The scene at Denmark's annual Dogwood Festival Parade earlier this month might have made it hard for a visitor to believe this small Bamberg County city is in financial straits and embroiled in a political war that could cripple it.

Part of that could be because the mayor doesn't believe it, and neither do some residents.

``The town is fine. There's just a lot of talk that is messing up the whole thing,'' said Sylesta Smith, a Denmark mother and one of the mayor's supporters.

The mayor of Denmark, S.C., Carolyn Davis, waves to the crowds during the city's annual Dogwood Festival Parade. Some of the city's residents are blaming Ms. Davis for running the city, which had a $600,000 surplus in 1995, into $646,676 of debt. C. ALUKA BERRY/SPECIAL

As for the mayor, she doesn't understand what the big deal is.

``The city of Denmark is paying its bills,'' Ms. Davis said last week.

But evidence of financial mismanagement and accusations of wrongdoing have led to a federal lien on the town and investigations by the South Carolina State Law Enforcement Division and the state Forestry Commission.

The city that boasted a $600,000 surplus in 1995 is now struggling to climb out of a debt estimated at $646,676 in June 2000, said Pat Anduze, the newly hired clerk administrator.

Many residents are blaming Ms. Davis. She was first elected in 1993, and the city operated with a healthy surplus for several years. City records show the finances began to take a nose dive during 1995 and 1996, when expenditures began exceeding revenues.

From June 1998 to June 1999, the city was without an administrator and relied on temporary help, volunteers and employees with no accounting experience. As a result, department heads spent thousands over budget without knowing it, employee withholding taxes were not sent to the Internal Revenue Service, bills were paid from the wrong accounts and the city had to pay hefty fees for bounced checks.

Record-keeping was shoddy, and there was no oversight, Ms. Anduze said.

At one point, Ms. Davis asked for help from the Roving Administrator program of the Local Savannah Council on Governments. Roving administrator Charlie Barrineau started helping the city once a week and wrote about its problems in a memo dated July 5, 1999.

``Denmark is at a crucial crossroads concerning the future of the town,'' he wrote to the mayor and city council. ``Unless steps are made NOW to make this budget work, Denmark will be headed for a serious fate.''

According to LSCOG Executive Director Eric Thompson, the city did not accept the agency's recommendations.

``You need to pay attention to red flags,'' Mr. Thompson said. ``And sometimes, if you don't pay attention to it, it becomes a much bigger flag.''

In 1995, the city of Denmark, S.C., had a fund balance of $600,000. During the next five years, under Mayor Carolyn Davis' leadership, the town's coffers went into the red by more than $600,000. Now, the South Carolina State Law Enforcement Division is investigating why. In this four-part series, The Augusta Chronicle and television station WJBF (Channel 6) explore Denmark's financial woes, allegations of mismanagement and the impact on its residents. COMING MONDAY: An overpaid dog catcher, expensive Christmas decorations and electricity bills for abandoned buildings. Where did all the money go? Unchecked spending might explain some of the city's money problems. COMING TUESDAY: State investigators are looking into the sale of city-owned timber in Denmark, S.C. Was the wood harvested illegally? COMING WEDNESDAY: Taxes have not increased, but the residents of Denmark, S.C., already are feeling the pinch of the town's six-figure debt. What does the future hold for Denmark? What are the possible outcomes of the state investigations?

BY 2000, THE IRS had taken out a federal lien on the city for overdue payments totaling $240,000. The city also owed $172,000 to vendors, and late fees were stacking up.

To pay late bills, funds were transferred improperly from the water and sewer fund, an industrial development reserve fund and other accounts, Ms. Anduze said.

In addition, city-owned timber was sold improperly, she said.

When auditors hired by the city arrived last summer, they could not find enough documentation to complete their work on a fiscal year 1999-2000 audit. They explained their findings in a letter dated Oct. 12: ``Because of the magnitude of unrecorded and improperly-recorded transactions, we were not able to satisfy ourselves that all material transactions have subsequently been recorded properly and the financial statements are free of material misstatement.''

At the same time, 2nd Circuit Solicitor Barbara R. Morgan was receiving complaints from Denmark residents about possible corruption. In August, she agreed to meet with Bamberg County Sheriff Ed Darnell, three Denmark council members and a former mayor to discuss the allegations. Denmark resident Giles Salvo, who was subsequently elected to fill a vacant city council seat, also attended.

``(Ms. Morgan) said she had been getting a lot of complaints and people had been sending her articles from the (local) paper,'' Mr. Salvo said. ``They had been writing her letters. She had gotten telephone calls. Oh, she had quite a folder of information when she came (to the meeting).''

