BELEN — The accountant who recently completed the city of Belen’s financial audit told the council it was the most work he’d ever done on an audit.
Despite that, the city received an unmodified audit — the best an entity can receive. The annual audit conducted went through the city’s finances for the 2018-19 fiscal year.
After Robert Peixotto, managing member of Southwest Accounting Services, presented the council with its 2018-19 audit, the councilors unanimously approved it, although some expressed their displeasure with what was found.
As with some other findings, one has continued to be persistent at the city since 2009 — its PERA reporting and contribution remittances.
According to the audit report, PERA (the Public Employees Retirement Association), had not accepted the city’s last three contributions report for the fiscal year. The auditor noted the city was late in payments and will owe additional interest and penalties. The cause, the auditor wrote, was the city has a high turnover rate in its payroll department.
Another finding that has been repeated by the city is its compliance with the anti-donation clause. The auditor cited two occurrences, including one in which the city constructed sidewalks costing $21,251 around vacant land in which it appeared the landowners were responsible for the cost.
The second occurrence was the city provided services such as a police officer, EMT and the fire marshal for a private event. The city provided a $15 receipt showing the individual paid for the services that had no supporting documentation.
The third finding — framework monitoring — was also a repeated finding. “The city has not performed a formalized and documented risk assessment process for key controls to be in place to prevent and detect errors or fraud.”
A few examples include the city has insufficient internal controls to properly identify and assess fraud risks, lacked proper written policies and procedures, and “the person who runs the payroll can also create employees, delete employees, change employee pay rates and maintains the employees’ personal files.”
The finding also states the auditor found four separate violations of the city’s social media policies.
The fourth finding deals with expenditures without proper documentation. According to the audit, a city official had submitted a purchase order for sidewalks to be constructed around the old city hall. The finance department had denied the PO because the contractor said they weren’t going to be responsible for broken lines or damage to the property.
After the finance department denied the request, the project continued to move forward.
Another example the auditor gave was in reviewing the vendor invoices by the city’s contracted waste hauler, they were unable to reconcile actual services provided even though the city was being billed.
“Internal purchasing policies are not being followed and enforced by the city,” the auditor wrote. “In addition, the city is also paying for services in which they are unable to verify that the services have been completely received.”
The city told the auditor if the city’s waste hauler (AC Disposal Services) is not able to provide the adequate documentation ... the city will issue another RFP to obtain a provider who can property bill the city ...”
The fifth finding has to do with the city’s lack of keeping track of its capital assets. The report says the city is not properly updating and tracking their capital asset listing, and did not perform the required annual capital asset inventory.
City officials told the auditor the governing body will consider an additional employee to maintain asset inventories.
The sixth finding — tone at the top — is a repeat finding, and the auditor gave several examples in the report, including during the audit, “management and governance did not readily make available audit documentation,” and “the city had an internal investigation performed that found members of management and governance violated the city’s code of conduct.”
The auditor also noted that during the audit process, management would bring issues to his attention and then not adequately respond to inquires of the issues.
“The governing body and senior management are not establishing a tone at the top that promotes the importance of internal controls, including the expected standard conduct of the city.”
The auditor recommended that all elected city officials read and follow the city’s personnel policies and act in a fiduciary manner in conducting all city business. He also recommends they receive training on the role of governance and ethics.
The city told Peixotto it will adopt a government code of conduct and ethics, and after every election, the newly-elected officials will receive a packet of governing laws, rules and policies.
The seventh finding went back to address the construction of city sidewalks.
“During our audit procedures when inquiring about known fraud, waste and abuse, management and employees indicated to us the use of public funds to construct sidewalks on 5th Street,” the auditor wrote. “Upon visiting the site we noted approximately 500 feet of sidewalks constructed around vacant land which was owned by private citizens, at a cost to the city of $21,259.
“Further, it was brought to our attention by employees of the city through communication with the city attorney that these sidewalks should have been paid for by the private land owners.”
Peixotto wrote, “A city official directed city employees to construct the sidewalks without consulting the City Council, the city’s engineer or adequate legal advice.”
The management’s response to the finding was that “an elected city official will stop intervening in the duties of management and allow management to perform their assigned job duties.” It does not name which elected official made this decision.
The eighth finding was for a lack of controls surrounding payroll. The auditor noted the human resource director runs payroll, can modify pay rates and hours, can create employees in the payroll system and maintains all personnel files.
The auditor found when reviewing employee records, one had negative accrued sick leave of 17 hours and negative 103.23 hours of vacation pay.
