January 11, 2016 Hamblen County Audit Findings for Fiscal Year 2015

The Hamblen County audit for fiscal year 2015 (7/1/14-6/30/15) is on the State Comptroller's website.


Click here to see the audit.


Findings are reported on pages 212-215.


The Mayor's office had two findings:


2015-001 Accounting records were not maintained on a current basis for the audited year FY 2015 and beyond.


The Mayor's office did not reconcile general ledger cash accounts with the Trustee's office from March 31, 2015-June 30, 2015 on a timely basis as required by Tennessee Code Annotated 9-2-138.


The Mayor's office did not post revenues to the general ledger for July and August 2015 until October 2015.


2015-002 Tennessee Consolidated Retirement System (TCRS) payments were not remitted timely resulting in the assessment of penalties. 


Retirement contributions for the month of May 2015 were not remitted to TCRS timely as required by Tennessee Code Annotated 8-35-206(g) resulting in the assessment of $5,038.00 in penalties.


There was a finding involving the Highway Commission:


2015-003 A county road list was not submitted to the county commission for approval at its January 2015 meeting as required by Tennessee Code Annotated 54-10-103.


There is a finding involving the Trustee's Office:


2015-004 Certain accounts maintained by the Trustee were not adequately collateralized/secured.


The Trustee was not able to provide documentation that funds exceeding $1,034,000 in a brokerage account were adequately secured in May, June, and July 2015.


There were two certificate of deposits totaling $495,544 at one financial institution. This amount exceeds FDIC insurance limits of $250,000 by $245,544. The trustee provided a list to the depository with directions not to deposit more than $250,000 in one financial institution but did not monitor the subsequent report which showed $495,544 in one institution.

April 29, 2009 The Tribune Is Way Too Easy..."Reporting" on Debt Via Press Release

Gotta love it. I blog about the county and city debt and then the Tribune jumps in with not one, but two front-page news articles--- actually they're more like front-page press releases---with the county and city saying everything is just fine while ignoring the real issues with the structure of the city and county debt.

If you ask the wrong question, you'll get the wrong answer. And that's exactly what the Tribune did with the county debt.

The county article was about the county's bond rating. The key questions, however, are NOT about the county's bond rating or whether the county can eventually pay off its debt. The county can pay down its bonded debt; it just hasn't done so for the last 10 years! The county keeps refinancing and passing the ever-growing debt down to another generation. What a legacy "for the children." This county has taken its cue from the feds. Debt is great. Even more debt is better. And handing debt off to the unborn is the best--after all, the unborn aren't here to complain.

The right questions to ask about county debt are: 1) why has the county not paid down one penny of the 1998-2001 county-school bond issues and why has the hospital not paid down one penny of its bond issues? 2) why did the county get into technical, complex, and risky derivatives/swaps? 3) does the county now owe even MORE in bonds than it owed just one year ago? and 4) why in the world does the county let a person (Joe Ayres) who has his finger in every piece of the financial pie provide financial advice that always leads to more fees, more commissions, and more money for Joe?

Who's looking out for county taxpayers? Where's the person who'll stand up and say "Whoa! We've got to get this fox out of the henhouse and start paying off our debt!"

The Tribune ignored the key questions and just provided front-page space for a county press release on bond ratings. Our bond rating may be OK---but why is the county making interest-only payments and why is the county allowing someone (Joe Ayres) to lead us into financial deals that line his pockets over and over and over again? The Tribune never once mentioned that the county's financial advisor-- Joe Ayres -- made national news in the NY Times--and it wasn't a pretty sight.

In the City debt article, Morristown City Administrator Jim Crumley was very defensive. The article on the City's debt was longer, more interesting, and didn't seem as much like a press release, but answers to crucial questions were left out such as: Why did the Tennessee Municipal League (TML) sever its relationship with Bank of America? What other seven municipalities--in addition to Morristown--is Moody's reassessing? Is Moody's going to look at the debt of other municipalities? Why were eight cities singled out for reassessment? If so, why?

And isn't it "convenient" that Moody's report on the City debt won't come out until after the city council elections!

And isn't it convenient the city audit (for the fiscal year that ended on June 30, 2008) still isn't ready and won't come out until after the city council election! Wonder why?

The City pays a tidy sum for an annual audit. What a shame that the City can't see its audit until over 9 months after its fiscal/audit year ended. Imagine trying to prepare a budget for FY 2010 when you still don't have the audited figures for FY 2008! And who knows if anyone has a clue about where the city really stands in the current FY 2009?

How many "bonuses" and "pay raises" and "car allowances" has Crumley single-handedly handed out. Who got what? How much other money has he spent, where did he spend it, and from what line item did he pull the money--without notifying city council!

It's time for the City to pull its financial act together. The Council needs to step up and say we don't just appropriate one big lump of money and hand it to the City Administrator to spend and shift around however he chooses.

Then City Council needs to say to Mayor Barile and Crumley, "Paying attention and asking where the money goes is NOT bad and is NOT micro-managing. It's our job! Questions and oversight by the council provide a system of checks and balances instead of a City Administrator-run dictatorship."

And the City sure needs to get its long-time auditor on-the-stick or have someone else perform the city audit. Did anyone consider letting several CPA's submit proposals to do the audit?

