The Nevis City Council voted 4-1 to terminate Municipal Liquor Store Manager Cindy Paulsen at their Monday, March 11 meeting for alleged unauthorized use of city funds.
Paulsen, 58, of Menahga, was arrested on Wednesday, March 13 by the Hubbard County Sheriff’s Office. She’s charged with one felony count of embezzlement of public funds and a gross misdemeanor charge of misconduct as a public employee in Ninth District Court. An initial appearance hearing is scheduled at 1:30 p.m. Monday, March 25.
Paulsen has been the manager since December 2022.
On March 6, Nevis City Administrator Dawn Veit provided a letter to Paulsen, advising her of the city council’s consideration of termination and offering her or her legal representative the opportunity to address the council.
At Paulsen’s request, the March 11 meeting to discuss “preliminary consideration of allegations of misuse of government funds” and possible charges against her was kept open.
“The employee requested the meeting not be closed, which is her right,” city attorney Troy Gilchrist with Kennedy and Graven said.
Gilchrist has reported the allegation of unauthorized use of public funds to the state auditor, as required by Minnesota Statute.
Veit read outloud a memorandum recommending Paulsen’s termination.
The memo states, “Paulsen inappropriately used the city credit card at a local casino on four separate occasions to obtain cash for a total of $700, presumably for her personal use. She was provided a verbal reprimand following the first incident in 2023 and a written reprimand for the additional incidents that occurred in Feb. 2024, all of which were discovered at the same time.
“On or about Feb. 23, two checks were written to the municipal liquor store by Paulsen, totaling $150. Paulsen took the money and the checks were placed in the liquor store safe with a note stating that she would buy back the checks on a future date of Feb. 27. Neither check transaction was accounted for on the daily deposit, despite the missing cash and the daily deposit sheets showing no ‘shorts’ for those days’ sales.
It memo calls Paulsen’s behavior “completely unacceptable for a manager with oversight for the appropriate use of public funds as well as supervisory responsibilities over other city employees. Her temporary access to public funds for her personal use violates Minnesota law and constitutes a blatant violation of her responsibility to ensure accurate bookkeeping of the city’s money.
“Pursuant to the city’s personnel policy, Paulsen is an at-will employee, which means her employment with the city can be terminated at any time and for any legal reason. Based on the seriousness of her repeated misconduct in this instance and the potential risk to the city of adverse consequences resulting from her conduct, I am recommending that her employment with the city be terminated immediately. In light of these incidents and the pending recommendation, Paulsen is currently on paid administrative leave pursuant to the city’s personnel policy.”
Paulsen opened her remarks to the council by saying that, if city administration had set up the credit card correctly, it should not have allowed cash advances.
She said the first time she used the company credit card was accidental, not intentional.
“I was in tears when it happened the first time,” she said. “Dawn (Veit) said she was going to check with the bank and make sure cash advances weren’t allowed. Obviously, nothing changed.”
Paulsen said she gave Veit cash to cover those charges.
When Paulsen went to pay for the safety staff meeting lunch for employees at the muni, she found out the credit card was suspended for multiple cash advances.
“I fixed it the next morning,” she said. “I never even thought it was the city card because it should not allow such activity. To my knowledge, Dawn had corrected it. I paid the fees and the ones that were out there pending.”
Paulsen said that, on March 3, she sent an email to both Veit and Mayor Jeanne Thompson stating that she discovered she still owed $79.
“I asked in the email if Dawn wanted me to pay the bank directly, but I never received a response to the email and, on March 6, I was asked to leave work,” she said.
Paulsen said that she has a handwritten statement by Veit that says the credit card will no longer have the ability to be used for cash or debit.
“As of noon today, I went to Citizens National Bank and the card is very active and it is not in my possession,” she said. “That breaks the law. The card has a $3,000 limit, a $1,023.65 balance and $1,976.35 is available in cash or credit. Anybody with that credit card can get cash or credit right now. I’m going to play the credit card status because I seem to never be believed. According to the League of Minnesota Cities, the credit card should not have been allowed to have cash access on it.”
When asked how she got the credit card number to enter at the council meeting, Paulsen said she “went to the bank today to get it.”
“You had no right to do that,” council member Sue Gray said.
