March 25, 2006 2004 audit Part II

As I have mentioned the 2004 audit indicates some improvement in the handling of county finances. It's really funny to look at the dramatic change in audit findings that occurred when the county started using the state auditors in 2003. The 2002 audit (1 solitary finding by the local private auditors) and then the 2003 audit (29 findings by the state auditors with numerous sub-findings) and then the 2004 audit (15 findings and again numerous sub-findings by the state auditors). Click here for 2004 audit findings.

Looking at the audit history, I find it very hard to believe that the county was operating just fine in 2002 with a glowing audit (1 finding) from the local private auditors and then suddenly in 2003 the county was violating state law, not budgeting money as required by law, spending more money than was approved, not controlling purchases, not maintaining a general ledger, totally unaware that the county had to go by the state comptroller's "chart of accounts," and boom there are 29 findings by the state auditors. It just seems more likely that all these violations and irregularities were occurring in 2002 but "somehow" went unreported.

Moving on to the 2004 audit, there were 15 findings. One finding reported problems in making debt payments--or actually making a debt payment for a debt that the county didn't even owe. The audit reported that the county made an interest payment of $45,326 in December 2003 for a debt that was actually owed by the City of Morristown, not Hamblen County. The city finally reimbursed the county for all but $408 in June 2004. The 2004 audit reports that the $408 was still owed to the county as of the audit report date.

There were major purchasing deficiencies. The Mayor's Finance Department apparently selected an employee to serve as a purchasing agent, but the agent didn't keep control over purchase orders. Blank purchase orders were just handed out to departments, so nobody knew what was being purchased (or how much had been spent) until after the bill arrived.

There were no employment work records for certain "exempt" county employees. County departments over the years had increasingly allowed more and more employees to be considered "exempt" employees. The "exempt" employees were salaried and didn't have to keep any time sheets. The state auditors said that all employees should be required to keep a record of time worked. They also pointed out that since vacation time was not tracked in some instances, "(exempt) employees [] obtain[ed] a higher benefit rate than the non-exempt (hourly) employees."

There were deficiencies in controls over travel. Apparently, nobody required an itemized receipt for meals paid with credit cards, so the county didn't know what it was paying for. It appears that the receipt total was submitted and paid without an itemized detail.

There were severe deficiencies in budgeting. The budgeting deficiencies were very important and included five different items (A-E)---four of which are discussed here.

(A) Despite state law, the audit states that the County Mayor didn't even present a budget to commission (and so didn't get approval to spend money) for certain funds (such as the sheriff's special revenue fund). Some budgets were brought to commission, but others weren't.

(C) The Finance Department overspent the legally approved spending amounts in several funds: the General Fund, the Highway Fund, the Special Debt Fund, the General Debt Fund, and the Hospital Debt Fund. If spending limits for county funds are going to be ignored, what's the purpose in going through a long, drawn-out budget process? And this occurred in 2003 as well--for example, the 2003 audit says that spending exceeded appropriations in the General Fund in amounts ranging from $737 all the way up to $296,964.

(E) There were huge budgeting problems. The beginning fund balance estimates provided to commissioners during the budget process were way off. Estimates of fund balance are estimates, but the auditors apparently think (and so do I) that county financial officials should be able to get at least reasonably close to the real figure.

When the county was preparing its '04 budget in July 2003, county financial officers estimated and told commissioners that the beginning fund balance for the general fund was $697,526 when it was really only $208,870. The Commission was told that the fund balance for the solid waste (garbage) fund was $56,265 when the fund really had a deficit balance of ($205,578). In an understatement, the auditors added: "County officials should better estimate the beginning fund balance when adopting the budget."

I've mentioned this problem several times at meetings because this is critical financially. If county officials can't come up with at least a close estimate of what's in the bank (fund balance), then it's no wonder that there is overspending and no one really knows what the county has or exactly where it's going.

(D) Finally, the audit also reported a finding where the County Mayor instructed the Finance Department to transfer money ($89,986) from the General Fund to the General Capital Projects Fund and to transfer money ($274,730) from the General Debt Fund to the General Capital Projects Fund without the required approval of county commission.

County commission not only never approved the transfers, but county commission apparently wasn't even told that the transfers were being made or that payments totalling $360,000 had been made in error for years.

In response to this finding, the Mayor told the auditors that he talked with the trustee and finance director (but not county commission) and then instructed his Finance Department to make the transfers to "restore" the accounts to what county commission had actually approved "over the years." It turns out that these wrong payments totalling over $360,000 included spending errors going all the way back to June 15, 1999 and continuing up to June 9, 2004.

It looks like the Capital Projects Fund was being used for over five years to pay for things that should have been paid out of the County's General Fund or the County's Debt Fund. In 2004, the Mayor talks with two county officials (but not to county commissioners) and instructs them to switch everything back around.

