On January 10th, in my board packet review, I noted that there was a disturbing $120,000+ drop in the impact Fee Fund from the Home State Bank Account. Since that post, I've done hours of research to figure out what happened and why. I will admit that the world of municipal accounting is not as fun (or funny) as buying a World of Warcraft microphone and paying a premium for it; but it is important as it highlights how little this administration, with board support, cares (or knows) about proper procedure -- and more importantly why that proper procedure exists.
Though a series of preventable events, we have a situation where our CAO, with tacit approval from this board, are playing a shell game with our money. As the CAO has proven that her attention to detail and following procedures are lacking, our current board proves again and again they have no desire to do any oversight into the finances of this village. Arguably this should be their main focus. The net of this single project is that $123,770 effectively missing from our Impact Fee Fund.
Every one of these events could have been prevented had procedure and oversight been followed. The four newcomer candidates are committed to following basic policies and procedures that could have caught the budgetary issue, found a source of the funds that were not restricted, set-up a flow that planned for the spend of the cash before the cash left the system, and provided clear direction to prevent quintuple journal entries AND a duplicate move of cash out of impact funds.
Here's the summary of a chain of events that was proposed and pushed by our CAO and approved without question by this current board. As you vote, you need to ask yourself, if one transaction is this messy and has this many errors -- what else is happening without your knowledge? Is money leaving the system inappropriately? Would we know before it's too late?
The Order of Events - without Commentary
On July 23, 2019, the board approved a project to invert the street at Hampshire Ln not to exceed $225,000 to be paid from the General Fund.
Between 11/6/2019 and 1/24/2020, the village paid $203,769.41 for the Hampshire Ln. Project to both HR Green and Schroeder Asphalt paid for by the General Capital Fund
On 2/11/2020, CAO brought a large number of budget amendments to the board to approve. Buried in these are a budget line item for the General Capital Fund to pay $203,770 for the Hampshire Road project AND a transfer from the Impact Fee Fund to the General Capital Fund pay $123,770 for the Hampshire Road Project.
On 4/30/2020, the last day of the fiscal year, there are a series of journal entries covering the transfer from the Impact Fee fund to the General Capital Fund the $123,770.
On 7/28/2020, the April 2020 End of Year Financials were published and approved by the board. In these, we see a $89,415 decrease in the Impact Fee Fund (The $123,770 transfer out for Hampshire Road and $34,355 transfer in from the Fire Settlement payment #8).
On 12/22/2020, the audit was released with a notation that a transfer was done from the Impact Fund to the General Capital Fund for the Hampshire Road project.
On 1/12/2021, the board approved an End of Month Financials that shows a drop in the Impact Fee Fund by $123,770.
So, what's the issue(s)?
While the above are the facts of the events, in reality there is not a step that happened that does not have issues -- so let's review them again with context:
On July 23, 2019, the board approved a project to invert the street at Hampshire Ln not to exceed $225,000 to be paid from the General Fund.
This was approved by the board without first budgeting the funds for the project. To spend $225,000 without planning for that money to be spent is not just poor fiscal oversight, it's actually against IL Code (50 ILCS 330/3).
The Code says that a municipality should set a budget (which was done in April 2020), and not spend beyond it more than 10% of the fund. And it calls out that nothing in that budget section should permit transfers if the funds are required to be kept separate by law.
The CAO also does not explain what in the General Fund had to be reduced to cover the new request of money of $225,000 -- To keep a balanced budget, if you spend something in one area you didn't budget for you have to take it from some place else. In all of my reviews, I can not find where this $225,000 came from to be spent on this project. Since it is physically impossible to spend a dollar twice, the only place to pull these funds is from our reserves -- in other words outspend our revenues.
Between 11/6/2019 and 1/24/2020, the village paid $203,769.41 for the Hampshire Ln. Project to both HR Green and Schroeder Asphalt paid for by the General Capital Fund
Not only did the board approve this project without appropriating the funds for the project; they approved paying the bill for the project without having the funds assigned to it -- and approved the bills to be paid from a different fund than the fund that was approved to pay for the project.
On 2/11/2020, CAO brought a large number of budget amendments to the board to approve. Buried in these are a budget line item for the General Capital Fund to pay $203,770 for the Hampshire Road project AND a transfer from the Impact Fee Fund to the General Capital Fund pay $123,770 for the Hampshire Road Project.
As part of the normal amendment process, our CAO attempts to cover any overspending before the end of the fiscal year with a mass amendment. This calls out those areas where money was spent above the budget and hopefully she finds money elsewhere in the budget to cover. Nowhere in this amendment process does she explain what will decrease to cover the increases. For example, she increased the overall budget for the General Capital Fund by $114,541. But there's no place in her amendment that explains where that money is coming from -- this is why our expenses exceed revenues every year she's been our CAO.
The problem is -- the request to budget the money for this project happens after the money is spent. Much like closing the barn door after the cows have left, this is not the purpose of a budget. A budget should be a plan for spending the money, not a post spending analysis of where the money went when we suddenly find out we don't have the cash we think we have.
