A VIRTUAL DILEMMA

Folks:

Batten down the hatches..........

State plans to audit city
Of The Daily Oakland Press

The state Department of Treasury plans to do its own audit of internal controls of the city's accounting books.

Terry Stanton, spokesman for the treasury department, said the audit will be done to assist the financially struggling city, which has a deficit of $5.2 million in the general fund from the 2002-2003 audit that was recently completed.

"We welcome them," said Lewis Vaughn, chief assistant to Finance Director Ed Hannan. "This is not like a witch hunt or anything like that. It is what they do.

"We have the material ready that they requested. They are going to do an internal control audit. Internal controls are the processes and procedures we have in place to safeguard the assets. The state routinely does this for several communities."

Documents circulated by officials indicate the deficit could be as high as $11-14 million.

Preparations are being made to do the 2003-2004 audit that was to be given to the treasury department at the end of December.

In addition, revenue for the Tax Increment Finance Authority, which has projects throughout the city, is short an estimated $6.9 million from what was projected. The authority has contracted with Plante and Moran to do a special audit of its funds.

In reaction, the City Council approved a resolution last week to allow Wayne Belback, the council's legislative auditor, full access to the city's computerized Banner financial system.

The council has complained for months that it does not have adequate information about the city's financial status even though it controls appropriations.

To improve the situation, city administration has met with treasury officials to propose a deficit reduction plan and has a contract with the Plante and Moran auditing firm to assess accounting methods and train employees to meet auditing requirements.

Mayor Willie Payne and Hannan, the finance director, said they hope state auditors will allow the problems to be solved internally with the help of Carl Johnson, a Plante and Moran auditor who has worked with Flint and Highland Park in solving their financial difficulties.

"The city has a deficit and is late with its audit" for the 2003-2004 fiscal year, Stanton said. "If there are any problems with internal controls, we will send a report to the city. The city will give us a sense of how they will remedy any issues we bring up.

"There are a number of audits we do annually and it keeps units out of further trouble."

Stanton said the state is not ready to put the city into receivership.

"We work with local units throughout the year to help determine if there is an issue and how to remedy it so there isn't any need for emergency" remedies such as receivership, he said.

Councilman Joe Hansen distributed information at a council meeting last week than indicated the deficit from audits in 2001 and 2002 were the first for the city since at least 1995.

The information was gathered by Belback at Hansen's request. The general fund had a deficit of $373,172 in 2002 and $5.099 million in 2003.

Belback's data shows the total fund balance - combining the general fund balance and the budget stabilization fund after city audits - was $4.9 million in 1995. It went up to $10.4 million in 1998, and dropped to $2.5 million in 2002. In 2003, the fund balance was a minus $2.25 million.

Payne, who took office in January 2002, said the deficit in the 2002 budget would have come from 2001-2002 - before he took office. He noted it in his first state of the city address.

He said the budget numbers Belback gathered may have looked better than they really were because at that time the problems in the comptroller's office were not known.

But his political opponents say if he was aware of the deficit when he came into office, he should have done more to correct them by this time.