Erie's Finance Department and the Mess Inherited
Due to the Town's accounting methods and practices used in the 2021 and prior budgets, revenues and expenses - and their respective cost allocations for reporting purposes - were gradually becoming almost indecipherable. Now, our Town's new Finance team has been tasked with trying to unravel these activities in order to provide an account of our Town's financial health.
First off, this issue has nothing to do with the capabilities of our Town's current Finance team. I am in no way, shape, or form "throwing them under the bus." I think they are doing a fabulous job, and are making amazing strides in rectifying many issues that they ultimately inherited.
These issues should have been found out sooner, and lies entirely and squarely on the shoulders of previous Board of Trustees, as well as our Town Administrators. These individuals are
the leaders within Town Hall. They are the individuals who are either our elected, or appointed by those elected, to be Stewards of our Town's finances.
Our next board must contain individuals who understand the Town's budgets and finances, who review them thoroughly - as well as those who provide scrutiny, ask questions, and request clarification on these items (and others) from Staff.
As someone who believes that our Town's Financial Wherewithal is an extremely important topic for our Town's future success, and having identified this issue in 2020, I am disappointed in our Town's leadership for placing this situation upon our Town's Finance department.
I am providing this information because of the opaque nature in which our Town has acted with in years past. I am also providing this information because there are many more issues that these individuals are attempting to rectify at this very moment, some that might take a year or two to finally be able to accomplish, as well as to say to our Town's Finance Department (Stephanie and Candice - and Victoria who just left as well) "Thank you for all that you are doing to illuminate and resolve these issues for our Town!"
Backstory
After
my last article regarding the Town's 2022 Budget and the changes made within, another Trustee Candidate and myself were discussing the Town's budget online, referencing both the Town's Comprehensive Annual Financial Report's and Monthly Financial Reports in our comments. Less than a week later, I noticed that the Monthly Financials were removed from the Town's website. I decided to post on my Candidate Page about this in jest, and tagged the Town's official Facebook account - assuming that I wouldn't actually receive a response about it.
Much to my surprise, the Town's official Facebook account replied - providing a response that I truly couldn't believe:
Personally, I didn't understand how the Town could think it was ok to "deprioritize" Financial reporting. So I replied, asking for clarification about this - and received another response:
Why this is Important
These Financial reports are important because they provide a snapshot up to that time of reporting, in terms of actual cash on hand, revenue and expense amounts by fund, and other various items. This is then matched against what our Town's approved budget outlined as to what we were supposed to receive and spend. These reports ultimately provide a "health check" of how we are actually performing financially year-to-date at a given moment in time, against how we are supposed to be doing by year's end (ie. budgeted vs. actuals).
The Board of Trustees are our publicly elected officials tasked with being stewards of the residents in respect to the Town's financial resources, and since our Town Administrator is the Board's appointed "chief operating and administrative officer" for the Town - I would have expected these reports to be invaluable to them. I would have especially expected these to be important to them during a pandemic when Town Finances were expected to decline and potentially fluctuate unexpectedly, as noted in an April 2020 memorandum to the Board.
Our Town's Municipal Code also clearly states in 2-1-3 (D):
5. Expenditure accountability: The Town of Erie will maintain a budgetary control system to ensure it adheres to its adopted budget. Town staff will prepare monthly status reports comparing actual revenues and expenditures to budgeted amounts.
Seeing that Monthly financials were produced for 9 of the 12 months in 2019, and that Town Staff had failed to produce a Monthly Financial Report in 20 of the past 24 months - then receiving the Town's response that they have been "deprioritized" - the first question that came to mind is "who provided this direction to Town Staff?"
Our municipal code says that the Board of Trustees have the "full authority to direct the town administrator with respect to the performance of his duties and responsibilities", and although they "shall be authorized to discuss all matters relating to town operations with employees", they are "not authorized to give any direct orders to town employees" (Town of Erie Municipal Code, 1-6A-3). All Staff direction must come from the Town Administrator who is "responsible to the board of trustees for the proper administration of all affairs of the town placed in his charge", as this is the only individual who is "responsible for the supervision and direction of the activities of all employees of the town" (Town of Erie Municipal Code, 1-6A-2).
This means that either the Board of Trustees provided direction to the Town Administrator to "deprioritize" these reports - which would have meant that these reports and our financial standing wasn't really a priority to them (as it should have been). Or it means that it was the Town Administrator, using his authority to direct staff - which would have meant that these reports and our financial standing wasn't really a priority to him as well (as it should have been).
In my eyes, this is unacceptable. Our Town's finances must always remain a priority - and must never be "deprioritized", especially by our Town's leaders.
