Lanier - Audit findings

Odysseus Lanier, of Houston-based McConnell & Jones presents results of the management audit Tuesday, Sept. 5, 2017, during a Killeen City Council workshop at City Hall.

The city spent more money than it made for nearly a decade, and during a period of rapid growth that saw its population nearly double, those at the wheel didn’t seem to be paying attention.

In a 173-page analysis of city finances released Tuesday, Houston-based public accounting firm McConnell & Jones boiled city financial problems down to two main struggles: a history of overspending spanning nearly a decade from fiscal years 2007-2016; and a parade of city managers and finance directors — six of each in a period going back to 1990.

Killeen’s population boomed from 86,911 in 2000 to 140,806 in July 2016, according to the report. Expenses are expected to rise in a budding city as it provides services to more residents, but in Killeen, the way city administrators kept track of and managed taxpayer and ratepayer funds ultimately affected the city’s financial health.

McConnell & Jones’ report tells a story of a city swelling at an exponential rate. Terms such as “convoluted” and “unwieldy” were used to describe the condition of some financial accounts, which was a result of lax oversight and poor management.

A lack of training or familiarity with the city’s electronic financial records system led to an environment where staff created “work-arounds” outside the system, including maintaining separate financial spreadsheets in Excel, the report said, and with leadership in limbo, overspending and many irregularities went unchecked.

Five city departments, for example, had separate bookkeeping, which recently was corrected, according to a city management rebuttal letter in the report. The city also failed to maintain some documents according to records retention policy, and state law was likely broken when pay raises were authorized retroactively.

The Herald reached out to Bell County’s attorney, the state attorney general’s office and Texas Rangers, to ask about repercussions, if any. The Rangers referred questions to the state attorney general’s office, which said it could not “advise on or interpret the law,” and instead provided online resources. The county attorney did not respond by press time.

Austin attorney Bill Aleshire in an email Thursday said: “Destruction of public records, contrary to the records retention laws, is a misdemeanor criminal offense by whomever destroyed the records. … But, in my experience, that crime is not usually prosecuted.

“Good use of tax dollars should not depend on the auditor; it should occur because elected officials and every employee respects how hard taxpayers work to pay those taxes and hold a sincere desire to give taxpayers a good deal,” Aleshire added.

Aleshire represented Barbara Gonzales, a former Killeen finance director, who filed a wrongful termination lawsuit. Gonzales believed she was fired in December 2012 in retaliation for reporting violations of state and local finance laws, according to Herald archives. The suit was eventually dismissed on appeal because causation wasn’t proven, a legal memo filed November 2015 said. A December 2015 Herald report found flaws with the state’s whistleblower law that did not protect against retaliation.

During a presentation to the City Council at City Hall on Tuesday, McConnell & Jones at times appeared to soften the blows of its findings by repeatedly stating some items weren’t unusual.

The firm in its report, however, was more direct: “The City has not demonstrated sound fiscal management in that General Fund expenditures have outpaced General Fund revenues each year since FY 2008, (and) as a result, the City’s fund balance has decreased and debt has increased.

“This overspending can be attributed to a lack of fiscal discipline,” the firm said.

HIGHLIGHTS

As a result of increasing expenditures, specifically in public safety that doubled over the last decade, and no consistent leadership, some decisions were made without regard for the long-term impact, while some put the city at a greater risk for fraud. Among them:

– Annual increases in public safety expenditures disproportionate to revenue increases in the general fund in fiscal years 2009, 2012, 2013, and 2016.

– Grants that required significant matching funds or commitments for future salaries were used and the decisions did not consider the long-term financial impact on the general fund.

– Enterprise (moneymaking) funds were heavily used to support the general fund.

– Failure to maintain some documents and data according to state records retention policy.

– Failure to document discussions with bond counsel on guidance obtained.

– The Aviation Department, Killeen Civic and Conference Center, Volunteer Services, Senior Center and Cemetery maintained books outside the city’s SunGard financial system, a “significant weakness in internal controls.”

– The Finance team frequently added new accounts to record transactions because they were not able to understand how former staff established and used certain accounts, leading to “convoluted recordkeeping and an unwieldy chart of accounts.”

– Elevated risk of financial transactions manipulation, which could go undetected.

