Following the Kirkwood City Council’s October announcement of a nearly 15 percent increase in city electric rates to address a $15.6 million deficit in Kirkwood Electric, residents and stakeholders have called for two critical actions: a comprehensive explanation of the situation and a forensic audit to examine how internal controls failed and whether any improper conduct took place.
The council took steps Thursday evening during a work session to address both of these requests.
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Council members spent nearly two hours reviewing a 12-page “After Action Report” that examined the causes behind the $15.6 million deficit. The deficit arose from the final two years of Kirkwood Electric’s electric grid modernization initiative, which was overseen by former director Mark Petty.
David Weidler, the city’s assistant chief administrative officer, led the preparation of this 12-page report with support from other staff members. The document outlines 10 specific deficiencies and describes the corrective measures the city has implemented to prevent similar issues. Additionally, the report notes that the city has launched a five-year initiative to restore $4 million to Electric Department reserves.
The report identifies the Electric Department’s failure to fully encumber purchase orders in the financial system as the most critical deficiency. This oversight “overstated available budget balances and limited visibility into actual commitments.”
Because existing obligations were not fully encumbered from one budget year to the next, the available budget “appeared greater than actual available funds.”
Inadequate oversight of the Electric Department’s “blanket agreements” with contractors represented another significant issue. These contracts allowed the Electric Department to proceed with construction projects valued at $15,000 or more without obtaining City Council approval, which city ordinances require.
Going forward, the report mandates that all projects exceeding $15,000, under any contract arrangement, must receive city council approval.
The review determines that the Electric Department’s overspending “was caused by financial control and oversight deficiencies rather than intentional unauthorized spending.”
The report refrains from assigning personal blame and does not address the specific roles of Petty and Russell Hawes, the city’s former chief administrative officer.
Petty and Hawes were the only employees to leave their positions as a result of the overspending incident. This situation prompted Moody’s credit rating agency to downgrade Kirkwood’s rating by two levels to Aa3 from Aa1, citing the unexpected depletion of reserves.
Petty, who directed Kirkwood Electric from 2006 until his departure on October 9, 2025, received a severance package of $112,500, equivalent to half his yearly compensation. Hawes’ employment ended on December 19, and he received $250,323 in severance—matching his full annual salary. Additionally, Hawes was granted a lump sum payment of $29,327 for health insurance coverage, according to city documentation.
The most contentious moments of the work session involved establishing guidelines for selecting a firm to execute a forensic audit. This type of audit involves a thorough investigation specifically designed to uncover evidence suitable for potential legal proceedings.
Deb Lavender, a former state representative who was elected to the council in April, suggested that forensic auditors investigate “financial statement fraud, falsifying records, misreporting to the council, asset misappropriation. Was money misappropriated? Was anyone falsifying records that were presented anywhere else?”
Cost considerations inevitably surfaced during the discussion. Council member Gina Jaksetic, who mentioned using AI for research on the subject, indicated that a comprehensive forensic audit could cost between $150,000 and $350,000.
Mayor Liz Gibbons, sitting beside Jaksetic, responded with theatrical dismay, letting out an exaggerated “Ohhhh.”
“I wanted to make sure we understood the financial commitment involved,” Jaksetic explained. “I believe it’s money worth spending.”
According to Jaksetic’s research, a more thorough forensic audit—encompassing staff interviews, procurement evaluation, and a public report—might cost anywhere from $500,000 to $1 million.
“We need to determine how to make this happen,” Jaksetic said.
“That’s not feasible,” Gibbons replied.
Justin Arnold, who was elected to the council in April, suggested starting a forensic audit “at an appropriate level, and if concerning findings emerge, we can authorize additional spending.” He added, “Our residents are paying higher electric rates because of this situation, so they have the right to understand what occurred.”
After the work session concluded, Arnold reiterated his position that a forensic audit is essential for transparency and accountability.
“While the After Action Report provides a narrative,” Arnold noted, referencing the document, “it lacks detailed specifics. I believe a thorough audit is critical to fully understanding what happened.”
