Tuesday, April 29, 2014

All About Agendas / Wednesday Workshop Agenda

The Wednesday workshop meeting agenda was finally posted by the City late yesterday afternoon. You can find a copy linked at the end of this article. The numerous topics up for discussion on Wednesday include the follows:

  • Start council meetings later to allow more residents to attend
  • Reformat the agenda to have citizen comments at the beginning
  • Change the location of building permit drop off back to City Hall or change contractor
  • Creating a city council expense report procedure
  • Revamping the tree permitting and process passed in 2007
  • Addition of a bulletin board at the front entrance or middle of the City Hall parking lot
  • Review and discuss the contract clause on the use of dumpsters through Republic

Also up for discussion are proposed guidelines for the Belle Isle Neighborhood Grant program as well as proposed Resolution 14-02, neither of which were provided to the public or Council prior to the posting of this last-minute workshop agenda. You can find copies of the proposed guidelines and resolution attached to the workshop meeting agenda linked below.

These late additions by City Hall again highlight the need for our City to timely post upcoming meeting agendas. The Florida Sunshine Manual states that meeting agendas should be posted at least seven days before a meeting except in emergency situations. In this case, our City Council and the residents of Belle Isle were given just over a day to consider the proposed budget ordinance along with a complex set of grant program requirements proposed at the last minute by City Manager Keith Sevens.

In addition to the numerous topics up for discussion at this workshop meeting, it may be beneficial for our City Council to address the issue of posting agendas in a timely fashion. A new ordinance or resolution requiring that meeting agendas be posted at least seven days in advance would ensure compliance with Florida law and permit our Commissioners and residents alike to be properly prepared for discussion at upcoming meetings.

Residents who have attended City Council meetings over the last few years may be surprised to learn that it is our City Commissioners, not our Mayor or City Manager, who control which issues will be discussed at city meetings. The Belle Isle City Charter describes the roles of our City Council and Mayor in setting the agenda as follows:

"The council shall determine its own rules and the mayor shall set the order of business for each meeting." (City Charter Section 3.08)

 "The Mayor shall set the agenda for council meetings and serve as presiding officer, though the council shall retain the power to add such items to the agenda as it may choose." (City Charter Section 4.05(F))

Put together, these sections clearly demonstrate that while our Mayor gets to control the order in which issues are addressed at a city meeting, our Commissioners retain the power to set meeting rules and add items to meeting agendas. In fact, the City Charter, Section 4.06(B)(5), specifically states that our Mayor has no say in "decisions regarding issues to be placed on or removed from council agenda."

This month's workshop meeting will be held this Wednesday, April 30 at 8:30 a.m. The meeting agenda is linked below. Our next regular City Council meeting will be held on Tuesday, May 6 at 5:30 p.m., although hopefully that will be the last 5:30 meeting before our Council finally votes to begin regular meetings at a later time!

Workshop Meeting Agenda - April 30, 2014

Sunday, April 13, 2014

The Financial State of Belle Isle - Part II

To keep it a readable length, the previous Belle Isle Sun article entitled "The Financial State of Belle Isle" did not deeply explore some of the most important aspects of Belle Isle's 2013 Comprehensive Annual Financial Report (CAFR). This article is intended to provide readers with supplemental information about these important aspects of the 2013 CAFR (linked at the end of this article).

Scope and Limitations of the CAFR

When considering the information presented in the 2013 CAFR, it is important to understand what is, and what isn't, required in performing this type of financial review. Page iii of the introduction to the 2013 CAFR describes the review procedure as follows:

"The City of Belle Isle's financial statements have been audited by McDirmit Davis & Company LLC, a firm of licensed certified public accountants. The goal of the independent audit was to provide reasonable assurance that the financial statements of the City of Belle Isle for the fiscal year ended September 30, 2013, are free of material misstatement. The independent audit involved examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation."

Basically, the role of McDirmit Davis is to examine our City's financial statements, general accounting principles, and estimates made by our City's management on in order to "provide reasonable assurance" that they are "free of material misstatement." However, page 60 of the 2013 CAFR also cautions that:

"The City of Belle Isle, Florida does not have controls over preparation of the financial statements which would prevent or detect a misstatement in the financial statements."

Putting the two above statements together, it becomes clear that this process primarily relies upon a review of our City's financial statements. Financial statements which cannot be verified because of the City's lack of controls which would prevent or detect a misstatement. Financial statements which our City Manager states it has not been "practical or possible for our City to create." (2013 CAFR, p. 65).

