City Auditor tells Audit Committee that “material weaknesses” went uncorrected four years in a row

BY JENNIFER CABRERA

The City of Gainesville Audit Committee, consisting of Mayor Lauren Poe, Mayor-Commissioner Pro Tem David Arreola, and newly-appointed Harold Monk, CPA, CFE, met Tuesday to discuss the state Auditor General’s report and the City’s internal audit of General Government Internal Controls over Financial Reporting.

State Auditor General’s report

Derek Noonan from the state Auditor General’s office presented the findings:

• GRU debt levels are significantly higher than comparable municipal utilities.
• The City had not established a methodology for determining the amount of the General Fund Transfer (GFT) from GRU to General Government.
• The City’s indirect cost allocation procedures resulted in overcharging GRU.
• The City did not effectively oversee or control Reichert House Youth Academy (RHYA) Program operations.
• The City did not assess the reasons for using the nonprofit entity Reichert House, Inc., to support RHYA Program operations, and the use of this entity resulted in less accountability and transparency.
• The City did not effectively oversee Reichert House, Inc., operations.
• Reichert House, Inc., and RHYA Program operations lacked appropriate transparency.
• City records did not support the use of other nonprofit organizations to solicit, receive, and disburse funds for the RHYA Program, resulting in diminished transparency and accountability.
• The City’s lack of personnel capable of compiling financial statements resulted in additional costs and also audit findings regarding significant deficiencies and material weaknesses in the City’s internal controls over financial reporting (This finding does not apply to GRU).
• The City’s budgetary resolutions were not sufficient for transparency, and budget-to-actual expenditure comparisons were not presented timely to the City Commission (This finding does not apply to GRU).
• Monitoring and transparency of the City’s golf course operations could be improved.
• The City could improve accountability and transparency over redevelopment activities related to an interlocal agreement with Alachua County.
• City policies and procedures for doing background checks of job applicants need enhancement.
• The City did not consistently conduct annual employee performance evaluations according to their policies.
• GRU did not periodically use a competitive process to select certain consultants.
• Controls over City-assigned purchasing cards need improvement.
• The City needs to ensure that purchasing cards are promptly canceled when cardholders separate from City employment.
• GRU needs to enhance travel policies and procedures.

Noonan clarified that the Reichert House items can be confusing because “there’s the Reichert House Youth Academy Program within the police department, and then you have Reichert House, Inc., which is a completely separate not-for-profit organization… Those are two completely different things.” He also clarified that the redevelopment activities are “basically the old community redevelopment association that was converted into the Community Reinvestment Agency.”

City Auditor Ginger Bigbie said the Auditor General’s office would check on progress on the remediation of the City’s proposed action plans in about 18 months and that her office would do “spot checks” to make sure they stay on track. 

Poe said, “It’s important to point out that many of these findings were findings of our own, as well. You know, for example, we had done a pretty thorough audit of Reichert House, and many of the things that the Auditor General pointed out, we had also been concerned about and had already been working on fixing and solutions to those… So I think the good news is that we have a head start on many of these and have already developed, you know, ways to address them and report back to the commission on our progress. And then the ones we don’t, we’ll work those into our plan.”

The first part of the Reichert House Audit was presented to the City Commission in April 2019, and City Auditor Carlos Holt was fired by the city commission on June 6, 2019.

Arreola made a motion to accept the Auditor General’s report, and the committee moved to public comment. Attorney Nathan Skop said the report “validates the concerns brought forth by well-informed citizens that the Mayor and Gainesville City Commission have negligently ignored for nearly a decade—specifically that GRU has been crippled with debt, that the General Fund Transfer is excessive, and that significant management deficiencies and material weaknesses exist within the City General Government Finance Department. The Commission needs to stop making excuses and accept responsibility for its negligence and failure to act, Mayor Poe.” 

Jo Beaty said the committee members should ask more questions about the report, not “just say this is okay, we’re working on it.” Brian O’Brien said, “Until we replace the management at the top, there’s very little hope that anything is going to change in Gainesville.”

Poe responded to Skop that “we have been working for quite some time on a debt defeasance plan, and I think you’ve been at most of those meetings. They have included lowering of the GFT, of using savings to pay down debt, and a variety of other methods, and we’ll continue to discuss that as we go into the budget hearings for this season.” 

Arreola added, “I don’t want to go into too much detail about the Audit Report. We’re going to accept it. And the commission will, of course, have the opportunity to review it. But I feel pretty hopeful because a lot of these issues we have been talking about for a very long time, and I know that our staff and our Auditor have been paying very close attention to many of them, so I look forward to seeing those follow-ups in the intermediate time.”

The motion passed unanimously.

General Government Internal Controls over Financial Reporting Audit

During the agenda item regarding the General Government Internal Controls over Financial Reporting Audit, Internal Audit Manager Gregory Robeson explained that the City’s external auditors have noted recurring material weaknesses and significant deficiencies in internal controls over the past three years. The Auditor’s office has been working on this for some time, and they found that the Budget and Finance Department was still experiencing staffing shortfalls and had shown insufficient progress in high-risk areas, leading to this audit, which covered the time period October 1, 2020 – September 30, 2021. 

