The widespread absence of adequate documentation, an abundance of city-issued credit cards, and the presence of questionable expenditures were among the black eyes that emerged from a long-awaited audit of selected areas of city finances discussed Tuesday by Apalachicola city commissioners.
In remarks by telephone to the meeting, held in the county commission chambers, Ralph Roberson, the Port St. Joe-based certified public accountant who oversees the firm Roberson and Associates that conducted the audit, outlined the findings.
Early this year, city commissioners tasked Roberson’s firm to examine four areas during a time period between Oct 2014 to Sept. 2017: City credit cards and insurance policies; the multi-million dollar state revolving loan fund repayments on funding for water and sewer improvements; the grant monies used for improvements to the Mill Pond; and the expenditures from a $1 million settlement with BP over the 2010 Deepwater Horizon oil spill.
What the firm found was alarming.
"The culture of the city regarding financial accountability was one of neglect," read the firm’s five-page summary for the three-year period in question. "In today’s business world, most governments and businesses maintain electronic records and paper archives. The city fails to properly secure and maintain important records."
Roberson began with a focus on what appeared to be the most troubling findings, a glaring lack of oversight for a dozen city-issued credit cards.
"We examined quite a few credit card receipts," he said. "We found that there were 12 credit cards issued to staff and officials during that period. We consider that to be excessive; normally we don’t see that many credit cards issued."
Roberson said the firm found 1,106 instances where expenditures were not supported by adequate documentation. "In most cases there was no documentation for those purchases," he said. "There were a lot of charges with Amazon with no documentation what that was for.
"From an accounting standpoint, how do you charge to line items if you don’t have adequate documentation?" he said.
Of a total of about $175,000 in expenditures reviewed by Roberson’s firm, about $25,000 of that, or about 309 meal purchases, had little or no documentation as to the meal’s purpose, or how many people were present.
"It was a significant amount of money, and this creates several issues," he said. "There are Florida statutes that determine how meals and expenses are reimbursed."
He said these laws, all related to travel, break down such expenditures into categories, whether they are daytime or overnight trips, and whether they are local or out-of-town.
"If it’s in a local vicinity and you’re not traveling overnight, you’re not allowed meals," Roberson said.
He said the meal allowance is only $6, $11 and $19, respectively, for breakfast, lunch and dinner, and without detailed records, it was difficult to reach a firm conclusion, particularly in the occasional instance where the dinner tab was as high as $400.
"We don’t know how many people were at the meals or what the purpose was," he said, noting that if the reimbursement exceeds allowable levels, a W-2 form is supposed to be issued to the Internal Revenue Service.
"You open up that issue when you have this laxness," Roberson said.
He indicated he was not prepared to allege intentional wrongdoing. "The major issue is there was not policies or procedures to define how the credit card should be used," he said. "You just have to have that, so everyone understands what the rules are.
"People do things and they don’t know they’re doing something wrong," Roberson said. "They just don’t know. When credit cards are issued people should be instructed as to the rules that apply, to make sure they don’t get themselves in trouble."
He said policies should include a condition that any employee issued a card must repay the city for any purchases not properly documented.
A CPA for the past 42 years, Roberson reported he found at least 99 instances where sales tax was paid on purchases, which cities are not required to do. "It might not seem like a lot but over a period of time that can add up," he said.
He said documentation was lacking in at least 28 instances of fuel purchases, with nothing to indicate what vehicle the fuel was going in. "It should have a vehicle number or tag number, so you know whether it’s a personal vehicle or a city vehicle," he said. "There were so many purchases we just don’t know what the purchase was.
"And to add insult to injury, the credit card bills weren’t being paid on time," he added. "You were paying late fees and interests on these charges. That should not happen."
Roberson went on to report he found inadequate documentation with city vehicles and their insurance records. "It was hard to determine on the insurance policies if you were paying for vehicles no longer owned by the city," he said, calling for specific policies that require records of capital assets be kept current, and strictly maintained by one individual.
On the issue of the state revolving loan fund, which is currently in default by over a half-million dollars, Roberson said "we had issues getting the documentation that we needed and what was going on with that.
"We were told by the city manager and city personnel the documentation was present in City Hall prior to our engagement but was now missing," read the report.
He said discussions with accounting staff established the state allowed the city to draw on the escrow account to service its debt. As interest rates dropped, that account eventually ran dry, and Roberson’s report provided no further insight into that aspect.
The audit’s main point of concern here was the lack of clarity when it came to transferring monies from the enterprise funds such as water and sewer, which are supposed to pay for themselves based on billings, into the general fund, which is funded largely by ad valorem taxes.
"These funds should not be commingled or mixed," Roberson said, "With utility funds, the service revenues should fund operation of that fund, nothing more and nothing less."
He said it is not uncommon to allocate a portion of those funds to administration officials, such as the city manager, to cover the costs of their work with that utility.
"You have to have calculations in place that should be based on reasonableness and accuracy," Roberson said. "Then you can assess the utility fund and actually transfer money for reimbursement of legitimate expenses.
"It should not be used as ‘slush funds,’" he said. "All transfers should be budgeted and approved by the city commission. It should have been based on some reasonableness."
Roberson reported that between 2012 and 2018 about $575,000 was transferred from the water and sewer fund to the general fund, presumably to cover the costs of administrative expenses in City Hall.
Regarding the federal grant monies used to fund improvements at the Mill Pond, Roberson said many documents were missing, with most of them reviewed pertaining to 2014. He said the draws appeared to be properly approved by engineers, the grant manager and city personnel.
