And it is damning. All 212 pages of it. All 69 findings (what was that, Courier-Journal, about 30 findings? WFPL?).
This could be the beginning of the end of Jerry Abramson’s political career. No amount of spinning can cause the audit train to jump its tracks at this point.
The document we’re about to digest in bullet points and summaries details some of the most inexcusable behavior, waste, fraud and abuse that we’ve seen in an audit report from Crit Luallen’s office. Not necessarily because of willful misconduct but because of the sheer amount of laziness, ignorance and carelessness that went in to potentially costing taxpayers tens of millions of dollars.
“Our audit raises several concerns in areas of metro government that need the city’s full attention in order to improve accountability going forward,” said Crit Luallen. “We offer numerous recommendations in the audit as tools for Louisville Metro to strengthen financial oversight.”
The audit suggests that much of this nightmare stems from the good old boy system where people are promoted because they’re present and loyal, not because they’re the best at what they do. When there are no managerial standards set in government, this is what happens.
Some of the highlights:
Louisville Metro Should Recognize Revenue In Accordance With Generally Accepted Accounting Principles
- $9.7 million in accounts receivables selected for testing were in dispute with a federal grantor.
- Auditors unable to substantiate $4.8 million of deferred revenue in the general fund, $17.8 million in the special revenue fund and $23.5 million in accounts receivable for the special revenue fund.
Metro Department Of Corrections Should Take Immediate Steps To Improve Its FInancial Management
- Cash management weaknesses relating re: the use of generic manual receipt books for significant revenue sources
- Improper revenue recognition for fees
- Inappropriate segregation of duties
- Failure to properly tag, record and monitor capital assets
- IT Weaknesses
- Inconsistent information obtained from employees re: control processes
- Weak controls re: seized property which provided opportunities for theft
- High fraud risk due to the lack of controls noted and as perceived by the agency’s management
Metro Department Of Corrections Should Improve Revenue Recognition And Cash Management
Auditors performed a reasonableness test on the inmate booking fee. The test resulted in estimated fees of $1,131,000. The amount actually received by Metro Govt? $370,066, a $760,934 difference. 67% less than should have been collected.
Metro Department Of Corrections Should Strengthen Internal Controls Over Inmate Receipts
When an inmate is booked, all cash on their person is deposited in an account from which fees (booking, medical, commissary, damages) and such are taken. But auditors found that inmates are not provided a detailed receipt of charges applied against their accounts upon release. You can make the necessary assumptions about how that mess is ripe for fraud, I’m sure.
Metro Finance Should Improve Internal Controls Over Bank Reconciliations
Of 96 reconciliations completed in a three-month time span, 86 of them were either missing, not dated or not completed within ten business days of the following month. When Metro Finance isn’t following its own cash management policies, it’s nearly impossible to detect discrepancies in a timely manner between the bank and recorded transactions.
Trust me – you’ll want to read the rest of this hot mess after the jump. Metro Animal Services, LMPD, Housing, KentuckianaWorks. Departments galore. Millions at stake. Hundreds of problems. Dig in!
Metro Finance Should Improve Cash Management Procedures
The Cash Management Division of Metro Finance is responsible for cash deposits from various governmental departments. But check some of the weaknesses spotted by auditors:
- One staff member has the ability to receive cash, input receipt information, prepare reports, perform the daily count and reconciliation of the cash drawer, prepare the deposit, access the safe and void transactions
- Previously prepared deposits held in cashier’s drawer
- Unsecure cash counting areas
- Receipts are not batched daily
- Surprise cash counts are not performed
- Cash drawers aren’t re-counted by supervisors or other employees
- Cashiers have the ability to modify dollar amounts of checks transmitted to banks
Metro Purchasing Should Improve Internal Controls Over Contracts And Update Policies And Procedures To Better Reflect Current Practices
Check out these problems with vendor contract files:
- One file contained correspondence indicating that the contract was awarded to a bidder without review of other proposals and didn’t contain a bid evaluation sheet
- Two contracts didn’t contained required Human Relations Commission response documents in the bid file
- One contract didn’t include a written findings form
- One couldn’t be located by Metro Purchasing Staff
Metro Should Comply With KRS 45A.365 In Awarding Bids
Auditors found that during FY 2009, contracts were awarded for some services to multiple vendors to create a vendor pool instead of awarding them based on the lowest price bid as required by law.