After the April 1 meeting, Commissioner Nielsen requested that the auditor clarify the scope of the financial review performed for the yearly CAFR. The auditor confirmed that they do not perform the type of audit where each incoming check and outgoing payment is reviewed to verify the financial state of the City. Instead, the auditor simply confirms information by reviewing our City's financial statements and questioning multiple City employees. If the employees give corroborating responses, the provided information will not be investigated further unless otherwise required.

Upon questioning after the meeting, the auditor confirmed that our City would have to seek a deeper audit if we sought to truly verify our City's present financial position.

Finance Manager Experience & Training

In the previous "Financial State" article, it was noted that our present City Manager and Finance Manager do not have the experience or training to create the financial statements that would remove the above-described "significant deficiency" from Belle Isle's yearly CAFR. This is not a personal evaluation of our City employees' abilities, but instead comes from statements made by our City Manager and our City's auditing firm, McDirmit Davis.

On page 65 of the 2013 CAFR, City Manager Keith Severns states as follows:

"Due to the size and limited resources of the City, it has not been practical or possible for the City to prepare its own Financial Statements. Going forward, the Auditor is going to work with the Finance Manager to prepare the statements."

Although this statement is worded rather vaguely, it still clearly conveys that no one at City Hall presently has the experience or training to produce the necessary financial statements. If any City employee was capable of producing these financial statements, then Mr. Severns' statement about it not being possible for the City to prepare it's own financial statements would be false.

This issue was discussed more fully during the auditor's presentation at the April 1 meeting. With regard to our present Finance Manager's capability for producing financial statements, the auditor stated as follows:

"I believe she is [capable] and I think that going forward that's a goal that the City Manager has, that Tracy start doing more of this document and I don't have to do it all. And then you can get rid of this significant deficiency."

So while it is clearly the opinion of our City Manager and auditor that our present Finance Manager has the capability to learn to produce the necessary financial statements, it is also clear from these statements that our Finance Manager does not presently have the experience or training to be able to produce such statements. According to our City Manager's above quote, this problem will be rectified by having McDirmit Davis work with our Finance Manager on the needed financial statements. 

Belle Isle's Emergency Reserve

With regard to City Hall's repeated claim that Belle Isle has over a million dollars in in emergency reserves, the auditor stated as follows:

"If you look on page 13 [of the 2013 CAFR], you can see that even though there is slightly over a million dollars, only $543,000 of that is unassigned. When you all did the 2014 budget, $532,000 of that fund balance was assigned in the [2014] budget, meaning you're going to use it as revenue to offset your expenditures in the future years. So you really don't have a million dollars of unassigned revenue. It's only half that amount."

And that figure still does not account for the $503,145 in overdue impact fees presently owed to Orange County and described on page 64 of the 2013 CAFR. According to City Attorney Frank Kruppenbacher at the April 1 meeting, these fees are set to be paid by our City next month.

Now that these overdue impact fees are finally scheduled for payment, the upcoming expense of paying such fees must also be deducted from our City's remaining $543,000 in unassigned funds. So even giving full faith and credit to every statement contained in the 2013 CAFR, this means that our City is left with approximately $40,000 in unassigned funds available for future emergencies and unplanned City expenses.

2013 Comprehensive Annual Financial Report (CAFR)

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Wednesday, April 9, 2014

The Financial State of Belle Isle [UPDATE]

The numerous ideas proposed at the March workshop were not discussed significantly at the recent April 1 City Council meeting, but were instead put on the agenda for the April 30 workshop. However, last week's meeting revealed some important information about our City's financial status.

Over the past months, City Hall has spent a lot of time reassuring residents that our City's finances are in excellent health. Along with a number of other financial growth figures, City Hall has presented our City's emergency reserve fund as having grown to over $1 million. At a recent City Council meeting, Keith Severns further reassured Commissioner Readey and the others in attendance that this emergency reserve fund is liquid and held separate from other City funds. Unfortunately, this rosy view of our City's finances was not corroborated by the financial presentation at the April 1 City Council meeting.

At the April 1 meeting, Belle Isle's 2013 Comprehensive Annual Financial Report (CAFR) was presented by a representative from McDirmit Davis and Company, LLC, the firm employed by our City to perform financial reviews. Despite the auditor's carefully chosen language, intended to imply that our City has over $1 million in spendable funds, a few questions from Commissioner Nielsen quickly revealed the truth about our City's financial position.

While the presenter initially stated that our City has $1,087,207 on hand, upon questioning, she revealed that $532,657 of this balance has already been assigned to our City's 2014 FYE budget and will be spent over the next 5-6 months. That figure also does not account for the additional $503,145 in improperly held school impact fees set for payment to Orange County next month, apparently leaving Belle Isle's true net position at under $100,000 at the end of last fiscal year.

