STAMFORD – The financial report was strong, but the financial reporting was decidedly weak.
With that thought, the six elected members of the Board of Finance this week approved the city’s far-too-tardy, far-too-costly 2022 audit.
The state-mandated Annual Comprehensive Financial Report offered good news – a $14 million budget surplus; a growing Grand List of taxable property; a high tax collection rate; and an impressive amount of revenue from building permits, city finance officials told the board.
But the 2022 ACFR was due in December 2022, and the reasons it was delayed are worrisome and require a lot more work if problems are to be rectified.
The reporting of financial information was fraught with complications that caused the audit report to be so late that it jeopardized Stamford’s AAA credit rating and ability to sell bonds; had lenders and underwriters asking questions; elicited a warning letter from the Connecticut Office of Finance; significantly increased the fees the city must pay its outside auditor; and will end with the retirement of the longtime city controller, David Yanik, whose last day is March 1.
“I hope you are looking at the competence of people working in these departments,” Board of Finance Vice Chair Mary Lou Rinaldi told Director of Administration Ben Barnes, who oversees city finances. “Many of these issues are systemic.”
Barnes urged Rinaldi, who chairs the board’s Audit Committee, and her colleagues to maintain perspective on the results of the 2022 audit.
“There are serious problems that demand management action, but it would be a mistake to read these challenges with financial reporting as financial challenges,” Barnes said. “We are in a strong financial position.”
The state requires that all municipalities have their books reviewed by independent auditors each year. Stamford contracted with a company called RSM. But when RSM auditors asked for financial information from city departments in early fall 2022, much was missing or inaccurate.
Because of weak financial controls and failure to perform the most basic accounting, city departments could not produce the information, Barnes said.
“It made us late” from the start, said Barnes, who was named to his post in September.
From now on, departments will reconcile accounts monthly or quarterly, and employees will be educated about procedures and deadlines, Barnes said. Supervisors will review staff financial reports for accuracy, he said.
Sloppy reporting on paperwork for state and federal grants was imperiling that money. Now all government awards are routed through the grants officer, Barnes said.
“Some grants were being handled by other city departments,” he said. “We’re centralizing it.”
Auditors found an instance, for example, in which the Board of Education had vetted the school lunch contractor but not documented it, as the federal government requires, which could put that funding at risk.
“We’ve made major changes,” he said. “It started late in the 2022 fiscal year, when Anita Carpenter came on as grants officer. Things now are going through her.”
But it was clear that finance board members remain concerned. The 2022 ACFR was so late that it has lapped the 2023 ACFR, which was due to the state Dec. 31.
Since “there are still underlying problems,” finance board member Laura Burwick asked Barnes, “do you expect that the next audit will take a similar amount of time?”
Barnes said he has begun a review of staffing and work assignments in accounting, tax and other departments.
“I am developing metrics for where we are on the 2023 audit so I can track it. I will look at the numbers every day and will be breathing down the necks of everybody involved,” Barnes said. “Once we start doing monthly closings on the accounts, we will be in a far better position to report to the auditors in the fall, so they can conclude our audit in December.”
City departments had been waiting until the end of the year to reconcile accounts, he said.
Finance board Geoff Alswanger wanted to know more.
“What is your proposal for how you would like to update us?” Alswanger asked.
“I hope to be able to talk to you about the status of the 2023 audit in April or May,” Barnes said.
After the finance board meeting, Rinaldi, who raised the audit delay repeatedly last year, said she’s glad it’s over.
“We’re all relieved to know that the city’s financial position is good, though that was never the concern,” Rinaldi said. “The concern was that we couldn’t prove it because we didn’t have an audit.”
Barnes told the board his office has made headway on another reason for the long delay – financial data had to be converted from the old HTE reporting system to the new Oracle system.
“We spent a lot of time changing Oracle to make it work for us,” Barnes said. “For 2024 and beyond, we will have in place the quality of financial reporting we need.”
So, Rinaldi said, “the data should be there. Now it’s a matter of, how do you pull it out, and do we have the people who know how to work in the new system?”
It’s one of the lingering questions in the aftermath of the painful 2022 audit. Another concerns cost.
The city contracted with RSM to do the audit for $345,000. Because of the delay, the city may owe RSM nearly that much more, Barnes has said.
During the meeting, finance board member Dennis Mahoney asked for an update. Barnes said RSM is still working up the final bill.
“We paid about $160,000 on invoices that came in over the last two weeks. There will be additional invoices,” Barnes said. “We may need to make a change order on the contract or identify additional funds in fiscal 2024 because we will be doing two audits this year.”
He expects to present more cost information during the board’s February meeting, Barnes said.
Editor’s note: This story has been updated to clarify the vetting and documenting of outside contractors