Why such secrecy--to the point that county commissioners didn't even know that $360,000 had been moved around until they read about it in the audit? Why did no one explain to county commission what had happened and then ask for the required approval to make the transfers?

More on these spending errors next time...

March 24, 2006 The 2004 Audit: Moving from the 2003 break-out audit to the 2004 audit

The 2003 audit was the break-out audit. I fulfilled my campaign promise to bring in state auditors with their experience in governmental auditing to replace the local private auditors. As a result, Hamblen County was finally put on notice that its financial house was not in order and had not been in order for years.

A very few people probably knew of the problems, but no one would do anything until someone official came in and said "the emperor has no clothes." That someone official was the state audit group, and what they said, in essence, was that Hamblen County was in a financial mess. What kind of mess?

The state auditors reported that the garbage fund was broke at the end of 2003, ending the year with a deficit of $205,000. How did this happen? One reason was the old commission was given a wrong number for beginning fund balance during the 2003 budget process. They were told that the garbage fund had money that really wasn't there.

Just a few months after the old commission passed the 2003 garbage budget (based on the wrong beginning fund balance that the Mayor's Finance Dept. had provided), the Mayor came to the new commission and reported that the garbage fund was in trouble.

To take care of the garbage problem, the 2003 audit states that the Finance Department kept bringing county commission amendments that kept "appropriating" more money for the garbage fund and saying that the source of the additional appropriations was "beginning fund balance."

In reality, the beginning fund balance for the garbage fund was long gone, and the real source of the money was to be a huge tax increase in 2004 and money used from other funds. Like many financial problems, it goes back to proper accounting, proper budgeting, and at least getting close when you are estimating beginning fund balance (the amount of money you have to start the year with).

In addition, the general fund at the end of FY 2003 was unofficially broke. It would have ended the year with an official deficit of over $100,000 except that the auditors moved money from other funds into the general government fund to restate the fund balance. To erase the $100,000 projected general fund deficit, the county moved about $400,000 from other funds into the general fund, giving it a positive balance of just over $300,000---the lowest county fund balance in recent history. Click here for the 2003 audit findings.

When the 2004 audit came back, it was definitely an improvement from 2003 when Hamblen County had had more audit findings than any other county in the state of Tennessee. The improvement in the 2004 audit was a little like two steps forward and one step back. Some type of corrective action had been taken on most of the 29 findings from 2003 (two steps forward). However, nine of the 29 findings from 2003 had not yet been corrected (one step back).

The 2004 audit listed 15 separate findings, and many of those had "findings within a finding." Five findings contained multiple deficiencies. For example, one FINDING (04.05) has five budgeting deficiencies listed as A, B, C, D, and E. To see Hamblen County's 2004 findings at the State Comptroller's website, click here for 2004 findings.

Some of the "new" problems that the auditors reported in 2004 were actually deficiencies that had existed in 2003 as well as long before. So why were some of the problems that existed in 2003 not reported until 2004? As I've mentioned before, a yearly financial audit doesn't look at everything. It does a spot check in a few areas. Evidently, in 2003 some areas that had deficiencies were not looked at, so these deficiencies were not found and reported until later (2004 audit) when these areas happened to be checked during the next audit process.

More detail on the 2004 findings next time...

March 15, 2006 Spring is coming!

A lot of people are out raking leaves in Hamblen County, and some have started mowing their lawns. Not me. I figure that the leaves are nature's mulch for my yard. Yes, I know that's just a way to justify not raking leaves.

I can't justify not mowing though---I'll be out there soon with the trusty mower. Fortunately, I actually like to mow. I guess that goes back to my youth when getting to ride a lawnmower was the first "grown up driving" that I could do.

Speaking of mowing and raking, I still think of March and April as "clean-up, paint-up, and fix-up" months. This goes back to years ago when that was an official declaration in Morristown, and the community really took it to heart. People would get out and work hard to improve their part of Morristown and Hamblen County.

With litter being such a huge problem in Hamblen County and throughout the state, we really need to make a stronger effort to clean up our area. Travel any road in Hamblen County, and you'll see where people have thoughtlessly tossed out fast food papers, bottles, soft drink cans, and everything else imaginable.

Morristown and Hamblen County provide door-to-door garbage pick-up. It is difficult to understand why people toss trash onto the roadside instead of into their own trash can.

Some small steps in having a cleaner community are very simple. Don't toss trash along county roadsides. Teach your children to take pride in their community. When you can do so safely, pick up trash that others have thoughtlessly dropped and put it in a trash can.

A few simple acts by citizens can help clean up our community.

Recently, when walking up to the Courthouse with Commissioner Bobby Reinhardt to attend county commission committee meetings, I saw a cardboard box on the Courthouse lawn. I reached down, picked it up, and tossed it in the trash can as we went in.

