Thursday, January 07, 2010

January 7, 2010 Mayor and City Council Caught in Web of Unauthorized Money Shifting in Violation of State Law

[Updated 1/8/10: See my note at the end of this post]

At the end of the January 4th City Finance Committee meeting, Councilmember Kay Senter said, “It is what it is.” Her comment came at the conclusion of a remarkable meeting that showed how little the Mayor and Councilmembers know about the city’s finances and what little effort they put forth to find out what's going on. The meeting also provided a glimpse of how much money shifting (plenty!!) has gone at the City Center to cover up mismanagement and financial problems.

I will try to summarize the major item of discussion but lots more will be said later.

Short and sweet version: The City’s General Government Fund had a deficit of over $1.2 Million dollars as of 6/30/09! Unlike the federal government, local governments in Tennessee can not end their fiscal year in a deficit situation. To remedy this “cash flow” problem, the City was planning to let the Sewer Fund loan $1 Million + to the City’s General Fund. After all, that’s what the City did in 2007 and 2008–illegally and without authorization –when the General Fund had a deficit.

This time, though, it was third strike and you’re out. Citizens and others have caught on to the city’s old scheme of “robbing Peter to pay Paul.”  Citizens for Accountability.

See my earlier post discussing the illegal transfer/loan of $2.5 Million from the Sewer to the General Fund to cover up the 2008 General Fund deficit and the auditors November 2009 e-mail to Interim Administrator Lynn Wampler "explaining" the auditors involvement/non-involvement. That illegal transfer/loan was not reported as an audit finding in the 2008 audit by the "independent" auditors. [Interim Administrator Wampler has a copy of my e-mail to the State Comptroller’s Office and Mr. Dycus' reply e-mail stating that David Bowling, State Comptroller's Office, must approve inter-fund loans and that they must first be passed by the city council.]

Faced with another General Fund money shortage in 2009, Mr. Wampler and Budget Director Brian Janish  talked to Mr. David Bowling and to MTAS Consultants to see if the City could pass a local ordinance in January 2010 for a Sewer Fund to General Fund loan that would be “retroactive” to 6/30/09 and would erase the current deficit in the 6/30/09 audit.

According to Janish and Wampler, MTAS consultants and the Comptroller’s Office have thus far said “no” to the 6/30/09 retroactive loan--just as they probably would have said "no" to the 2007 and 2008 retroactive loans IF the City hadn’t just slipped the earlier loans through without a word. 

[The 2009 audit has been delayed AGAIN. There are rumors that the City and its auditors are still trying to figure out a way to handle the 2009 General Fund deficit without an audit finding. Apparently, the city and the auditors are talking to everyone to try and come up with a "solution" to the violation of state law. Surely, the auditors can't ignore or gloss over these illegal, unauthorized transfers a THIRD TIME.  Since cities and counties often get "help" from higher up to cover up violations of law, it remains to be seen what the city and its auditors will be allowed to do to cover up what is actually a third  violation in a row of state law. One idea that has been floated around--see below--is to simply call the loan a "payable" and a "receivable."

For two years (2007 and 2008), the city just illegally shifted money from the Sewer Fund to the General Fund without even making an effort to get required local and state approval. I have little doubt that a third illegal money shift would have taken place quietly in 2009 had former City Administrator Jim Crumley still been around. Jim pulled the wool over the Mayor and Council ’s eyes in a lot of ways. Because the Mayor and Council did not pay attention and have not taken care of taxpayers’ and ratepayers’ sewer money, citizens are stepping up to do what they can. [Click on the Citizens for Accountability link for the website of the new citizens group that will be providing information to the public and holding local city and county officials accountable for the actions. Citizens for Accountability.]

Bottom line. The City illegally shifted money (Sewer Fund to General Fund) to cover up or lessen the General’s Fund’s poor financial situation in 07 and 08. Jim Crumley (former City Administrator) and Brian Janish (Budget Director) and Buddy Fielder (Assistant Administrator) and Dynise Robertson (Finance Director) did not report this situation to the Mayor and Council. The local auditors (Craine, Thompson & Jones) did not report this situation to the Mayor and Council nor did they report these unauthorized loans as an audit finding in 2008. The Mayor and Councilmembers obviously did not examine the 2007 and 2008 audits or one of them surely would have spotted these unapproved transfers and would have seen that the money shown as general fund balance or surplus was not really general fund money at all but was largely a temporary loan of money to the General Fund.

The gig is up.

This year the City is “caught” with a 6/30/09 deficit that it can’t erase with another illegal, unauthorized loan. Aas mentioned above, one idea to "get around" the violation is to have the auditors report that “$1.2 Million is due from the General Fund to the Sewer Fund” and “$1.2 Million is due to the Sewer Fund from the General Fund.” That's a loan but it just doesn’t use the word loan.  After all, it all depends on what the meaning of "loan" is! If your auditor will report a loan as a "receivable" and a "payable" and if the State will accept this new way of reporting loans, then maybe Morristown will have once again broken ground with a way to "legally" violate state statutes. And then other cities and counties who find themselves with a deficit can also cover it up with this new auditing angle.

Regardless, this three-year fiasco highlights a number of serious problems at the City Center:

1. Auditors that have allowed illegal, unauthorized loans (Sewer Fund to General Fund) for 2007 and 2008 without reporting them to the Mayor and Council.

2. Budget and Finance Personnel who have been a party to these illegal, unauthorized loans without reporting or seeking approval of the Mayor and Council.

3. A former City Administrator who was the major player in these illegal, unauthorized loans without reporting or seeking the approval of the Mayor and Council.

4. A Mayor and Councilmembers who did not take the time to examine the yearly audits, ask questions, and get answers. [The cash poor condition of the General Fund was evident in the audits--but you had to actually open the audit and look at a few key pages to see that unauthorized loans were being recorded in the audits to "cover up" the dire financial condition of the City].

Elected office is not just a fancy title with a nameplate and special parking place. It is a high calling when you are entrusted with other people’s money. Elected officials ask to be put into office. If given the opportunity to serve, they have an obligation to give whatever time it takes and to do whatever is necessary to see that taxpayer dollars are spent wisely and legally.

[Update 1/8/10. I have deleted my 1/5/10 post which was almost identical to this post. My e-mail (left) requesting info on procedures for inter-fund loans was to Mr. Dennis Dycus in the Comptroller's Office. I sent the e-mail to ensure that my understanding of the procedures for such loans does require local and then state approval.  In his reply, Mr. Dycus confirmed that a local resolution or ordinance must be passed first and then Mr. David Bowling, Division of Local Finance in the Comptroller's office, must give approval to any inter-fund loans between the sewer fund and the general fund. In 2007 and 2008, the City violated state law and just made these transfers without council approval AND without state approval in order to give a quick "fix" to the general fund deficit.  The "independent" auditors reported this "fix" (a/k/a unauthorized and illegal transfer) in the 08 audit as a "loan" even though there was apparently no documentation of a loan in either year. 6/30/09: the city AGAIN has a general fund deficit and the audit is delayed while the city and the "independent" auditors  AGAIN try to find a way to "fix" the mismanagement once more.]

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