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Russ Lloyd Jr. Responds to the $29 Million “Prior Period Adjustments”

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Evansville City Controller Russ Lloyd has responded to the questions regarding the $29 Million in adjustments to the beginning balances of the 2012 audit.  His entire response is on the following link.

 

Memo_from_Russ_Lloyd_on_29_million_adjustment

24 Responses to Russ Lloyd Jr. Responds to the $29 Million “Prior Period Adjustments”

  1. Brains Benton Reply

    June 10, 2014 at 9:26 pm

    Got to call the balls and strikes as they are and this is good report by Russ.

    • Indianaenoch Reply

      June 11, 2014 at 8:13 am

      True, If they had started with this explanation first, then the “critics” would have had their questions answered.

    • UFO Reply

      June 11, 2014 at 9:57 am

      I disagree with you Brains, this is NOT a good report, this is Russ’ usual spin, riddled with false statements:

      1) It starts off badly when Russ says “the City initiated the majority of these adjustments”. If that were the case, why didn’t the City just make the entries into the Gateway system directly–to prevent any adjustments needing to be made ? Pg. 37 of the Audit Report says that ” The Annual Report submitted through the Gateway system for 2012 contained material errors”. Also, on the Exit Confernce Tape, the SBOA Supervisor said “you can throw the yellow book in the Trash”;

      2) Pg. 2 Arena Accounts: Russ admits his mistake (a first for him !) of $ 17,950,000 on the City’s Annual Report for 2012 which didn’t belong there;

      3) Pg. 3 0606 Sewer Operating: This one truly merits further scrutiny. Russ is stating that the 1/1/12 balance ($ 5,853,811) matches the 12/31/11 Wastewater Utility Trial Balance. Since Russ is the one who would have submitted the 2011 Gateway Report (due 2-28-12), that bears the question: if he wasn’t sending to the State the ‘Wastewater Utiility Trial Balance’ figure of $ 5,853,811, then why in the world would he send the State a number which is $ 33,490,901 too much ????;

      4) Pg.2 0600 Total Monies: ‘Pooled cash for an investment using bank float’. Wow, sounds like something Enron offered. If it is an investment which was redeemed in June 2013, it belongs on the books for 2012. Why would the SBOA zero it out, then ? Also, don’t tell us it was redeemed–show me the money !

      I could go on and on and on . . . ..

      • Brains Benton Reply

        June 11, 2014 at 11:55 am

        Nice breakdown UFO.

        I guess I meant it was a good report in the sense that Russ had itemized out all the adjustements with some brief notes and explanations as to how and why things transpired.

        Now we get to dig, and you’ve done an outstanding job of laying out some of the questions and concerns we all have.

        • UFO Reply

          June 11, 2014 at 12:01 pm

          Thanks Brains, I understand the context by which you deemed it ‘a good report’.

          Admired your work on the Hotel Project–the number of convention visitors required each week to break even over time on the $ 20 MM subsidy. My conclusion, in Yogi Berra style, was that there would have to be so many visitors that “no body goes downtown any more, it’s too crowded !”.

          • Fred Thompson

            June 11, 2014 at 12:27 pm

            On that break even study.

            Did it include incentives other than the 20 mil such as the present value of tax incentives?

      • Gengis_Cohen Reply

        June 11, 2014 at 12:42 pm

        If Lloyd now claims that HE proposed the adjustments for the 2012 Audit (and didn’t make the adjustments before the Gateway report filed on 2-28-13), then how could he have told the City Council on 1-28-13 (one month prior to Gateway)that he was completely balanced except for $ 4 K ?

        Repost from last Friday:

        Gengis_CohenReply

        June 6, 2014 at 10:18 am

        Will the City Council ask Rusty about this on Monday night?

        City Council Minutes, 1/28/2013

        pg. 14:

        City Controller Lloyd: ” I’m not sure. As of . . . we had Umbaugh in pretty much all week and we spent a lot of time on this Saturday. The September 30th reconciliation, we got that down to $ 52,000, so I mean that’s quite a bit lower. And then, now we are still checking some of the entries to make for October, November, December, but as of December 31st our outage is $ 4,236″.

