CITY’S 2020 AUDIT REMAINS INCOMPLETE DUE TO MISSING DOCUMENTS
By Rachel Madison
Hundreds of thousands of dollars in expenses by the City of Liberty Hill in the 2020 fiscal year are unaccounted for, according to an auditor who has been unable to gather dozens of missing invoices, receipts, credit card statements and more.
The City’s 2020 audit has yet to be completed due to the missing items. Under best practices, the audit should have been completed in March.
Lupe Garcia, CPA and engagement officer for Whitley Penn Accounting, the firm working with the City on completing its 2020 audit, presented an update to Council at its regular meeting on July 28.
City Administrator Lacie Hale said staff is looking for the missing documentation, because the delay of the audit’s completion could have serious repercussions.
“This could potentially impact our ability to get bonds,” she said. “We have a wastewater bond we need to go out for, and [not having a finished audit] could increase interest rates if we get that bond. Because our finances would be unaudited, we may also have to find an additional route to secure funds.”
The engagement letter for the audit to begin was signed in May 2020, but it wasn’t started then because the 2019 audit was incomplete. The 2019 report was issued at the end of August 2020, which is when Garcia’s firm could start the new audit.
Most of the internal field work was done remotely up until now, due to COVID-19, but Garcia and his team were able to be on site at City Hall for three days last week. With auditors on site, Garcia said he hoped that would speed up finding the missing documents.
Hale said the City’s finance department has been working tirelessly to find the missing items. (See a list of the missing documentation as provided to The Independent in response to an Open Records Request)
“The auditors left City Hall with a mountain of documents,” she said. “Now it’s just a matter of going through all of that and the list of what’s missing and seeing what they still need.”
Lindsay Strothman, staff accountant for the City, said she can’t put a dollar amount on what the auditors are still looking for, but estimated her department has gathered 80 percent of what’s missing, and she’s made it her top priority to locate the other missing 20 percent.
Becky Wilkins, the City’s Treasurer and Chief Financial Officer since December 2018, was not present at the Council meeting last week and is reportedly on leave covered by FMLA for an unknown period of time. During the meeting, Council member Kathy Canady repeatedly stated that Wilkins’ absence was for non-disciplinary reasons.
But on July 7, Wilkins told the Council that the 2020 audit wasn’t complete due to the pandemic and the fact that she was working shorthanded for 14 months, partly due to an employee being out on FMLA for an extended period of time. She added that she had just found out the head auditor over the City’s audit lost her husband recently, so a new assignment would have to be made. She estimated at that time the audit would be completed in two to three weeks.
At the July 28 council meeting, Garcia said the audit was at best 60 percent completed. Wilkins has been his main point of contact on the City staff.
Council member Angela Jones said that Wilkins’ earlier estimate of the audit being completed in two to three weeks was not realistic.
“There are some inconsistencies, because [the auditor] is saying we are only about 60 percent done,” Jones said. “We have a problem that needs to be addressed, because this is going to affect our ability to borrow money and our bond rating if we don’t get this complete.”
Liberty Hill Mayor Liz Branigan told The Independent this week that she couldn’t provide information regarding Wilkins’ current FMLA absence, including the length of time she would be away from work. However, the agenda for the Aug. 4 council meeting includes an executive session item to “deliberate the appointment, employment, evaluation, reassignment, duties, discipline, complaints, or dismissal of the City Treasurer.”
“The City really needs a competent financial officer,” Branigan said.
The role of the auditors is to look at a sampling of the City’s payroll, non-payroll services like supplies and capital outlay, purchasing, procurement card transactions, permits and utilities. In addition, walk-throughs and testing are performed in the areas of cash and investments, capital assets, human resources and payroll, purchasing and accounts payable, revenues and receivables, long-term debt, pension and other post-employment benefits, as well as component units like the Economic Development Corporation and public improvement districts (PIDs).
“The City is in the process of locating several vendor invoices,” Garcia said. “It’s a significant amount. Some of them are six figures. Some of them are significant because they are related to capital assets, like construction. We can’t move forward until we get those.”
