Audit report: Improper fund transfers spark investigation of city's FY 18 finances


From left, Robert Smith, Milton Rawle and Bill Gavin

From left, Robert Smith, Milton Rawle and Bill Gavin



Yue Stella Yu



Money flowed out of the city of Columbus' general fund bank account without council approval in Fiscal Year 2018, prompting a Mississippi Office of the State Auditor's investigation into the city's finances, according to the city's FY 2018 audit report obtained by The Dispatch.


The report, completed in November 2019 and accepted by the council July 7, depicts the city's weakened financial health in 2018 and documents several deficiencies the same year in fiscal management, including some that violated state code or city policies.


Among all deficiencies, only the unapproved fund transfers were referred to the state auditor's office for investigation, the report shows. Generally, such an investigation can ultimately result in legal charges if the case goes to court, but the agency does not have the authority to issue any penalty itself, said Logan Reeves, spokesperson for the state auditor's office.



"The court of law is actually the one imposing the punishment or the sanction," he told The Dispatch.


If the state auditor's office determines there is a violation of civil or criminal law, then it will issue a letter to the agency under investigation, urging it to correct the mistakes within a period of time, Reeves said. If corrections are not made, the case is transferred to the attorney general if it's civil; if it is criminal, the state auditor's office usually goes to the local district attorney to present the case to a grand jury, he said.


Reeves did not confirm or deny if the investigation into the city is still ongoing or comment on the specific matter.


Ward 6 Councilman Bill Gavin told The Dispatch on Thursday he was unaware of such transfers until the council reviewed the audit in July.


"If I had been informed of it, I don't recall it," he said.


The actual city expenditures can be found on the claim dockets, which city council reviews and approves at its twice-monthly meetings. Gavin said he tried to look over the claim dockets before each council meeting, but did not notice any irregularities.


"I'm not noticing anything that got my attention to make me ask any questions," he said. "Those claim dockets are pretty big."


The city responded to the findings by promising to develop policies to make sure all disbursements go through city council, the audit report shows. However, it is unclear whether or how the city addressed the deficiency, how much the transfers were or who the transfers were made to.


The report also reflects the city's declining financial health in FY 2018, when it overspent its budgeted expenditure by $1.1 million and ended with a $881,000 deficit.


The city also failed to notice the decline in its cash balance in time and amend the budget before the state-set deadline of July 2018 -- two months before the fiscal year ended -- which is a violation of state law.


The council did not amend the budget until then-Chief Financial Officer Milton Rawle brought the deficit to the council's attention in November. Because of that, Rawle was later suspended without pay for 16 working days and eventually resigned from his position.


Mayor Robert Smith and other council members who were on the council in 2018 did not return The Dispatch's inquiry about the audit report by email, calls or texts by press time.



Poor management of public funds


Apart from the unapproved fund transfers, the report reveals that the city failed to establish systems to monitor the use of public funds or correct fiscal mistakes -- sometimes repeatedly.


For example, it did not reconcile its bank accounts to a general ledger on a regular basis, a common practice among municipalities that's conducted monthly to ensure their bookkeeping aligns with the bank statements. The process allows cities to "make adjusting entries to correct any mistakes in its financial records," the audit states.


"Reconciling bank statements ... is pretty standard," Reeves told The Dispatch. "It's not a stretch to say that people should be doing that just as a measure of good business. ... It's something people should be doing if they are managing money."


In the city's Municipal Court, offenders enrolled in the Community Public Work Program -- where they work at an hourly rate of $7.25 to pay off their fines or other costs -- should sign in and out on their timesheets and note the hours they worked under supervision, the audit shows.


But instead, offenders earned credit for hours worked even without their supervisors present, and the supervisors signed in and out of their timesheets, the audit shows. Both are repeated findings from the prior year.


The city told the auditors they already corrected the deficiencies, according to the report.


The report also identified other repeated deficiencies in the city's record-keeping. In FY 2018, the city failed to keep "adequate records" of its fixed assets, the report states, which are city-owned properties assigned to employees for use, such as vehicles or laptops. Nor did the city keep an annual physical inventory of those assets or place "property control tags" on them to better track their whereabouts.


"It's an accountability measure to make sure that nothing walks away, make sure that I don't take any state property, frankly, that I don't lose any," Reeves said of the record-keeping.


The city also did not monitor landfill gate receipts, a mechanism that tracks the fees citizens pay to dump debris at the city's landfill.


Additionally, the city failed to add the value of personal use of city-owned vehicles to employees' W-2 forms, a repeated finding from the prior year and a violation of the Internal Revenue Services' requirements.


Whenever an employee uses city-owned vehicles for personal purposes, that value should be included in the employee's wages and is therefore taxable, according to the IRS. Failure to do so indicates applicable payroll taxes were not paid for some city employees.


Smith and council members did not return The Dispatch's inquiry about the amount of unpaid taxes in FY 2018.


City employees also used city-issued credit cards to purchase meals that year against city policies, the audit shows.


Gavin and Ward 1 Councilwoman Ethel Stewart, who was not on the council in 2018, told The Dispatch on Thursday they were never issued a credit card. Chief Financial Officer Deliah Vaughn told the council during the July 7 meeting that her office now manages all the credit card purchases, which she said are only for hotel reservations. She has also corrected the majority of the deficiencies, she said. Vaughn was hired in April 2019.


The report The Dispatch obtained is missing its last pages. Smith and council members did not answer The Dispatch's request for the remaining part of the document.



Overspending budget


The 2018 deficit was not new for the city, since it also operated at a deficit in FY 2017. However, in 2018, The city took in less than the prior year but spent more.


It received a total revenue of $27.1 million that year, a $2 million decrease from the prior year's revenue. Despite the decrease, the city shelled out $31.8 million, shrinking its year-end governmental fund balance by $3.1 million, according to the audit report.


Addressing the deficit, Gavin said the problems may recur due to the pandemic. He would not comment on if the decline was connected to the city's fiscal management.


"I think you'll see that again, especially with the COVID hit," Gavin said. "Without the city growing and having new restaurants, these shopping facilities coming in for people to spend their money on ... those sales drop. But the wear and tear of the equipment, the streets, everything still goes on."


Conflict disclosure: Managing Editor Zack Plair took part in editing this article. He is currently involved in legal proceedings with the city of Columbus.



Yue Stella Yu is the local government reporter for The Dispatch. Reach her at 662-328-2424 (ext 106) or follow her on Twitter @StellaYu_Mizzou



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