And there's a special issue with trying to use the Impact Fee Fund. Our own village code reads that the only areas that the impact fee fund can be used are on the infrastructure surrounding the areas that paid into the fund. So, to use the Impact Fee Fund to cover Hampshire Road -- it likely should have been a loan; since Hampshire pre-dates the impact fees.
The rules governing Impact Fee Funds include that repayment should be done within the year with interest or should have a repayment schedule that also includes interest.
On 4/30/2020, the last day of the fiscal year, there are a series of journal entries covering the transfer from the Impact Fee fund to the General Capital Fund the $123,770. Additionally, there was a transfer from the General Capital Fund to the General Fund to move the cash from the Capital Fund to the General Fund as we pay all our bills from the General Capital Fund Bank Account.
If you dig through the details of the journal entries, you will find 10 journal entries and reversals between the General Capital Fund and the General Fund for $123,770 all on 4/30/2020. All are marked "per JS." This is only really possible if there is highly unclear instructions from our CAO/Finance Director on the way to handle the journal entry. And since the board never approved the project to be paid for from the General Capital Fund (supplemented with the Impact Fee Fund), it is no wonder that this bit of financial gymnastics was confusing to sort through. After counting and checking the flow of the $123,770 is from the Impact Fee Fund to the General Capital Fund and then to the General Fund. The last step is so the cash is moved to the General Fund, since that's the Fund every check is written against.
On 7/28/2020, the April 2020 End of Year Financials were published and approved by the board. In these, we see a $89,415 decrease in the Impact Fee Fund (The $123,770 transfer out for Hampshire Road and $34,355 transfer in from the Fire Settlement payment #8).
Nothing specifically wrong with this line item -- just showing that the money moved as expected based on the journal entries I found.
On 12/22/2020, the audit was released with a notation that a transfer was done from the Impact Fund to the General Capital Fund for the Hampshire Road project.
Confirms a transfer was made, not an interfund loan that would be expected. I should also note that the General Fund already appears to have an interfund loan to the Impact Fee Fund for $68,703 and now there's an additional $123,770 transfer made.
On 1/12/2021, the board approved an End of Month Financials that shows a drop in the Impact Fee Fund by $123,770.
Remember on 4/30/2020, $123,770 was already moved from the Impact Fee Fund; so why did a second $123,770 move out of the Impact Fee Fund after 12/11/2020 (that's the date of the last FOIA'd detailed revenue and expense report that I used to try to trace this mess.)
Other Things that make this Mess Interesting
Impact Fees should be in an interest bearing account. In the Pre-CAO days, we took the funds into a local bank and then transferred the money out quickly to either CDs or Illinois Funds for the interest bearing.
Keep in mind, the Impact Fee Funds that live in Home State Bank today are co-mingled with the General Fund and the SSAs. To my knowledge, there has been no transfer of the deposited Impact Fee Funds into the Illinois Funds in the past 3 years -- allowing this portion of the Home State Bank to grow to be 14% of the total fund and no interest is being earned on that cash.
More disturbing than that is that for many months throughout this same 3 year period the over $100,000 in the Impact Fee Fund was used to float the General Fund when there was not enough money at the end of the month in the General Fund.
This got so bad that in April of 2020, that had the sale of the 47-176 property not cleared mere days before the end of the month, our bank account at Home State Bank would have been negative. Yes, we could have transferred money from other accounts to cover things like payroll and bills -- but it is certainly a sign of poor fiscal management and planning.
There is IL Code that the municipality can not spend more than 10% of a fund once the budget is approved. The first transfer of $123,770 is greater than 10% of the total Impact Fund -- and when you do that transfer twice, you've spent more than 20% of that fund and none of this was ever approved by the board.
After the January 12th Board Meeting, I reached out to the CAO to ask about the sudden negative balance in the Impact Fee Fund. After waiting a week and sending her a second request, I got back this response:
To which I responded with this -- noting that *I* found the budget amendment that I inquire about.
I've been waiting 10 days for an answer to that email. I'm trying to understand. I'm trying to follow the paper trail to figure out why our impact fund has seemingly had two withdrawals of $123,770 where there is frankly no board direction to use those funds for Hampshire Road. I'm trying to understand why a "former employee" -- we all know who that is, right? --- is being blamed. She didn't ask for money from one fund and spend it out of another. She didn't spend more than 10% of our Impact Fee Fund without board approval. She didn't push through budget amendments after the money has been spent.
I'm trying to get a handle on this as we go into the budget workshops to be able to understand where we actually have money and where is that fiscal responsibility. Keep in mind we've not had the requested budget review, there were nearly 20 errors in the budget passed in 2020 -- including something interesting that I found today as I was writing -- our CAO shows that there is a positive fund balance in SSA #8 on her budget worksheets -- an SSA that has not been positive since it's inception per years of financial reporting. Curious. I would think that our CAO would want to make the budgeting process smoother by clearing up these issues before presenting to the board (and the candidates) the proposed budget for 2021.
And Board -- Phil, Pam, and everyone else -- where is your oversight? Are you even aware of all of this?