A Killeen councilman who has argued against the audit he is supposed to facilitate as subcommittee chairman omitted key facts in public statements he made before voting against the investigation into possible misuse of city funds.
Councilman Jim Kilpatrick, the District 3 incumbent and candidate in the upcoming election, remains in charge of the subcommittee tasked with seeing the audit through.
What Kilpatrick has failed to mention since November, when the prospective audit firms were brought in to be evaluated, were numerous instances of concern, some of which were documented and publicly available in city documents online, at City Hall and in Herald reports.
Kilpatrick, who on several occasions argued there was no criminal wrongdoing because none had been brought forward, admitted Thursday that he had not read documents that either confirmed misappropriation by city staff or revealed elevated risks within certain departments and policies.
The 2011 external auditor’s report on the city website highlights several “significant deficiencies” within grants management, payroll, finance and computer systems.
In a blanket statement at a regular council meeting March 14, however, Kilpatrick said that yearly audits had shown no problems had come up in the past nine years, and used that, at least in part, in his reasoning to vote against an in-depth investigation.
A Herald editorial April 2 asked Kilpatrick to step down from the ad-hoc audit committee because of his opposition to the audit.
The subcommittee is tasked with working with public accounting firm McConnell & Jones through completion of the investigatory audit.
‘I WILL NOT STEP DOWN’
Kilpatrick has staked his reputation on portions of nine annual external audits, which were not designed to dig deep.
“They said all of our working procedures are OK,” Kilpatrick said March 14 of the city’s routine external auditors.
Routine municipal audits have been criticized nationally for failing to catch wrongdoing, and in extreme cases, as spotlighted in a Herald report April 9, failing to detect blatant corruption.
In a phone interview Thursday, Kilpatrick flatly denied making the statement referring to nine audit reports despite recorded audio evidence to the contrary, suggested it was hearsay, blamed Mayor Jose Segarra as the source of that information and deflected responsibility for spreading what he called misinformation on the Herald.
Segarra on Thursday said he had not communicated anything of that sort to Kilpatrick.
Kilpatrick strongly denied Herald reporting showing his opposition to an investigation.
“I have never, never, ever opposed an external audit,” Kilpatrick said.
“I only opposed the funding mechanism. … I have nothing to fear on this audit.”
The Herald reviewed audio of the regular council meeting in which the statement about nine audit reports was made, and when Kilpatrick was pressed in an interview Thursday on whether he stands by the vote and statement, he circled around an answer.
“Sixteen days in a row I’ve been criticized by the Herald,” he said, contending that his decision to vote against the audit was based on accurate information.
“I’ll ask the editors to step down because of their misstatements. They’re trying to influence the election.”
Herald reports show that March 14 was the first time the councilman publicly stated complete opposition to any investigation, but his resistance has been ongoing, especially with the statement “no money has ever been missing,” which he has used multiple times.
Kilpatrick took issue with a recent Herald editorial questioning his motivation for voting against the investigation and calling for his removal from the audit committee.
“I will not step down,” he said.
The councilman voted against the audit’s approval March 14, one of two dissenting voices, along with Councilman Juan Rivera.
The external audit, in its final incarnation, falls far short of the forensic audit sought by residents and some council members.
McConnell & Jones said it would not do a forensic audit and the council agreed to a review that fell short of its initial goal. The new audit plan did, however, add examination of developers’ agreements with the city.
Kilpatrick has received campaign contributions from Killeen developer Bruce Whitis. Rivera was the other vote against the audit, and also benefited from Whitis’ money.
At the end of the conversation Thursday, the Herald asked whether Kilpatrick had evaluated each of the nine previous annual audits before concluding that no wrongdoing had been presented — a major reason behind his vote against it.
“I did not look at all nine of those,” Kilpatrick said, conceding that “if it’s on tape, then I was misspoken.”
Regardless of the vote, Kilpatrick said, he plans to ensure the external audit continues. He said his military experience taught him “once the decision is made you don’t question it ever again — that’s who I am.”
Internal control deficiencies existed in at least 2011, according to Temple-based public accounting firm Brockway, Gersbach, Franklin & Niemeier, the independent auditor that issued the findings to the city as part of the certified annual financial report.
The firm said it found no material weaknesses but acknowledged that its study was limited and not designed to detect all problems.
