PDT Staff Writer
In a damning overview of Portsmouth’s lack of progress in overcoming it’s fiscal caution status, The Auditor of State’s Office says Portsmouth is doing little about some issues and nothing about others.
Representatives from the Local Government Section (LGS) of the Auditor of State’s office have been monitoring the progress of the items the city included in their fiscal caution plan to correct or eliminate the fiscal practices or budgetary conditions that prompted the declaration in the first place on Nov. 22, 2011.
Now, based on the third quarter financial reports provided to LGS for review, along with attending the city’s Finance Committee meeting, Robert R. Hinkle, Chief Deputy Auditor, says the progress made to date is “disappointing in the treatment of these important matters.”
Hinkle has sent the city an evaluation of the results of the third quarter monitoring, which includes several glaring problems. The report says to date, the city has made minimal movement on correcting their cost allocation issue.
“For 2012, the city is still utilizing the allocations prepared by the mayor, which does not compare to the official cost allocation plan prepared by Schonhardt and Associates and approved by Council. With no changes being made for 2012, additional audit adjustments may be necessary, which could potentially decrease the general Fund cash fund balances as occurred in 2011,” the evaluation read.
Portsmouth Mayor David Malone said Schonhardt and Associates told the city the General Fund should be charging off around $631,000 to the enterprise funds, but the city is actually charging off a little more than $1 million.
“With the Schonardt report, nobody knows what kind of data they used because none of the department heads talked to the Schonardt group, so they don’t know what kind of data they used or what kind of formula they used,” Malone said. “That’s why we are getting ready to get another report done.”
The evaluation says the city has made “very little progress” in becoming compliant with Ohio Budgetary law, including appropriations adopted within certified estimated resources. Hinkle says that was noted when reviewing the 2012 quarterly financial reports provided by the City Auditor as some fund balance deficits continue to increase.
“The city has made no progress in certifying purchase obligations as to the availability of funds and appropriations,” the report says. “Per the 2011 audit report, it was noted that the City Auditor did not certify the availability of funds prior to making commitments for 70 percent of the disbursements tested. When reviewing the third quarter financial reports, several instances were noted in which actual line item expenditures exceeded appropriations, further supporting the audit citation that proper certification of commitments is not occurring.”
Hinkle’s assessment goes on to say that other than employees paying more toward their premium costs, the city still has no reasonable method of accounting for and funding all the costs associated with its insurance fund, then surmises, “With no proper plan to address the issues, the deficit in the insurance fund will continue to exist to worsen.”
The report also says that other than the General Fund and the Water Fund, both of which improved during 2012, the city has offered “no plan on how to alleviate the deficit fund balances in the other funds.” The report acknowledges the city did raise sewer rates in order to deal with a deficit in that fund. However, the deficit in the Sewer Fund continues to exist.
“When declared in fiscal caution, the city had three funds with deficit fund balances on a Generally Accepted Accounting Principles (GAAP) basis. When reviewing the city’s 2011 Comprehensive Annual Financial Report, the city has nine funds with deficit fund balances on a GAAP basis,” the report says. “Regarding the three fiscal caution criteria deficits, all three deficits increased from Dec. 31, 2010 to Dec. 31, 2011. This includes the General Fund deficit which increased from $530,043 to $1,658,384. This increase includes the audit adjustment of $427,458 which resulted from the cost allocation plan discrepancy.”
The cost allocation plan dealt with charge-offs by the city in which money was utilized from revenue funds to fund other parts of the operation of the city. The $427,458 was transferred back into the funds, creating a larger than projected deficit in the General Fund.
In November of 2011, Auditor of State Dave Yost was in town and addressed local government officials.
“There has been two years in a row where more money was appropriated than existed in the Certificate of Available Resources, and there were some other things that were noted that may be more technical compliance items,” Yost said. “At the end of the day, if things continue the way they have been, there will be serious repercussions for city finances.”
In January of this year, a series of emails were circulated between members of city government as to what time frame they needed to follow in order to balance the budget.
“Gentlemen, back up the budget truck!!” Third Ward Councilman Nick Basham wrote in an email. “Before we charge ahead with the State Auditor’s request, what will (State Auditor) Mr. (Dave) Yost ‘do’ to Portsmouth if we continue our current plan for repayment? (City Auditor) Trent (Williams) or (City Solicitor) Mike (Jones), I’d like an answer).”
Basham wrote in the email that because the city has a budget surplus this year, the state won’t place the city in Fiscal Warning or Fiscal Emergency status.
“I feel like this is sabre rattling from Columbus. If the governor and Republican-led legislature want to take away our funding options, such as the estate tax and local government funding, then they need to quiet down as we (all cities in Ohio) face budget woes,” Basham wrote.
Basham also forwarded to the Daily Times the response he received from then-president of Council John Haas.
“I agree with Nick. Let’s see what the FOP contract looks like, bump up income tax projected revenues and allow something for estate tax and lets move on. I think we’ll be close to the Auditor’s trumped up target with those and a few other smaller things that we’ll escape the illusory sanctions. The Auditor’s position is purely a political maneuver not based on any code section or legal authority. If there is legal authority, the newly elected Republican State Auditor has not produced it to date as far as I know,” Haas wrote.
In his report Hinkle concludes, “As demonstrated above, the city had made very little progress in addressing the issues which were identified as a result of the city being declared in fiscal caution. If the city fails to make significant progress in the aforementioned areas by Dec. 31, 2012, the city’s status will be elevated to fiscal watch.”
“(City Auditor) Trent (Williams) and I have been working, writing a letter, giving a report every quarter. The third quarter numbers weren’t satisfactory to them,” Malone said. “But by the end of the year, when we close out the fourth quarter, it will be in a better situation. We just try to address and answer the letters that they send to us each quarter as the quarter closes. The fourth quarter will probably look better than the third quarter looked.”
Frank Lewis may be reached at 740-353-3101, ext. 252, or at email@example.com