By Mark Hansel
NKyTribune managing editor
The City of Covington Audit Committee has agreed to move forward with Request for Proposals to seek a comprehensive review of the City’s financial, budgeting and reporting systems.
Meyer
Mayor Joseph Meyer said at the April 7 meeting to discuss the matter that over the last couple of years, he learned some things about the City’s finances that struck him as odd.
“It raised questions that were inconsistent with my experiences and left me very confused about the overall condition of Covington’s books,” Meyer said. “On the 17th of January, the Commission approved an order directing the city manager to prepare a request for proposals.”
This is the RFP language included in the order:
“That the Request for Proposals shall request a comprehensive review of the City’s financial, budgeting and reporting systems; an analysis of the City’s debt obligations; review of the City’s financial administration policies and practices; an analysis of the City’s financial condition and a review of the Comprehensive Annual Financial Report (CAFR) preparation.”
Meyer said he wanted to make it clear that this was not a “Bob Due rehash.”
Due is the former Covington finance director who pleaded guilty in 2014 to forging documents and stealing almost $800,000 from taxpayers while employed in that capacity.
“There are no allegations, and/or suggestions of theft, or money missing, or anything like that,” Meyer said. “The people we have working in finance are knowledgeable, they’re good people, they’re capable, and this is no challenge to their integrity or their skill. Flat out, this is a very significant public policy issue.”
Covington revenue numbers for October 2016 show an increase of more than $4.1 million over those from August 15 of that year. The document was included in a presentation Covington Mayor Joseph Myer gave to the City’s audit committee (click to enlarge).
Meyer introduced a presentation at the meeting that outlined some of his areas of concern.
He first compared 2016 budget figures to an August 15 Open Gov report, which was six weeks after the end of the Fiscal Year, that he obtained through an open records request.
Total revenues were $48.2 million, which was $1.3 million above the original budget and slightly lower than the amended budget. Payroll tax receipts according to the August 15 report, were at $22.19 million, also slightly above the original budget and a little bit lower than the amended budget.
“For an estimate, good ballpark numbers, no questions for these,” Meyer said.
Meyer then presented the CAFR numbers between Aug 15, 2016 and October. The General Fund grew by $4.1 million, or $3.4 million above the revised budget that was adopted on June 28, two days before the end of the Fiscal Year. Year-over-year, General Fund Growth was $4.7 million, or 9.9 Percent. The Payroll Tax increased $2 million during the period and was $1.6 million greater than the June 28 amended budget.
“This is a year when the (previous) administration projected flat payroll tax growth, there were no major projects coming on the line,” Meyer said. “To have a $2 million payroll tax – to ballpark it – that requires 1,500 new jobs at $50,000 average salary, to collect an additional $1.8 million in payroll tax. That is a huge growth for all of these things – that didn’t happen.”
Meyer defeated then-Mayor Sherry Carran in the November 2016 General Election.
Covington Mayor Joseph Meyer questioned the disparity in payroll tax revenue in August 2016, which was just $220,727, compared to more than $5.26 million in June of the same year (click to enlarge).
In a nutshell, Meyer questioned how the General Fund could grow $4.1 million and the payroll tax $2 million, from August 15 to October.
“With this kind of disparity, how can the city make responsible financial management decisions with information of this quality?” Meyer asked.
Another slide displayed Payroll Tax Revenue, by month, from 2013 to 2017. It indicated revenue of $5.26 million in June 2016 and just $220,727 in August 2016.
“That is 21.3 percent of the annual payroll receipts are attributable to one month, and quite frankly, I’m incredulous about that,” Meyer said.
Committee members suggested that some of the disparity could be explained through accrual accounting, which allows for funds that are anticipated, but have not been received, to be reversed.
The new budget year begins on July 1.
In July, 2014, for example, payroll tax revenue was just $1,257 and the following year, it was $360,054 in the same month. The amount posted in June 2016 is significantly greater than for the same month in the previous years and the lower 2016 number was posted in August instead of July, but that explanation is somewhat consistent with previous budget years.
“The purpose of this is not to say right, wrong or indifferent, the purpose of this is to say, ‘these are my observations, these are the questions that were raised,’” Meyer said. “Maybe you’re right, maybe it’s just a policy, or a procedure, or timing, that we ought to look at.”
Other concerns raised were that for the Fiscal Year that ended June 30, 2016, six City funds, including the CDGB fund and the Police and Fire Supplemental Pay Fund, had expenditures in excess of appropriations.
“There’s this pattern of overspending beyond what is appropriated, that is a real serious issue,” Meyer said.
With regard to Debt management, Meyer said Covington borrowed $16 million in 2012 and $18.6 million in 2014, without obligation to specific issues.
“You normally borrow money for a particular purpose,” Meyer said. “You list it out, you borrow, it, you spend it, you build it and you move on; not in this case. These borrowed funds were used like a credit card. The city’s financial advisor told us flatly that he had never seen borrowing done this way before – period.”
Document showing the City of Covington debt service amount at 18 percent in 2015 (click to enlarge).
The debt service amount, which Meyer said is generally expected to be in the 6 percent range, was 18 percent in 2015 and 11.5 percent in 2016.
“Those are excessive general fund expenditures to support the debt,” Meyer said.
Meyer also passed out copies of this year’s line-item budget, which he said is a terrible way to adopt a budget.
“You are not allowed to spend in excess of the amount that was appropriated,” Meyer said. “When you’ve got this kind of line-item detail in your appropriations, you have eliminated all of your flexibility. Since no expenditure can be made in excess of the line-item appropriation, then any time anything comes up, there should be, by law, a budget amendment.”
Meyer added that there have been no budget amendments. He said former City Manager Larry Klein, who resigned in February, exceeded his authority by making re-appropriations without the authority of the City Commission.
It is important to note that the review of the City’s financial, budgeting and reporting systems requested is not the same as a forensic audit, which is very expensive and is generally performed when there is evidence of criminal conduct.
“Again, I’m not accusing anybody of wrongdoing, or stealing money, or anything like that,” Meyer said. “We asked for procedural review, policy review, validate what’s going on here, that’s where I’m coming from.”
The committee agreed to proceed with the comprehensive review but it’s not yet clear when that might happen or who would conduct the evaluation.
“We have three choices,” Meyer said. “One is to invite the State Auditor in, to take another look, in a consulting role for us. Another is to see if the current auditor is interested, and the third one is to bring in someone completely independent from outside.”
Contact Mark Hansel at mark.hansel@nkytrib.com
