The city of Vader is out of money and nearly out of options. Mayor Ken Smith called the revelation that the city owed its creditors just over $135,000 — not including penalties from not turning in federal documents — a “potential death blow.”

Vader City Hall was closed early Thursday as city officials and volunteers tried to get a grip on the city’s budget crisis.

An audit investigation late last week brought the city’s financial situation to the attention of the City Council and city officials, although state documents from as far back as April said the city had been burning through as much as $70,000 of savings a year since 2003.

“They’re reviewing the records to see how all of this happened,” Smith said about the state auditor’s current investigation. “And there have yet to be any allegations of fraud or wrongdoing by the city, administration or staff.”

However, Smith said Clerk-Treasurer Kathy Crawford, who manages the budget, kept the council “in the dark” about the true numbers.

“We were led to believe one thing that was not based in reality,” he said.

Crawford is on administrative leave. She has served as the city’s clerk-treasurer since about 2003, Smith said.

Audit findings from 2007 released in May of this year stated the city of Vader’s “internal controls over financial reporting are inadequate.”

The audit stated that Crawford prepared the city’s financial statements without any “independent review or oversight by the mayor or city council.”

“The Mayor and City Council do not appear to recognize the significance of the risks associated with these conditions and consequently have not established and implemented controls to address the risks,” the audit report stated. “The deficiencies in internal controls make it reasonably possible that more misstatements could occur and not be prevented or detected by the city in future years.”

Smith said that an independent agency was supposed to begin looking at the city’s financial documents at the beginning of 2009, but attempts to do so were “thwarted.” He said the clerk-treasurer said the outside review couldn’t be done.

Smith said he didn’t know, when asked why it wasn’t apparent until last week that something may be awry with Vader’s financial bookkeeping.

“I wish I could answer that question with a better answer,” Smith said. “It’s easy to point the finger at ourselves because of the 2007 findings, but we put our trust in our clerk-treasurer.”

The state also released an accountability audit report in April of this year. It stated that in 2002, Vader’s overall cash balance was $310,205. By the end of 2007, the city was operating with a $9,863 deficit.

Resident Don Iddings, who unsuccessfully ran for city council in 2007, said the news of the city’s financial situation wasn’t a shock.

“You’ve been in office for 18 months,” he said, about the mayor and three council members elected in 2007. “How can you blame someone else? Everyone knew we were in financial troubles.”

Iddings suggested the city should fold its local government.

“We need to decertify the city of Vader, and we need to go with the county,” he said. “We’d get more bang for our buck, and we can stop doing things backwards.”

Smith said that decertifying the city would be a last option and could be the “worst thing in the history of Vader.”

“They could impose regulations and guidelines, and you would lose managerial control,” Smith said.

The Vader City Council held an emergency workshop Thursday to brainstorm ideas on how to weather the crisis.

About $75,000 has already been slashed from next year’s budget by increasing wastewater utility rates by $7 a month, implementing a mandatory two-day-a-month furlough for all five of the city’s employees and cutting back on reserve officer funding, among other things.

“It’s very obvious we’re in very serious trouble financially,” Councilor Dave Holland said during the meeting. “And we have to take drastic action soon.”

Holland proposed the city eliminate the clerk-treasurer and deputy clerk positions, which would free up just over $80,000.

“The citizens will be hurt, and we’ll lose two good employees, but it will bring (the budget) into balance,” he said. “Next year, we can pick up the pieces.”

Councilman Don Hanson said that he felt uncomfortable eliminating both of the clerk positions.

The other alternative would be to increase sewer rates to compensate for not eliminating the deputy clerk position.

Councilor Lois Wilson also suggested the city look at changing its benefits package.

“I want to see if we can get a different policy,” she said. “They have different options, and right now we have the Cadillac.”

The city will have another workshop at 9 a.m. on Tuesday, preceding the 10 a.m. special council meeting, to go over last-minute details before making a decision.

“We will vigorously implement every legal program at our disposal,” Smith said. “We’re determined to fight this. We’re determined to right this ship and pay everything, so we do not end up in the old ways that got us here.”