OTHER FINDINGS

Capital Outlays (fiscal years 2006–2016):

– Capital outlay accounting requires strengthening to prevent or discourage fraud. No fraud/gross mismanagement found.

– Unable to determine cause of 311 percent increase in general fund capital outlay spending because city could not provide supporting information. In this instance, the city was not in violation of its records retention policy.

Use of Bond Money (2002–2017):

– Of $356.5 million paid by bond funds between 2002 and February 2017, $3.4 million was analyzed, and of that amount, $3 million (89 percent) was inconsistent with the bond’s purpose, $240,416 (7 percent) was consistent, and $115,153 (3 percent) was undeterminable.

– Violation of bond document retention requirements for bond fund 344-2012/CO, a $6.7 million fund for U.S. 190 expansion and police vehicles.

Interfund Transfers (2002-2017):

– No rules and guidelines defining “allowable” expenditures; policies governing interfund transfers not adequate to prevent misuse or misallocation of restricted funds, although no instances of fraud were found

Pay Increases (June 2014 and October 2014):

– Retroactive pay increases were authorized, and could break with state law that prohibits it; No long-term budget impact considered for 3 percent pay increases in June 2014; no long-term planning or analysis done for 8 percent pay increase to civil service (public safety) positions in October 2014.

City/Owner Agreements (2002–2016):

– City is not following the best practices.

– Four developers accounted for more than 60 percent of the city/developer agreements from Oct. 1, 2001, through Sept. 30, 2016: WB Development; Purser Family; Reeces Creek Development; RSBP Developers Inc.

Roadway Ownership (2002–2016):

– No policies or procedures in place to monitor roadway ownership.

Post-Recall Spending (November 2011–May 2012):

– Based on audit procedures, no indicators of fraud or abuse detected.

– Weak internal controls that could result in undetected fraud.

RESISTANCE

McConnell & Jones on May 2, seven weeks into the audit, hinted about the conditions of city finances and trouble finding older documents.

Darlene Brown, director of risk advisory services for the firm, stunned some council members when she said defective communication and a lack of transparency left Killeen council members and the residents they represent in the dark on city finances.

The firm’s findings flew in the face of statements made by Mayor Pro Tem Jim Kilpatrick, former Mayor Scott Cosper, former City Manager Glenn Morrison, former Mayor Dan Corbin and longtime city spokeswoman Hilary Shine, who each have said there was no problem.

The city touted a “clean opinion” from external auditors last year. Ann Farris, who used to be interim city manager and is now deputy city manager, in a news release said she found it “particularly gratifying” the city won its 26th financial reporting award.

The management audit said the opposite. McConnell & Jones criticized the city Comprehensive Annual Financial Reports for not providing adequate disclosures.

Kilpatrick, who ran for re-election May 6 and won, opposed the audit despite being chairman of the council’s subcommittee charged with giving direction to the audit firm based on council recommendations.

Kilpatrick voted against the audit, then voted for funding it but maintained throughout that no investigation was needed. Councilman Juan Rivera also voted against the audit.

Mayor Jose Segarra questioned the need for an audit in the past, as has Corbin, who previously called red flags raised by the Herald “bull—.”

Some of those red flags were validated by the findings.

Corbin previously put the spotlight on an ongoing revenue problem as the source of city troubles, but like Kilpatrick, maintained there was no cause for an investigation.

In a Saturday email, Corbin said: “My initial reaction is that the findings did not reveal much given that $394,000 of the taxpayer money has been spent on a fishing expedition where the public’s expectations, fueled by speculative reporting by KDH, were that past management had engaged in fraud and that $8 million was missing.”

The Herald in its reporting has used documents provided by the city through records requests, internal audit reports and external audit reports, interviews and its own newsgathering, that show finances were irregular.

The Herald reported on Farris’ announcement about an $8 million shortfall from the summer of 2016. McConnell & Jones’ findings concluded the figure was a miscommunication by the city in the way budget projections were made. Auditors said in the report it found no fraud strictly based on what it looked at, and summed up its findings based on, at times, what it said was incomplete documentation.

City administrators also did not agree entirely with auditors, and provided a rebuttal to several items in the report.

PERSPECTIVE

Killeen resident and standing audit committee member James “Jack” Ralston offered insight into the results.

