How nearly $1 million disappeared from Arizona coffers

Nearly $1 million went missing from the city of Surprise from 2007-2014.

Nearly $1 million went missing from the city of Surprise from 2007-2014.

No one noticed. Or, if someone did, no one said anything.

A Maricopa County grand jury has indicted the city's former finance director, Estella Sanchez, on 15 counts relating to accusations of theft and fraud earlier this year involving the missing money, $836,000 in city funds.

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"It's pretty embarrassing for the city to have that happen right under our noses," Surprise Councilman Roland Winters said.

It appears no one, besides a few employees who worked with her daily, had any inkling that Sanchez might have been siphoning taxpayer dollars for personal use. Sanchez's annual performance reviews, obtained by The Arizona Republic through a public-records request, included glowing remarks from her managers during her 17-year career with the city.

In a performance evaluation submitted in July 2013, eight months before Sanchez was fired, then-City Manager Christopher Hillman wrote, "Estella has impeccable integrity and is a model for ethical behavior." Current City Manager Bob Wingenroth, who was then the city's chief financial officer and assistant city manager, gave Sanchez an ethics rating of "meets with commendation."

Sanchez's annual salary was about $91,000 when she was fired. She now faces criminal charges and a civil lawsuit, in which she could be forced to pay back the money she is accused of stealing and possibly serve jail time. She is being represented by the public defender's office. She did not respond to calls for comment.

News of the missing money spurred questions about how an employee would have been able to remove so much city money without other employees noticing. According to the police investigation and court documents, Sanchez used two methods to swindle cash.

How authorities say she did it

On multiple occasions, Sanchez requested city checks for the purpose of increasing the amount of petty cash the city cashiers in her department kept in their drawers, according to allegations in court documents. But instead of passing on the money to the cashiers, she used her check-cashing authority to deposit the checks and pocketed the cash, court documents said.

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Petty cash is supposed to be used to reimburse employees for work-related expenses. The cashiers who worked under Sanchez told a city auditor that they were unaware of any petty cash increases in recent years, according to the police report.

The civil suit also alleges Sanchez stole money and checks from the city's daily deposit and then altered documents to disguise the missing cash and checks.

Each day, tax auditor Pamela Pieri would go to the video-recorded counting room in City Hall, perform a count of the cash and check intake from the previous day and make note of the amount, according to the police report. She would then place the money and her report inside an unsealed bag in a safe.

According to the report, Sanchez would perform the secondary count of the deposit each day.

Stacie McQuarrie, a backup cashier for the city and one of Sanchez's subordinates, told a Surprise police investigator that Sanchez would take the money out of the recorded counting room and conduct her count inside her old office — which was free from cameras — around the corner. Sanchez told McQuarrie she did this because she wanted to sit down.

McQuarrie told the investigator the counting room had a chair and desk and she never understood why Sanchez took the money out of the counting room, but never asked because Sanchez was her supervisor. McQuarrie said the practice made her and her colleagues feel "uncomfortable."

Sally Capuchino, the main city cashier, echoed McQuarrie's concerns to the investigator, and told him Sanchez would occasionally take the daily deposit to the bank herself, which was peculiar to the employees because the city uses an armored vehicle to transport cash and checks.

Sanchez took money from the city through these methods or others for at least seven years, according to court documents and a city audit conducted after Sanchez was fired. The audit looked at seven years because the bank only had records dating back that far, Surprise communications Director Diane Arthur said.

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How Sanchez was arrested

In February 2014, Surprise auditor Ramon Ramirez performed a cash-handling audit.

When Ramirez first attempted to schedule a time to meet with Sanchez on Feb. 13, she said she could not meet for a couple of weeks, according to the police report. When he tried to schedule another time, Sanchez told him she had a family emergency and could not meet for another week.

After discovering some "red flags" in the city's accounts payable department — including a $3,000 check requested by Sanchez for a petty cash increase — Ramirez decided to conduct an unannounced audit of the city cashier desk, which Sanchez oversaw.

Ramirez conducted cash counts of both cashier drawers on Feb. 27 and found no discrepancies. When asked about the $3,000 petty cash increase, both cashiers indicated they knew nothing about an increase.

Ramirez proceeded to ask the cashiers if there was any other cash in the office, and the cashiers directed him to a deposit bag in the safe, which contained about $1,900. Capuchino told Ramirez that Sanchez brought the money in earlier in the day, stating it was petty cash to be deposited, according to the report.

Both cashiers told Ramirez this was unusual, but they did not question it, according to the police report.

Ramirez contacted Sanchez about the $1,900 in the deposit bag and the $3,000 check she requested and cashed.

Sanchez told Ramirez she thought about increasing petty cash, but decided not to and instead added the money to the safe to be deposited. According to the police report, when Ramirez asked about the other $1,100, Sanchez began shaking her head and said, "Please, Ramon."

Ramirez asked if the money was anywhere in the city, to which Sanchez replied, "no." When he asked if there was a reason the money was missing, she said, "I'm not going to lie, no."

Ramirez told police investigators Sanchez proceeded to ask him what was going to happen to her. She also told him she had never removed money from the city before, according to the police report.

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On March 6, Ramirez asked Sanchez, by then on administrative leave, to meet him at City Hall to discuss his ongoing cash audit. Sanchez told Ramirez that she had the missing money in her car, according to the police report. She paid back the $1,100, plus an extra $2, the police report said.

Sanchez was fired in March 2014.

A two-year criminal investigation by the Surprise Police Department ensued, and found that Sanchez stole more than $78,000 during a seven-month window, according to court records, and a city audit determined Sanchez stole $836,000 over seven years. That money was recouped by the city via the Arizona Municipal Risk Retention Pool.

The insurance group filed a civil suit against Sanchez and her husband, Michael Cano, in January, accusing Sanchez of fraud, conversion, breach of fiduciary duty, negligence and misrepresentation, and asking for at least $835,366 in damages.

The criminal investigation looked only at seven months because the money Sanchez is accused of stealing in that time frame was enough to yield the maximum penalties available by law, Arthur, the city spokeswoman, said in April.

Rebecca Wilder, Maricopa County Attorney's Office communications officer, did not comment on the specifics of this case, but said $100,000 is typically the threshold that a Class 2 felony must meet to mandate a prison penalty. Prison time is at the discretion of the court for cases involving less than $100,000.

Could it happen again?

Since the allegations against Sanchez came to light, the City Council funded an additional position to ramp up internal controls and the city has decreased the number of petty cash accounts within the city, Wingenroth told The Republic in 2014. But according to the city's bookkeeping website, there were 13 distributions made to active petty cash accounts in fiscal 2016, totaling more than $14,000.

According to a statement released after Sanchez's indictment, the city also reduced the number of cash handling sites and the amount of money handled at each location. Reviews of the city's financial software are also performed more frequently.

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The city also established an Internal Audit Committee in response to the incident.

Winters, the councilman, who serves on the committee, said the city's internal auditor brings information about areas within the city where there could be more checks and balances to ensure there is proper oversight with city funds.

"I hope (Sanchez) gets what she deserves. I don't know why someone would jeopardize a good job like that by stealing money. It doesn't make sense," he said.

Councilman Skip Hall, who also serves on the committee, said he is confident the committee and the city's new auditor will prevent another major embezzlement fiasco because a "good audit environment" discourages people from stealing.

Hall, who knew Sanchez, said he was very bothered when the allegations against her were exposed.

"It felt like a punch in the gut," he said. "I'm just so sad about it."