Metro Purchasing Should Identify Required Elements For All Metro Contracts, Including A Right-To-Audit Clause
Remember the mess between Louisville Metro and LG Financial, Inc./Cordish? The forgivable loan was $1.8 million over five years for the restoration of vacant space in the Starks Building. But it didn’t contain a right-to-audit clause. But when questioned by the Metro Council, Cordish/LG talked David Tandy into agreeing not to release details about the use of funds after he reviewed some documents. He even signed a confidentiality agreement.
Metro Finance Should Improve Internal Controls Over Payroll Check Distribution
Straight from the audit report, better than I can say it: During the course of our audit, we noted that the Louisville Metro Finance Payroll Division was not reconciling the number of checks printed to the “Transfer of Checks from Payroll Division to Cash Management Division” reports. In processing payroll checks, Metro Payroll Division prepared these reports each pay period of the number of checks printed for each department, and the report was then forwarded to Metro Cash Management Division along with the actual checks for disbursement. The report was used as a departmental sign off sheet when checks were picked up. Metro Cash Management Division performed a reconciliation between the Transfer of Checks report and the number of checks received, and documented the discrepancies on the payroll report. However, Metro Cash Management Division did not investigate the cause for the discrepancies, or communicate discrepancies to Metro Payroll Division for correction.
Metro Human Resources Should Implement Procedures To Improve Documentation Related To Personnel Actions
Human Resources doesn’t – get this – keep an updated position personnel and action form in each employee’s file. There were 13 discovered instances in which employee files didn’t have updated forms. No consistency in pay rates per the form and the pay register. Meaning there’s a major risk that employees could be paid incorrect salaries or be improperly classified in the payroll system.
And you wonder why the city is broke.
Metro Should Ensure Employee Benefits Are Consistently Applied In Accordance With Established Policies And Procedures
Some inconsistencies and weaknesses in Metro’s payroll and personnel policies and procedures:
- 2 members of Metro management got pay-outs upon retirement for 20 days of vacation leave OVER the amount allowed by personnel policy
- 1 retiring employee got a 5-day payout for compensatory leave, which isn’t allowed
- 1 member of Metro management got an annual payout contribution toward the purchase of service credit in the County Employees Retirement System. The annual contribution was set at $25,000 for the first five years initially and then was increased an additional $9,000/year. Guess what isn’t mentioned anywhere in personnel policy.
Overriding policy means you can go broke even more quickly than imagined when you’re in a – wait for it – major recession.
Metro Should Capitalize Asset Renovation Costs In Accordance With Generally Accepted Account Principles
Remember the Trolley Barn Renovation Project, which was partially funded by the Kentucky Transportation Cabinet’s Transportation Enhancement funds? Check out some of the concerns raised by the audit:
- Inability to confirm total cost of renovation expenditures due to comingling public and private funds and lack of records
- Lack of sufficient oversight
- Improper procurement procedures in awarding the construction management contract
- The manager hired to solicit bids was also permitted to bid
- It wasn’t ensured that the construction manager was fully bonded prior to awarding the contract
- Proper procurement procedures weren’t followed for a whopping $15.3 million in construction costs
- Metro’s payment to the architect on the project exceeded the contractual amount by $1.4 million
- Materials were not competitively bid
- Metro failed to appropriately capitalize construction in progress in its financial statements
Metro Finance Should Improve Internal Controls Over Reporting Capital Assets
Two duplicate items totaling $12.3 million were discovered during the audit because Metro had no procedure in place to detect and correct errors. $12.3 million!
Metro Human Resources Should Improve Procedures For Verifying Health Insurance Claim Payments
What’s that sound? Why, none other than Metro Human Resources not verifying whether or not dependents are the spouse or a dependent child of a Metro employee.
Metro Departments Should Conduct Periodic Physical Counts Of Capital Assets And Improve Safeguarding By Tagging Assets
LMPD, Public Works, and Corrections… hadn’t conducted physical inventory counts within the last two years. Assets weren’t even tagged.