It did say, however: “We identified certain deficiencies in internal control over financial reporting … that we consider to be significant.”
A significant deficiency is less severe than a material weakness, but “important enough to merit attention by those charged with governance,” according to the report.
Some of the deficiencies noted were in how grants were managed or maintained because they were controlled by different people across various departments.
“The financial information was inaccurate due to grant receivables being recorded for the ARRA — State Energy Program and the Safer Grant for funds already received,” the report reads. “Additionally, Public Safety Partnership and Community Policing Grant (COPs), funds were requested for unallowed payroll expenditures, the reimbursement requests for the COPs grant were not being remitted in a timely manner and the NACCHO MRC fire department grant was not included in the federal grant schedule due to the amounts received and source of funding was not communicated to management.”
The report said the situation was corrected and that management reviewed grant oversight procedures to address the findings.
The firm recommended the city designate one employee to control grants, who should be “independent of individual departments receiving the benefits of such grants.”
City spokeswoman Hilary Shine on Friday said that the grants coordinator position was unfunded in this year’s budget, and that grants are handled by departmental or finance staff.
Another finding in the report showed deficiencies in payroll transactions, specifically related to health-related disbursements and insurance payments that were not being done in a timely manner.
The report took issue with the inappropriate segregation of duties within the human resources department because its primary responsibility was to control the payroll master file, and “the initiating of any payroll transactions conflicts with this responsibility.”
A lack of segregation in duties could result in unauthorized changes to the payroll master file that could to go undetected, the report said.
“Additionally, insurance payments are not being processed in a timely nature, which could cause the city’s employees to not have continuous health care and other insurance coverage. This could result in the city being liable for not fulfilling their fiduciary responsibility to the employees,” it added.
A third finding concluded that computer access privileges were not being reviewed, and that lax policies could miss unauthorized use of computer systems.
The report confirmed that “unauthorized changes were made which led to misappropriation of assets in the city’s permits department.”
At least one annual review of authorizations would be done to correct the problem, and new employees would be trained, administrators said.
A fourth finding determined that the segregation of duties in handling cash deposits, and an employee having access to multiple areas of the cash function, resulted in “a misappropriation of the city’s assets” in the finance department.
The city responded in the report by saying it had already addressed the concern during an investigation “of the specific instance noted in the finding.”
An internal review system was put in place and all cash handling areas are reviewed regularly, administrators said.
These red flags led, at least in part, to the wrongful termination lawsuit filed by former finance director Barbara Gonzales, who according to Herald archives, believed that she had been fired in retaliation for reporting violations of state and local finance laws.
The whistleblower suit was fought and won by the city, while a second suit by another employee was eventually dropped a few months later because he could not afford legal fees.
A December 2015 Herald report found flaws with the state’s whistleblower law that did not protect whistleblowers from retaliation.
City documents show that Brockway, Gersbach, Franklin & Niemeier audited Killeen from at least 2008 to 2011, with 2011 being the lone year it noted significant deficiencies.
The city changed auditors from 2012 forward to the firm now known as Weaver, which has not noted any deficiencies or material weaknesses in past audits.
A briefing is anticipated by McConnell & Jones at a City Council workshop on May 2, according to Councilman Kilpatrick. That is toward the end of early voting and four days before local city and school board elections.
A mid-audit briefing is May 16, which previously was the only scheduled update from the firm. That is 10 days after the end of a nearly two-week election period.
The Herald, in a third attempt to reach McConnell & Jones seeking answers and clarification for the public, received a response saying the firm could not speak publicly while under contract with the city. The contract is funded with taxpayers dollars.
The following went unanswered:
— What experience does your firm have auditing municipalities?
— What procedures does the chosen audit plan encompass?
— Please provide an explanation of how the investigation is supposed to work.
— Will your investigation involve reviewing documents for the seven items contained within the contract?
— What guidance has the City Council provided about what to look for?
— Will you be interviewing past and present employees, and council members?
— The council is accountable to the people it represents. The audit is funded with public tax dollars, so what steps is the firm taking to be transparent?
— What records will you be looking at, and what is the backup plan if records are not available?
— If an item is flagged by the firm for further investigation, will a forensic-style strategy be pursued as the firm previously indicated was possible to council members?
— Will focusing on fund transfers be a key element of the investigation?