In addition, Internal Audit Manager Gregory Robeson said, some of the external auditor’s recurring findings were not corrected in FY21, for the fourth year in a row.

Robeson noted that the City has had to pay $123,735.41 in additional fees to the external auditor over the past three years in order to prepare its financial statements for audit. He also noted that a new Finance Director was hired in July of 2020, “but there are still some struggles to report this… We did make significant progress after the hiring of the new financial director for the reporting of last year; however, since that time we’ve also gone backwards [in the delay between the end of the fiscal year and the completion of the annual audit report].” In addition, Robeson said, some of the external auditor’s recurring findings were not corrected in FY21, for the fourth year in a row. The external auditor had findings (instances of nonconformity to criteria) in three areas for three years in a row (2018-2020) and added findings in three more areas for 2021. 

“General Government internal controls over financial reporting are not designed adequately and/or operating effectively, which places the City at a high risk of presenting misstated and untimely financial reports.” – Robeson

Robeson concluded: “General Government internal controls over financial reporting are not designed adequately and/or operating effectively, which places the City at a high risk of presenting misstated and untimely financial reports.” He said that City management will create a new staffing structure, review their policies and procedures, and implement training by September 2022. 

In response to a request for Bigbie to say more about account reconciliation, Robeson said that some accounts had not been reconciled to outside sources (bank balances, for example) in a timely manner and that staff had not provided reconciliations for some accounts following a request from the Auditor’s office.

Arreola said he hoped the Management Action Plan that was developed in response to the audit would come before the city commission as soon as possible because “this is going to be one of the most important things that management does all year” and because it would impact the budget, due to new positions being created.

“Now, a material weakness, that’s a great name, but a lot of people don’t realize the significance of that. For the City of Gainesville… with the number of transactions that flow through and such, ‘material’ would be a very expensive error to occur. You could be talking hundreds of thousands of dollars before it reaches what’s considered ‘material.’… It’s not something that should be blown off.” – Harold Monk, CPA, CFE

Monk said several things in the audit “really caught my attention,” particularly that material weaknesses had been identified over multiple years. “Now, a material weakness, that’s a great name, but a lot of people don’t realize the significance of that. For the City of Gainesville… with the number of transactions that flow through and such, ‘material’ would be a very expensive error to occur. You could be talking hundreds of thousands of dollars before it reaches what’s considered ‘material.’… It’s not something that should be blown off.”

“In my career, it was very rare, even in some very large cities that I was involved with, to see a repeat finding of a material weakness two years in a row, much less four. I was a little dumbfounded, as a matter of fact, when I read that.” – Monk

Monk said it also caught his attention when the auditor said they requested information, and it wasn’t provided: “There’s no excuse for that. You have to have cooperation at all levels… So it’s great, as it indicates in the plan, that you are implementing checklists and other aids to make sure that these things are done, but if there’s not follow-up by someone to see that those were completed, you lose it all. I mean, it’s just back to five years in a row, instead of four… In my career, it was very rare, even in some very large cities that I was involved with, to see a repeat finding of a material weakness two years in a row, much less four. I was a little dumbfounded, as a matter of fact, when I read that.”

Poe asked Interim City Manager Cynthia Curry why it’s been “so difficult to do this correction,” and Curry said it started with a basic staffing issue in the Finance Department: “There is no Certified Public Accountant in the Finance Department, which is a major issue… It is clear that we need to cure that immediately.” She said that consistent adherence to policies and procedures and cross-training were high priorities for her. Poe said he wanted an update on that at every Audit Committee meeting. 

During public comment on the motion to accept the report and forward it to the city commission, Skop said Poe was being disingenuous: “Management oversight is a key function of the mayor and city commission. You have failed the taxpayers; you have failed the City because the city commission spends the majority of its time virtue signaling about everything other than core governance and core City functions. You had the opportunity to address this years ago, and here we are today, in the wake of a State audit… telling you in unequivocal terms that you have a problem.”

The motion to approve the report passed unanimously, but before moving on, Bigbie asked to make an additional comment. She said that the money paid to the outside firm to help compile the financial statements was not on top of salaries but was paid through salary savings from unfilled positions.

“I hope this report is a wake-up call to the public and commissioners alike. Concerns should not be ignored or quieted by commission rules. We, the voting public, cannot be complacent. Democracy is not a spectator sport, nor are involved citizens participating in the process by giving information and input to our representatives a threat to our City.” – Jo Beaty

During general public comment at the end of the meeting, Jo Beaty said the Auditor General’s report “validates concerns that active and involved citizens have brought to the attention of commissioners and various commissions for more than a decade… The findings validate many of our concerns over the years, which continue and are reported today. I hope this report is a wake-up call to the public and commissioners alike. Concerns should not be ignored or quieted by commission rules. We, the voting public, cannot be complacent. Democracy is not a spectator sport, nor are involved citizens participating in the process by giving information and input to our representatives a threat to our City.” She thanked the local legislative delegation for asking the Joint Legislative Auditing Committee to do the audit. 

The next Audit Committee meeting will be March 7.