Patricia Ann Ward told an investigator that her husband was out of work and she was a compulsive gambler with financial problems when she swindled more than $2,100 from tiny Vermillion, where she'd long been the city clerk.

That's according to charges filed against her in Dakota County. Ward, 62, allegedly used the city's money to fill her gas tank and buy personal items, from holiday decorations to cleaning products to cat food.

She is among a rising number of people suspected of thefts and misappropriations of local government funds in Minnesota. Both the number of allegations and the dollar amounts involved have been on the rise as people and governments experience financial strain, State Auditor Rebecca Otto said.

And this year, the pace is quickening, with about 46 such allegations from local governments and accountants, she said.

"The economic downturn tends to increase fraud, whether in government or private business," Otto said Friday.

Ward, who could not be reached for comment Friday, faces two counts of theft by swindle.

In Waseca, Minn., a 25-year employee of the city was charged in June with allegedly stealing $458 in softball field fees. Ogilvie, Minn., is investigating missing city funds. A rash of other thefts have led to prosecutions of employees from the city of Lilydale to the Mille Lacs Band of Ojibwe in Brainerd.

Otto said the rise correlates with cutbacks in local government staff. Internal controls, such as division of financial duties, are sometimes eliminated during staff reductions.

And bad financial news leads some to rationalize, she said. As with Ward, most who are caught say they intended to repay the embezzled money.

The same factors have been present in numerous thefts from nonprofits, youth sports associations, service organizations and private businesses, said Otto and Dakota County Attorney James Backstrom.

Any theft of public funds in Minnesota constitutes a felony, "and rightfully so," given that the public's funds and trust are involved, he said.

In recent years, $3.4 million has been embezzled in Dakota County alone from government and private entities.

Nearly all the cases share a common denominator: a lack of adequate internal controls, he said. And without proper oversight, embezzlements can go unnoticed for a long time, Backstrom added.

Otto said local governments face challenges to keep coffers safe during tough fiscal times.

"For some of these entities, it's harder for them because they aren't able to segregate duties like they should," she said. "When things are concentrated in one person, and then you have an economic downturn, there's a greater risk of fraud."

Cashing city checks

In Vermillion, Ward allegedly wrote checks to buy herself merchandise, even having some shipped to her post office box.

And just about every Saturday morning, she went to Vermillion Bank and cashed a city check written to herself on city funds, court documents say.

Other city officials noticed discrepancies and confronted her in 2009. Ward admitted misusing the funds but insisted she always intended to repay the money. She was fired.

Under Minnesota law, any public employee or officer of a political subdivision who discovers evidence of embezzlement or theft must report it to the state auditor, just as Vermillion officials did.

So far this year, Otto said, there have been 41 such allegations from local governments, compared to 68 for all of 2010. In addition, certified public accountants have reported five more suspected cases this year.

In 2007, there were 34 such allegations, Otto said.

In response to the increase, her office has provided training on how to prevent and detect the theft of funds. For example, bank reconciliations should be by a different person than those handling cash receipts and disbursements, she said.

Her office also monitors organizations and can follow with internal control letters.

The League of Minnesota Cities also provides primers to help local officials spot thefts.

Joy Powell • 952-882-9017