It wasn't hard. It took only 5 seconds. It was a small thing to do. But it helped.

March 10, 2006 The county is "broke" and leads the state in audit problems

Before I move on to the 2004 audit, I want to make one additional post about the 2003 audit on items that I have touched on in previous posts but which bear repeating.

1. The 2003 audit of Hamblen County government showed 29 findings (irregularities, violations of state law, accounting and purchasing problems). Hamblen County had more audit findings than any other county in the entire state and that includes the big four of Hamilton, Davidson, Knox, and Shelby.

2. Hamblen County government's general fund (the county's checking account) was broke at the end of the 2003 audit year and only a shifting of funds from several other funds into the general fund gave Hamblen County enough money to pay its general government bills.

Mismanagement and budgeting and purchasing deficiencies had plagued the county for years. The only difference in 2003 was that there were new auditors who finally pointed out what had been going on.

2003 was the big KA-BOOM year. Some of the bitterness and red-faced rants that some officials still resort to when I ask financial questions can be traced to the fact that I was the one who made the initial proposal to have the state auditors come in.

The mismanagement of public money, conflicts of interest, ethical shortcomings, and insider deals that are rampant in local politics (and in state and national politics, too) have naturally, and unfortunately, led to the overall lack of trust in public officials.

Nowhere is the motto "trust, but verify" more necessary (and more resisted) than in government.

A lot of people who have watched government in action have said that if they managed their family finances like the government does, they'd be broke. The 2003 county budget process is a fine example of this. The 2003 budget, like so many before it, was a hurry-up and pass something budget. Let's throw something together before anyone comes in asking questions.

That hurry-up process with its last-minute tax increase and last-minute vote on a 2003 budget turned out to be a disaster for county taxpayers.

First, the old (2002) commission raised property taxes at the last-minute--- even though the chairman of the commission Maudie Briggs had told voters months earlier that if they would just vote to extend the wheel tax (in the famous "pick-your-poison" wheel tax referendum) then there wouldn't be a property tax increase.

Then the old commission voted for a budget or spending plan that left off lots of the spending--kind of like a family that "forgets" to include the car payment in preparing their family budget.

2003: Despite taking in more money due to the property tax increase and extension of the wheel tax, the county AGAIN spent more than it took in. In fact, it spent so much more than it took in during 2003 that the tiny savings that the county had from 2002 (fund balance) was wiped out and the county had to go take money from other funds to shore up the general fund that was broke.

Were any other funds "broke" in 2003? Yes. The hurry-up, pass it, don't ask questions process also ended up with the county garbage fund going broke in 2003, too.

How did the county pay its bills? The new state auditors had the county dumping money from several other funds--like the DUI control fund, the Rural Services Fund, the Volunteer Fire Department Fund, etc.-- into the county government fund to help keep Hamblen County government afloat.

Sadly, overspending in 2003 was nothing new for Hamblen County government. Overspending has been a serious problem in Hamblen County government for years and years. Looking back at the 12 fiscal years (1992-2003), the county spent more than it took in during 8 of those 12 years. Not a good track record.

Of course, the official reaction is always that there's a shortage of money. So was the county suffering from some kind of revenue (money) shortage during these years? No. Revenues were increasing but expenditures were increasing even more rapidly. There's your problem.

In 2002 the county spent $923,000 more than it took in, and in 2003 the county increased taxes and still spent more than it took in. With the June 30, 2003 audit report, the bubble burst. Hamblen County was broke and Hamblen County had more financial audit findings of irregularities than any other county in the state.

To paraphrase one commissioner, "we've been robbing Peter to pay Paul and now Peter has left town." Actually, we had robbed Peter so much through the years that Peter was broke, just like Paul.

Peter left town all right---penniless.

March 4, 2006 If anyone had looked and asked the obvious questions that I did...

My February 28th post discusses the 2003 Hamblen County Audit---the first audit performed by state auditors after years and years of local, private auditing.

All of a sudden with the 2003 audit, the county got a resounding wake-up call that emphasized the lack of accountability that has marked the handling of county finances for years.

The state auditors pointed out that record-keeping was lax (or non-existent) , money was missing, checks were written where there were inadequate funds, money was shifted around without county commission's knowledge or approval, accounts were overspent, and the Mayor and his Finance Department spent money that had never been brought to county commission for approval.

I was not surprised in the least at the 2003 findings. Why? Because as a citizen and as a new county commissioner, I had actually gone through the 2002 audit and previous audits. As a commissioner, I tried (unsuccessfully) to get other members of the audit committee to listen and to really look at the audits as well. Click here on 2003 audit findings to see Hamblen County audit findings section on the State Comptroller's website.

Would county commissioners look at the 2002 audit? No. Did they have any questions about the 2002 audit? No.