        Councilman O’Daniel: “So what is the out-of-balance right now ? Is it the $ 52,000 for the first nine months and $ 4,000 for the next three?”

        City Controller Lloyd: “Right. As of December 31st, 2012, we are showing $ 4,236 out”.

        Councilman O’Daniel: “Or it that just MUNIS ?”

        City Controller Lloyd: “That’s everything. We’ve got a bunch of adjusting entries but we are balanced, $ 4,000″.

    • UFO Reply

      June 11, 2014 at 10:14 am

      Part 2:

      5)Pg. 51 of Audit Report:

      “Therefore, the financial statement presented for audit was not reflective of the financial activity of the City. Subsequent audit adjustments were PROPOSED, ACCEPTED by the City, and made to the financial statement in this report in order to more accurately reflect the financial activity of the City”. Translation: if the City proposed the adjustment, they wouldn’t have to accept it, now would they ?;

      6) Lloyd report, pg. 3: 0832 07 SRF Reserve Fund

      “Water and Sewer Debt Service Reserve Fund being counted for in TWO PLACES” on the 2011 Gateway Statement. $ 13,919,396 double counted and in error on the 2011 Report. WOW, how can you claim you have nearly $ 14 Million in Cash by double counting ? What is that trying to cover up ? We’ll never know unless the 2011 dumping ground is opened up for investigation !

    • UFO Reply

      June 11, 2014 at 10:22 am

      Part 3:

      In the whole scheme of things, Big Picture:

      7) Pg. 62 of Audit Report: Russ’ reply to SBOA:

      “The City disputes the auditor’s characterization that City fund balances were not properly reconciled to bank accounts for the full year”.
      WOW, that takes balls to refute pages and pages of findings by the state’s auditors, Russell. Citizens, Russ had the same headstrong DENIAL in this morning’s C&P when the auditors made identical remarks about the Utitlies bank reconciliations for 2012; and

      8) Finally, why wouldn’t the SBOA have provided footnotes for the ‘Prior Period Adjustments’ shown on pg. 18 ? And why should we trust these explanations made here by Russell in any way ?

      2011 must be reopened and investigated, in my opinion. It truly is a dumping ground of lies.

      • Tang Reply

        June 11, 2014 at 12:14 pm

        The two that I find fishy are:

        Pg. 2 Total Monies ($ 1,179,897)

        If this is a bona-fide Investment which was cashed in during 2013, it has to be on our Ledger at 12/31/12. The SBOA wrote it off (to zero). Therefore, is Russ being truthful ? The June 2013 ‘redemption’ was a subsequent event that the Auditors would have known about before writing it off–2012 report not published until May 2014.

        Pg. 3 07 SRF Reserve Fund ($ 13,919,396)

        To have shown this much cash TWICE on the Gateway for 2011 is hard to believe by itself. What is troubling is that Russ prepared that Gateway report, as UFO correctly noted. Now, the SBOA writes off the supposed DOUBLE trouble, dumping it into 2011, and that’s OK? Key fact: the decision by SBOA to ‘Disclaim’ the 2011 Audit came in September 2012, I believe–so the Gateway report was far earlier. How could this doubling have occurred, and/or what was being hidden by showing this Cash twice ? This one is ripe for further study.

        • cdad Reply

          June 11, 2014 at 6:38 pm

          I agree with the $13.9 million supposed double counting of the 07 SRF Fund; originally I thought maybe this was used to pay for CIP at the Waterworks as of FYE 2011. Given how the government can take a very long time to pay for construction projects, I though this might be an option. But to say an amount of this size was double counted and is in the investment account seems strange. Which investment account? The City’s or Waterworks’.

          The problems with double counting corrections is that that the corrections never balance when you use a regulatory reporting basis for showing the financial position of a municipality. I wrote about the other changes previously and was not surprised with the reasons why for the most part with respect to the Arena Bonds and establishment of the waterworks’ utility accounts per the SBOA order. However, it would be nice to see where if this fund has been spent and what on. Again it might have paid for the CIP as of FYE 2011.

          This is why you need a CAFR prepared under GASB.

