A new state audit of Shenandoah’s Liquid Fuels Tax Fund has uncovered significant financial documentation gaps and improper spending, potentially requiring the municipality to reimburse more than $181,000.
State Auditor General Timothy DeFoor has released a recurring audit report for Shenandoah that details significant financial mismanagement of its Liquid Fuels Tax Fund between Jan. 1, 2023, and Dec. 31, 2024. The examination uncovered the municipality potentially owes $181,227.83 in reimbursements due to undocumented transfers and prohibited retroactive payments.
The first major finding centers on a $100,000 electronic transfer made on Jan. 2, 2024, from the Liquid Fuels Tax Fund into the borough’s General Fund. This transaction was recorded as a miscellaneous expenditure, but auditors found that the borough failed to maintain any documentation to support the move.
State law requires these specific tax funds to be used only for the construction, maintenance, and repair of public roads, bridges, and related infrastructure like street signs and traffic signals. Because no evidence was provided to the Auditor General’s Office to prove the $100,000 was used for these legal purposes, it is recommending the borough repay the full amount upon official notification from the Dept. of Transportation.
Further financial discrepancies were identified regarding $81,227.83 in retroactive expenditures for street lighting. In December 2024, the borough used Liquid Fuels money to pay lighting invoices from the fourth quarter of 2023 and the period spanning January to August 2024. DOT regulations explicitly prohibit using these funds for retroactive payments or to repay other funds for prior period expenses that were not settled within a reasonable 90 day timeframe. This is the second consecutive examination where the borough has been cited for this specific violation, the audit notes.
The audit also revealed that the borough failed to receive its state allocations on time in both 2023 and 2024. While these funds are typically distributed during the first week of March, the borough did not receive its 2023 allocation of $125,783.77 until July and its 2024 allocation of $124,943.16 until May. These delays occurred because the borough failed to submit required financial reports and surveys to the state by their respective deadlines. Once the funds finally arrived, they were not deposited into the special tax fund for nearly two weeks. Auditors noted that these delays prevented the municipality from earning potential interest income that could have otherwise funded road repairs.
When confronted with these findings, Borough Manager Michael Cadau told state officials that he was not employed by the municipality during 2024.
In response to the audit, Cadau says, “When I started in January of 2025, it became immediately clear that serious financial irregularities existed throughout Borough operations. This audit confirms exactly what we have been saying years of poor controls, weak oversight, and improper financial management created major compliance issues that taxpayers are now forced to deal with.”
The current Borough Manager adds, “Our administration has been working aggressively to correct these issues, implement stronger financial controls, improve documentation, increase transparency, and cooperate fully with all ongoing forensic accounting reviews, special counsel investigations, and state agency oversight. The residents of Shenandoah deserve accountability, not excuses. We will continue releasing records, reports, and facts so the public can see exactly how this Borough was managed—and how we are fixing it.”
This report follows a previous audit that required the borough to reimburse $19,588.76 for similar issues, a payment the municipality finally made in February 2025. The Auditor General’s office has stated it will review these recurring issues during the next examination to see if the borough has finally complied with state documentation and spending requirements.
In a communication from the Auditor General, the Borough is urged to take corrective acition to address the recommendations in the full audit report. DeFoor gave Shenandoah 60 days to notify his office of the corrective steps it has taken.
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