City of Billings documents ordered released by Yellowstone County District Judge Mike Moses detail missing money in the solid waste department and a recycling scheme that thwarted at least five different accounting safeguards over three years.

Nearly 1,200 pages of documents, originally withheld from the public, but later ordered released, shed light on a system of taking cash from the city's recycling program and channeling the money into coffee, food, kitchen supplies and personal use. City officials estimate more than $12,000 was misused.

None of the money was recovered.

In addition, the city, as part of the lawsuit it brought against The Billings Gazette, agreed to pay the newspaper more than $12,000 in attorney's fees after Moses ruled the city had withheld public information.

The missing money centered on employees in the solid waste department, which included the landfill and the city's recycling program. 

The scheme began in February 2011, when Barb Butler, who was the acting division manager for the Solid Waste Division, asked if funding set aside to reward outstanding employees could be used to purchase gift cards and plaques for a retirement party. Public Works Director Dave Mumford said no.

Even though she had been told no, on March 14, 2011, Butler purchased a $400 gift card for the retiring employee from a Holiday Station using her city-issued credit card. 

Later that month, Mumford ordered Butler to repay the city $539 for the gift cards and plaques. 

According to city documents, Butler told other solid waste supervisors the city was making her pay back the amount and hoped they would chip in.

That's when one of the supervisors, who isn't named in the documents, suggested they use the city's recyclables — materials like old steel trash bins and other items brought to the landfill — to reimburse Butler.

John Arellano, the solid waste supervisor, signed for cash totaling $616.50 on April 26, 2011 — money that Butler later reported was given to her as a reimbursement for the gift cards and plaques.

From that point, Arellano and Butler coordinated at least 28 trips to recycling companies during the course of three years in which cash was handed to Arellano and later to Butler, but never recorded in city books. More than $12,000 was never accounted for, according to documents from the city that were cross-checked with records from various recycling firms. Figured at an average of seven cents per pound, more than 171,000 pounds of recyclables, mostly scrap iron, were cashed in. 

In an interview with The Gazette, Butler confirmed the money she handled was spent on supplies or food for city employees. She said she never took any of the money for personal use.

She acknowledged that what she did was wrong and contrary to city policy. Since the investigation was concluded, the city suspended her for a month without pay, transferred her to a different supervisor and gave her a "last chance" notice that allows the city to terminate her for any other misconduct or infraction of city policies. 

Arellano, in an interview with The Gazette, confirmed the details in the documents and admitted he had occasionally kept a small amount of cash for himself from the recycling trips. Arellano resigned before the conclusion of the investigation by the city, but not before admitting to his role in the scheme.

"I want to tell everyone I am sorry for what happened. I lost a job that I loved," Arellano said. "The hardest thing that I have had to do was tell my wife and my kids what I had done. I didn't tell my son because he was overseas serving in the Marines (at the time). I didn't want him to worry.

"But I had to tell my in-laws, and I wasn't allowed to retrieve my things. When I did, it was with two people watching every move I made."

Arellano said that he had originally been willing to serve an unpaid suspension, and pay back any amount to the city. But he said he resigned because it was clear supervisors — a position he held — were held to higher standards. He lost a job that he said paid almost $32 per hour.

"I fell behind on some stuff, that's why it happened," Arellano said. "And I felt better after I admitted it."

City documents show that Butler and Arellano made routine shopping trips — averaging once every six weeks — to buy coffee, food, kitchen utensils and other items for landfill workers, using funds from recycling.

Butler kept the cash received from recyclables in an envelope in her desk. When funds would run low, Arellano would order one of the workers to take a load of recycling, city documents show. The drivers who would haul the materials to the recycling centers would be instructed by Arellano not to log the miles. After dropping off the recycling, the drivers also were told by Arellano not to pick up the receipts or cash. Shortly after the recycling had been dropped off at a recycler, Arellano would arrive in a city-owned vehicle to sign for the cash, a violation of city policy.

"I don't know why I told them that," Arellano said, of telling drivers not to log the trips to recycling.

From there, city documents show that Arellano would get rid of the receipts, and deliver some of the cash to Butler for supplies that both thought the landfill needed but couldn't be purchased with a city credit card. 

Since most of the paper trail of the money was intentionally discarded, city officials could only estimate the amount of money missing based on records from several area recycling companies.

