At the November 5th 2018 city council meeting councilman Bob McDaniel brought up the subject of the money from 3 CDs that were cashed out by the city in 2015. It was unclear where the money had been used so new city administrator, Tommy Turney, launched an investigation into the $360,000.00. There was also the matter of grant repayment money for $275,000.00. The Texas Rangers also launched an investigation as well. That investigation is still ongoing but should be completed soon.
Originally it was said at the council meetings after the questions about the money arose that an audit would be conducted to see how the funds were spent. But, an audit has not happened, and it will not happen. Why?
What did happen was a review of the city’s internal controls that was recently completed by CPA Gayla Fullerton. A review of internal controls and an audit are two different animals. Internal control is a system that is comprised of control environment and procedure, which help an organization in reaching business objectives. On the other hand, internal auditis an activity performed by professionals to ensure that internal control system implemented in the organization is effective. One looks at the methods of ensuring there are procedures in place and being followed for the financial procedures. The other looks at the bookkeeping and how the money was spent.
One of the points brought up about the audit was the cost, estimated at the time in November to run approximately $125 per hour. It was said at a December council meeting that an audit would be performed. As it is, the review of the internal controls was expensive in itself, “It cost the city $9,000,” city administrator Tommy Turney said.
One of the reasons for using Fullerton was because her agency had performed the city’s annual audits. It was revealed at the February 4th 2019 council meeting that she had not performed the city audits prior to 2016. Her review did include expenditures from June 2015 to November 2015. For some reason the first half of 2015 is not included.
Turney had only been on the job for a couple of months when McDaniel brought up the issue. It meant that Turney hit the ground running with a load of work on his plate. Turney has proven capable, even when others who might have been able to shed some light on the city’s finances didn’t say anything. No one came to council meetings to speak of it and Turney received very little help. Mayor Sam Mallory was on council in 2015 and did not speak up about the fund expenditures. Former council members offered no input openly in the city council meetings. City attorney Pat Chesser had only been hired in April of 2018 and, like Turney, was apparently not aware of the issue prior to McDaniel broaching the subject at that November city council meeting.
One issue complicating the presentation to the council at the February 4th council meeting was the fact that the actual person who had performed the review, Kevin Bradford, had left Fullerton’s agency and taken a job in Houston. It fell in Fullerton’s lap to provide the information from the review of the internal controls, “He was supposed to make a presentation to the council in January but he was working in Houston. Then he takes a permanent job down there so Gayla came in at the last minute to present the findings,” Turney says.
On July 23rd, 2016 Fullerton offered recommendations to the city based on their annual audit. The letter regarding the recommendations was published in the newspaper in December. The recommendations based on the findings in that 2016 audit included:
The city did not have a master list of assets and values. We recommend the city create an accurate list of all assets, the date acquired, the purchase price and the location/use. The balance of the customer deposits being held by the City water department is not current. We recommend these holdings be adjusted accordingly. There are old outstanding checks in bank accounts. We recommend all checks outstanding over one year be voided and reissued if needed. The water and sewer departments have many old outstanding accounts receivable. We recommend the water department write off all outstanding accounts receivable more than two years old and make an effort to collect outstanding accounts quarterly. In the opinion of the auditor, it is imperative that the city staff be cross-trained in financial management including payroll, cash balancing, general ledger entries and monthly balancing of bank accounts.
Turney began implementing those changes when he was hired. He’s made progress in bringing the city finances under control, updating the bookkeeping procedures, cross training employees so that one employee isn’t responsible for all of the finances and ensuring that everything is run more efficiently.
This brings us to the February 4th council meeting, where Fullerton presented new recommendations and some financial insight. The executive summary on page 3 states, “The City of Ballinger initiated an engagement with Gayla Fullerton, CPA, PLLC of Abilene, Texas to: Analyze standard operating procedures (systems and internal controls), work flow and employee capacity.
Again, this means that an audit was not performed, just a cursory look at the finances from the second half of 2015 while looking at the city’s internal controls.
The report goes on to state, “The management of the city’s financial processes were found to be improving with the new city administrator’s initiatives to begin the process of implementing cross-training recommended in the September 30th, 2017 financial audit. The internal controls review also revealed other “Issues Discovered”;
The city’s financial management practices have areas of weakness that need strengthening to ensure internal controls, proper succession planning, and operational coverage related to the following: Assigning responsibility for verification of internal controls; Assigning responsibility for each audit recommended adjustment; Ensuring that purchase orders are examined and approved appropriately. The city’s 2018 fiscal year beginning cash balances align with the September 30th, 2017 financial audit. Analysis of funds comparison between beginning balances fiscal year 2018 to September 30, 2017 reveals variance in; Tax receivable; Allowances for uncollected taxes and accounts payable.
