Auditor: $225,000 ‘misappropriated’ from Metaline

OLYMPIA – At least $225,218 in Metaline town funds were allegedly misappropriated by the town’s Clerk-Treasurer over a five-year period, from 2019 to 2025, according to a fraud investigation report from Pat McCarthy, State Auditor. Metaline Mayor Pete Daggett and Mayor Pro Tem Janet Sullivan reported concerns that Clerk-Treasurer Kelly Rae Flanagan made unexpected bank account transfers and used a town credit card for multiple personal purchases.

“We investigated and determined a multischeme misappropriation occurred at the town, totaling at least $225,218 between August 2019 and June 2025,” according to the summary of the state’s fraud report dated April 20. “We also identified questionable amounts of $30,740 between August 2019 and May 2025.”

The auditor found that the credit card and debit card charges occurred both in and outside of the clerk-treasurer’s work schedule, including several out-of-state locations such as restaurants, retail establishments, auto services and medical or beauty services.

They included such things as groceries, alcohol, pet supplies, medications, subscriptions, including phone services, TV and entertainment, food service delivery, a clothing membership, a clothing membership for children’s items and nonbusiness travel expenses.

“We found amounts going to personal digital payment accounts held in the Clerk-Treasurer’s name,” the state fraud investigation reported. “The Clerk-Treasurer used these accounts to purchase goods from online merchants and make peer-to-peer payments with friends and family members.”

The town filed a report with the Pend Oreille County Sheriff’s Office in June 2025, which investigated and referred the case to the FBI. The state Auditor will also share the investigation results with the FBI.

As a result of the Sheriff’s Office investigation, Flanagan, 54, of Metaline was arrested June 30, 2025, for misappropriation etc. by treasurer. After her first appearance in court, she was released on her own recognizance. The case was turned over to the FBI.

The state’s fraud investigation found that there was misappropriation of $174,015 in credit cards, $39,897 in debit cards, $10,243 in payroll and cash withdrawals of $1,063. Questionable credit card use accounted for another $7,694, questionable debit card use, $8,596 and questionable payroll, $14,280.

“‘Questionable’ means we were unable to determine whether the expenditures were for a legitimate business purpose,” according to the report.

The Auditor’s investigation confirmed that the Clerk-Treasurer conducted many more transfers between banks than necessary for normal business.

Flanagan was hired as Clerk-Treasurer in in July 2019 and fired June 24, 2025.

She didn’t provide documents for a scheduled state audit that started in October 2024. The town’s insurance coverage was terminated due to non-payment Jan. 1, 2025, according to the state investigation report.

The Sheriff’s Office investigation that led to Flanagan’s arrest began in June 2025, when the Pend Oreille County Road Department notified Metaline’s Mayor that it had not been paid for work that was completed and billed for in October 2024.

That led to Metaline Mayor Dagget and Mayor Pro-Tem Sullivan reviewing town bank account statements and discovering Clerk-Treasurer Flanagan had made a high volume of unexpected transfers between town bank accounts. They also noticed multiple personal debit card purchases and electronic funds transfers that had no clear business purpose, according to the investigation.

The Auditor found that Metaline did not have adequate controls in place to safeguard public resources. “The Mayor and the Council relied on the Clerk-Treasurer to perform duties without properly overseeing her.”

Specifically, the Auditor found that the Clerk-Treasurer had full access to the town’s accounting system, credit cards and bank accounts. That access, combined with a lack of oversight, allowed her to make unallowable personal purchases using town debit and credit cards, process unsupported Electronic Fund Transfers, process additions payroll instances and inaccurately record expenditures.

The Auditor found that no one completed an independent review of the Metaline’s bank statement activity and that the town had not adopted policies governing the use of credit and debit cards or employee travel.

The Auditor recommended that Metaline immediately establish effective managements and oversite of its financial operations.

The Auditor recommended that Metaline seek recovery of the misappropriated money and related investigation costs of $96,613 from the former Clerk-Treasurer and or its insurance bonding company, as appropriate. Any compromise settlement of this claim by Metaline must be approved by the Attorney General and State Auditor.

Metaline responded by acknowledging the findings outlined in the fraud investigation report.

“We have learned a hard lesson, and we understand the importance of strong internal controls and remain committed to continuous improvement,” Metaline officials wrote in their response.