“The fact that the audit did not uncover outright fraud or abuse is not surprising since it was not in fact designed to,” Ralston said in an email. “The bottom line is we now have … well-documented examples of managerial shortfalls that the city can move forward and fix. Mr. Olson’s speech concerning our future path was a good one and I truly hope we will achieve it! The future of this city depends on a transparent and open governance based on what we can actually afford.”

The Herald and kdhnews.com will bring more findings next week.

Go to http://bit.ly/2wGmoEC to read the firm’s final report, see http://bit.ly/killeenfinances for more articles on how municipal government impacts you, and check out http://bit.ly/managementaudit for continuing coverage of the investigative audit's results.

asierra@kdhnews.com | 254-501-7463

(4) comments

Alvin

This is the personal opinion of this writer.

I am really dumbfounded by this city and the reporting of this local daily newspaper. There are only 3 of individuals who bother to write on 'what's happening in this city administrative group, but, and I don't know what the total count is, but assuming there is more than 10 people voting, I am really confused as to 'why there are only 3 of us bothering to even care as to 'what this city is doing'.
The question as to 'Do you think 'Killeen got a good return on it's investment with the recently completed management of the city's finances?' The results are as follows at 3:30 pm: Yes – 1.7 percent, No – 71.5 percent, and undecided – 12 9 percent.
Now in my opinion, there is a whole lot of people filling out the questions, but only a few of us are willing to answer and justify 'WHY' this city is in the dumps.

This has been the personal opinion of this writer and nothing shall be used, in context or without or changed in any way without first notifying, and receiving explicit approval from this writer.
One of the 4.58 % who voted.

THUGNIFICENT KILLED ME

$400K to tell a fairy tale.
Once upon a time, the goose drank wine, the monkey climbed a coconut tree, and the cobra hissed at the pig, while the alligator said, "Catch you later, crocodile". And all the animals lived happily ever after in little zoo that could never say NO to buying churches, building waterparks, and making payoffs for male employees sexually abusing female employees. THE END....

Alvin

This is the personal opinion of this writer.

I'm still having problems with the copying of the Killeen Daily Herald. When I go to 'check' on this application of 'why I can't copy from this newspaper, I get KDHNEWS IS NOT RESPONDING'. I've quit this newspaper 3 times now 'because of poor delivery practices', and now I think that I will shift gears,again, and start taking all of 'complaints about this city and now about this city's newspaper to Facebook. So, can someone give me some advice on how I can counter this newspaper latest stunts????

Now on to the meat of this citywide problem.
Now this is the personal opinion of the city administrative group, both past and present, and the way of 'mismanaging this city's funds for the periods of only the time span in question'.
What I have concluded is 'there is and has been a form of 'crookedness' that has been exhibited for this time period expended.

Examples: and I paraphrase here: The way this city kept the financial books, or as @eyewatchingu: says – 'cooked the books'. This report goes on to say, and I cannot give this report the justice it deserves, but record keeping was insufficient, whether it was intentional or not does not seem to fit the equation, but duplication and or deletion of adequate record keeping does seem a particular point that the audit contractor seems to dwell on, the 'inadequate points of delineation that is being exhibited by these city, county, state offices that are, 'in my words' offices that we the people should have confidence in, but are poorly reflective of the service we are receiving; IE: 'destruction of public records, contrary to the records retention laws, is a criminal misdemeanor criminal offense by whomever destroyed the records', but it goes on to say 'But in my experience that crime is usually not prosecuted'. And my question should be – 'WHY]????

I paraphrase here again: “good use of tax dollars should not depend on the auditors; it should occur because elected officials and every employee respects how hard tax payers work to pay those taxes and hold a sincere desire to give tax payers a good deal,” Aleshire added'. This I conclude has not been the opinion of many of the council persons, mayors, and city administrative staff who have served this city in the past.

Now I won't go into the way this city, again in my words, 'mismanaged this city's funds', but just suffice it to say 'in my personal opinion this city has been guilty of gross mismanagement of city funds'.

And more to the point, and again I paraphrase: 'This city administrative group has been grossly negligent in not complying with good financial management. These include annual increases in public safety expenditures disproportionate to revenue increases in the general fund in fiscal years 2009, 2012, 2013, and 2016, the result of which of the increasing expenditures, specifically in public safety that doubled in the past 10 years, with no consistent leadership, including grants that required significant matching funds or commitments for future salaries were used and the impact did not consider the long term financial impact with regard to the 'general fund'.

