City of Gainesville internal memo on financial reporting finds “risk of overspending budget is extremely high”

BY JENNIFER CABRERA

A March 10 memo has surfaced from Claudia Rasnick (Chief Financial Officer of Gainesville Regional Utilities) and April Shuping (Partner, Carr Riggs and Ingram) to Gainesville Interim City Manager Cynthia Curry and GRU Interim General Manager Tony Cunningham, showing that the financial irregularities on the General Government side of the City of Gainesville are even worse than had previously been reported.

Curry engaged CRI in early January to assisting with stabilizing the City’s accounting division and to help prepare for the Fiscal Year 2021 external audit. CRI recommended bringing in employees from GRU Finance, including Rasnick, to provide leadership and management support, and that began in mid-February.

The Audit Committee, which then consisted of Mayor Lauren Poe, Mayor-Commissioner Pro Tem David Arreola, and Harold Monk, CPA, CFE, heard from the State Auditor General on January 11 about material weaknesses that had gone uncorrected for four years in a row. Since that date, Mayor-Commissioner Pro Tem Reina Saco has replaced Arreola on the committee.

An executive summary of the internal memo from Rasnick and Shuping was on the agenda of the April 20 Audit Committee meeting, but the full internal memo has not been released by the City and had to be obtained through a public records request.

The full internal memo can be read here, and it includes the following statements, among many others:

• “Every external Financial Statement Audit since 2018 has noted internal control weaknesses that remain uncorrected.”
• Weaknesses over internal controls can lead to material weaknesses going undiscovered for years; a material weakness “is often calculated in the hundreds of thousands of dollars range for an entity the size of the City.”

The memo underlines the following statement and repeats it at the end: “At the core of every issue is the fact that those placed in charge of the GG Finance Division and of the Accounting Division had no significant prior experience in issuing audited financial statements or performing proper and accurate accounting transactions in a governmental environment. This is… a direct result of the decisions and oversight of prior City leadership.”

The “prior City leadership” appears to refer to former City Manager Lee Feldman, who was hired in October of 2019 by a unanimous vote of the six commissioners who were present. Commissioner Adrian Hayes-Santos was absent, but Mayor Lauren Poe, Commissioner David Arreola, and Commissioner Harvey Ward all voted to hire Feldman. Poe, Hayes-Santos, and Ward all voted to retain Feldman in November of 2020 (Arreola voted against the motion) after receiving an Equal Opportunity report that concluded he had retaliated against Interim Finance Director Diane Wilson. Feldman resigned on September 13, 2021.

The internal memo regarding the financial reporting problems at the City also noted significant turnover in the Accounting division and delays in hiring replacements.

“Serious and consequential items”

Some other “serious and consequential items” are:

• As of March 2022, 17 months of bank reconciliations had not been completed.
• No monthly financial periods have been closed in 17 months: “The risk of material discrepancies is extremely high.”
• “There is no ability to determine budget to actuals for the last 17 months. The risk of overspending budget is extremely high.”
• “FY 2020 financial records do not match the audited financial statements.”
• “Beginning fund balance [for Fiscal Year 2021] does not match ending fund balance for FY 2020.”
• “FY 2021 has zero months closed.”
• “Material write-off adjustments” may be needed to complete bank reconciliations for all months of FY 2021.
• The “pension expense in all general government funds… [is] incorrect by large amounts.”
• Financial statements needed to prepare mandatory pension reporting information were not available.
• GRU was in danger of not being able to issue financial statements by the mandatory deadline.
• Reports for federal funds used by Gainesville Police Department were in danger of not being issued by mandatory deadlines.
• “The external audit from Purvis Gray provided a list of items that are required for the external audit of the financial statements. There are 222 items on this list and, as of today, zero have been completed.”

The memo notes that a mid-fiscal-year roll-out of the Workday records system added to the existing reporting problems. Many financial reporting and recording functions were not properly moved to the new system, and the mid-year change now requires a large amount of manual conversion to upload nine months of data into the new system.

“[T]here is not a quick fix or an easy solution to these issues.”

