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
 


UPDATE:

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

32 comments:

  1. Wow!!! Thank you for the true picture...hopefully at next election the rest of the incumbents will go and the rest of the truth will come out!!!!

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    1. Thanks for reading and commenting!

      However, I would like to urge you and other readers to evaluate any future candidates as individuals rather than simply relying upon whether or not they are incumbents in making your evaluations.

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  2. A total independent, investigative, forensic audit performed by experts who have no connection with the city is sorely needed.Perhaps the state should require such a audit

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  3. Thank you - frightening information about the financial state of our beautiful city. Time to tighten the belt, look at salaries and expenses, and get a real and detailed audit to find out where we really are.

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  4. Is there a way to remove the incompetent and unqualified Finance and City managers? It is unbelievable that we are paying people such salaries when they have no idea what they are doing. I blame the people who hired them - they also do not know how to fulfill their job requirements. Some thing is wrong with this situation and needs to be corrected ASAP. I am very upset. I know we can find highly qualified people at a lower and more reasonable salary. New idea- advertise the job openings so we can attract the best and the brightest, not the dim wits. I am very thankful we now have someone to tell us the truth and what is going on in Belle Isle. This newsletter is the best thing that has happened in our community. Most people do not attend meetings, not that you get the full picture of what is going on, since there is things going on behind closed doors. We needed this info several year ago before when ended up in such a poor financial state.

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  5. We absolutely have to replace the Mayor and the City Manager. Belle Isle is too small and too important to all of us to let these 2 continue to line their pockets and use the City as their own personal playground.

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  6. Agree, get rid of Mayor, City Manager and Finance Manager. If the Finance Manager is paid $51,000 plus and can't produce a financial statement for Belle Isle why do we need that position? Would love to see the position description that makes it a Finance Manager.

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  7. Wow, wow and WOW! No further explanation needed of the importance for the Mayor to keep his hand picked cronies in office. The Mayor and his # 1 czar, Mr. Severns, can't run fast enough to keep this misappropriation of funds from falling on their shoulders.

    I agree with the first poster above, a total independent, investigative, forensic audit performed by experts is sorely needed!

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  8. The Finance Manger posts the entrees in the system and makes recommendations to the City Manager and Mayor, and a typical Finance Manager for a City with CAFR experience is paid @ $65,000 plus Benefits. The Mayor and City Manager control the expenditures for the city.

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  9. Response to the one above. If the Finance Manager isn't qualified how does he know the entries to post or make the appropriate recommendations to the City Manager or Mayor. The report says that neither the Finance Manager nor the City Manager "has the training nor the experience" to produce financial statements for Belle Isle. Therefore, regardless of what we pay them, they are not qualified for their positions. "Period"

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    1. EXACTLY, neither are qualified!!!!! Get rid of them !!! Now,, how do we do that quickly? We need this investigated and if any wrong doings, get them to step down before we go broke.

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    2. You are going by Jeremy's position that the Finace Manger is not qualified, Who is he to make that judgement, he was never involved in small town Finaces. Who do you think handles the payroll, medical plan, accounts payable and recivable, and posts the entries to the CAFR? Probaly one person the Finance manger. How many people handle those functions where you work?

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    3. I work for one of our places of higher education. We have an entire department and chain of command. No one is hired who is not qualified for their position. My question is why do we need to pay this outside source to do what possibly should be done by our Finance Manager. This manager should have a finance background, meaning at least a college degree in this field and good work experience with a comparable employer or better. We need to know more about the people in question. Maybe they can give us some incite as to what qualifies them for their job if they feel they are wrongly being discussed in this newsletter.

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    4. You are making assumptions based on the information provided by Jeremy and Sue. How do you know the person does not have a 4 year degree in Finance, and has worked for other cities in the past. YOU MAY BE SURPRISED!! Maybe The Bell Isle Sun should post the Qualifications of a small town Finance Manager. Than you can see if the person meets or may exceed the qualifications. Don't be to quick to Judge other people based a bias article by Jeremy and Sue.

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    5. Just to be clear, I didn't make the determination that our Finance Manager and City Manager can't produce the necessary finance reports. This information comes straight from the CAFR and was discussed in depth at the April 1 meeting.

