Kentucky Auditor Crit Luallen released the complete version of the annual audit of Louisville Metro government, which found 69 serious problems in the city’s financial reporting practices and its oversight of federal dollars. The findings have already resulted in the resignation of two veteran officials from Mayor Jerry Abramson’s administration, who violated the city’s purchasing rules.
“Our audit raises several concerns in areas of Metro government that need the city’s full attention in order to improve accountability going forward,” Luallen said in a press release. “We offer numerous recommendations in the audit as tools for Louisville Metro to strengthen financial oversight.”
Days before the full audit was released, longtime city employees Melissa Mershon, former director of the Department of Neighborhoods, and Carol Butler, a special assistant in the department, submitted their resignations to the mayor last Friday after questions were raised about their roles in producing a book about the history of Louisville’s neighborhoods.
Abramson was first made aware of the investigation earlier this month in a draft audit finding released by Luallen’s office.
However, the problems in the department appear to go much deeper than the production of a history book. Luallen’s team found the department had produced 36 invoices from 15 separate vendors that appear to be fabricated, totaling in at $368,660. The state auditor wasn’t able to delve into the matter due to the ongoing investigation by the Metro Public Integrity, but “there is a potential that other invoices have been handled in this manner and not yet detected.”
Beyond the debacle in the neighborhoods department, Luallen’s office found several weaknesses in how the city tracks its overall revenue, particularly in how the Department of Corrections handles cash management and inmate receipts. The corrections department raised the auditor’s eyebrows enough that according to the report, it “provides the opportunity and incentive for fraud and error to occur.”
The hefty 212-page report also unpacks problems and needed improvements in the departments of Housing and Family Services, Public Works, Finance Department and the “chameleon system” in Metro Animal Services.
Overall, the city’s 2009 fiscal year budget had significant misstatements on financial reports and the state auditor scolds the Metro government for how it recognizes revenues, including $23.5 million in accounts receivables that could not be supported and $22.6 million in cash collections that were not recorded as revenues when received, but were inappropriately deferred to future periods.
“The effect of the city’s revenue reporting errors is a departure from generally accepted accounting principles related to deferred revenues, according to the audit,” according to the audit.
Besides crunching the numbers the audit also slammed the administration for a number of decisions, including:
The controversial $950,000 loan agreement with The Cordish Cos. to refurbish a nightclub on Fourth Street Live
Ignoring city policy by allowing two high-ranking and longtime aides to the mayor — then Chief Financial Officer Jane Driskell and Deputy Mayor Rick Johnstone — to receive additional vacation payouts upon retirement for 20 days more than the maximum time allotted.
Through it all the Abramson administration has maintained that it has made many of the necessary changes that the state auditor outlines. And though they’re likely to comply with the majority of recommendations, the mayor’s communications team has indicated there are some points made in the audit that are “debatable.”
Besides the city expenditures the full audit also combs through and questions how the city administered $89.5 million in federal grant money, particularly the $94,000 in federal workforce funding that Louisville received after a series of natural disasters. The auditors reviewed the city’s oversight and found 33 serious problems that caused auditors to issue a recommendation. The findings were in Metro Housing and Family Services and Metro Public Works, according to the audit.
In public works, for instance, the audit recommends the agency improve its fiscal management of FEMA disaster grants, ensure invoices are paid in accordance with contractual agreements and that grant charges are accurately reflected in the city’s accounting system.
Concerning the $94,666 disaster funds from the US Department of Homeland Security/FEMA and US Department of Labor/Workforce Investment the detailed inquiries include:
• $74,111 due to rate of debris removal being $25 per ton higher than the contracted rate. This results in questioned costs that represent the 75 percent federal share portion of the invoices.
• $4,010 due to debris being cleared at locations not specified in the bid. The cost is 75 percent of the federal share.
• $6,000 of a federal grant used for cleaning services in a building where two grant programs are housed. Auditors are questioning the portion of the cleaning costs attributable to another grant program.
• $4,012 due to improper state road reduction rate by Metro Public Works on a road project worksheet.
• $957 due to a lack of adequate supporting documentation for a federal disaster grant.
• $5,576 for the cost of a storm siren that was note not noted on the project worksheet.