Former South Pittsburg Mayor Mike Killian

SOUTH PITTSBURG, Tenn. -- After a state audit accused city leaders of illegally transferring almost $750,000 from the town's utilities department, Mayor Mike Killian said the report showed "maliciousness."

Killian said he disagrees with nearly everything in the "infamous" audit report, the results of which were released last week by the state comptroller's office.

A 1990 city ordinance required South Pittsburg's utilities department to maintain a balance of $20,000 for road repairs caused by damage from utility work, officials said.

In December 2009, Killian sent the utilities department a letter asserting that it owed the town $20,000 per year since 1990, which he calculated at $744,802 with interest.

The report from the office of Tennessee Comptroller Justin Wilson stated the mayor's claim was wrong and the money was transferred illegally. In a letter accompanying the report, Killian and South Pittsburg commissioners were told they must outline ways to repay the money within five years or risk ouster from office.

"[The comptroller's report] implied that I went and did [the transfer], and it didn't say that I put it in my pocket, but it implied [it]," Killian said. "This is the beginning of this thing and not the end of it."

Killian noted the South Pittsburg City Commission voted 5-0 in 2010 to transfer the funds.

More than $441,000 was moved from the utilities department to the city's general fund, while the remaining money was applied to a capital outlay note owed to the utilities department for a bridge project on Birch Avenue, officials said.

"It was just a transfer of funds from one department to another," City Attorney Tracy Wooden said. "The only issue is that some or all of the money will need to be transferred back."

Commissioner Charles Reynolds said he was not notified by the state about the accusations before the comptroller's office news release.

"I didn't even know what was going on until somebody called and told me they saw this on the computer," he said. "My first real understanding of it was from [that], and that upset me. I think if [the state comptroller's office] has a problem, they ought to let the commissioners and the mayor know about it."

Killian said the matter was far from over. "They released [the report] as if that was the absolute final word," he said. "It's not."

Ryan Lewis is based in Marion County. Contact him at ryanlewis34@gmail.com.