The Allen City Commission discussed the possibility of the state withholding all funds because of city’s lag in financial reporting on Monday.
City Attorney Beth Shortridge read an email from the state auditor’s office into the record during the commission’s June 3 meeting.
The April 8 email, sent by Certified Public Accountant Jettie Sparks of the Kentucky Auditor’s Complaints and TIPs department, highlights financial reporting delinquencies Allen has faced for more than a decade.
State law requires Allen to submit an audit for every odd-numbered year, but the last audit Allen provided the Kentucky Department for Local Government was for the 2008 fiscal year, and it was submitted in 2010.
The commission has discussed the need for an audit since March 2016. The city hired CPA David Garrett in August 2016 to conduct an audit, but he quit in 2017, citing a significant lack of documentation. In March 2018, the Kentucky State Auditor office sent the city a letter, asking officials to provide its plan to comply with state law.
Shortridge responded to that letter in April 2018, telling the state auditor’s office that the city “had to begin the audit process from the beginning” after Garrett quit.
She also explained that the commission moved its city clerk to full time, hired an assistant clerk (who died last year) and took other steps to improve its financial reporting.
Allen provided the DLG with estimated budgets for the 2015, 2016 and 2017 fiscal years to come into compliance with laws requiring cities to file Uniform Financial Information Reports and, in doing so, the city received more than $30,000 in municipal road aid funding that had been withheld since 2010 last year.
Sparks pointed out, however, that Allen is still noncompliant with the audit requirements and that it could losing all funding it receives from any state agency.
“According to DLG, the city was instructed that audits were needed for FY 2015 and FY 2017, as well as a financial statement for FY 2016,” Sparks wrote. “KRS 91A.40 was amended July 2018 and now states that funds will be withheld from the state if the city is not audit compliant.”
Noting the auditor’s office is “concerned about the city’s progress to have audits conducted,” Sparks attached a copy of the state law, as amended.
It says that cities may ask for extensions of up to nine months for certain circumstances, but those requests must be made prior to the audit filing deadline. If a city fails to comply with audit requirements, the DLG will notify the Kentucky Finance and Administration Cabinet and that “funds in possession of any agency, entity, or branch of state government shall be withheld from the city until further notice,” the law says.
The law also allows any city resident or owner of property in cities that fail to submit audits to sue the city to enforce the law. That part of the law states that any person who violates any provision of the law and any city officer who fails to comply shall be fined between $50 and $500 for each failure, at the discretion of the court presiding over the lawsuit.
Commissioner Dr. Eilene Kinzer asked about writing another letter to the auditor’s office, explaining the situation.
Shortridge responded, “Really, the city needs to do whatever needs to be do to get the audit done.”
Eilene Kinzer suggested asking the state auditor’s office to conduct an audit in Allen, saying she will call that office and report back to the commission.
She and Commissioner Josh Kinzer explained that it would be devastating to the city if the state withholds funds.
Josh Kinzer said if the audits are expensive and the state withholds funds, then “there’d be no crawling out of it” because Allen could not afford to exist. He said Allen would be “sunk.”
“I think if they hold back revenue, that’s all she wrote,” Josh Kinzer said. “Because, I mean, if you’re looking at just the, you wouldn’t even have enough in your bank account to pay what obligations we have going forward.”
“No,” Woods said.
Eilene Kinzer suggested the possibility of having to dissolve the city.
“So, what are, I know this was discussed several decades ago, but what about if that does happen, obviously the city can’t function that way, the option then would be to be unincorporated. So, what would be the process?” she asked.
Woods said she believes the city will be able to “handle it,” while Shortridge said she would have to research laws regarding the un-incorporation of cities.
Woods asked City Clerk Krystal Spurlock to reach Richard Paulmann, a CPA who commissioners previously reported has been reviewing city financial records. Woods reported that Paulmann said he never received those documents, but Spurlock reported she has proof the documents were sent. Spurlock was asked to tell Paulmann to be prepared to bring an engagement letter to the city’s July meeting so the audit can move forward. Woods said after Spurlock spoke with Paulmann, she would reach out to a couple of her contacts in Frankfort about the issue.
As concerns about the cost of the audit were raised, Eilene Kinzer said, “If we don’t have the funds to do the audit, that’s what I’m saying, we need to be talking about, looking at other avenues about what is best for the citizens.”
Commissioners discussed the possibility of calling a special meeting for Thursday to discuss the issue, along with the city’s upcoming budget.
At the meeting, the commission held the first reading of its 2019-2020 budget, detailing a drop in revenue and expenses of more than $83,500.
Like previous years, the Allen budget does not detail where it obtains its revenues, listing only $36,700 as carry-forward funding, $84,000 as “estimated revenues” and $53,900 in municipal road aid. The only difference in the revenue portion of the budget from the current fiscal year budget is the $83,500 reduction in the amount of carry forward funding. Answering a question from Commissioner Dr. Eilene Kinzer about where Allen gets its revenues, City Clerk Krystal Spurlock said the city’s revenue has not changed in the past four years.
The expenditure portion of the budget is also nearly the same as last year, with the only major difference being a contingency fund. The current fiscal year budget included a $90,000 contingency and the new budget calls for a contingency of $23,300.
The city’s highest expenses are payroll, budgeted at $62,000; utilities, budgeted at $20,000; insurance, budgeted at $16,000; streets, budgeted at $15,900, and accounting and payroll taxes, budgeted at $15,000 each.
Compared to the current fiscal year budget, city utilities dropped by $2,000, police expenses decreased by $1,000 to $4,000, maintenance dropped by $1,000 to $2,000 and streets dropped by $7,000.
The commission took no vote other than approving minutes of April meeting. Commissioners Elmer Parsons and Clyde Woods were absent.
In other news, the commission also:
• Learned that Woods spoke with Elite Insurance about the possibility of drafting a form through which the city would not be liable if a volunteer auxiliary police officer works in the city. Woods said she told the company the city needed that form as soon as possible.
• Learned from Shortridge, an assistant county attorney, that the woman who crashed into the Jacob’s Ladder Food Pantry pleaded guilty to driving under the influence and will pay restitution to cover the city’s $1,500 deductible on the insurance policy for the building.
• Discussed an issue with the city sewage that has been discussed several times since 2015. Officials report that the city has a contract with Prestonsburg City Utilities to provide sewage services in Allen, and residential bills should have decreased to the in-city rate as part of that contract. Shortridge reported that the city’s former attorney worked on the issue and may have documents related to the problem.
•Learned from Woods that the city’s PRIDE cleanup in April was “outstanding,” with four dump trucks of trash removed. Mayor Woods praised city officials, volunteers and county officials for the help.
•Learned that Parsons provided a contract to the city for his employment there, with Spurlock saying she believes Parsons came back and retrieved the contract. Shortridge advised the commission, again, that the contract must be approved at a public meeting.