Republican Meg Holland (CPA/ABV, CVA, CIA) is opposing David DiGiacinto (DEM) in Bethlehem's controller race. Holland is clearly the more qualified candidate, and her daughter made a nice pitch for her here.But is she independent?
As a Republican, you'd think she'd be the ideal person to look over the books in Bethlehem, whose Mayor and council are Democratic. But since Holland has the quiet support of Mayor Callahan, some suggest she is actually be less independent than Democrat DiGiacinto.
Today's Morning Call reports that Bethlehem has been dipping into its escrow account over the last three years to cover expenses. Is this a good financial practice? Yesterday, I tried contacting both candidates. Unfortunately, I only was able to reach Meg Holland, and was surprised to learn that she was conducting a press conference about that issue later in the day. Here's what she has to say about dipping into an account with funds earmarked for specific projects.
[T]he city’s actual operations in 2006 required additional cash which the city borrowed from various funds at year end and repaid the funds in March 2007. The liability was properly recorded on the balance sheet at year end. The Auditor/CPA at the finance committee meeting stated she audits four other municipalities and they all have borrowed from other funds to cover short falls.
Holland is not so disturbed about borrowing money from an escrow account. But before you conclude she's just a Callahan rubber stamp, she also stated there are two areas that need investigation: 1. Departmental Earnings – revenue was over $447,000 less than anticipated.
2. General Expenses – expenses were more than $476,000 than anticipated.
I also compared the accrual based financials to the budgeted financials and I noted that departmental earnings reported on the accrual basis were over $2 million dollars higher than the cash basis budgeted financials.
I learned through my conversation with the Business Department of the city, that the major variance in departmental earnings is due to the fact that the city’s ambulance receipts collection are delayed. The billing and collections of ambulance services are performed by St. Luke's Hospital for the city. According to my inquiries the receipt delay is primarily due to claim processing problems. As the Controller, I would perform an operational audit of the entire process in order to expedite receipt of the over $2 million in ambulance fees.
The actual general expenses were in excess of the budgeted by $476,000 and is due to delay in medical reimbursements. Apparently even though the city has catastrophic insurance, the city must first pay all medical expenses and then the claim administrator files for reimbursement from the insurance company for the city for all medical expense payments made in excess of $100,000. I was told that the reimbursement checks were finally received by the city in 2007 for 2006. As Controller I would perform an operational audit of the insurance contract and claims processing to determine any inefficiencies.
Lastly, the second management comment is regarding the fact that all purchases are not acquired with approved purchase orders. This management comment has appeared on the city’s audited financial statements for several years because Wally DeCrosta (former Controller) wanted the purchase orders to match the invoices exactly. Therefore, purchase orders were not recorded in the accounting system until invoices were received. Approved purchases orders should absolutely be required and recorded in the system before any purchase is made, by any city employee. This control is to make sure that a purchase by city employees has been approved, budgeted and is necessary. By not requiring this, purchases can occur for purposes not for the city and in excess of budgeted amounts. I would first notify all city vendors that they cannot except an order without an approved purchase order and any invoices received which did not have authorized purchase orders will not be paid. Then I would obtain a listing of past paid invoices for the last five years on these accounts and investigate them for fraudulent activity.
Now, if you can understand what the hell she said, you're better than me. Clearly, she's in another league. And obviously, she's independent. Mayor Callahan surely didn't write that for her. She'd be an asset to Bethlehem.
5 comments:
Great wrok Bernie.
I agree both candidates will be independent of the current administration. Holland is obviously the person who is best qualified for the position.
However, I disagree her camp telling people that DiGiacinto is not qualified at all. He meets the qualifications for the position and has a proven business back ground including audit work. Her camp's comments on my blog and other places are just mudslinging.
That said, there may be other reasons for Bethlehem residents not to vote for him and to vote for Meg Holland.
I will have more to say about this race on my blog in the next week or so.
I'll look forward to your post. I agree DiGiacinto is qualified for the position.
I hope that it is clear that accounting and auditing and in particular municipality accounting is not simple. Again, my mom has great passion for the City of Bethlehem and will truly be an enormous asset to the city. I also understand that most residents do not understand accounting concepts, as they are confusing. Below I summarize my mom’s comments regarding the City of Bethlehem Audit report in bullet format.
Auditors Statements:
- The auditor (Tracey Rash CPA, partner in charge of the city’s audit from Maher & Duessel Certified Public Accountants) did not say “the City of Bethlehem outspent income”.
- The City of Bethlehem received an “unqualified opinion” or in other words, a “clean audit” (a positive report).
Escrow Fund Borrowing:
- The city’s actual operations in 2006 required additional cash which the city borrowed by various city funds at year end and repaid in March of 2007.
- The liability (of the city’s borrowing) was properly recorded on the balance sheet at year end.
- The auditor stated that she audits four other municipalities and that they all borrowed from other funds to cover short-term short falls.
- The borrowing does not necessarily indicate that the city outspent income and it may indicate a delay in receipts (a timing issue) or non-recurring expenses.
- The accrual based financial statements indicated at year end that revenue was in excess of expenses by over $300,000.
- The city’s budgeted financials are prepared on cash basis
Budgeted to Actual Variances: (pertains to the reason escrow borrowing has occurred)
- Variances between budgeted financials and actual performance should be investigated and used to improve controls and efficiency.
- The two main variances between budgeted financials and the actual performance were departmental earnings (income was $447,000 less than budgeted) and general expenses (expenses were $476,000 more than budgeted)
- Department earnings were less than budgeted due to a delay in ambulance receipts collection from St. Luke’s.
- General expenses were more than budgeted because medical expense reimbursement was delayed. (If an employee incurs more than $100,000 in a year for medical expenses, the city pays the full amount and is then reimbursed for any amount over $100,000)
- Meg Holland will investigate these variances and perform operational and performance audits to improve timing issues.
Purchase Orders (an Internal Control Issue):
- Over the past several years all purchases made by the city were not acquired with approved purchase orders.
- Former Controller Wally DeCrosta wanted purchase orders to match invoices exactly.
- Meg Holland will implement internal controls to change the treatment of purchase orders.
- Approved purchase orders should be required and recorded in the system before any purchase is made by any city employee.
- This control is to make sure that all purchases have been approved, budgeted and are necessary.
- Meg Holland would notify all city vendors that they cannot accept an order without an approved purchase order and that any invoices received which did not have authorized purchase orders will not be paid.
- Meg Holland will also review the last five years on these accounts and investigate them for fraudulent activity.
If you have any questions, please contact me at mschaeffer@megholland.com
Note that the department earnings and general expense variances equate to a negative variance of $923,000.
Also a typo...
- The city’s actual operations in 2006 required additional cash which the city borrowed from various city funds at year end and repaid in March of 2007.
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