Audit Chairman Maudie Briggs told me that if I had any questions, I could try and get them answered on my own. I prepared questions, and I tried to get them answered. Had anyone asked the obvious questions about the 2002 audit like I did or had anyone asked to see the responses (and non-responses), then the 2003 audit might have had fewer findings because some changes could have been made before the fiscal year 2003 ended.

With questions and answers on our own, the county could have been further down the road to accountability instead of having to wait for the state auditors to tell us what the local auditors would not tell us--there are no checks and balances, certain individuals and officials have assumed that they can spend taxpayer money as they please rather than within the legal budgeting process, and there is little or no accountability in the handling of the county's finances.

Some of the questions I asked were just commonsense questions that seemed very obvious:

I asked about the fact that the 2002 audit showed that money was spent out of some funds (like the county drug fund and the special revenue fund) but those funds had no "budgeted spending" or appropriations that had been approved by county commission.

I was never told why expenditures had been made and who was spending money without approval by county commission. The 2003 audit, however, explained loudly and clearly why no one would answer that question. Spending that money without approval or appropriation by county commission was a violation of state law. All monies spent by the county must be budgeted and approved by county commission.

I asked whether all legal fees of $83,558 as shown in the 2002 audit were solely for the county's part-time attorney Rusty Cantwell. I was told, yes, that this amount was "only Rusty." When I then pulled financial records about legal charges, it appeared that the answer that I was given was not correct and that about $54,000 was paid to "Rusty" (Mr. Cantwell) in 2002 with large amounts going to other attorneys. Is there a different county financial record somewhere? Obviously, I don't know that. All I can do is go with what I am given as the spending record.

I asked for clarification about several items. One item I asked about was shown in the 2002 audit as "other charges $97,305." When you see huge spending labeled as "other," it's common sense to ask what it's for. The answer I got was that "other" spending was "miscellaneous through county executive."

Yes, the answer to the question is that "other" really means "miscellaneous through county executive." And that answer was supposed to help explain and clarify where $97,305 went? Yeah, sure! Perhaps it's nothing. Maybe the "other" or "miscellaneous" spending of $97,305 was perfectly legitimate. Then why didn't the Mayor or the Mayor's Finance Department just explain or provide an itemized list of what "other" or "miscellaneous" spending of $97,305 was? That's the simple and accountable way to address a question about county spending.

I won't go on with details about the other audit questions. Most of the other answers were about like the ones I have discussed. As is often the case with financial questions, a lot of the questions were just ignored or the answer was one word: "error."

IF someone, anyone, had bothered to look at the 2001 audit that practically screams "misleading financial data" or if someone, anyone, had looked at the 2002 audit and taken the time to ask questions or to listen to the questions of those who did look at the 2002 audit, then we all could have worked together to straighten out the county's financial mess more quickly.

As it is, trying to go down the road to true openness and accountability has been difficult because there are some officials for whom accountability is a foreign word.

The officials who don't know the meaning of accountability are the same officials who consistently react with anger and resentment when financial questions are asked and who are upset that their financial playhouse (playpen) has been rearranged (at least a little bit) since the state auditors came in. The officials who resent the word accountability are the same ones who are having a tough time adjusting to the law that says that no one person--no, not even the County Mayor-- can spend money or switch money around without the approval of county commission.

Unfortunately, in 2004 the transfers of money by the County Mayor continued and even accelerated. Why didn't switching money around stop in 2004 since the 2003 audit had pointed out that that these actions were illegal? One reason is because audits are done after the accounting year is over and after all the money has already been switched or overspent. I guess you could say that auditors come in after the milk has already been spilt and they report that you spilled the milk and they tell you that you shouldn't do it again.

So what will the post on the 2004 audit show?

More shifting of money.

Why? The Mayor told the auditors that he was shifting money back to try and correct hundreds of thousands dollars worth of payments that the Mayor and his Finance Department paid out of the wrong accounts going all the way back to 1999.

How much was incorrectly paid due to 4-5 years of paying money out of the wrong funds and accounts? About $360,000.

Was county commission asked to approve the transfers as required? No. Was county commission even told that the transfers and corrections were taking place. No. How did county commissioners finally find out about the switching of money? They read about it in the audit--after the money switching had already taken place.

Why wasn't commission told what was going on and asked to approve the transfer? No official response.

Did anyone ask why the transfers occurred and what was being corrected? Yes, I submitted that very question through the Audit Committee.

What was the response from the County Mayor? The same tired old response he gives to just about every financial question. No response to the actual question, just lots of angry words and red-faced attacks upon the person who asked the question.

Click here to see my post of August 31, 2005 for the County Mayor's response to questions that were asked about the 2004 audit--questions that included my question asking what money was switched around and why. You can also access this post and other previous posts by looking at the right side of this blog page and then scrolling down to the archives section.