Metro Department Of Corrections Should Improve Controls Over Handwritten Receipts And Take Steps To Improve Security Of Personal Information
Handwritten receipts are provided for fingerprinting, court monitoring and copy charges. Receipt books aren’t used in numerical order. No real inventory is kept. And what’s that? Oh, right. Social security numbers were written on the receipts.
Metro Department Of Corrections Should Properly Segregate Incompatible Cash Management Duties Over The Inmate Fund
There are no words: The property room receives cash from two sources – cash taken from persons being booked into the jail, and from deposits made by people outside of the jail to fund an inmate’s account. Those funds are received by property room officers, applied to inmate accounts, processed at shift changes, and dropped in a drop box for verification and deposited by another individual. The auditor noted that only one property room sergeant is handling these funds after they are being dropped. This officer is responsible for verifying all shift drops made, preparing the deposits, and physically taking the deposits to the bank. This sergeant has the ability to post transactions and void items in the Inmate Management System (IMS) without approval or review from another party. The auditor observed the sergeant processing multiple days of receipts, and upon inquiry the sergeant indicated that he rarely takes time off, but when he does need to take time off he doesn’t allow anyone else to perform these procedures when he is out.
Metro Department Of Corrections Should Improve Internal Controls Over Timesheet Processing
During a review of payroll records, seven instances of employee timesheets not being signed by the employee and their supervisor were discovered. Meaning exactly what you think it could mean.
Metro Animal Services Should Take Steps To Improve Its Overall Business Climate
Just some of the factors making everything at MAS a nightmare?
- There was no full-time business manager from June 2009 until October 2009
- Numerous control weaknesses over major business functions like receipts, expenditures and animal inventory
- Physical working conditions at MAS are poor quality, have deteriorated since the August 2009 flood. Cramped and unclean workspaces and restrooms, overcrowded facility housing the animals, lack of security resulting in vandalism
- Employee morale diminished due to pressures stemming from internal investigations, poor public relations and employee complains filed against the Director
Imagine that. And Jerry’s people merely acknowledges the mess at MAS is “less than optimal.”
Metro Animal Services Should Strengthen Internal Controls Over Receipts
Highlights of internal control weaknesses:
- 17 instances of cash checkout sheets not signed
- 2 deposits included multiple days’ receipts, some for more than $1,000 per day
- 10 deposits weren’t supported by a checkout sheet
- Lack of physical security over checks and cash. Kept in unlocked boxes, then in a combination-locked safe at the end of the day. Pre-flood, cash was merely kept in locked drawers.
- Walked-in and mailed-in payments were not logged or otherwise tracked upon receipt
- Auditors were told receipts collected by adoption clerks were immediately taken to a drop safe. But an auditor observed an adoption receipt being placed in a desk drawer.
Metro Animal Services Should Improve Inventory Procedures
In just a few words: MAS has inadequate animal inventory procedures. As of August 25, 2009 there were 617 animals housed at the current facility.
Some of the crap:
- A full animal inventory is not performed daily
- Animal inventory counts were not performed at satellite locations in FY 2009
- 134 animals were missing in May 2009. They were initially recorded but couldn’t be located or identified during the inventory process.
Louisville Metro Government Should Ensure Sufficient Authentication Is Required To Access Potentially Sensitive Information
17 out of 500 (3.4%) of machines scanned did not have sufficient authentication enabled on one or more ports. And a remote access service was active on 11 machines.
Metro Revenue Commission Employee Transfers Should Be Executed On A Timely Basis
During the review of accrued vacation pay liability, it was discovered that an employee who transferred to the Finance Department on October 13, 2008 was included in the June 30, 2009 accrual calculation for the Metro Revenue Commission. That employee’s salary and benefits were still being paid by the MRC.
Metro Internal Audit Should Expedite The Investigation Of Apparent Fabricated Invoices Processed By Metro Department Of Neighborhoods Over Multiple Fiscal Years
Think it was just about a book? Guess again. One $15,000 invoice was fabricated. And…
36 invoices from 15 separate vendors processed between July 1, 2007 and June 30, 2009 appear to have been created by someone other than the vendor. The checks totaled $368,660. But because investigations are not yet complete, there’s potential for additional invoices to be detected.
One of those 15 vendors was Butler Books, owned by Carol Butler. She was paid $14,900 over three fiscal years. She was, of course, forced to resign along with another employee. (Oh, and Carol– You shouldn’t have spoken so loudly about the book at a local coffee shop and I wouldn’t have overheard months ago. Just saying.)