“It has my Social Security number on it,” Paulsen replied. “The card was set up by the city incorrectly. When the card was removed from my possession, it should have legally been canceled because I am not legally responsible. According to your own policy, ‘any charges not accompanied by an itemized receipt will not be paid by the city and shall be paid by the purchaser.’”
Paulsen also questioned the council policy on approving the cash advances.
“The Nevis credit card policy states a list of all credit card transactions will be included with monthly expenditures for the council to review and approve,” she said. “I find it very alarming that, in the second happenstance when I came forward at the liquor committee meeting, the mayor was shocked that it happened even once before. It should have been known by everyone.”
The third incident considered as misuse of government funds involves checks written by Paulsen.
“I tendered two personal checks per the check acceptance policy,” she said. “There were no daily shortages and no missing cash.”
She said the checks were placed in the safe over the weekend. “No bank deposits are made over the weekend,” she said. “I put a note on the checks that I would buy them back on Tuesday, which I did. If I had not put a note indicating I would buy them back, that would be unethical. Had I taken the money without leaving a legal tender, that would have been illegal. If you would like to take away my check cashing privileges, according to your check acceptance policy, that would be a more appropriate disciplinary action. I find this entire ordeal to be in retaliation for a number of recent and ongoing hostile instances, human resources issues, the audit and more. On Monday, in my absence, the checks were clearly available and could have been deposited and we would not be here having this discussion.”
Gray said the city’s credit card policy has Paulsen’s signature on it. “It says credit cards may only be used for appropriate city business and that personal use may be grounds for discipline,” she said.
The next point Gray made is that “the credit card shall not be used to obtain cash advances.”
“You did use that card to get a cash advance, even though it violated our policy,” Gray said.
Thompson said, “The issue isn’t what the balance on the card is today. The issue is what transpired. Employees sign a document that says they will not take cash from the credit card. The credit card is for company uses only. Those weren’t approved purchases.
“Happening once, I can understand. The fact that it happened again a second time is very concerning to me. We are dealing with public funds, tax money, and we need as a city to be above reproach when it comes to dollars.”
Regarding the checks in the safe, Thompson said it is her understanding that the checks were found in the safe. “That’s a concern for me as well,” she said. “In my opinion, it is clear that there are significant questions on the ethicalness of how she did the finances within the bar, and it obviously breaks our policies and our ordinances.”
Gray said that, in her opinion, the first instance of getting cash from the company credit card in 2023 was a verbal warning, as “we didn’t take that as being intentional.”
“However, when we had three instances, two on one day and one I would assume early the next morning, to me each one of those should have been a grievance, not just one grievance,” she said. “It is a clear violation of our policy. It is a clear violation of state law to use government funds for personal use. If checks were left in the safe and an employee brought them to us because she was concerned they were there and took a picture, that to me speaks volumes that there was something wrong with that.”
Council member Blair Reuther said Paulsen was previously given one verbal warning. “There was no disciplinary action,” he said. “We’ve gone from zero to 60. There were no funds stolen. We have a lawyer right here. Was there anything illegal in what she did?”
“I’m not a criminal attorney, but it does strike me as a misuse of public funds that could trigger reporting to law enforcement by the state auditor’s office,” Gilchrist said. “I think it was misappropriation of funds. Paying back the funds doesn’t absolve the use.”
Reuther said it would be a hardship to the city to go into the busy summer season without a bar manager. He suggested offering an employee improvement plan to address the issues.
“I would prefer to move forward with the employee,” he said. “Terminating someone is when they’re not doing their job. She’s been doing a great job. It sounds like she was going to cover the checks. It’s not a good idea, but I don’t think it warrants termination.”
Thompson read a resolution that stated “the city administrator has the authority to recommend the termination and has concluded it is in the best interest of the city that Paulsen’s employment be terminated based on multiple incidents of misconduct committed by the employee as outlined in the city administrator’s memorandum to the city.”
The council approved the termination, effective immediately, with Reuther opposed.
Gray suggested bringing charges against Paulsen.
Since it was reported to the state auditor, Gilchrist said, “My recommendation is to let that process work itself through and not make any decisions regarding that.”
After the meeting, Veit said the credit card was cut up and canceled and the lead bartender at the muni will be temporarily filling in for the manager position.