Some of the more notable missing invoices include $247,533.81 paid to QA Construction Services; $105,843 paid to Holt Cat; $491,132.90 paid to Cunningham Constructors & Associates; and $223,440 paid to PGC General Contractors.
Additionally, documentation from City-issued credit cards used by various employees is also missing, including cardholder user agreements, statements, general ledger account coding, and receipts and approvals.
“We have been provided some documents like user agreements, statements and receipts, so we hope to wrap that section up soon,” Garcia said.
Hale said employees who are issued credit cards have to sign an agreement that they will document everything associated with their purchases, which is why the auditors are asking for everything from evidence of approval of transactions to receipts and account statements. Some card transactions still outstanding include $629.88 charged to the Omni Hotel in Fort Worth in January 2020 and $1,031.72 charged to Lowe’s in August 2020 by former Mayor Rick Hall, among several other charges by other former and current city employees.
Revenue testing for municipal courts, permits and utilities also have various pieces of information outstanding, along with supporting documents for journal entries made. Strothman explained that anytime there is activity in the City’s bank account or money is moved from one account to another, a journal entry must be made. Some of those entries are incomplete, according to the auditors.
When it comes to the roll-forward schedules for capital assets, fund balance and long-term debt, the fund balance doesn’t equal, Garcia said.
“This is a big one,” he added. “The City has a few funds where the beginning fund balance is not equal to the prior year’s ending balance. Those should equal. There are some differences there that need to be reconciled.”
For example, there is a difference of $1.558 million when comparing the grand total of contractor fees collected to the ending balance of several expense accounts, including building permits and sign permits.
Lastly, Garcia said the general ledger doesn’t accurately reflect its cash position. A reconciliation of cash reported in the general ledger to bank statements needs to occur, because there is some activity that has occurred with PIDs that hasn’t been recorded, Garcia said.
“There are only three possible explanations for this (missing items discovered by the auditor),” Branigan told The Independent. “It’s either poor management, bad accounting, or an actual crime.”
Throughout her campaign for Mayor and following her election, Branigan repeatedly requested monthly revenue and expense reports, but was told those documents did not exist. The Independent also submitted multiple Open Records Requests during the same time period seeking a document that prior to Fall 2019 was produced by the City’s accounting software and provided regularly to council members. The newspaper’s requests received the same response that Branigan received — that the documents did not exist.
Following her election in November 2020, Branigan requested during council meetings that the panel be briefed on the budget, but the request was met with resistance — primarily by Canady, who said the discussion shouldn’t happen until budget time.
“I’ve been fighting since last November to see where the money has been spent,” Branigan said.
She added that a review by the auditor of the City’s records prior to Fall 2019 showed nothing missing. She attributed good accounting practices to the leadership of former City Administrator Greg Boatright, who was terminated in August 2019 by Hall and the previous council.
During the discussion with the auditor July 28, Council member Crystal Mancilla asked whether a city treasurer would know that they would need this type of documentation at the end of the fiscal year to complete the audit. Garcia’s short answer was that yes, they should know this.
Jones asked how the communication between the City and the auditing firm had been. Garcia said it wasn’t about the staff being unresponsive, it’s just that the firm is hitting a wall in that staff is unable to find the proper documentation.
“The next step would be contacting those vendors,” he said. “Record keeping especially should have a better process.”
Garcia said it’s hard to say how the upcoming fiscal year’s budget will be affected without the 2020 audit complete.
“You don’t have a clear picture of fiscal year 2021 so you can plan for fiscal year 2022,” he said. “It’s all compounding at this point.”
Canady said not having Wilkins in office to assist the auditors, who she reiterated was out on “non-disciplinary leave,” didn’t make a lot of sense.
“Having our financial person out could affect that,” she said. “That could have caused a problem in getting what [the auditors] need.”
If completing the audit was just dependent on all the records being supplied, it would have been completed in March, Garcia said. His firm reached out to Wilkins at the beginning of June to follow up on the audit process and did not receive any response or information for about a month, he said.
Council member Chris Pezold asked Garcia when he expects the audit to be completed. Garcia said it is a priority to his firm and the auditors are making themselves available as information comes forward. His hope is to have the audit completed by the end of August.