  2. elkaybee Reply

    June 10, 2014 at 11:52 pm

    This is a great first step in answering the questions submitted in writing at last night’s City Council meeting. Thank you, Mr. Lloyd!

    Here is a recap of the two-and-a-half page document submitted last night to the Council, Mr. Danks, and Mr. Lloyd:

    1. Why hasn’t anyone been able to balance the City’s financial records to its actual cash balances in its bank statements since December 31, 2010? What does the installation of new bookkeeping softwar for use beginning January 1, 2011 have to do with the City’s obligation to maintain its financial records according to Indiana law?

    2. Why were the City’s financial records in such bad shape that they couldn’t be audited for 2011? The Controller knew in January of 2012 that the City’s financial records had not been reconciled since December 31, 2010, and yet nothing was acknowledged until the City was blindsided with an independent auditor’s Disclaimer Opinion for 2011 (August of 2012)?

    3. Why did the City report to the Courier & Press in September of 2012 that the City’s financial records for 2011 had been reconciled to the actual cash balances for the year? The City’s 2011 financial records have never been reconciled to its bank statements.

    4. Why did the Controller’s Office report to the City Council in October of 2012 that the City’s financial records were reconciling with its actual cash balances in the bank statements on a monthly basis? The inability to reconcile the City’s financial records to its actual cash balances has continued into 2014.

    5. Why did the City Administration disput the City Council’s independent accountant’s reports during 2013? The accountant reported that the City’s financial records did not match its cash balances. He also reported that the Controller’s Office was unable to determine how much money the City, Water Utility and Sewer Utility were each due from a joint bank account. The Controller’s Office continues to be unable to specify exact amounts.

    6. Why does the City Administration claim that the City received a “clean audit” for 2012? The Controller’s Office did not balance the City’s financial records with its actual cash balances once in 2012 and has material weaknesses in its current ability to balance the City’s checkbook.

    7. Why did the City recently adjust its financial records for 2012 to reduce its cash balances $29 million dollars, so that its financial records more closely matched the City’s actual cash balances from the bank statements? How could a city government lose track of $29 million dollars in its system and then push those transactions into the unaudited year of 2011?

    8. Why has the City spent approaching $4 million dollars over 3.5 years and failed to master bookkeeping software that the County uses every day?
    * $1.1 million dollars for the MUNIS Software
    from Tyler Technology
    * $400,000 each year (2011-2012) for software
    support from Tyler Technology
    * $100,000 each year (2012-2014) for MUNIS
    software contractor at the Civic Center
    * Approaching $1 million dollars for employee
    training and outside accounting firms such as
    Harding & Shymanski and Umbaugh & Associates

    9. How specifically is the City going to address the multiple issues raised that are barriers to the City fully complying with the state and federal generally accepted accounting principles?