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    6. Which page of the CAFR can I find your quoted statement:

      The report says that neither the Finance Manager nor the City Manager "has the training nor the experience" to produce financial statements for Belle Isle.

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    7. Thanks for reading and taking the time to comment. Let me first clarify that this was not a "quoted statement" in the above Sun article. If that were a direct quote from someone in the article, it would have been contained in quotation marks and attributed.

      For a more detailed explanation of this statement and its basis, please see "The Financial State of Belle Isle - Part II."

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  10. Jeremy and Sue need to make sure they have all the facts before they make accusations. They may have just opened themselves up to a Libel Suit.

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  11. This smells to hi heaven.. fire the highly overpaid 'Finance' person who can't produce monthly reports. Fire the highly overpaid 'Manager' .. There... we just saved over $200K per year right there..

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    1. Yes, Fire them, Than the City will have to hirer a City Manager for $85k, a Finance Manager with CAFR experience for $65k, and let us not forget that the current city manger also handles zoning/planning. So a Engineer will have to be hired for $70k, for a total of $220k, and increase of $20k a year. Great Plan!!!!!!!!!!!

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    2. Hell I think we should just have a public hanging right here in the City of Belle Isle....Good grief people calm down. Jesse James doesn't exist anymore.

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    3. While I agree that tensions have been running a bit high in response to this article, it's also important to consider the source of the distrust many commenters have shown.

      It inspires residents to have confidence in our City employees when have been vetted through open hiring processes, including advertising available positions and interviewing multiple qualified candidates so that the most qualified candidate can be hired.

      When City Hall does not perform an open hiring process or, similarly, does not request contractor bids for City expenditures, residents naturally begin to question how and why City Hall selected a particular employee or contractor.

      In response to the comment above, our city manager is only one person and not an engineer of any kind. Why would it require two full-time employees, including one full-time engineer, to fill his job?

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  12. Since when is challenging an audit to make sure it is correct libel? Our Commisioners ALL should be looking deeply into reports and audits not just accepting what they are being fed!! Thanks to the Commisioners who have the wisdom to do this!

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    1. And you are just as guilty as the commissioners then since you have accepted what you've been fed by the Belle Isle Sun!

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    2. You should look up the meaning of Libel, because if their infromation is not factual, they have now tarnished a persons reputation. Also these two do not seem to have an understanding of government finance.

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    3. So much for a brand new day in Belle Isle...this has become a gripe fest.

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  13. The Finance Manager is from Ocoee too! mm mm??? Maybe contact the previous Finance Manager that sued the city and ask her why. You folks should start attending the meetings, ask your questions, press for answers and state your concerns. All city managers have more than 1 job---ask around.

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    1. So, which Finance Manager previously sued the City? News to me . . . Or are the facts wrong once again?

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    2. There was no mention of such a lawsuit in this Sun article, but I believe the above commenter is referring to Orange County case number 2012-CA-015807-O.

      The finance manager did not file that lawsuit, but was actually a defendant when our prior General Services Director sued the City of Belle Isle as well as City Manager Keith Severns and Finance Manager Lucy Ramos. I do not know the details of this lawsuit, but the case documents could be obtained from the Orange County courthouse.

      With regard to having more than one job, the above commenter is correct that it is extremely common for city managers to fill multiple roles, especially in small towns like Belle Isle.

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  14. So what are the Sun's Golden Children Sue and Ed's plan to solve this?? Remember they where elected to change all this or is the plan what we all knew it was get rid of the City Manager?? What is the Plan kids??

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  15. Jeremy, what is your proof that Pisano and Ready have been requesting financial records for the past year?
    "This is a serious concern, especially for Commissioners Readey and Pisano who have been requesting monthly financial statements since last year."

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    1. I have heard this request made multiple times at City Council meetings over the past year - at least once from each of these two Commissioners. I have also discussed individually with each of them their concerns about not getting these regular monthly reports as promised.

      It was in the context of these Commissioners' requests for monthly financial statements that I first learned about the City's purchase of new accounting software referenced in the above article.

      For further proof beyond the recollection of those in attendance at the meetings, you would need to review the audio recordings of the 2013 City Council meetings, which you can easily obtain from City Hall.

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