Isn't that going on with the present city administrative staff, the 8 percent increase in public safety just to name some of this budget's generality's????

And once again, 'the failure documents and data in accordance with state retention policy's'.

I again make the case that 'our city legal department that is headed up by Ms. Kathy Davis has been the overall coordinator of this program and failure to correctly direct the activities of this city's overall policies rests with with department, or stated another way, 'The Buck Stops Here'. So I ask this city manager, 'what is going to happen in this case, moreover, what is to become of this past city administration group that sat on this city's administrative and giving council to such activities as, and this is in my own words, 'the blunder of applying to this city the overall aspects of taking on a new water district, and I don't know how to word this as it seems there are so many, that this city's legal department through the city council, gave the approval for this outrageous plan of action, when in fact that city council did not possess the wherewithal to understand the difference between 'com e'er and sick'um'. Or put another way, that city council was in no way accountable for that vote and had to rely on 'the city experts provided'. In this I would have voted to allow the councilman, Mr. Harris to proceed with advancing his proposal to 'once again provide a moratorium of 3 months to allow this city to see just what is going on', but our city manager disallowed for the sake of another word, by throwing in at the last moment the council to dispel any notion of this proposal. This was done 'on the sly' as I am of the understanding that it takes 48 hours of publication of the council presentation to have anything of this nature to be presented to the council for presentation. This I believe, was not the case. Again I place the blame at the feet of the city's administrative group. I think that this vote on this subject should again be 'revisited' and presented again before the 'full council', not a 'less than' full council. Also, I have been inquiring about the '6 out of 7 super majority' that was presented before this council, where do you find in the city charter that a vote of this nature can be called and voted upon???? And I call on you Mr. Olsen, city manager to give the charter reference that are using to support this claim.

In other findings: this city administrative group gas been found to negligent in 'Capital outlay management, inability to discern cause of 311 percent increase in general fund capital fund outlay because city could not find supporting information. In this instance, the city was not in violation of its records retention policy. It should be noted however, does this fall within the 'What If category'.

And the story goes on and on possibly without end.

But I again ask our city manager, 'What is to be the outcome of this venture???? Are upper echelon heads going to be sacrificed, for the good of this city', or is it just going to be a 'back of the hand gentle slap and resume what our city government continues to be'????

The ball is in your court

eyewatchingu

In the words of James Whitey Bulger, "Damn, that is one heck of a way to cook the books."
In my words, seems to me someone took lessons in book keeping at a strip club. Strip club math, for those that do not understand that its simple math.
Strip club is the city and the people are the strippers.
Stripper pays to work at a fee, if she wants to work she pays the club 25-35 dollars before she walks into the doors, then she pays 10% of her tips to the dj, another 10 or 5% to the bouncers or bouncers. So lets do the math.
Lets say She makes $100 that evening
-$25 to the club before she gets in the door , earns $100 -10% ($10.00) to dj, -5% ( $5.00) to bouncer ( remember the 10% to dj and 5% to Bouncer comes off the 100 no matter what ! ) = $60.00 that is all she brings home, because remember that $25 she paid to work, she has to set that aside again to work the next day, in hopes of making it back. Yet you can never make back what you spend no matter how much you make the next day. That $25 dollars here in taxes is called a pole tax. (no joke), most states have outlawed pole taxes because it keeps the girls enslaved, because on bad nights where the girls make nothing or make less then they can pay or tip out (btw even if you do not make $100 you still have to pay the min to the dj and bouncer which is $10 to dj and $5 to bouncer) That sweet club owner or manger will start a tab for the girl, it only takes a few days to owe the club more then she can every make, then she ends up working for free!

Like I said once before, it seems the city has become the Strip club owner and we the citizens are stuck shaking that azz for free, with no end insight.

To Bad, sadly I wanted to make changes as well to the clubs here in town, so the girls could have had a chance to get out, pay taxes, have insurance and would be able to get a loan for a car, a home and so on. Sadly that will never happen because the dumb azzes in this town will Keep electing people like Patsy Bracey, Shirley Fleming and others that have no clue what is going on around them, unless the Naacp, Democrat party, or the blm is pulling their strings.
Oh well, at lest I know how to make bank.

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