"We believe there was some misperception on what this project was supposed to do," he said, noting that when it came to some electrical and plumbing work, "it was our understanding that was never part of the grant and what was supposed to take place. Perhaps this was something people wanted done, but some things there were never part of the project."
Mayor Kevin Begos then asked Roberson about the allegation that pipes were delivered and were gone a week earlier.
"We don’t know what those pipes were for or not for, we just don’t know," said Roberson. "And we don’t have anybody to enlighten us on that."
Regarding the $1 million BP settlement, of which about one-fourth went to attorneys, Roberson said expenditures ran about $708,000, with about $32,000 left over of the $740,000 total.
The major discrepancy was in the Ellis Van Vliet manhole restoration, which cost about $112,000 more than the $150,000 allocated out of the BP funds.
"We don’t know why," Roberson said. "Overall, the expenses did not exceed the BP funds. A lot of this gets back to management of the budget.
‘The city budget has had consistent negative variances," he said. "The lack of policy and procedures has led to not properly managing the budget
"It’s easy to come back and after the fact, look at everything," Roberson said. "At the time I’m not sure all the information was available."
Begos asked that audit language include a stipulation the description address a financial picture "the city found itself in at the time."
"I know there has been improvement to make progress and make improvements," Roberson said. "There still there are areas that need a lot of work."
In his closing Roberson stressed the need to hire an accountant with significant government experience to serve as its finance manager.
"Someone experienced in accounting, and experienced in governmental, and particularly city, accounting," he said. "Who could bring some immediate help in helping you resolve some of the issues you have and keep things on track.
"You have a ready and willing staff and sometimes they need direction and guidance," he said. "A big part of the job of a city manager is going to have that person, who he is going to rely on for good information (that is) accurate and transparent and timely, so you can make the informed decisions you need to make."
Roberson said he felt the audit had been a good learning process.
"It’s all about how it’s used," he said. "We could go back and beat us up over a lot of things. Take this as an opportunity to learn about the things that have happened and learn a better way forward.
"It didn’t get off the track in one day it isn’t going to get back on track in one day," he said.
;Asked by Begos about possible criminality, Roberson said "there were certainly some egregious violations of what should have been policies and good judgment, but we didn’t see anything that would tell us someone was stealing.
"There were some things that were not in the best interests of the city but not necessarily to benefit some individuals,": he said.
Begos said the city needs to adopt the audit’s recommendations regarding credit card and cash management, and the handling of inventory.
"To me it’s a mixed message," he said. "I don't want to downplay the seriousness of this. We have to change the culture in financial management."
He said the documentation issue was worsened by the chaos created by Hurricane Michael. "Everything can be scanned and saved on a flash drive. That’s going to be one of my priorities," Begos said.
Commissioner Anita Grove suggested the city have a special credit card for gas purchases, and noted that since the Mill Pond improvements were paid for out of federal monies, there should be records that accompanied when the city received its disbursements,
"They couldn’t get a draw unless they provided those receipts. That could show who got the draw and how much it was," she said.
"Yes, but it’s not going to tell you what you did with it," he said.
"You can go back to the credit card companies and get receipts," Roberson said, "I don’t know that has any real value, spending a lot of time doing that. We didn’t see any big issues where we think somebody was building a house on the city credit card.
"The dollar amounts weren’t large amounts," he said. "Sure there could be somebody bought something on Amazon and took it home, but they weren’t large dollar amounts."
Commissioner Despina George said the report "is what we expected, so many transactions where there no documentation. I don’t think we need to spend any more time on that.
"This wasn’t a thorough review of all the prior transactions, just a review of select ones," she said. "It paints a picture of how we got in this predicament we’re in."
George said the transfers from the water and sewer funds were just one large part of about $870,000 in unsupported transfers, "that could have been used to pay our debt load instead of bleeding our escrow account."
She said in the case of the Ellis Van Vliet sewer manhole project that went overbudget, "I don’t see anywhere where that was brought to the attention of the city commission.
"Everybody wanted to know, a couple years ago, how did we get here, how did this happen? I think your reporting shows that," George said.
"What that did is it masked the problem in the water and sewer fund," Roberson said. "Maybe your expenses might have been more than what they should have been. When you operate a business, you have to look at rate structure all along. Costs don't stay the same every year; costs go up.
"There’s a time you have to face the economic reality," he said. "No politician wants to tell people we have to raise your water and sewer rates."
Upon questioning from George, Roberson confirmed he found an instance of an airplane ticket being charged, but little documentation as to what it was for.
"Whether this was reimbursed to the city, we don’t know." He said. "The point is it should have never been a situation where it needs to be reimbursed. It should never be used to make a personal expenditure."
Begos said the cost overrun on Ellis Van Vliet meant the Save Our Shotguns workforce housing was unable to get the $100,000 it sought for workforce housing.
The mayor said that his view of the budget is that about $211,000 in budgeted monies have gone unspent. "I do believe we may well have the money to hire a professional finance director. I know there is some concern over what we can afford. We may have the money.," he said.
In her remarks, Grove said she was concerned about the manner in which the report was released, in advance of sharing it with other commissioners. "We need to be a little more deliberate in releasing those sorts of documents," she said. "The auditor’s report was an official city document we had not discussed yet. I hadn’t had a chance to read my package and it was already on Facebook."
Begos, who had placed it on Facebook, excerpting portions and adding a personal statement regarding it, said he did so only after the meeting agenda was posted on the city’s website and which included Roberson’s report.