With the monthly financials inexplicably being removed of all Monthly reports ever produced and posted to the Town's website, with no financial reports noted in any of the Trustee agendas for the past 2 years (except for Budgets and discussions of Comprehensive Annual Financial Reports), and then receiving these responses from the Town directly - I wanted to find out exactly what was going on at Town Hall - specifically, why we have been unable to report these on a regular frequency.
The Real Issue: An Inherited Mess
Trying to understand this situation better, I reached out to some individuals to find out more. What I have come to find is that this issue goes much deeper, and provides an explanation as to why the Town is not able to provide Monthly Financials (and exactly why we have only received 20 in past 24 months). Short story: our new Finance Team inherited a mess, and they have been trying to resolve this before they can provide reports of any kind to anyone.
Yes, the Town has individual transactional data, which the Finance team is able to see ("All of that data still exists in the native software systems"). Yes, they are able to pull this data within their accounting system ("tracking and analyzing financial data").
However, if Town Staff pulls the transactional data from the system, that is all it would be: data. It doesn't tell them what we're really spending, as the information would not be representative of the budget.
This is because the new Finance team inherited a mess, specifically related to previous financial methods and practices used by the Town's former Finance Director. Then, these practices and how they were being used weren't documented, and the knowledge wasn't transferred before the former Director departed.
Specifically, this issue and the ensuing mess was created by the way that revenues and expenses were being allocated directly to various funds,
as was noted in a previous post. The Town's finance team found out that in Budgets 2021 and earlier, costs were being absorbed by various funds without any explanations or notations available as to how these were being done.
For example: Say we have an employee working for the Town and their salary is $100k. In the Town's accounting system, it shows a salary cost of $100k. In budgets prior to 2022, $80k of this salary was allocated as an expense to the General Fund, and the remaining $20k was expensed to the Water Fund.
The Finance team couldn't figure out how to show this $100k properly for reporting purposes as it related to the Budget. There simply wasn't any corresponding information available to indicate what the amounts or percentages were being allocated to which accounts.
This was the case for many personnel, operations, and other miscellaneous costs throughout various fund account. Ultimately, this resulted in them being unable to properly report on the Town's activities as expected, because they simply didn't know how the numbers should line up.
As well, this was the same situation with impact funds - where the amounts would be received and just tossed into one "pot". There wouldn't be any indication as to what these fees were intended for, although they were charged for a very specific purpose.
For example: A developer on the South side of Town is charged a Traffic Impact fee for their development. The funds were supposed to be used for roads specifically within their vicinity on the South side. However, the funds were used elsewhere - on the North side of town - because there wasn't any notation as to what they were supposed to be used for specifically, nor the timeframe when they had to be used by.
Again, our Finance team is now having to sort through these transactions, pull developer agreements, to identify what funds were spent, what they were spent on, and how much is still remaining - since the remaining should be allocated for future and specific items.
Conclusion
As stated multiple times, this is a mess which the Finance team inherited. I believe that this new team is doing a great job, and I personally like the changes being made. It provides transparency to us, the residents, as well as provides proper cost allocations to the various funds as they should have been originally. I also like that they are beginning to undo the years of potential mishandlings committed by those previously in our Finance department.
There are also many more items which I have come to find are currently being identified as they continue to sift through our finances. The steps that they are taking now, and will ultimately continue to take, are possibly some of the most important ones that are currently being undertaken at Town Hall. I will continue to applaud them for their actions.
If provided the chance to be your Trustee, I will continue my efforts to ask the tough questions in order to keep Town Hall accountable. This specific item is truly just the tip of the iceberg when it comes to our Town's financial issues, but if provided the opportunity, I will continue to ensure that Financial Accountability and transparency become a pillar for our Town. These are the necessary actions required to remain Forward Thinking for Erie's Future.
*Just a side note to all of the items that I discuss: I am a solutions driven problem solver by nature. I wonder how things work, why they work the way they do, and how to make them better. This means seeking different, outside-the-box methods to figure out solutions to various issues. Accordingly, I am always open to learning new ideas, different ways of doing things, as well as constantly learning from others' experiences to make better decisions. When I see an issue, I view it in a holistic fashion, and then dive into specific areas to remove deficiencies and create efficiencies. If you, who are reading this, have some thoughts or ideas about any of the subjects I discuss, I would be more than happy to speak with you to hear your opinions. Please reach out to me here through my website. Listening, hearing, and understanding different perspectives is the only way that we can all grow and create positive change - by learning from others, and delivering ideas that push the needle to become Forward Thinking.
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