Some Killeen city officials improperly used public money, created a side account for money transfers and made a raft of questionable decisions.
And those are only the early findings of the audit investigating Killeen’s financial practices over recent years.
Houston-based public accounting firm McConnell & Jones presented its findings to the City Council on Tuesday.
Here are the initial findings:
— Bond funds were used for unauthorized purposes, such as operating expenses, including salaries;
— Consistent analysis and planning for capital projects was not performed;
— Enterprise (moneymaking) funds were transferred to another fund to buy vehicles not used for the benefit of the respective enterprise fund;
— Former finance staff created an escrow account and used it to transfer funds and record liabilities;
— Pay raises were inconsistently applied, with some employees receiving both cost-of-living allowance raises and performance raises while some received one.
Those are the results so far; seven key areas are being reviewed, per council authorization.
The findings fly in the face of statements made by Councilman Jim Kilpatrick, former Mayor Scott Cosper, former City Manager Glenn Morrison, former Mayor Dan Corbin and longtime city spokeswoman Hilary Shine.
Kilpatrick, who is running for re-election May 6, has opposed the audit despite being chairman of the council’s subcommittee charged with giving direction to the audit firm based on council recommendations.
Kilpatrick has voted against the audit, then voted for funding it but maintained throughout that no investigation was needed, instead wanting to blindly trust former city administrators.
Kilpatrick asserted there was no evidence of criminal wrongdoing.
Councilman Juan Rivera also voted against the audit.
Mayor Jose Segarra has 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 preliminary report.
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 pursuing an investigation.
Corbin also was head of a political action committee that donated money to Kilpatrick on behalf of developer Bruce Whitis.
Shine, in March, said the city’s routine external audit from last year, “offered a clean opinion, which is the highest level of assurance possible that your tax dollars are being properly managed by city staff.”
Shine’s comment was out of context with national reports that routine municipal audits have failed to detect serious problems, including fraud.
The investigative audit by McConnell & Jones was approved March 14, and a mid-audit briefing was agreed upon for May 16 — 10 days after Election Day, which would have left voters in the dark.
Public perception and trust had tanked when city administrators failed to share news of declining city finances, kept it quiet for years and then finally pulled the curtain back on a heavy $8 million budget shortfall last summer.
Overspending from at least fiscal years 2013-16 was visible in lopsided budgets, and although the city balanced the fiscal year 2016-17 budget and began work on 2018, it left in its wake a trail of questionable financial decisions with little or no explanation.
“There appears to be a lack of analysis of the long-term fiscal impact when presenting recommendations to Council,” the McConnell & Jones preliminary report reads. “The City lacks critical policies in many areas to guide decision-making.”
The report also says the city did not make it easy for council members to make more knowledgeable decisions.
Councilman Richard “Dick” Young was blunt: “They found issues in each of my concerned areas. … Where there’s smoke, there had to be fire.”
All data must be received by the firm by May 8; a mid-audit briefing was scheduled for May 16; an interim briefing is June 6; and a draft report is expected to be issued July 7.
OBSERVATIONS SO FAR
BOND FUNDS: Bond funds were used for purposes other than the authorized use of bond proceeds included in bond documents. Uses included: Transfers of bonds to the general fund to be used for operating expenses, including salaries; Use of bond funds for costs related to city-owner agreements; and transfers of certain bond funds to certain other bond funds for as yet undetermined purposes.
Bond funds were co-mingled with the general fund in the past and subsequently corrected with journal vouchers.
CAPITAL OUTLAY: The city does not have a comprehensive Capital Improvement Plan to facilitate long-range planning. It has individual master plans, but those do not help strategic planning, prioritization and decision-making.
The city does not consistently perform analysis and planning for capital projects regarding long-term costs.
INTER-FUND TRANSFERS: Money was transferred from enterprise (moneymaking) funds to the internal services fund to buy vehicles that were not used for the benefit of the respective enterprise fund.
Former finance staff created escrow accounts in the financial system and were used to transfer funds and record liabilities instead of recording expenses and liabilities in the appropriate accounts.
PAY RAISES: Regarding increases of three percent to cost of living allowance and eight percent to civil service, planning was made without regard to long-term financial impact.
Some non-civil service city employees received the eight percent pay increase.
Pay increases were inconsistently applied; some employees received performance-based and cost of living allowance increases in the same year, while others who received an increase for performance did not.
Houston-based public accounting firm McConnell & Jones was hired for $394,456, paid biweekly as work is completed, administrators have said.
Because the scope of the audit affects mainly the general fund, water and sewer fund, and solid waste fund, each will be tapped to provide a portion of the money.
The general fund will pay 70 percent ($276,119), Water & Sewer will pay 20 percent ($78,891), and Solid Waste will pay 10 percent ($39,446). An amendment for the general fund will be $216,687 because $59,432 was already budgeted.
The plan contains a seven-point scope of services, crafted by City Council consensus to analyze:
— Capital outlays from fiscal years 2006-2016 ($62,492).
— Use of bond money from fiscal years 2002-2017 ($84,448).
— Interfund transfers from fiscal years 2010-2016 ($32,176).
— Pay increases from fiscal years 2014-2017 ($22,751).
— City/owner agreements from fiscal years 2002-2016 ($36,692).
— Private roadway ownership from fiscal years 2002-2016 ($41,773).
— Spending during post-recall period from November 2011 to May 2012 ($34,892).
The firm’s proprietary planning and quality control process ($34,708), a mid-audit briefing at $10,092 and the written report with findings and recommendations at $34,432, bring the total to $394,456, which includes travel and miscellaneous fees.
The following completion status was reported by the firm as of April 28: capital projects (10 percent); bond money (35 percent); inter-fund transfers (40 percent); pay increases (40 percent); city-owner agreements (10 percent); roadway ownership (none); and post-recall spending (25 percent).