Fullerton’s, “Analysis of the city’s utilization of funds deposited from the cashed CD’s on September 22, 2015” showed:
$61,601.38 issued with check 63057 paid to Ballinger National Bank on the police vehicle loan. $105,852.00 issued with check 63058 paid to Ballinger National Bank oon the Community Center loan. The City of Ballinger council minutes on October 5th, 2015 recorded that the city manager states that three Certificates of Deposit were cashed to cover; shortages described in the September 21st, 2015 city council meeting due to TDA; An $80,000 shortage in revenue from sales tax; an additional shortage was created due to a $78,717 credit given to one of the large payers of sales tax after a six-year audit was conducted. The expenditures and shortages highlighted in the September and October 2015 City of Ballinger city council meeting minutes total $326,169.47. The September 30, 2015 fiscal year revised budget confirm a $372,478 negative variance of expenditures over revenue. Review of the city’s deposit (revenue) to withdraw (expenditure) from June through November 2015 created a positive net cash flow of $751.41. Reviews of expenditures in excess of deposits covered by the funds generated by the cashed Certificates of Deposits are presented.
“Note: The variance referenced above (*) include the previously indicated loan payments made in September 2015. The additional funds deposited from the cashed CD’s covered additional shortages in the revenue to cover fiscal year 2015 YTD expenditures.”
People in Ballinger have taken an interest in the governing of their city as can be seen in the online city council meetings. In years before you might have 5 or 6 people at the council meetings. Now you have 15-20 people at most of the city council meetings.
Neither Tommy Turney nor anyone on the council ever accused anyone of stealing or misappropriating money. It’s always been a case of looking into where the money was spent. But, even back in November it was brought up that the money was “probably” put in the general fund, where it couldn’t be accurately tracked.
More questions and information were brought up at the February 4th city council meeting. Here is a quick look at that council meeting (the full video is available online via Youtube and the city’s homepage);
Turney, “We asked Gayla’s (Fullerton) firm to send someone to take a look. Because it was in the general fund, you couldn’t just go in and say it went somewhere specifically. It’s like taking a jug of water and putting it into a bigger jug of water.”
Fullerton said that her agency was hired to perform a review of internal controls, “When I say, ‘Internal controls” I’m talking about the internal workings of the office.”
Fullerton said that $61,000, $165,000 and $105,000 were used to pay back loans.
(Reviewing the October 5, 2015 council meeting minutes, it was discussed that the grant money from department of agriculture was slow coming in and they were using some of this money for operations.)
Fullerton also said at the council meeting, “There was a $78,000 shortage from sales tax due to an audit from the comptroller. That was a shortage that they weren’t expecting. It’s pretty straightforward where the CD money went.
In June 2015 there was a $55,000 deficit in cash. The CD money came in during September. Which is why there is a 289,585.93 surplus. The money went to operations.
Fullerton said that one reason grant money from the state was slow in coming in is because, “Reimbursement from state – you have to prove the work was done to get the money.”
One person brought up the issue with the sewer in 2015, which has been cited as the primary reason for cashing out the CD’s,“How come they didn’t fix the sewer back in 2015.” Turney replied, “They had planned to cash the CDs and use that money until the money from the grant came in. I think what happened, and I haven’t verified this, but, when the money came back in, they said, “Well, we can use this money on all of these expenses listed in black instead of going back to a CD.” They used it on expenses is basically what happened. I know they had sales tax, it wasn’t what they thought it was going to be that quarter.” He continued, “If you’re expecting to get a refund check of 2500 and you only get 200 you know, you start kind of shifting gears. It should go back into savings but they decided at that time to use it for operations, which is neither here nor there.”
Fullerton added, “That is why cities are required to do budgets and councils are required to look at the budget to ensure we’re staying within budget. So you were staying within budget on expenses, just not so much on revenue. Turney continued, “What caught this council off guard is that nobody was here that was there when it happened.” Then Turney said, “It’s right here in black and white,” referencing Fullerton’s review.
What isn’t mentioned is that mayor Sam Mallory was on the council when the CD’s were cashed in and all of the work was being done.
