The Arts Council in Buffalo and Erie County has finally reached the end of its road, but the beleaguered arts agency won't breathe its final breath before stirring up one final scandal.

The bulk of a $48,620 grant issued to the Arts Council by the state has gone missing, according to the New York State Council on the Arts.

Arts Council Board President Lynda K. Stephens has told the state organization that the local council “does not have money on hand to pay” the remaining grants, according to the state council.

The local Arts Council was contractually obligated to keep that state money in a restricted account and to distribute it to dozens of small arts events and organizations throughout Erie County.

“If they don’t have it, it was spent on something,” said Heather Hitchens, executive director of the state council.

The embattled and debt-ridden local organization will cease to exist within months, said Theresa E. Quinn, an attorney for Magavern Magavern Grimm. The Buffalo law firm was hired last week by the council’s board of directors to oversee the organization’s closure, Quinn said.

The state arts council decided last summer to slash the local council’s operational funding because of mismanagement by former executive director Celeste Lawson, who pleaded guilty this month to stealing more than $25,000 from the organization’s coffers.

Earlier: Probe targets Arts Councils ex-director

But because Hitchens’ agency could not quickly find another local agency to distribute state funds to small artists and arts groups, the state council decided to process their local grant program through the Arts Council for one final year.

“We made the decision to keep the re-grants going because there was no place else to put them last year, and then we oversaw the process,” Hitchens said. “They got the grant, the panel met, decisions were made and the grants were supposed to be paid. Well, turns out, they spent the money.”

The state council’s oversight process, however, could not prevent the funds from being misappropriated.

After keeping a close eye on the grant application process, Hitchens said, the state agency “followed up to ensure payments were being issued on time, at which point we discovered that they were not and we began to suspect that the funds may have been misappropriated.”

She said she then contacted Stephens, who stonewalled Hitchens for several days before finally admitting that the money was not on hand.

Hitchens, who assigns much of the blame for the misappropriation to Stephens, said she passed the information on to the state Attorney General’s Office, which is currently investigating the matter.

Though the grant contract was signed by Lawson, it contains a stipulation allowing the state council to pursue the Arts Council’s board for restitution of the money. Hitchens said the state council will do so.

Whether the grant money can be recouped is difficult to predict, Quinn said, and will depend on the dissolution process that will commence shortly.

Mismanagement and commingling of restricted funds at the agency had been standard practice for many years, according to Lauren Albrecht, who served as the Arts Council’s grant administrator from 2008 until May.

“I loved that job, but it was heartbreaking because Celeste and the board mismanaged the money so much that none of the grants were able to get paid,” Albrecht said. “I’m surprised they’ve been getting paid for the past year and a half.”

Albrecht called the New York State Council on the Arts’ decision to continue to run its re-granting program through the Arts Council “a big mistake.”

But she, like Hitchens, also blamed Stephens for her role in permitting the downfall of the council and the unscrupulous financial practices that led to the organization’s demise.

Stephens did not return repeated requests to comment.

The Arts Council also administrates a group health insurance plan for its members. It is unclear how the council’s dissolution will affect those who hold health insurance policies under the agency’s umbrella.

Quinn will coordinate the Arts Council’s official dissolution — a process similar to bankruptcy — and the settling of its debts, which a former Arts Council staffer estimated at about $300,000.

Hitchens stressed that the board bore responsibility for making sure the grant money was properly distributed, and that Lawson’s theft can’t be blamed for everything.

“They can ‘Celeste’ all they want. Lynda knew there was a problem,” Hitchens said, stressing that the grant money couldn’t have been spent unless the board was following the rules set out in their contract with the state council. “This is why the board is incompetent. They didn’t have that choice.”