    * The City regulary overdraws its accounts
    (Accounting and Uniform Compliance Guidelines
    Manual for Cities and Town, Ch. 7)
    * The City’s annual reports for 2010-1012 were
    not accurate (IC 5-11-1-4(a)
    * A City and its utilities should have seperate
    bank accounts; the City separated its money
    from the Water and Sewer Utilities in 2012
    but cannot determine the exact amount owed
    to the utilities (Accounting and Uniform
    Compliance Guidelines Manual for Cities and
    Town, Ch. 1)
    * The City continues to share a bank account
    with the Solid Waste District
    * The City’s financial transactions with SMG,
    who it contracted with to manage the Victory,
    Roberts Stadium, and Mesker Amphitheater,
    have not been verified for the years 2006,
    2007, 2008, 2009, 2010, and 2011 (the 2006
    contract required an annual audit; subse-
    quent contracts required an annual review)
    * The City’s compensatory time owed to police
    and firefighters above the federal limit is
    $1.1 million dollars; the City’s total un-
    funded liability in compensatory time is
    higher than The Fair Labor Standards Act
    of 1938, as amended Sec. 207 (o)(3)(A)
    * The Controller’s Office lacks the ability
    to detect and find errors in posting trans-
    actions to the City’s finacial records
    (Accounting and Uniform Compliance Guide-
    lines Manual for Cities and Town, Ch. 7)
    * The Controller’s Office lacks the ability to
    detect and correct errors in reconciling the
    financial records to its bank statements
    (IC 5-13-6-1(e))
    * The City has been cited for failing to
    manage its federal funds appropriately
    through the Department of Metropolitan
    Development for the past 3 audits- 2010
    (Qualified), 20ll (Disclaimer) and 2012
    (Adverse) and is not considered a “low
    risk auditee”
    * In 2012, the DMD was unable to prepare a
    reliable financial statement or ensure that
    it has used federal funds pursuant to the
    grant restrictions on those funds (US Office
    of Management and Budget Circular A-133)
    * The Controller’s corrective action plan for
    DMD includes quarterly contact with employ-
    ees working on projects receiving federal
    funds, but the Controller claimed in a
    letter to the State Board of Accounts on
    August 31, 2012, that such an internal
    control was implemented on August 27, 2012
    * The City has failed to pass and ordinance
    outlining and authorizing the EPD’s “Buy
    Money” Program that uses cash to buy
    narcotics and payments to informants
    (IC 36-1-3)
    * The City incorrectly paid the Evansville
    Redevelopment Authority capitalized interest
    payments for the arena project in the amount
    of $3,696,899 (lease agreement City and ERA,
    Sec. 2 Rental Payments)
    * The Evansville Redevelopment Authority had
    $1,808,142 remaining after building the arena
    and after it was open for a year, the City
    was to claim the remaining amount (addendum
    to assignment and assumption of construction
    contracts dated 11/2/2011 between the City,
    ERA and Evansville Redevelopment Commission)
    * The City has failed to pass an ordinance that
    parking meter fees must be deposited in a
    special fund and may only be used for certain
    purposes (IC 36-9-12-4(a))

    10. When will the City’s financial recordkeeping be ready to be audited for 2013?

    The request was made that all questions be answered in writing before the 2013 audit begins. It appears that Mr. Lloyd is beginning a response to this admittedly detailed request. Kudos, sir!

    • Indianaenoch Reply

      June 11, 2014 at 8:15 am

      That is an extensive list. I don’t know if you made it or if there is another source, but very good either way.

      • elkaybee Reply

        June 11, 2014 at 9:02 am

        I started by compiling a lot of the concerns that were brought up right here. I am lucky enough to have some family members and/or good friends with professional qualifications in the legal field and accounting, too.
        Trust me, I did a lot of digging, reading, and asking questions. I also did a lot of imposing on friends and family. I just thought we needed to present something that would catch the attention of the Council.
        The bottom line is still simple, though. Why did the City have so much trouble using a system that isn’t terribly problematic for thousands of other users, including Vanderburgh County? How much are we paying for all those mysterious difficulties?

  3. Pressanykey Reply

    June 11, 2014 at 7:40 am

    What is needed is a transcription of the recording of the exit interview.

    _

    • Coma Reply

      June 11, 2014 at 12:45 pm

      +1000 Pressanykey, I have thought that all along, especially hearing Friend prattle on to Brad Byrd that there was already a transcript circulating.

  4. Fred Thompson Reply

    June 11, 2014 at 8:16 am

    Very nice ELB
    The response is an introduction for a beginning to get some answers to the Questions.

    It looks as if the Evansville Redevelopment Authority is defiantly a separate legal corporation. (private club) I don’t think it is “simpler” as Russ says to leave $$ THREE MILLION and seven hundred thousand of capitalized interest with a private club.

    It is not “simpler” to leave $$1,808,142 of Excess funds from building the arena with a private club!

    Simply combining funds and comingling accounts just makes a mess.

    The simple thing to do would be that the council get these tax payer funds, plus interest, back from the private club and account for them as directed by the state board of accounts.

    That is if the Evansville Redevelopment Authority (PRIVATE CLUB) still has the money.

    • elkaybee Reply

      June 11, 2014 at 9:07 am

      You’re absolutely right, Fred At least they didn’t decide it would be simpler yet just to keep the money in someone’s private account.