Fullerton addressed the work being done at that time, “There were a couple of street projects around the football stadium, around the park. I don’t know if it was paving or something. Also paving on 11th street.”
Turney commented on that subject and the money, “If you have some extra money and you need something done… such as 11th street, they decided to pave the street on 11th street.”
Just after the 23rd minute of the council meeting Turney said, “I think the person that went through this did a good job getting it down to $17, $4.95, etc. Our biggest task after this was to make sure we knew where it went and then let everybody else know where it went. That way, I mean, we need to be transparent. You know, we’re going to have a banking account, you can see where everything went.”
In attendance was former city administrator Tommy New. New was the city administrator prior to Turney’s predecessor, Bryan Grimes. New addressed Fullerton and the council “So actually what you’re saying here, is that every year the audit was done, it didn’t come up in the red, it came up in the black because they used reserves to paint it in the black, period. Is that correct.”
Fullerton, “That’s right. CD money is considered cash on hand.” New, “You just overspent. Cashed in the CDs to come up in the black.” Fullerton, “I believe that was actually a finding in 2015. I didn’t do that audit, someone else did but there is a finding in 2015 because of budget issues and that’s why, it has to do with that.” New, “But each year you should have come up in the red if you were already in the red.” Fullerton, “But they weren’t in the red.” New, “You used your reserves.” Fullerton, “Reserves are considered cash available.” New, “But at one point in time the reserves we had wasn’t to be pulled out to come up in the black, because then why have it?” Fullerton, “Well that’s up to the city council.” New, “If you don’t stick with the budget...” Fullerton, “That’s true, you have to stick to the budget.” Turney added, “That’s something we need to consider here. We have 2 CDs now, I think one is$ 123,000 and the other one is right at $100,000. Is that a priority we can set as a city is set a reserve and set a minimum? That’s what Tommy (New) alluded to.” City councilman Jason Gore addressed Turney, “Minimum cash on hand balance.” Turney, “Right, I think the school has to have a year in arrears.” Fullerton, “For audit purposes you’re supposed to have enough cash in reserves for your short term debts, whatever that is, and then any accounts payable that you have outstanding.” Turney, “Right. But we need to go above and beyond that so that’s what we need to make, a decision for us as a council. City attorney Pat Presser asked Fullerton about reserves, “What do you recommend for a city reserve for a city with the size of our budget.” Fullerton, “I recommend whatever your short term debt is for a year, so whatever debt you owe within the next year, which that can be $600,000 or $700,000 sometimes. And then probably another $100,000 on top of that for any accounts payable you might have any given month.” Turney, “I know 5 years ago they had around $700,000.” - Now the city has $200,000. Gore, “We have some catching up to do.” New, “I don’t know how you can miscalculate every year for the last 5 years when you know you’re overspending. You still really don’t have an answer to what happened to your funds other than the budget was overspent so you had to use reserves to come up in the black. Simple.” Turney, “ Part of that having a reserve, in an emergency if something comes up, you’d have that reserve to fall back on. Now, initially the reserve did what it needed to do, it was there when they needed it. Where we failed as a city is to catch back up. We need to build that reserve back up.” Gore, “Now we can start.” Turney, “We got to, we got to. This helps shed light…” Councilman Rick Morrish, “They were $100,000 short on sales tax, had another $78,000 in credit and that was beyond their control at the time so they had to act to do something and therefor they did.” Turney, “And that’s where you dip into your savings.” Councilwoman Kristi Goetz spoke up about the findings, “That doesn’t quite equal $360,000.” Turney, “But you had two loans on top of it that had to be paid in order to get that money.” Robert Langston was in attendance asked about who had access to the reserve funds, “Who has control of getting into the reserve as of right now?” Turney, “Right now it takes two signatures, where before it was one.” Gore, “And council approval.” Turney, “And a resolution. The bank won’t do it just because I want it to. You have to have a resolution from the city council.” Presser, “I’m surprised we’ve used CDs to be honest with you, mainly because you get so little interest and a tighter money output without flexibility. Most cities have TexPool or TexStar, which is basically a city government savings account but it gives you the flexibility to draw from it at any time.” Chesser, addressing Fullerton, “I guess that’s one thing I want to clarify from what Mr. New was asking. Our budget, you said that we were following our expenditures but our revenue wasn’t meeting. Is that correct?” Fullerton, “In 15 (2015) that is correct according to what the audit said.” Chesser, “How long have you done the audit here?” Fullerton, “The first audit I did was in 2016.” Chesser, “Have you seen evidence that we’ve been following our budget since you’ve been auditing us?” “ Fullerton, “Yes. But the budget has been amended to meet whatever the needs are, which is what you’re supposed to do.” Turney, “That’s why you have budget amendments.” Fullerton, “And that’s happened.”
