U-City Audit Identifies Finance Staffing Issues, Funds Deficits

UNIVERSITY CITY, MO — An audit by Schowalter and Jabouri, a certified public accounting firm, presented at the March 26 meeting of the University City Council, revealed unexpected deficits in two city funds and staffing issues the auditors say do not allow adequate internal review over how funds are allocated. The auditors examined the budget for the fiscal year ending in June 2017, the last budget presented by former city manager Lehman Walker, who was suspended in November 2016.

The report states: "The director of finance is responsible for investment schedules, tax revenue and receivables, and debt, and no one reviews that work."

Proper checks and balances, the accountants said, would separate duties so that no single individual is in charge of all aspects of the city's finance. The city blamed high employee turnover in the fiance department for some of the issues, and the city council voted April 9 to add three new positions to address its staffing problems.

That vote passed six to one, with only outgoing Mayor Shelley Welsch opposing the measure. "The city manager is talking about adding still more jobs to the payroll," she wrote in a weekly newsletter published April 10. "We are reverting to the practices of the past which put this city in a financial pickle."

But the mayor's opponents on the council — and city manager Gregory Rose — said the audit revealed substantive problems that need to be addressed. Some added they may support a more comprehensive state audit to get an even better picture of the city's financial health.

"The best preventative measure, in my opinion, has already been taken in that we have hired a professional city manager, who will keep Council and citizens fully and accurately informed," said Second Ward Councilmember Paulette Carr. "To that end, 'you do not know what you do not know,' so a more comprehensive audit would be in order to help establish for all exactly where we are financially. I would support a state audit if Mr. Rose recommends that to Council, or if the citizens petition the state for as audit as we did in 2009."

Mayor-elect Terry Crow, of the First Ward, said he too supports a state audit. "I believe that it is prudent, after an 8 year administration to have such an audit," he said. "That fact, coupled with the concerns regarding some of our fund balances justifies requesting some form of an audit."

The current audit revealed deficits in the Grants Fund and Parks and Stormwater Sales Tax Fund. In plain terms, the city spent more than it was authorized to spend from those funds, leaving them in the red. Under the city charter, the council is authorized to revise a budget to account for unforeseen expenditures, but a revised budget was not presented to the council for a vote.

"At this point, we're not able to reconcile all the accounts," Rose said. He explained that city officials had not been able to identify where about $381,000 from the Grants Fund was spent. "We suspect that is the result of cost overruns for the various projects that were funded out of the Grants Fund, but we haven't been able to reconcile in order to prove that fact."

Rose said the situation was similar with the Parks and Stormwater Fund and again blamed cost overruns, adding that he didn't believe there was any wrongdoing related to the missing money, but that more investigation is necessary to make sure that's the case.

Rose also said the city needs to better understand how the cost overruns happened without council approval. "The mayor and council should approve any cost overruns for a project," he said.

The city has put on hold projects funded from the Parks and Stormwater Fund until it can be replenished, and has instructed the finance director to monitor the fund's expenditures to ensure money is available to cover council-approved projects going forward, according to the report.

As for Welsch, she is not concerned by discrepancies in the funds' balances. "I see this as bookkeeping," she said, adding that once the council approves a budget, she believes the council does not have to re-approve every transfer between funds.

"The monies for the grant funds and the parks and storm water sales tax funds still reside in our general revenue account, as they always do," Welsch said. "At question is the timing of the transfer between funds in our general revenue account. When the City applies for grants, they are most often on a reimbursement basis – so the costs are paid, and we are reimbursed. If it turns out a charge we submit is not reimbursable under the grant, we will not be able to transfer the whole amount into the grant fund. Same with the Parks and Storm Water tax."

Welsch also cited a legal settlement related to the construction of a berm at a local driving range. According to Schowalter and Jabouri, that project was completed as a result of a lawsuit, but without council approval.

"I think members of Council bear responsibility for this," Welsch said. "We should have been paying closer attention to the way the terms of the settlement, which we had approved, were handled."

But, Councilmember Carr told Patch the council never voted on the final driving range settlement.

Carr continued:

Council never voted on the final settlement agreement with Ethan Schuman including the cost of changes to the Driving Range (berm, etc.), and a $25,000 cash payment. I found out one month after the settlement and questioned the former city manager about his failure to obtain Council approval. He informed me he believed the settlement was within his discretion, and did not require a vote of Council. The City Manager's spending authority and budget transfers are clearly defined by our code, and there were not enough votes from members of the Council serving at that time to undertake a review his practices and performance.

"I believe my colleagues are trying to find problems where none exist," Welsch responded. "One might ask why."

She continued:

In the early years of my administration, we asked the City manager to reverse the long-standing practice of putting revenues from the Parks & Storm water tax into the general operating fund. We asked that this be placed on a separate budget line, so that Council would clearly see how much money was generated by the tax. This was done with the goal of greater transparency. However, we spend more on our parks than is brought in by the tax, and when that happens, funds are taken out of the general fund, and a deficit is shown on the parks and storm water budget line. The park spending is approved by the Council during the budget process, so I am not sure what Mr. Rose means about Council not approving the expenditures.

It is true that because of low staffing levels, the Director of Finance had to step up to the plate and handle more duties than is desired. But it should also be noted that the auditors, upon reviewing it, found no problems with the work performed by our Director of Finance.

I would also like to note.

The FY2017 budget was, in fact, a draft budget drawn up by Mr. Walker in February of 2016. Three members of a six-member Council would not vote for a final budget, including Councilmembers Carr and Crow.

The City Council did approve the golf course settlement by providing Mr. Walker with the parameters in which to determine the final settlement.

The U City budget has been audited every year since I came into office in 2010, and we have corrected most of the many problems discovered in our first audit. Our finances have improved since then, which allowed our bond rating to be increased to AA+ in 2014.

Our budget is in good shape. I hope it stays that way.

Update: Patch has received new comments from Mayor Welsch and Councilmember Carr. We have provided them in full in the order they were received.

Editor's note: Patch reporter Ryne Danielson is tangentially related to Mayor Shelley Welsch by marriage.

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