2013 Bay St Louis Municipal Audit reveals poor financial management Part 1

Here at Slabbed we’re the proverbial Johnny Come Lately to cover the long anticipated release of the 2013 Fiscal Year Single Audit Report for the City of Bay St Louis. That’s OK though because the report was very late being released, less than two months before the subsequent fiscal year end. How can an entity improve if it waits until late in the next year to correct the Significant Deficiencies that were reported in a late submitted Single Audit? The answer is simple junior, you can’t but then again many of the Significant Deficiencies noted in the report have been reported for multiple consecutive years without correction and that too is meaningful.

That said there are two things I need to address straight away as this topic, by its very nature, requires a few posts to fully paint the picture. The first thing is that somewhere in my earlier coverage of the City’s audit process, based upon what were at times inside conversations between the City Council and the Audit Firm in a public meeting, I wrote that the audit firm was within the bounds of professional discretion with their, at that point unreleased, opinion on the financial statements. Reading the report caused me to change my opinion in a nuanced way and here is why straight from Auditing Standards (Codified), Section 570:

.16 The auditor’s conclusion about the entity’s ability to continue as a going concern should be expressed through the use of the phrase “substantial doubt about its (the entity’s) ability to continue as a going concern” or similar wording that includes the terms substantial doubt and going concern. In a going-concern emphasis-of-matter paragraph, the auditor should not use conditional language in expressing a conclusion concerning the existence of substantial doubt about the entity’s ability to continue as a going concern.

So there you go, there is no middle ground in the use of the words “substantial doubt” and “going concern” but there is a trap door for the CPAs to use just in case management, for whatever reason, chooses not to share their plan to salvage the enterprise as was the case with the City of Bay St Louis:

.18 Nothing in this section precludes an auditor from disclaiming an opinion in cases involving uncertainties. When the auditor disclaims an opinion, the report should not include the going-concern emphasis-of-matter paragraph described in paragraph .15 of this section but, rather, describe the substantive reasons for the auditor’s disclaimer of opinion in the auditor’s report as required by section 705.4 The auditor should consider the adequacy of disclosure of the uncertainties and their possible effects on the financial statements as described in paragraph .12 of this section even when disclaiming an opinion.

The disclaimer based on these circumstances is just as bad as getting the going concern qualified opinion, thus the interest shown by the Office of the State Auditor in the City’s finances after the report was released last month and this brings us to the second thing that needs to be addressed in Mayor Fillingame’s assertion the 2013 Audit Report was sensationalized by the media. I think I found what he was talking about.

Back on August 15th, Geoff Belcher at the Sea Coast Echo wrote a story on the 2013 audit report and my sensationalism detector went off. Here is the verbiage that set it off:

In its official report, made public Aug. 1, the firm found “The city of Bay St. Louis offers citizens a high level of municipal services and the second lowest property tax levy in the state of Mississippi. With no expected changes to revenue, a cash reserve cannot be generated and the current level of services cannot be maintained.”

This is fiction and spin folks because the audit firm found no such thing and it appears in none of the reports in the 2013 audit prepared by the Audit Firm. That quote was taken from the section of the report titled “Management Discussion and Analysis” and was written by City Clerk David Kolf.  How do I know this was written by Clerk Kolf?  Mainly because he almost put the audience asleep at two council meetings reading it to the City Council.  Bottom line is I agree with Hizzoner on the sensationalized aspect of the media account and this was after I sent a correction to the Echo:

What the public needs is not spin, no siree. The public needs facts and figures because the numbers themselves do not lie.  The public needs nice charts and graphs because visual aids really do convey the message. Finally we need to explore those pesky audit findings in depth because in those findings is the key to understanding what landed the City in this financial mudhole, a mud hole fueled by the politics of low expectations. Here at Slabbed New Media……

Stay tuned.