The memo notes that it will take a significant amount of time to address all of these issues: “They developed over the last five years and were allowed to continue and grow in severity by previous City leadership… [T]here is not a quick fix or an easy solution to these issues.” The memo says that the focus for the next 12 months will be on triaging 2021 and 2022; the hope is that a “baseline of stabilization” can begin in 2023. “The fiscal year 2022 audited financial statements may not make the March 2023 deadline.”

At the April 20 Audit Committee meeting, Shuping reported progress since the March memo was issued, including the filing of many of the mandatory reports mentioned above. She said that most of the transactions are currently being recorded correctly, but a lot of work remains to go through source documents to fix previous months and years. Shuping said, “Money is not going missing. It’s just hitting the account wrong. It’s an untangling process.”

City will miss reporting deadline for Fiscal Year 2021

Shuping also said that the City will miss the statutory reporting deadline of June 30 for audited financial statements, but they’re hoping to have them complete by September 30 and are communicating with the Auditor General’s office. “You won’t be the first government to have missed it; you won’t be the last government to have missed it… It’s not great, but it happens.” She said the City is unlikely to get a clean audit before 2023.

Poe told Shuping that the city commission had unanimously agreed that this would be “one of the top couple priorities for our organization” and that resources would be made available to complete the task.

During public comment, Nathan Skop told the committee that “this is a critical issue that’s been inadequately addressed… The fact of the matter is that the mayor and the Gainesville City Commission have a fiduciary duty to provide effective management oversight of City government. The mayor and the Gainesville City Commission have negligently failed to provide effective management oversight of City government, as evidenced by State audit findings in this memo, dating back many years. There’s constant excuse-making. Accountability starts at the top of any organization. The city commission and mayor are the head of City government.”

Armando Grundy-Gomes pointed out that a month had elapsed between the distribution of the memo and its discussion at a public meeting: “If your house is on fire, are you going to wait a month to call the fire department?” He said the memo contained a lot of “finger-pointing” at past administrations, but no discussion of why the Interim City Manager hasn’t been able to fill the vacant positions.

Poe asserted that the commission had asked staff “from the beginning” to let them know about anything they needed to fix the problems, and “thus far, throughout all of the work that has been done, there have been no findings of money missing, of any malfeasance or fraud or anything else.” The committee voted unanimously to receive the report.

During general public comment, Jo Beaty said that when the State audit was announced, Poe and others dismissed it as unnecessary. At the time, a letter from Poe stated, “The politically motivated nature of this request is palpable.” Poe also claimed that the letter from State Senator Keith Perry and State Representative Chuck Clemons, asking for the audit, had factual inaccuracies. Beaty asked the committee members to discuss the memo in their full city commission meeting the next day instead of putting it on the consent agenda.

Poe said, “Are we spending money we don’t have? I’d like to know how that trick works.”

“To answer the specific question on whether we’re spending money that we don’t have: When the accounting records are not complete and have not been reconciled, it’s difficult to say with any certainty that the budget has not been exceeded.” – Claudia Rasnick, CFO of GRU

Rasnick replied that everyone was working very hard to complete the reports and financial statements. She continued, “To answer the specific question on whether we’re spending money that we don’t have: When the accounting records are not complete and have not been reconciled, it’s difficult to say with any certainty that the budget has not been exceeded.”

Poe continued to insist that there is no evidence that the City is spending money it doesn’t have.

Executive summary removed from city commission consent agenda and continued to next regular meeting

The topic came up again at the April 21 City Commission meeting, when Commissioner Cynthia Chestnut asked that the memo be removed from the consent agenda and put on a future city commission agenda. Poe pointed out that it wasn’t an action item, just an update.

Saco said, “As you said, Mr. Mayor, it’s just a memo. We talked about it at the Audit Committee. Those are open to the public, open to every commissioner. It is literally a memo that we have to receive. I don’t know why it needs to be put on the regular agenda or continued for that matter… Accept it and move on, and we will have our regular quarterly updates on the situation in progress.”

The commission voted 6-1, with Saco in dissent, to continue that item to their next regular meeting on May 5.