the county against Arizona Auditor General Lindsey Perry and the state in November 2024. The county’s lawsuit claims Perry’s office was grossly negligent, which it said emboldened former county Treasurer Elizabeth Gutfhar.
“We are disappointed, but not surprised by the filing of this counter complaint,” said Santa Cruz County Supervisor Rudy Molera, who is named in the lawsuit, in a statement posted on the county website. “Rather than addressing the serious concerns raised in our original filing, the Auditor General has chosen to deflect attention through retaliatory tactics.”
Arizona Auditor General Lindsey Perry.
Two other current supervisors issued statements as well.
The lawsuit alleges several former and current county officials were “unjustly enriched” by Gutfahr’s embezzlement, which was discovered in April 2024.
Gutfahr pleaded guilty in November to embezzling $38.7 million from 2014 to 2024, money laundering and tax evasion for failing to pay income tax of more than $13 million. She was awaiting sentencing, which was now slated for June 18.
The lawsuit also alleges current and former Santa Cruz County board members and other county employees were negligent and failed to review reports and supervise Gutfahr, among other issues.
Rita Seto, a Maricopa County resident contracted to complete financial statements for Santa Cruz County, was negligent for failing to detect Gutfahr’s “fraudulent reports and documents,” according to the lawsuit.
The suit, filed in Maricopa County on April 3 and served to the county Board of Supervisors on April 15, also includes dozens of unknown people and businesses who played a part in Gutfahr’s embezzlement.
State alleges county officials failed to review treasurer reports, update outdated systems
The 59-page lawsuit contends the county was responsible for detecting fraud and points to various failures by its officials.
Some of the ways Gutfhar hid her theft included fabricating investment account statements and avoiding transferring funds from the county’s accounts to her personal accounts in June and July, the months that the auditor reviewed.
The state blames county officials for failing to uncover the missing funds.
The lawsuit points to the board’s failure to review Gutfahr’s financial reports, including cash reconciliation reports and her monthly treasurer’s reports.
The board requires all departments to submit monthly reports, which for the Treasurer’s Office included a cash reconciliation report between the bank and investment accounts and a treasurer’s report, the Auditor General’s Office said in its 2024 narrative about its investigation into Gutfhar’s embezzlement.
Although the board received her reconciliation reports during meetings, the lawsuit notes the agenda and minutes do not show that the board reviewed them. Unlike the cash reconciliation reports, the lawsuit alleges the board never received her monthly treasurer’s reports. The lawsuit alleges the clerk of the board or elections director would acknowledge the receipt of the treasurer’s reports and return them to the Treasurer’s Office without sending copies to the board.
The suit alleges the board members knew they were not receiving the reports.
The state’s lawsuit noted irregularities with a cash reconciliation report that showed details of a UBS Financial Services investment account that should have raised flags. Investment account balances typically fluctuate from month to month, however, the UBS investment account balance did not fluctuate, the lawsuit says.
In another example, Gutfahr reused balance amounts for different months in her report. The cash reconciliation reports from February 2021 and February 2022 show several accounts with the same balance for both months, the state said, adding that the account balances were falsified.
“Had anyone from the county reviewed Gutfahr’s monthly cash reconciliation reports, they would have noticed the irregularities and discovered Gutfahr’s actions,” the lawsuit says.
The state also faulted the county for not updating its “inadequate and outdated” accounting systems, which failed to record Gutfahr’s wire transfers and deleted data at the end of each month, said the lawsuit.
The auditor general said her office has been reporting the county’s lack of internal controls over its information technology systems since 2009.
The Santa Cruz County Courthouse was built in 1903. It is a Classical Revival style building and was placed on the National Register of Historic Places in 1977. The courthouse is just a few blocks north of the U.S.-Mexico border in Nogales, Arizona.
State alleges former staff member aided, abetted Gutfahr
Maria Acuna, the county’s former chief deputy treasurer, was the only official named in the lawsuit accused of aiding and abetting fraud. The lawsuit alleges Gutfahr, who appointed Acuna in 2014, did not like Acuna’s predecessor for wanting to be in control of the department’s processes.
The lawsuit alleges Acuna “was not sufficiently qualified for the responsibilities” her job entailed.
Acuna was accused of sharing her password and multifactor token with Gutfahr, allowing the former county treasurer to bypass the two-step approval process to wire the stolen funds.
Gutfahr allegedly lied to Acuna, telling her she was transferring funds to a Wells Fargo investment account with a more favorable interest rate.
During the time Gutfhar stole public funds, Acuna questioned her once, about a November 2021 transfer of $225,000 from the county’s office to a checking account, the lawsuit states.
Gutfhar allegedly told Acuna, she had mistakenly transferred the funds “out of the County Treasurer’s checking account instead of from the County Treasurer’s money market savings account to the supposed Wells Fargo account,” the lawsuit states.
Acuna followed up with Gutfahr one time because the money had not been returned.
“Acuna failed to record the transaction in the County Treasurer’s accounting system, and the $225,000 was never returned,” the lawsuit alleges.
Gutfahr gave gifts to some officials, lawsuit says
Gutfahr gifted money and other items to some Treasurer’s Office officials with the stolen funds, the lawsuit alleges.
Susan Gonzalez, a tax clerk, received a gift for her son’s wedding, the lawsuit alleges. Gutfahr also reportedly let Gonzalez’s daughter’s marriage ceremony take place at one of the ranches she purchased with the embezzled money. Gonzalez and Gutfhar also reportedly traveled for a long weekend stay in San Carlos, Mexico.
The lawsuit contends Acuna received from Gutfahr a $6,000 loan for a new air conditioner, a $3,000 car for Acuna’s sister, and financial help to pay for her cell phone bills starting in 2019 or 2020.
Gutfahr also paid the personal bills of Gloria Patricia Ibarra, the county’s former senior secretary, and gave Ibarra’s children $100 on their birthdays and $1,500 on Ibarra’s birthday, the lawsuit alleges.
The lawsuit also alleges Gutfhar tried to have a “personal relationship” with an unnamed adviser who handled some of the county’s investments, offering the adviser one of her family’s homes to stay in around February 2023.
The suit also includes officials’ spouses in the list of defendants, saying they received benefits from the embezzlement, noting that Acuna and others acted on behalf of their marital communities.
Other officials accused of negligence, lawsuit contends
The lawsuit accuses several county officials of being enriched by Gutfahr’s scheme, and whose negligence helped the theft go undetected for so long.
The state alleges that two former officials and one current official who were tasked with overseeing county operations were negligent: Mauricio Chavez, former administrative services department director and deputy county manager; Jennifer St. John, former administrative services department director and county manager; and Jesus Valdez, former county manager.
The state is also accusing three former and three current members of the county Board of Supervisors with various types of negligence in their supervision of Gutfahr for failing to review Gutfahr’s reports and for failing to suspend and investigate her before the suspension.
Two weeks after the county’s bank reported suspicious wire transfers on April 3, 2024, and after the county removed the Treasurer’s Office authorized signatories, the county suspended Gutfahr before she submitted her resignation, according to the lawsuit.
The state alleges the county had the duty to remove her from office in connection with her “misappropriation of funds,” but should have requested an investigation into her actions before suspending her.
Reach the reporter at sarah.lapidus@gannett.com. The Republic’s coverage of southern Arizona is funded, in part, with a grant from Report for America. Support Arizona news coverage with a tax-deductible donation at supportjournalism.azcentral.com.
This article originally appeared on Arizona Republic: Arizona auditor counter sues Santa Cruz County over $38M embezzlement
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