AS A RESULT OF the discussion, Ms. Morgan asked for a SLED investigation. She wanted to know how a small town went from a six-figure surplus to a six-figure debt in a few years.

``Here is a town that, by all purposes, has gone from being liquid to almost being bankrupt,'' Ms. Morgan said. ``So there is a concern as to how that occurs. Whether it is criminal or not is what the investigation, hopefully, will reveal.''

The investigations and lingering debt have fueled daily gossip sessions in the city of 3,640 - known as the home of Voorhees College and nationally known artist Jim Harrison.

Longtime friends are pitted against one another. Council meetings frequently turn into shouting matches, and the February election remains in legal limbo because of allegations of voter fraud.

Although the mayor and city council members were all smiles at the Dogwood Festival on April 7, their recent council meetings have been anything but cheerful. In the past year, residents have packed the 75-seat meeting hall and demanded answers.

That was the atmosphere Feb. 20, days after the city returned Ms. Davis to office for a third term with a slim victory.

During a public comment session, resident Hilma Curtis addressed the mayor in a conversation that turned into a debate over city debt.

``I asked you if you know that our town is $700,000 in the red,'' Ms. Curtis said.

``And I said no,'' the mayor replied. ``Because the figures that I have been given do not state that. So we can either speak on the fantasy that you are describing, or we can speak on facts and figures. I prefer to deal with facts and figures.''

Information examined by The Augusta Chronicle and television station WJBF (Channel 6) in the past two months, however, paints a picture of mismanagement and questionable business deals.

CONSIDER:

City budgets were practically ignored, with some departments spending more than twice the amount allotted, according to audits. In one of the more extreme cases, the city budgeted $750 for fire department uniforms in fiscal year 1999-2000, and the fire department spent $3,255. The city's Christmas decorations were $900 over the allotted $1,500 budget.

The city paid thousands for workers' compensation insurance premiums long after employees had left, according to a memo from Mr. Barrineau.

Isis Singleton, 10, gets her face painted by Ray Maynard at the annual Dogwood Festival in Denmark, S.C. The city has come under scrutiny in recent months after falling into nearly $700,000 of debt. C. ALUKA BERRY/SPECIAL

Lax collection procedures on water bills and business licenses were the norm. Some businesses were three years behind on license fees before Ms. Anduze was hired and took them to court. Residents complaining of water leaks were given reduced bills, the clerk administrator said.

Timber from five tracts of city land were sold to harvesting companies by Ms. Davis and City Attorney Evert Comer Jr. without approval by council members, a violation of a city ordinance, Ms. Anduze said.

The mayor says it isn't her job to deal with the city's finances. She blames many of the troubles on a former clerk administrator, who she says was incompetent. When that clerk quit, the city was left without help and relied on the water clerk and billing clerk, who had no accounting experience, the mayor said.

``Can you imagine three years without an administrator clerk?'' she asked.

The mayor, a former high school teacher, remains a popular figure in town. Her critics say the residents have been kept in the dark about the problems.

Mr. Salvo, the challenger who failed to unseat the mayor in February, blames the situation on the former council's failure to oversee operations and Ms. Davis' spending on projects and departmental requests the city could not afford.

``I have told her numerous times, `Mayor, your heart is bigger than our pocketbooks. You have got to stop all of this,''' Mr. Salvo said. ``But even after it has been brought to her attention time and time and time again ... she continues to do it.''

IN A CITY WITH a strong-mayor, weak-council form of government, Ms. Davis frequently approved spending with little or no council input, according to Mr. Barrineau's documentation.

While the state investigations continue, Ms. Anduze has put Denmark on the path to paying its debts, controlling spending and creating a paper trail for yearly audits.

There has been no talk of increasing taxes, but residents and city employees already are seeing the price of debt and mismanagement.

Residents who once used city-owned, commercial-size trash bins for free now pay between $50 and $75 for a five-day period, depending on the size of the container. The fee for renting the Brooker Center for birthday parties and meetings has jumped from $40 to $50.

Collection procedures are now stricter for water bills and business licenses. And the Dogwood Festival was scaled down this year.

For city employees, overtime has been banned, credit cards have been recalled and most city-paid travel has been eliminated.

The new clerk administrator said the steps were necessary.

``Right now, (my job is) putting procedures in place so that this doesn't happen again and to make sure that whatever the city spends, we have got an audit trail for it,'' Ms. Anduze said. ``There's accountability. We know where we stand financially. Hopefully, from there we can move forward.''

Reach Greg Rickabaugh at (803) 648-1395.