Also at the city council meeting was Jeff Smith who is the general manager of the KRUN radio station in Ballinger. Smith has been vocal in his support of the investigation into city funds and has updates on his “Jeff and Landy” morning radio program. Turney is in the studio on Tuesday morning for a “Tuesdays with Tommy” segment to update the people of Ballinger on what is going on within the city government. Smith asked Turney, “Is it commonplace to overshoot your sales tax (estimates) by that much in a city of this size? $100,000 is a pretty good overshot.”
Turney replied to the question, “It’s not common to overshoot it. Yes, you can come up short but maybe not by that much.”
Another point came up that had not been spoken of at all since this funds issue started. Langston, who works for Mueller, Inc., addressed the council and said that point-of-sale changed in Texas in 2015. It changed from the sales tax being paid where the item was made and sold to where it was actually delivered. Mueller’s is a significant source of sales tax and that affected the city. You can sell a building to someone in Paint Rock. Even though the transaction may have actually happened in Ballinger, Paint Rock will get the sales tax.
Gore asked Turney about his plans regarding the recommendations, “Page 7 is all of the recommendations laid out for us. What’s your plan (for plan for page 7 recommendations).”
Turney said it’s a process, “Step-by-step, start rolling these recommendations in and make a few modifications to them. Gore asked Turney if he had a schedule for implementing the changes. Turney said, “Some of them we’ll start immediately. We’ll sit down with the people in the office that are involved in these procedures. Some people are going to need to be trained up on it and then we can start instituting them piece-by-piece. Gore continued, “How do you plan on keeping track of them.” Turney’s reply was, “My plan is to take the recommendations and bullet-point them.” Turney said that the changes will show in the council manager reports and there are some deadlines already set.
Three months after it all began, we still don’t have an audit, just a review of internal controls. The findings for 2015 were based on that year’s audit, which was not performed by Fullerton, evidenced by her response to Chesser’s question, “I guess that’s one thing I want to clarify from what Mr. New was asking. Our budget, you said that we were following our expenditures but our revenue wasn’t meeting. Is that correct?” Fullerton’s reply, “In 15 (2015), that is correct according to what the audit said.”
The positive side to all of this is that Turney and the council are on a level playing field financially. A week after the February 4th council meeting Turney had already began implementing the recommendations. We know that the city has a little over $200,000 in reserve and we know that according to Fullerton’s suggestion that isn’t enough reserve. But, it’s it being worked on a little at a time. The internal controls being implemented will ensure that in the future any reserves used won’t be put into the scapegoat category of, “It went into the general fund.” The unsettling part is that people who apparently could have shed some light on the entire ordeal, didn’t. They didn’t speak up publicly at council meetings when they could have. Their silence and lack of forthcoming is part of the reason the city had to spend $9,000 of taxpayer money on a review of internal controls.
There likely won’t ever be an audit for 2015. The city cashed out $360,000 in CD’s in anticipation of receiving over $225,000 in grant money. The grant money started coming in during November 2015 but the city didn’t use the money to put back in reserve; they put it in the general fund for operations cost. So overall, the city went $500,000 over budget.
There was a time when council went into Executive Session over 20 times a year, when only a handful of people attended council meetings and when the residents of the city weren’t always aware of the goings on within the city government. This failure to inform people also falls on the shoulders of previous newspaper editors who didn’t attend council meetings and who didn’t keep people informed. There will be future articles to shed some more light on the expenditures from 2015 and 2016, the sewer work and other information compiled from city council minutes, council videos and financial reports. A request for the reports has already been made.
It would be unfortunate if people stopped attending council meetings now that much of this fund investigation is over. The current councilmembers believe in transparency, and it isn’t just a word for them to use to garner votes. They believe in it and have shown that thus far. Turney also believes strongly in transparency and has had to conduct a lengthy investigation, while carrying out his every-day duties. His load might have been lessened with some knowledgeable insight from others into the CD issue.
The best oversight the city council and city administration can have are the citizens of Ballinger taking an interest in what goes on with their city.
What happens now? The city moves forward.