Metro Housing And Family Services Should Submit Accurate Performance Reports For CDBG And Home
Some of the mess surrounding required performance reports for two major grants:
- The HFS staffer responsible for reports wasn’t knowledgeable of the programs’ reporting requirements or about the supporting data to ensure accurate reporting
- The reports weren’t submitted by the due date and only then when HUD requested them
- Worksheets used to complete reports weren’t organized or summarized
- The HOME report was incorrect and didn’t included necessary information
- HFS wasn’t compliant with federal program requirements that require reports to be submitted for each project over $200,000
- The HOME Program Annual Performance Report was reviewed and it was discovered that it wasn’t supported by Metro’s financial accounting system. $3,362,254 in income was reported as balance on hand at the end of the reporting period. But Metro Finance had no accumulation of program income recorded in the accounting system.
Metro Housing And Family Services Should Continue To Strengthen Cash Management, Matching, And Earmarking Controls Over Shelter Plus Care Program And Take Appropriate Action To Ensure Program Funds Are Not Forfeited
Let’s just cut straight to the point: $167,916 in grant awards were FORFEITED back to HUD thanks to lax oversight.
Metro Public Works Should Improve Procedures To Ensure Invoices Are Paid In Accordance With Contractual Agreements
Contractual agreements between Metro and various service providers related to expenditures for federal disaster relief grants were reviewed. Three major internal control weaknesses and instances of noncompliance with invoices reviewed:
- In 8 instances, 3,952.61 tons of debris were removed from Metro roads at $25/ton higher than the contracted rate. That results in $74,111 in questioned costs, representing 75% of the federal share portion of the invoices
- In 2 instances, a grid location was cleared of debris which wasn’t specified in the bid. Questioned costs totaled $4,010, 75% of the fed share.
- In 6 instances, amounts were billed at rates that could not be supported in the contracts provided to the auditor. No info to determine whether the costs were allowable or accurate as billed.
That’s $78,121 in questioned costs. Twice what many families make in a year.
Metro Public Works Should Implement Procedures To Ensure Grant Charges In LeAP Are Accurate And Traceable To Valid Supporting Documentation
Public Works was unable to reconcile grant accounting to the tune of an understated $1,608,084.
Metro Office Of Management And Budget Should Implement Policies And Procedures To Ensure Consistent And Equitable Application Of Its Indirect Cost Allocations
Metro apparently doesn’t consistently recoup indirect costs for all departments. In FY 2009, Finance only requested reimbursement for indirect costs for two grant programs – Community Development Block Grant and Lead. A total of approximately $678,004.
Metro’s approved indirect cost rate of 18.59% applied to the more than $19.8 million in direct federal program salary and benefit expenses suggests that as much as $3.7 million could be recouped. $3.7 million!
Metro Housing And Family Services Should Improve Procedures To Ensure Compliance With The Davis Beacon Act
In two instances tested, HFS didn’t review the payrolls submitted by contractors to ensure wage rates paid by the contractor were in agreement with the wage rates specified in the project agreement.
Metro Housing And Family Services Should Document Its Review Of Contractors Paid With Federal Funds To Ensure Compliance With Procurement, Suspension and Debarment Requirements
You’ll have to read this mess of the blame game for yourself. Serious instances of passing the buck.
Metro Housing And Family Services Should Ensure Employee Responsibilities Are Adequately Segregated
Don’t listen to the Abramson Administration when they tell you changes have been wholly implemented. Check this: In response to the prior year audit comment but subsequent to FY 2009, Metro Department of Housing and Family Services (HFS) implemented new supervisory review procedures for this program. The Case Review Board, which includes the HFS Housing Director, reviews cases before funds are released. Auditors reviewed a file prepared subsequent to fiscal year 2009 and found evidence of the HFS Housing Director’s review. However, since the weakness existed during FY 2009, and was not corrected until after the fiscal year, a repeat finding was warranted.