8 thoughts on “2013 Bay St Louis Municipal Audit reveals poor financial management Part 1”

  1. Doug,
    The time line that is so telling is the date of the appearance of Butler-Snow Bond Attorney, Lucien Bourgeois’ appearance before the Council in early June informing them that they were in a “financial crisis.”
    One month later Mike Guel, informed them that he had serious reservations about their financial condition come October and November of 2014.
    Okay, that was June and July. Here came September 1, and they have not paid their bills for the first of the month. Not only did they not pay them, the administration did not even present a docket to the Council. So their vendors just sweat this out.
    It is evident to right thinking individuals that minds like Lucien Bourgeois and Mike Guel knew what they were talking about. After all, the taxpayers are paying both of them for their financial expertise, and no docket even being presented on September 2, bears out what Bourgeois and Guel stated.
    The heat has been kept to a minimum by just being able to make payroll. No one knows if their vendors are being paid, but you let one payroll slip by, well, use your imagination.
    And they are 2 short weeks from October, a 3 pay period month, added to the pile of bills that got pushed aside in September, The First Bank Loan, Fire Truck, and on and on.
    Yes, I think it is safe to say Lucien and Mike knew what they were talking about. In about 6 weeks, we’ll see another tax anticipation loan in the works, and the Bay will just be living off of credit depending on at that point how good their credit is.

  2. Doug and Lana
    Please leave Les alone, he has a lot on his plate. Don’t worry he has it under control, I mean the
    auditor said so. Nothing to worry he’s just trying to run existing business’s out of town, not just
    me, he’s back attacking a business on the beach. Or let me say he and Donnie are. Well
    lets see what I bring to the council MEETIN on toots day! Do they not think if I know how to contact
    the Auditor or the Ethics board, that I don’t know how to contact the department of Justice. I’m not
    prepared to open just one can, they’re gonna get the entire case.
    whop whop whop whooppppeee Tune in to 103.5 after 5 for the politically incorrect pool party.

  3. Well, it appears, according to the Auditor’s Report, they were correct in their reporting and the Mayor and City Clerk were not actually truthful in their responses.
    Our city is in a crises and no one is doing anything about it. The Mayor says we are not and the Auditors say we are. Who do we believe. The most logical answer would be to go with the Auditors.

    The most important part of all of this is the payroll period of November. The report says there are 3 pay periods. Taxes has been approved to be increased, but we will not receive that additional income until Jan/Feb. 2015.

    Will the Mayor decide to make an additional loan to pay the employees. Is the loan legal?

    The next couple of months will be interesting to see with the finances of the City.

  4. It appears that the City of Harahan should be Twin Cities with Bay St Louis. The Mayors seem to have much in common.

  5. Harahan Mayor Vinny Mosca’s administration illegally spent more money in 2013 than the City Council approved in the budget, according to a draft audit of city finances. Under state law, spending may not exceed the budget by more than 5 percent, but the draft audit says Harahan spent $5.8 million, or 8.5 percent more than the$5.4 million budget.

    The accounting firm Postlethwaite and Netterville said Harahan ended 2013 with a slim $28,000 surplus and a stark operating deficit of $1.3 million, a number that accumulates year to year. The deficit grew to that level by $160,932 from 2012.

    That’s a remarkable turn-around. When Mosca became mayor in January 2011, he inherited a $1.8 million surplus and $865,000 in unreserved cash for operations, according to the 2010 audit. Mosca was mayor from 1995 through 2002 then a City Council member for eight years, before returning to the mayor’s office.

    Mosca himself shared the draft audit with NOLA.com | The Times-Picayune. The state legislative auditor’s office is scheduled to release the final report on Monday.

    Auditors blamed the operating deficit mostly on spending to clean up Hurricane Isaac-related damage. The storm struck in 2012 and Harahan paid for some cleanup from its own budget, while awaiting reimbursement from the Federal Emergency Management Agency. But full reimbursement hadn’t arrived by the time 2013 ended; the city is still in appeals.

    Other overspending was blamed on garbage recycling fees, street repairs and buying three police vehicles for $83,000.