Hale said this week the plan moving forward to remedy this type of issue occurring again is to create a more strict policy in regard to procurement card use and the processing of the City’s financial documents, invoices, credit card receipts and more.
“We are considering a three-strike rule where if you don’t give us an invoice three times in a row, you will lose your card,” she said. “There needs to be an understanding that the City card is the City’s, not yours. I’m not saying that because we have abuse, I’m saying that because the culture has to shift that there’s more responsibility that comes with this than what has been presented. We have to enforce more strict policies to help our finance department with their processing, and so that’s something we’re looking into initiating Oct. 1.”
Hale added that moving forward, employees will be expected to do their due diligence when it comes to getting the finance department the documents it needs for audits.
“This will allow for the finance department to organize documentation in a matter that’s more efficient for them,” she said. “We haven’t had that in the past, so going forward we’re turning this new leaf to better efficiently operate. The whole City will have to work as a team going forward, and it will be understood that this is the new procedure and this is why we do it, and hopefully going forward we won’t have any more of these issues.”
In July, the Council held a lengthy discussion about the need to hire a financial management consultant to assist in a variety of financial matters. Mancilla asked Wayne McKethan, president of The Financial City Manager, to present to the council on services he could provide. McKethan was at the meeting on July 28, where he presented the services he could provide once again, but with the caveat that he couldn’t do much until the audit was complete.
“You have to divert all your resources to the audit for now,” he said. “The audit is the first priority, and then hopefully I’m second so I can come and help with your management, so this doesn’t happen again.”
McKethan added that he could help find ways to document finances effectively, keep track of invoices and receipts and more through his services.
“You’ve got problems,” he said. “It’ll take a while to do all the things on your list. But the community is asking questions, and if there are questions from your constituents, then you need to track the information down and get them some answers.”
The Council ultimately decided that until the audit is complete, they can’t bring McKethan in to help.
“After hearing McKethan speak, I feel we have more urgency to get our audit completed,” Mancilla said. “The City would be best served by him once our audit is complete. We do need his services moving forward so we don’t have another hiccup.”
The Council decided to table the hiring of McKethan for one month, with hopes that the audit would be complete by then.
Branigan said the revelation of possible mismanagement of City finances is coming to light now as a result of new council members who are focused on finding answers. Prior to the May election, the majority of council seats were occupied by office holders who were still closely connected to Hall, and Branigan was outvoted in her attempts to bring concerns to the public.
“What you’re seeing now is a result of an honest, new council,” she said.
Also on July 28, the Council:
• Unanimously appointed Demetrice Gonzalez as the newest member of the Economic Development Corp. Board of Directors.
• Unanimously approved giving $20,000 more to the Parks and Recreation Board to complete the purchase of amenities for both City Park and Central Park. The $20,000 will go toward fencing and We Notes musical play equipment. All the musical toys will be located at City Park.
• Directed staff to investigate various solutions for a privacy barrier for the home adjacent to the Water Tower Parking Lot. Costs for fencing and landscaping will be explored, presented to the homeowner, and returned to Council for consideration.
• Discussed a “cheat sheet” made by City Secretary Nancy Sawyer that shows proper protocols and procedures for meetings, such as when it’s appropriate to table or postpone an agenda item.
• Voted 3-2, with Canady and Jones opposing, to allow no more than three items per council member on each meeting’s agenda, with the option to borrow unused items from other council members.
• Discussed ways to streamline communication between the council and other city boards and commissions. Communications Director Katie Amsler will take on this project through surveys and other communicative tools.
• Discussed having an active role in the Texas Department of Transportation’s 10-year plan update, which is currently underway. Canady and Pezold volunteered to be part of that discussion as representatives from Liberty Hill.
• Directed City Attorney Alan Bojorquez to work on a new ordinance that would place stringent restrictions on sexually-oriented businesses looking to locate in Liberty Hill. That ordinance will be brought to Council in September.
The council meeting included two executive sessions and adjourned at 10:56 p.m. The next regular meeting will be Aug. 11 at 6:30 p.m.