LITTLE ROCK — A state audit of the Sebastian County town of Central City found city officials failed to comply with state law in financial reporting standards and ignored accepted accounting practices.

The Legislative Joint Auditing Committee has referred to Prosecutor Dan Shue a report by the state Division of Legislative Audit, identifying problems that occurred between 2009 and 2011 in the offices of the mayor, recorder/treasurer and city court clerk.

In the mayor’s office, auditors found that a total of $10,536 was paid to the wife and daughter of then-mayor W.B. Barnard III for contract labor in 2009 and 2010. The two were hired to do office work.

Arkansas Code 14-42-107 prohibits city officials and city employees from entering into contracts that would benefit themselves personally unless the city council approves the contracts in the form of an ordinance. The contracts with Barnard’s wife and daughter received no such approval, according to the audit report.

Auditors also found that the amounts were not properly reported to the IRS as income and that the supervisor who signed the time sheets of the mayor’s wife was the mayor.

They also said in the report that the city council did not adopt budgets for 2009 or 2011, as required by state law, auditors found.

In the office the recorder/treasurer, auditors said no annual financial statements were prepared; receipts were not properly issued for revenue received; cash receipt and disbursement journals were not properly maintained; bank accounts were not reconciled for any of the city’s funds; disbursements were not adequately documented or approved by the city council; and minutes from city council meetings were not stored at City Hall, among other problems.

Auditors also found a number of payroll issues. Authorization of some employees’ salaries and one employee’s bonus were not documented; some time sheets were missing; the fire chief was paid $250 more than the approved salary for that position in 2010; the recorder/treasurer was paid $483 more than the approved salary for that position in 2011; and wages reported on some IRS forms were different from wages reported on other forms.

During the period auditors reviewed, a total of $58,635 in state aid for roads was not transferred from the general fund to the street fund, according to the report. The general fund totaled $7,206 as of Dec. 31, 2011.

In the office of the city court clerk, auditors said bank accounts were not reconciled for court funds; cash receipt and disbursement journals were not properly maintained; receipts totaled smaller amounts than bank statements showed were deposited; docket sheets did not document the disposition of all cases; and disbursement of court funds were made without proper signatures, among other problems.

Harold Wallace, who has been mayor since January 2011, said the city is addressing the issues raised in the audit.

"We’re working to make changes and correct the problems that we’ve had," he said.

No listed number was available for Barnard. Wallace said the Barnards no longer live in Central City.

Shue did not immediately return a call seeking comment Tuesday.