“Upon further investigation we noted the individual submitted time cards for 80 hours of military pay prior to evidence that could show the employee enlisting in the military and these time cards had no approvals and were not taken against the employee’s accrued leave or sick pay,” the audit said. “Once the employee went to basic training we noted no time cards or supporting documentation was submitted to support 744 hours of leave paid to the employee. The total leave available to the employee was 599.54 hours and the total hours used and paid to the employee were 824, resulting in overpayment to this employee for 224.46 hours or $4,825.89.”
Another instance found that one employee’s bank account number and routing number was changed to a fraudulent bank account for a total of five pay periods, resulting in the city paying $2,881 to the fraudulent account.
Another example is that one employee had elected to participate in the city’s life insurance policy at the time of hire, but they had not been enrolled.
The auditor said the city has not implemented adequate internal controls over its payroll processes and procedures, and it lacks adequate training and segregation of duties.
The ninth finding says the city lacks control over expenses for waste disposal billing. The city council awarded a contract to AC Disposal Services in 2018 against the recommendation of the procurement committee.
The auditor found that in 2019, there was a $176,709 increase to the waste hauler expenditure, and the city is not provided with adequate reports of the services.
“This is evident giving the city’s waste hauler expenditures increasing by approximately 27 percent and revenues for these services decreasing by approximately 1 percent.”
Peixotto found $174,308 in cash has been depleted in the fund and about $1.076 million of expenses was paid without the city being able to verify the services.
“We recommend the city issue another RFP for their waste hauler services and obtain a vendor who can provide sufficient detail for the city to properly bill their customer for services rendered,” the auditor wrote.
City officials told the auditor it will meet with AC Disposal and advise them of what their invoices should include. If they are not able to provide the documentation, the city will issue another RFP.
City Manager Andrew DiCamillo said the contract had been amended with AC Disposal without it going before the governing body for approval.
The 10th audit finding has to deal with financial reporting. Peixotto noted the city did not properly post prior year audit adjustments, are not maintaining or reconciling debt and fixed asset schedules, and are not properly tracking accruals.
The 11th, and final finding, has to do with contract compliance with Keter Manufacturing. The auditor found the city had created an economic development contract with Resin Partners, the parent company of Keter. The city had provided the private company with about $500,000 in consideration in exchange for them employing a specified minimum job target number.
The auditor was unable to determine whether the contract was in compliance, and said the city is not monitoring whether the contract is in compliance.
“The contract states that the company shall submit a quarterly employment report in the form of an affidavit ... The city may request a copy of that form, at any time while this agreement is in effect, and the company agrees to provide such documents. The company acknowledges this quarterly reporting will be relied upon by the city to ascertain if the company is in compliance with the job creation provisions of this agreement.”
Peixotto said if the company isn’t it compliance with the agreement with the city, it may owe Belen $500,000. City management replied to this finding saying the city’s economic and planning director will notify Keter of the noncompliance, and if the issue isn’t rectified within 30 days, the matter will be turned over to the city’s attorney.
Peixotto told the council while he was performing the audit, he noticed there were a lot of unhappy employees.
“Things aren’t right,” Peixotto said. “At the end of the day, we want this place to run better. There are a million different ways to do that and have good practices.”
He urged the council to “do better” with the tone at the top issues, saying the city needs to have a good environment that is respectful of everyone.
“It all starts with you,” Peixotto told the governing body. “You are setting the tone. It’s very natural to create grudges, but it’s better to practice forgiveness. The tone at the city has been a little hostile ...”
Councilor Robert Noblin said he was frustrated and disappointed with the audit findings, saying he attributes it to one of two things — ignorance or laziness.
“It was truly embarrassing to be presented with these findings and I can assure the citizens that the entire governing body agrees that change is long overdue,” Noblin said. “It’s definitely an eye-opener, and we’re going to move things in a different direction.”
Councilor Danny Bernal Jr. said they have already started seeing changes with a new council and replacing management.
“I think we need not point fingers and go with what is recommended,” Bernal said. “It’s pretty clear.”
While he didn’t speak about the audit during the meeting, Belen Mayor Jerah Cordova did give the News-Bulletin a statement.
“We can always do better, and I’m confident our new city council and staff are ready and willing to work together to fix these challenges,” Cordova said. “Ultimately, it’s my responsibility to make sure we get it right, and I will push and prod for better results.”
The mayor did say he disagreed with the sidewalk finding, saying the council at the time approved the project in 2017.
“The project was not an ‘individual tract or parcel,’” the mayor said.