The external auditors examining problem years in Killeen’s financial records say they found no instances of fraud or abuse.
Auditors McConnell & Jones did find, however, years of problems with how Killeen administrators handled money, kept records, and they cited weak financial controls.
Spending was one of the problems.
“Our analysis of the City’s financial operations revealed that the City did not reduce the General Fund’s operating expenditures to align with operating revenues generated each fiscal year,” according to the executive summary.
“This deficit spending in the General Fund began in FY (fiscal year) 2008 and continued through FY 2016.”
Auditing firm partner Odysseus Lanier told the council the audit provided a “golden opportunity” for the city to improve.
Mayor Jose Segarra said the City Council would take all of the policies and procedures recommendations into account.
The auditors also commented on the budget shortfall of $8 million.
“The City’s $8 million budget shortfall presented to city council on June 30, 2016, was based on the budget preparation methodology and is not an actual monetary shortfall.”
City Manager Ron Olson said in a news release, “The Council and the public should be relieved by the outcome of this audit, particularly the finding of no malfeasance. A thorough examination of the past has now concluded, so we must now return our focus to the future of our community.”
The auditing firm was asked to probe seven areas. Here are the chief findings:
Capital Outlays (fiscal years 2006–16):
— 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. City not in violation of its records retention policy.
Use of Bond Money (2002–17):
— 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
Interfund Transfers (2002-17):
— 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 (2002–16):
— 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 (2002–16):
— 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
In a financial condition analysis explained in the final report, auditors highlighted the controversial $8 million budget shortfall presented to council June 30, 2016, as a projection based on a preliminary estimate, and that it was developed using the same methodology used in prior years.
Killeen City Manager Ron Olson said the city would incorporate the audit’s 26 recommendations into a future business plan and revisit the financial policies with the council after ratification of the city’s fiscal year 2018 budget Sept. 19.
Olson said he related to the council the biblical story of Lot, whose wife was turned to a pillar of salt when looking back at the destruction of Sodom and Gomorrah.
“I believe it’s time to follow Lot’s example and look forward, not backward,” Olson said.
The Herald and kdhnews.com will bring additional findings from the 173-page audit to you this week.
Go to http://bit.ly/2wGmoEC to read the firm’s final report.