Along with recommending timely payment of these long-overdue Orange County impact fees, just as she did in the 2012 CAFR, the auditor further warned that because of these unpaid impact fees, "Some of the ratios calculated for financial condition assessment procedures could be adversely affected by this increasing liability. In addition, the County could add on interest and penalties to what the City owes." (See page 64 of the 2013 CAFR.)

Also muddying the waters of our City's finances is the fact that Belle Isle's net position, as stated in the CAFR, does not represent its cash or liquid assets, but only a calculation of "the excess of assets over liabilities." This gives little indication of our City's true financial state when assets include everything owned by the City, such as capital assets like land and buildings which could not be sold by the City for revenue. As stated by the auditor,"It's not cash. It's not money in the bank."

Determining our City's true financial state is made even more difficult by the "significant deficiency" discovered in our City's accounting methods. More specifically, the 2013 CAFR states that "The City of Belle Isle, Florida does not have controls over preparation of the financial statements which would prevent or detect a misstatement in the financial statements." This is a serious concern, especially for Commissioners Readey and Pisano who have been requesting monthly financial statements since last year.

To give you a bit of background, our City purchased new accounting software in 2013 at a cost of $34,376. (See City expenditure report linked below.) At the time of purchase, the Council was promised that this new software would give our City the ability to produce the requested monthly finance reports. However, the Council was not informed that the City still would be unable to produce these monthly reports, even with the new software, because no City employee has the ability to produce financial statements. (See page 65 of the 2013 CAFR.)

This fact was further discussed during the 2013 CAFR presentation, where it was stated that neither our Finance Manager (presently earning over $51,000 per year plus benefits) nor our City Manager (presently earning $150,000 per year plus benefits) has the experience or training to produce financial statements for Belle Isle. According to the 2013 CAFR, our City intends to rectify this situation by paying additional fees to McDirmit Davis for assistance in producing Belle Isle's monthly financial statements. These fees will be paid in addition to the salary and benefits already being paid to our Finance Manager and City Manager. (See page 65 of the 2013 CAFR.)

But until our Commissioners finally get the timely financial data they seek, residents and Council members alike are forced to rely on the data contained in our City's yearly CAFR to determine the financial state of Belle Isle. Our City's CAFR data is already over six months old at the time of publishing, and will be over a year and a half old before the next CAFR is published.

Without timely, accurate, and verifiable financial data about Belle Isle, it is impossible to know our City's true financial state. In light of the significant deficiency identified by the auditor, and without controls to prevent financial misstatements, even the financial data contained in the CAFR itself cannot be fully verified by the auditor or anyone else. This is made abundantly clear in the auditor's many disclaimers to the 2013 CAFR.

While the auditor stressed that the financial review performed by McDirmit Davis meets the minimum requirements of the law, she also revealed a significant weakness in its procedure. The CAFR relies upon information provided by, and corroborated between, multiple City employees. This means that any underlying financial mistakes or misstatements made by our City Manager and Finance Manager would not likely be detected by the auditor, but would undermine the accuracy of the resulting financial reports. After the presentation, the auditor acknowledged to Commissioner Nielsen that a different, more extensive type of audit would be required in order to truly verify the financial state of Belle Isle.

But even in the absence of a more detailed audit, the 2013 CAFR reveals some unwelcome truths about our City's financial state. Until recent years, our City had plentiful emergency cash reserves. In 2006, the City of Belle Isle had approximately $3,000,000 in unrestricted general reserve. According to the 2013 CAFR, our City now has approximately $500,000 in unassigned general reserve, and this is before payment of the $503,145 in overdue impact fees discussed above. (See page 46 of the 2013 CAFR.)

Because Belle Isle had plentiful cash reserves on hand when the hurricanes hit in 2004, we were able to obtain almost immediate response times from tree services and other contractors hired to repair the hurricane damage. Meanwhile, many other cities around the state were forced to wait days, weeks, or even months for repairs because the contractors gave preference to customers paying in cash. Today, Belle Isle would be left waiting for service along with all the other municipalities which lacked the foresight and financial discipline to maintain an emergency cash reserve.

Although our City may employ expensive financial software and produce complex financial reports, the simple truths about money management still apply. If you take out loans and spend all of your income without keeping an emergency reserve in the bank, it will only take one unplanned expense or unexpected emergency to produce a financial disaster. Rebuilding our City's emergency reserve fund may require cutting back on certain expenses, but the 2013 CAFR reveals that our City has no choice if we intend to reclaim any portion of the financial security Belle Isle once enjoyed.

2013 Comprehensive Annual Financial Report (CAFR)

Belle Isle Expenditure Report (purchases over $10,000) from 3/1/2011 to 12/3/2013


For more information, please see The Financial State of Belle Isle - Part II