Focus on the Finances Meeting Review
Updated to correct minor typos -- my morning proofreader was lacking coffee (and yes, I mean me.)
After months of waiting, the CAO addresses the budget directly for the first time in nearly a year. Just a reminder the original budget that this board approved had multiple errors (including whole sections that did not add up to the total shown). But it has taken TWO different trustees and multiple residents calling out the numbers to get her to respond.
The CAO Updates Us on the Budget:
She highlights that the budget was developed at the beginning of the pandemic and they took a conservative approach. She shared that best practice is that the reserves be between 50% and 30% of expenses and she budgeted the 56% (end of year 2020) to a 36% and that is why the General Fund was planned to have $305K expenses over revenue. Then she mentioned the line items that don't have a budget and outlined a postage line item that has $7 of unbudgeted expenses in the area of postage.
The actual complaint is that there was $61,000 spent in the first 6 months in 3 GL line items that weren't budgeted for at all -- one of these is $31,330 for the new software system. How does that happen? Yes, budgeting is hard -- predicting the future is hard. Budgeting in a pandemic is hard too. But there are legal ways to adjust the budget throughout the year and even to make corrections to issues like not budgeting for the software when you knew you were buying it. We are 3 board meetings from the start of the new fiscal year and we've not had a single budget amendment (that would be how to course correct for these unbudgeted expenses).
Errors on the Financials: Trustee Augustine began to walk through a summary of the list of issues -- and I appreciate that he finally took the time to sit with the team. He's offered to sit with Amy and I look forward to her being able to meet with him in this matter. His summary was that a few were rounding errors, some were duplicated journal entries, reclassification of employee time and some were timing issues with invoices. He stated that given these, September's financials should have been resubmitted for the board and he's right.
Here's the summary, the details follow. As best I can figure these are the sums of the differences. I found three typos in my numbers that swing the total from $95K to $91K and do change the summary page notes in a few spots. But this is how I understand the breakdown of the numbers from September to October. How is it that there is an invoice timing problem of $88K in Sept (or earlier) financials when the books weren't closed until the end of February? Are we really paying our bills on time?
In closing this portion, Phil waves the Lakewood Ledger and says, "this is a screen shot of our audit. This is the truth." What he means is: These are a select few data points pulled out of context to tell a story to support his narrative. I've pulled other information from the audit to tell my story -- but I think one of the most important things to realize is that the annual audit is NOT a forensic audit. The goal of the audit is actually to check that basic accounting principles are followed and there's no gross inaccuracies. Accountants disagree all the time about how to handle things. However, one thing I know is that this audit and the state of our financials are messy -- and when you are dealing with money, mess hides a lot.
Errors on the Financials Explained
As it appears, I need to draw a very detailed map for the board and the administration to follow my concerns, allow me to correct Trustee Augustine's claim that some of the issues were rounding errors.
So here's the actual wording I gave to Trustee Odom on the issues:
So -- we see that #1 is in fact true and has yet to be resolved, because basically they can't produce the cash balance sheet.
#2. Under Property Taxes: Remember how I had to re-type this to get these numbers? Yup, I said it's possible I have a typo -- and I had one. Because the print outs are TINY, the $68K in IMRF appears to look like $66K -- so, this is a typo. (See, I'm capable of admitting where I made an error.)
#3. This would be the total -- which is not an issue because of my typo.
#4 - 6: Here's the sheet:
#4. Is a result of the same typo from #2.
#5. Administration -- had a typo in Telephone and it actually correct. However, this is the total from the Public Works page of the same financials:
That total is $186,396.57 -- in case you find the poor scanning hard to read too.
#6. General Capital Fund: Here's the page from the financials for this one:
Clearly, neither the period total nor the year to date match.
#7. As a result -- the totals on page are inaccurate.
These aren't rounding errors -- yes, I have TWO typos -- but my point is clear, there are supposed to be THREE sets of eyeballs on these numbers before it is presented to the board -- not a single one of them caught those other issues.
The rest of the details are located here.
Paving Budget Issues:
The board almost tabled to understand the overspending on this budget item -- but at the last minute decided they needed to pay a bill -- pre-scripted drama? Who knows. Sadly, that's not actually what the motion was -- but ok, it seems it's hard for Trustee Dan Alexander to put down his phone and pay attention to what's going on in the board meeting.
Here's the problem: If the board approves a project "not to exceed" a specific amount and the CAO not only does not bring the overage to the board, but has the bill with the overage paid (November of 2020), and is now asking the board to approve another additional amount -- how is this not a problem? Why was the board not informed that it was over budget when they approved $187K in November to be paid. Maybe it is this kind of stuff is why Trustee Odom doesn't approve the bills in the consent agenda?
I outlined this whole thing in the packet review here. But I'm disturbed by two things when listening to the discussion:
Phil claims that just because there's money in the budget for the project, it isn't over budget -- yes, there's money in the budget; but the PROJECT is over budget. If the board can't trust a "not to exceed" statement in the authorizations they pass -- what can they trust?
When I look at the bills in the board packet from March 9th, 2021, something strikes me as really odd. I can't figure out the $187K payment amount -- and then it dawns -- the total for the project is $208,826.94 and the final payment amount is almost exactly 10% of it -- at $20,826.94. This is most likely the 'holdback' pending engineering approval. So, if I'm right (and I'm sure Phil will say I'm wrong); it would seem that our CAO/Finance Director/Budget Officer knew in October or November what the total of the project was. I say this because in order for $20,826.94 being 10% of the total; you would have to know what the final total was.