    The purchase of the police vehicles concerned Councilwoman Cindy Murray, a regular critic of Mosca’s financial policies. “The purchase of three police vehicles never came before the council,” Murray said. “That is illegal.”

    Mosca said the council was told about the purchase but that it might not have passed a resolution to authorize it. He said the money came from Jefferson Parish, after being authorized by the Parish Council. He thought that then-Police Chief Mac Dickinson didn’t know City Council approval was needed, because the Parish Council had already authorized it. “He runs his own department,” Mosca said. “He just went out and got them, and we got the bill later. … I’m sure he just probably thought he could buy it.”

    Mosca and Finance Director Albert Courcelle said 2013’s excess spending was due to the increasing cost of sewer repairs, including three sinkholes that Mosca said cost $883,000 to fix. “We don’t budget for sinkholes because we don’t know how to budget for them,” Mosca said. “What am I going to do: Not fix them?

    “My position is fix it. Where do I get the money to fix it? I go into city reserves. When I do that, I create a deficit in the city.”

    Mosca said Harahan obtained a $4 million grant in 2013 to repair sewer lines. He said his administration has so far spent $187,000 on tests to identify and repair sewer problems before they become more expensive to repair.

    To make up for 2013’s overspending, the draft audit shows Harahan transferring $998,000 in sales tax revenue into the operating budget. That money normally would have been set aside to pay down debt. Mosca said that was a regular practice. “When I overspend the general fund, I take it from another fund that has money,” Mosca said.

    The council on Dec. 19 did approve an amended $5.9 million budget — more than the administration spent during the year — after Mosca asked to move $450,000 in sales tax revenue from debt service to operations. But that budget is not reflected in the draft audit. Thus the draft shows the administration overspending by more than the 5 percent afforded by the Louisiana Government Budget Act.

    “That’s why I have an issue with the audit,” Mosca said. “The council did approve the $5.9 million. The audit was done before we released that ordinance.”

    Mosca said the conflict might stem from him not actually transferring the $450,000. “I don’t remember if I moved the money or not,” Mosca said. “The council has said yes to that. We did get the $5.9 million budget.”

    Courcelle said the discrepancy was due to the audit not including $236,000 in expenditures in Harahan’s final budget, which the city had debated whether or not to include as Harahan had received the money from a federal program and a Jefferson Parish agreement. He said that if that cash had been included, the city would have been within the 5 percent threshold.

    Mosca is now running for City Council in the Nov. 4 elections. He defended his fiscal practices, even if they ran up a deficit that equates to 24 percent of total spending.

    “I want to fix those streets,” Mosca said. “This is what the haters don’t understand. A small coalition accuse me of mismanaging their money. … You don’t mismanage money when you fix sewage sinkholes, pave asphalt streets, buy uniforms for the Recreation Department.”

    Adriane Quinlan, NOLA.com | The Times-Picayune51 minutes ago
    What do you believe is the cause for Harahan’s financial difficulty? What would you have done if you were in the mayor’s or finance director’s positions?

    1. After 40 plus years dealing with local government, I’ve never seen a lawful appropriation by mere resolution. Is this merely an incompetent newspaper reporter trying to state the money was budgeted and then Mosca contending the matter could have been resolved by a mere resolution? Or is this truly one of those LBJ moments of “there’s two kinds of people in the world, presidents and pissants, and I’m the president.”

      And “the money came from Jefferson Parish.” Again, under Title 33 and Title 39 you have required budgeting practices, and receipt of money involves the comprehensive financial plan i.e. budgeting, through an ordinance, or an amendment to the budget, through an ordinance.

  6. I JUST SOLVED THE BAYS FINANCIAL PROBLEMS… I PAID $840. TO THE CITY TO HAVE A GAS
    METER INSTALLED AT A HOME I JUST SOLD. I THINK I WAS THE FIRST PERSON TO PAY THE NEW
    FEE….IT WAS FREE LAST MONTH!!!! Lets see how many new construction projects happen with
    all the new fees.

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