  5. Pressanykey Reply

    June 11, 2014 at 9:25 am

    Indiana Business Journal

    [
    Beginning in 2013, the Evansville Redevelopment Authority will repay the bond investors slightly more than $8 million a year, drawing from the Food and Beverage Tax as well as revenue from the downtown Tax Increment Finance district (TIF). No property tax revenue will be utilized. In addition, the City plans to use a portion of gaming revenues to repay the bonds. Bond rating agencies judged these sources to be comfortably above the amount needed to service the debt.

    Standard & Poor’s Ratings Service gave the bond package an “A” grade and Moody’s Investors Service applied its “A1” rating. The positive evaluation relied on the City’s pledging of the several categories of tax revenues, backed up by the City’s share of the County Option Income Tax (COIT) for bond payments.

    “The City Council’s agreement to use COIT as a guarantee was cited by the ratings services as enhancing the quality of these bonds,” Kish said. “The other revenues pledged by the City are more than sufficient to cover the payments, but more security meant a better rating and that meant lower debt payments.” ]

    * * * * * * * * * * * * * * * * * *

    It looks to me as if someone (the City of Evansville) is trying to have their cake and eat it too.

    This convoluted scheme of financing for the arena must have a purpose, and the only purpose I can think of is to attempt to separate, by some means, this bond obligation as a responsibility of the City of Evansville.

    I do not see how anyone with a brain could see this debt as anything other than a responsibility of the City of Evansville, and as such should be recorded as part of the total debt currently being serviced by the city of Evansville.

    There is no “arms length” from this debt by the City of Evansville, as the citizens of Evansville will find out when the amount the city needs from COIT to service the arena bonds steadily increases to the point where the city will be calling for an INCREASE in the County Option Income Tax.

    As we have seen already, the downtown TIF was unable to meet its commitment for its share of the bond payment and had to be supported by riverboat funds. We also know that the riverboat revenue has been going down instead of up.

    The city council has been signing off on an ever growing mountain of bonded debt since the beginning of the Weinzapfel administration. In Moodys’ description of the arena bonds they state that the area has a below average income. Below average income, combined with a declining city population, does not form a basis for increasing bonded debt by the city.

    We are headed down a very dangerous path, and the only thing between the local citizens, who will be responsible for servicing more debt, and those who wish to enrich themselves at taxpayer expense, is a 9 member, elected city council.

    • elkaybee Reply

      June 11, 2014 at 10:45 am

      “We are headed down a very dangerous path, and the only thing between the local citizens, who will be responsible for servicing more debt, and those who wish to enrich themselves at taxpayer expense, is a 9 member, elected city council.”

      How profoundly true, BB! The really sticky part of being in that position is that we can’t even count on all nine of those council members.

      • Pressanykey Reply

        June 11, 2014 at 3:39 pm

        Here is the statute that controls the coming bonding spree:

        Information Maintained by the Office of Code Revision Indiana Legislative Services Agency
        IC 6-1.1-20
        Chapter 20. Procedures for Issuance of Bonds and Other Evidences of Indebtedness by Political Subdivisions

        I doubt if the people tagged with making the bond payments will find much protection within the statute, as it was most likely written and submitted to legislators by attorneys who were hired by the business interests wanting to contract with the subdivisions.

        The public is seldom aware of this type of legislation until AFTER it is signed into law.

        _

  6. Brains Benton Reply

    June 11, 2014 at 12:54 pm

    Fred Thompson
    June 11, 2014 at 12:27 pm

    On that break even study.

    Did it include incentives other than the 20 mil such as the present value of tax incentives?
    =============================================

    No it did not.

    I gave every benefit of the doubt to the project I could so that it would show the best case scenario for the hotel, and the ROI still cam up negative.

  7. elkaybee Reply

    June 11, 2014 at 7:11 pm

    If the information that the hotel’s franchising is in place is correct, we are now where “the rubber hits the road”, or more specifically, the private financing hits the books. It must be in place by now, right everybody? I think we’re in for a steady string of song-and-dance routines now.

    • editor Reply

      June 11, 2014 at 7:18 pm

      Well the information that the franchise agreement was approved did come from the same place that said the application was made back in December. As we have all learned that was not the truth. I think we all should take a believe it when we see it approach with both HCW and the Mayor. They both seem to love grand announcements so much they schedule them without reason. These boys have cried wolf too many times to be believed.

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