City Provides a Preliminary Overview of Audit Report Yet to be Released

September 21, 2011: City Council Work Session

Item 4: Audit Report---Bret Norman an Audit Manager with Moore Stephens and Tiller, LLC (MST) gave the council a revised draft copy of the city’s Audit Report.  From the initial draft, the city asked MST to revise or extend “a few of the procedures”, to check the wording of specific ordinances inserted into the agreed upon Procedures Report, and to sort through some previously approved city council transactions that were “mistakenly overlooked”.

After receiving the initial Audit Report the council instructed the firm to make changes, Norman presented those changes. On page two of the report Norman said “revised information was given about a number of expenditures that supervisors or employees had approved for payments”. This was an extension of procedures said Norman.

Page four starts the actual report, Norman said the language at the top of this page was changed as to whether or not controls existed by way of city ordinances for compliance. This Norman said was done to negate any claims that there were not city ordinances in place to govern actions and transaction. At the bottom of page four the firm gave, as requested, a short narrative on how the project came about, said Norman.

“This was the reasoning given by those that took on the responsibility to allow it (the project) to happen,” said Norman.  “We inserted that (the narrative) to explain their stance.”  

Norman said that his firm does not give legal advice, thus he has had conversations with the city attorney to discuss the ordinance.  He said he pulled wording such as a city council quorum must be present, directly from the city ordinance, to reflect that the reasoning for the actions, transaction might or might not agree with what the ordinance states. And the total costs of projects were also provided on page four.

On page five of the report Norman said the results of going back through expenditures captured on a spreadsheet could be found. In going over this data two additional projects that were approved were discovered. Minutes from four city council meetings shows projects approval and change order approval by the council.

In totaling the amount approved for projects and the actual amounts spent, calling this an incidental finding, MST added a caveat to the report that states that there were a number of projects discovered by the firm that were beneath the $40,000 threshold. Norman said his firm found in other “areas” descriptions that seem to be related to these projects, but this could not be confirmed because the description found on one document did not match descriptions found on other related documents.

This difficulty in matching project documents Norman said was discussed with City Manager Bob Baroni. Norman said that Baroni decided that there was no efficient way to go back and match descriptions with applicable projects.  

He said the city has been given a spreadsheet that identifies the differences in expenditures for three projects. In some of these project documents it was discovered that vendors submitted invoices for work that was unrelated to the project.  Norman attributed this to vendors using similar if not the same descriptions for different or unrelated work for a specific project with work approved by the council. And no one in the city verified that payment of invoices should have come from money already “earmarked” or set aside for expenditures related to a specific project or not.

Norman said his firm was asked on the extended procedures to ascertain who approved any amounts that were not projects but fit the $40,000 threshold. According to the City Ordinance these purchases can be done by the City Manager, Director of Utilities and the Chief of Police. All of the $16,000 of expenditures discovered was signed-off or approved by the Director of Utilities. And all of the expenditures with descriptions that could not be matched were also approved or signed-off for payment by the Director of Utilities.

Councilman Tony Powell said that the report shows two different amounts of $1,204,000, and $1,353,000. Norman said that was for a project that had an approved amount of 1.2 million, but actual expenditures “appears” to have totaled 1.35 million, a difference of $146,000. Again Norman stressed the caveat “appears” because of unmatching descriptions to a specific project.

MST was also asked to find the number of expenditures that fell below the council’s $40,000 threshold. In other words what is the number of expenditures that did not come before the city council for approval. The reports states that there were 807 of these instances.

“Of those 807, 791 were approved by the Director of Utilities, and 16 were approved by the Director of IT without anybody else’s signature,” said Norman.

When asked by Councilman Powell if these approvals were done by initials, Norman said in the case of the Director of Utilities they saw a lot of expenditures approved by initials only. He said they documented all instances of signatures made by others; but none of the documents found, even with the signatures of others, they all had the Director of Utilities initials on the documents.    

Asked to look at Change Orders that had not been brought before the City Council for approval and who approved them, these MST findings were detailed on page six, said Norman.  He said it was very difficult to “find true change orders”.  Found were references to change orders and payments made for change orders.

Norman said, “All I could put in (the report) was that payment was authorized by the Director of Utilities for $490,000 and $26,000 by the city engineer without the Director of Utilities initials.”

Citing the need for a “paper trail” to prove the city’s compliance with ordinances on projects, MST recommended a filing system that includes files by council meetings of all city projects. These files would contain very document and approval issued related to that specific project.  Norman recommended assigning the responsibility of documenting and tracking compliance and controls to one city staff member.   He said this could be done on one to two sheets of paper. These sheets could, would list everything required to be in compliance, i.e. contract, bid, authorizations, etc.

The proposed “project quick check list” would be revised after each step of the process has been completed and complied.  This would allow for easy “spot check” on any of the city’s projects.  On this check list would be the city manager’s and the assigned staff member’s signatures and, or initials showing review and approval of the progression of the project and compliance. This said Norman would give the City Council assurance of where the project is and that it is being properly monitored and controlled.  

Page seven shows the total costs and expenditures associated with projects that were investigated.  

In stressing the city’s need for monitoring and control, Norman referenced the city’s Gas Department and its non-compliance issues. He said, “You (the City Council) want to trust people (staff), but trust must be verified.  The Gas Department needed some oversight.”

Councilwoman Marie Beiser questioned the information given in the report about the Forest Hills project (page 6) that much of the paving had to be removed for curbing and guttering, and then repaved. Beiser said this was “erroneous” and asked City Engineer, Paul Alston, for accuracy. Alston said that the repaving only occurred for one resident.

Norman said MST would revise that information and that they had concentrated on the original cost of that project being $137,000, but ended up costing the city over “half a million” ($500,000). Beiser pointed out that the original cost did not include curbs and gutters. Norman said that these were examples of change orders that were done without approval of the city council.   

Councilman Powell said, in preparation for releasing the final report to the public, this report should be carried to the October Regular Session (Monday, October 3, 2011) and to have a hearing on the results; so the public will know what is happening.

“(As to) Ms. Smith’s (Councilwoman Katie Hart Smith) description of ‘well we have everything in place’…what I see is we don’t have any written policies in regard to inventory controls and carry through of purchase orders and invoices. We have a (purchasing) system that is undefined…there is no consistency in how that (expenditures) is happening.”

Powell asked MST to present, during the October Regular Session, some descriptions on what is required to bring the city into compliance, along with the cost.

To ensure that the final report will be ready by the October 3rd meeting, Norman asked the city to submit all edits to the report to MST a week before the meeting, deadline by Thursday or Friday.    

On the Collins Hill Road project (page 4) Councilwoman Beiser asked that the language be changed to reflect that this project was an emergency situation due to “100 year rain” that caused flooding and wash out of roads.    

City Manager Baroni said “in terms of contracts and compliance the council approved a new accounts position; interviews have been completed for the position and an offer will be extended soon”.