Butler and Arellano went on as many as 30 shopping trips, mostly to area grocery stores to pick up supplies. They would look for sales of Folgers or Maxwell House coffee because that's what landfill employees wanted, according to documents. They would also shop for items like plastic utensils and napkins.

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When those supplies were purchased, Butler and Arellano would either destroy or throw the receipts away with the plastic bags the items were placed in, said City Administrator Tina Volek. City officials could not say for certain how much money was taken, or even how much of it was used on kitchen supplies because so much information had been destroyed. Some of the money was also used for food at lunches for employees or for pizza.

At least five different safeguards that might have detected fraud were short-circuited by Arellano and Butler. Accepting cash for recyclables, not logging miles on city-owned vehicles, not turning in cash, spending money on unapproved items and not turning in receipts for purchases are all against city policies. 

City officials were tipped off to the scheme when one of the solid waste drivers reported that not logging miles in a city vehicle didn't seem right. That report led to two investigations — one internal and one by the Billings Police Department. Those two investigations spanned several months and led to severe disciplinary sanctions against Butler. Arellano resigned before the completion of the investigation and disciplinary process.

As part of his resignation, Arellano forfeited an accrued $5,900 in annual leave, Volek said. No other restitution has been made.

Arellano said that the amount of money he skimmed from the recycling cash was nowhere near the amount he forfeited, but he wanted to take responsibility for his actions. He said he and others in the solid waste division were under the impression that other departments used funds from recyclables to purchase food and coffee. 

No criminal charges were brought against either Arellano or Butler. 

Even when city officials did a rough estimate of how much coffee, food or kitchen utensils were purchased during the three-year period, they still couldn't account for a figure close to $12,000. 

"When confronted with the details, Ms. Butler was clearly astounded by the amount that was missing," Volek said.

Arellano admitted that he had taken some of the cash for his own use.

In May 2014, he told city officials he had taken between $20 and $40 at various times during the three-year span. 

"Based on Barb Butler's accounts of the amount of money (Arellano) gave her compared to the Pacific Recycling receipts, the amount of cash that John stole appears to be greater," said Vern Heisler, deputy public works director, who led an internal city investigation into the issue. 

"Barb states that John did not give her more than $200 to $300 at any one time. Yet on 12 occasions from April 26, 2011, through January 28, 2014, he signed for and received more than $300," Heisler wrote.

Arellano also said he had never heard a figure as high as $12,000 and believes the amount to be lower. 

It wasn't the first time the city had problems with Arellano's accounting. 

On at least eight other occasions, city documents show he misused his city-issued credit card. On those occasions, he would put personal items on his credit card and then pay the city back. 

Those purchases ranged from small purchases of gasoline for trips to Great Falls; Rapid City, S.D.; and Las Vegas. In eight cases, the city reported, Arellano or his wife reimbursed the city. In subsequent interviews, he told city officials that he had grabbed the wrong credit card and that his city-issued card looked a lot like his personal card.

Neither Butler nor Arellano was involved in another disciplinary issue at the landfill several years ago in which merchandise that had been recovered from a train fire had been diverted from the landfill and instead sold on Internet sites by city employees.

Arellano has moved to a different job but said he wonders if he was treated as fairly.

"There were people who were looking at pornography on city computers and people who stole merchandise from the landfill and put it on eBay," Arellano said, "and they got to keep their jobs."

Arellano told The Gazette that city officials made it clear he would be held to a higher standard because he was a supervisor, and that's why he resigned before the conclusion of a disciplinary hearing.

The court case

The Billings Gazette learned of possible misuse of city funds more than a year ago. After waiting for the city's investigations, The Gazette formally requested documents and findings from the city.

In response, the City of Billings sued The Gazette, asking a judge to decide which records to release.

The city provided documents to the court but refused to provide redacted copies to The Gazette and declined to answer discovery motions in the lawsuit, leading to Moses' decision that found the city had not only withheld public information but had sued the newspaper improperly: “The Court believes it was the City’s constitutional responsibility to handle this case by analyzing the appropriate case law to determine which employee’s records were subject to disclosure upon request by The Gazette. Instead, the City handed its responsibility off to the Court.”

The court ordered the city to provide the documents to The Gazette, and held that The Gazette was entitled to attorney’s fees. The hearing set to resolve the amount of attorney's fees was canceled when the city agreed to pay The Gazette’s entire legal bill, $12,655. When the city turned over the documents and paid the fees, the case filed against The Gazette was dismissed.

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