Metro Housing And Family Services Should Strengthen Internal Controls Over LIHEAP Eligibility
Eligibility determinations for the Low-Income Home Energy Assistance Program are documented through the completion of a verification checklist and are maintained in a database. Check some of the exceptions noted by auditors:
- 12 instances where the client file didn’t agree to information in the database, including instances in which applications shown as approved in the file were void in the database
- Inconsistent information between documents within the client file, including instances in which income amounts varied between application and verification checklist, as well as the housing type– affecting the dollar value of benefits an applicant can receive
- 3 instances where document copies were used instead of originals
- 9 instances where copies were incomplete
- 2 instances in which required applicant signatures were missing
- 1 instance in which disallowed documents were used for income verification
- General policy of maintaining multiple files for one individual for each time application is made
Metro Housing And Family Services Should Ensure Eligibility Requirement Procedures For Shelter Plus Care Are Followed And Required Rent Reasonableness Tests And Inspections Are Performed
48 clients were reviewed that received rental assistance during FY 2009. Each was file was reviewed for eligibility requirements, documentation of a rent reasonableness test and compliance with housing quality standards inspections. Of the 48 tested, 23 contained some deficiencies:
- 2 instances where case files didn’t clearly indicate eligibility requirements were met. In one instance, a recertification was never processed. In the other, a client had a child that was over 18, requiring that the income for that person be included in the calculation – that info was never obtained
- 17 instances where there was no supervisory review or the signature was six months to a year+ past the date the occupancy agreement was signed by the tenant
- 6 instances where errors were noted with the eligibility calculation. Errors included: amounts paid to the landlord over the eligible amount, info necessary for calculations missing, discrepancies noted.
- 5 instances didn’t have a timely recertification as established by policies
- 2 instances where rent reasonableness wasn’t on file
- 7 instances lacking either a timely housing quality standards inspection or didn’t have a re-inspection of a failed initial inspection within the required 10 days
- 1 instance where a landlord continued receiving payments for a client that transferred to the Section 8 Housing program. $363/mo for August 2008 through April 2009, totaling $3,267. Although the file contained emails noting that the individual transferred to the Section 8 program, timely follow up wasn’t performed and overpayment wasn’t refunded until June 2009.
- Dozens of other instances where landlords were overpaid, received payments after a tenant no longer lived in their unit or received duplicate payments.
Metro Housing And Family Services Should Continue To Strengthen Controls To Ensure Accurate Recording Of Shelter Plus Care Transactions And Ensure Reimbursement Draw Down Requests Are Only For Allowable Costs
Payments to landlords weren’t properly monitored during the first half of FY 2009 to ensure proper record keeping. Coding errors occurred in draw downs and in recoding payroll expenses of the program. The auditor initially identified $1,220,975 coded in error. Of that amount, $223,769 was miscoded draw down funds, $49,958 was payroll expenses and $947,248 was landlord payments.
You tell me that’s not a nightmare.
KentuckianaWorks Should Ensure WIA Grant Funds Are Used Only For Costs Allowable To WIA Programs
Questioned cleaning service costs of more than $6,000 because WIA and non-WIA programs weren’t split up.
Metro Public Works Should Improve Internal Controls Procedures Over Preparation And Review Of Project Worksheets
Public Assistance Grants transactions were reviewed, identifying questioned costs of $4,012. Because an incorrect state road reduction rate was used in preparing a project worksheet.
Metro Public Works Should Strengthen Procedures Over Payroll Expenditures Charged To FEMA Disaster Grants
Payroll summary forms and timesheets were reviewed to ensure adequate internal controls were in place. Some of the noncompliances included:
- 3 instances where supporting documentation either lacked a supervisor signature or a specific employee daily job summary couldn’t be located to support the amount recorded on the forced labor sheet
- 1 instance where an employee’s timecard documented 6 hours of overtime but the daily job summary worksheet and the Project Worksheet’s forced labor form documented a total of 8.
Metro Public Works Should Ensure All Documentation Is Maintained To Support Grant Charges And Implement Procedures To Reduce Errors In Expenses Submitted For Reimbursement
$6,533 in questioned costs because of a lack of supporting documentation.
I could go on for days, but it’s probably best for you to CLICK HERE (Warning: PDF Link) to review the audit yourself.
If some of this seems like old news? It is. Remember last June when then-Chairman of the Jefferson County Republican Party held a press conference about Jerry Abramson which the Courier-Journal ignored? Click here to read the remarks Cummings delivered at the time. Or here for the video footage.