The county used to wait and wait for the same auditor to finish the county audit. When I was elected to county commission in 2002, my first proposal was to eliminate the use of a private auditor and have state auditors perform Hamblen County's audit. The result was two-fold: 1) the county saved a bundle since the state auditors charged less than 50% of what the private auditor had been charging; and 2) with a new set of eyes on the county's finances, a lot of violations of state law and other irregularities that had been going on for years and years were spotted and corrected.

The first year (2003) that the state auditors performed the Hamblen County audit over 27 findings and irregularities were reported. In that year Hamblen County had more findings and irregularities than any other county in the state. [The previous year, the private auditor reported only one finding/irregularity]. Click here for a summary. At long last, a lot of problems were straightened out and processes were improved.

The city and county--despite the Tribune's many press release articles--have spending problems, debt problems, and serious accountability and openness issues.

April 9, 2009 County Debt: Fox Guarding the Henhouse

The New York Times has broken the story about Morgan Keegan investment bank and complex debt instruments (bond derivatives) issued by Morgan Keegan for many Tennessee counties and cities.

Click here for the NY Times article. [C.L. Overman of Morgan Keegan is mentioned in the article but would not make a statement. Several years ago Overman was City Administrator for Morristown. Through Morgan Keegan, Overman has handled debt financing and refinancing for the City of Morristown]

Joe Ayres of Cumberland Securities/Morgan Keegan is also mentioned in the article. Joe, the long-time financial advisor for Hamblen County, steered the county into numerous complex bond derivative instruments--like those mentioned in the article--during the 1998 school building program. The debt was structured so that millions of dollars in interest would be paid for years and years before even ONE PENNY would be paid to reduce the principal of the debt.

The school/county debt (1998-2001) totals about $40 Million. Morristown-Hamblen Hospital debt is another $28.7 Million for a total of $68.7 Million dollars of debt.

Hamblen County began accumulating its $68.7 Million of debt in 1998. Ten years later, after paying for financial advice and paying financing and refinancing fees and charges, the county still owes the same $68.7 Million of debt.

Conflict of interest? Churning debt over and over to make commissions and fees?

One Mayor whose town was burned by Morgan Keegan cancelled the town's relationship with Morgan Keegan and said, "We...need[] advice from someone who [is] not trying to sell us something."

In counties and cities across Tennessee, the fox was guarding the henhouse and was getting paid three times for his services. Paid to advise. Paid to handle the initial debt issuance. And in many instances paid a third time when things fell through and the city or county had to refinance to get out of the derivative debt instrument!

And the New York Times broke the news to Tennessee and the nation.

October 28, 2005 State Auditors-They Have Reduced Our Audit Costs and Helped Us Improve Financial Procedures

One of my key campaign promises in the May 2002 primary election was to have state auditors come in and perform Hamblen County's required annual audit. After taking office, I introduced, and the commission approved, a resolution to enter into a 3-year contract with the state auditors.

Many positives have resulted from Hamblen County's switch from local private auditors to state auditors in October 2002. It seems that all the commissioners now recognize this, and Commission recently unanimously approved entering into another 3-year audit contract with the state for 2006-2008.

This change has had many benefits:

#1 Lower audit costs. The private auditors had charged the county $31,000/year for the required state audit. The state auditors, whose fee is based on the county's population, currently charge around $14,000/year. As a result, the county has saved a total of over $51,000 in audit charges for the past 3 audits (03,04, and 05).

#2 Improved audit procedures. Besides getting a new set of eyes to examine the county's books, which is always good in itself, there is a tremendous benefit in having "specialists" in county audits perform the Hamblen County audit.

The state auditors, who regularly perform county audits in Hamblen County and in other counties as well, are often aware of where financial problem areas are. They also are very aware of the many state laws that apply to county finances.

By the way, use of the term "state auditors" does not mean that these auditors live in Nashville. Generally, the auditors who perform the required audit of the county's books actually live somewhere in the East Tennessee area, and some may even live in Hamblen County. They work under the direction of the Regional Office of the State Comptroller in Knoxville.

#3 Improved accountability in the handling of county funds. The first audit (2003) by the new auditors was a real wake-up call. Hamblen County ended up with more findings and problem areas (29) than any other county in the state.

The flip side of all these findings is that the county was made aware of many specific weaknesses in financial controls that had not been pointed out before.

Some of the 29 findings in the first audit (2003) included:

1. Violations of state law where expenditures of up to $296,264 were made without the required appropriation by county commission and where transfers of appropriations were made without approval by county commission.
2. An overdraft of $34,737 in the Capital Projects Fund.
3. No central purchasing to control and keep purchases within budgeted amounts.
4. Deficiencies in controls over travel and credit card use.

The second audit by the state (2004) resulted in 15 findings.

Some were new findings: 1. A debt payment of $76,615 was paid twice (but we got the money back); 2. An interest payment of $45,236 was made by mistake out of the special debt service fund (we had gotten all but $408 back from the City of Morristown according to the audit); 3. Money was switched around--without the required approval of county commission-- from the general fund ($89,986) and general debt service fund ($274,730) to the capital projects fund to "restore" those accounts to the original appropriations of commission because, according to County Mayor David Purkey, payments had somehow been made in error out of these funds over the past several years.

There were also some repeat findings: 1. Deficiencies in purchasing. 2. Deficiencies in travel and credit card use. 3. Unauthorized expenditures and spending money that was not appropriated through county commission.

The state auditors are currently working on the 2005 audit for the fiscal year that ended 6/30/05.

Coming...A look at past audits. What I found, what audits tell you, and what they don't tell you!