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Crestwood's auditors to restate prior statements

A request for proposals for professional auditing services for fiscal 2003 issued by the city of Crestwood stipulates the new auditor will have to "restate the financial statements'' for fiscal years 2001 and 2002.

The deadline for submitting responses to the city's request for proposals was Tuesday — after the Call went to press.

Under the City Charter, the Board of Al-dermen is required to provide for an independent audit of the city's books annually.

"No certified public accountant or firm shall conduct the audit for more than five consecutive years,'' the charter states.

Because of that provision, Hochschild, Bloom & Co, which has audited Crestwood's books for the past five years, is ineligible to respond to the request for proposals.

City Administrator Don Greer and Director of Finance Diana Madrid will evaluate the proposals submitted, and it is anticipated that the Board of Aldermen will select an auditing firm Tuesday, Oct. 14.

The request for proposals is a 30-page document prepared by Madrid, and Greer noted the current request is quite a contrast to the previous one that was issued more than five years ago.

"The previous RFP that we were able to find was about a page-and-a-half long and really wasn't very specific,'' Greer told the Call.

Noting the city's current financial situation, Greer said, "...We are very close to releasing a report on what's happened to us over the last couple of years. It's important to me and that's what I've talked about with my director of finance that we posture ourselves as being in a position of establishing credibility for this administration.''

Evidence of establishing that credibility is sprinkled throughout the request for proposals, the city administrator said, noting the city will require the auditing firm's "engagement partner'' and manager to present the financial statements at a meeting of the Board of Aldermen within 30 days of the issuance of the final audit report.

That has not been done in the past, Greer said.

"The city of Crestwood is aware of the need to restate the financial statements for the fiscal years ending June 30, 2001, and June 30, 2002,'' the request for proposals stated.

"The reality of what you read there (the request for proposals) is a sincere attempt at establishing credibility for this administration. What we do is straightforward, is well documented, is for the right reasons, is public and I'm very pleased with the work she's done on that,'' Greer said of Madrid.

Greer, who has served as the city's police chief since 1990 and remains in that post, was named city administrator by the Board of Aldermen last December after al-dermen accepted the retirement of former City Administrator Kent Leichliter.

Leichliter's retirement was effective Dec. 31, but he remains an adviser to the city until March 2004 under the terms of a "reassignment agreement'' approved by the board. Leichliter, who had served as city administrator since 1978, will continue to receive his $91,056 salary until March 1, 2004.

During a presentation to the Ways and Means Commit-tee last January, Greer expressed concerns about the condition of the city's general fund and outlined several recommendations to improve the fund's position over the next two or three years. He also announced at the Jan. 18 meeting that the previous day he had asked for and received Finance Officer Robert Wuebbels' resignation.

Greer also informed members of the Ways and Means Committee that while the Board of Aldermen was led to believe the city's general fund was balanced at the end of fiscal 2002, that was not the case.

"I have been led to believe that there were journal entries made to balance the general fund. By that I just simply mean that expenses were transferred into another fund to give an inaccurate ending fund balance. There's no money missing or anything,'' Greer said Jan. 18.

Under the City Charter, the city administrator is authorized to transfer all or any part of unencumbered revenues among accounts within a department after the budget is adopted. However, the approval of the Board of Aldermen is required to transfer unencumbered revenues from one department to another and "monies held in reserve, contingency or undesignated funds shall be transferred or encumbered by motion of the Board of Aldermen,'' the charter states.

Though the Board of Aldermen adopted a balanced fiscal 2004 operating budget in July, preparation of an end-of-the-year budget adjustment ordinance designed to close out the city's fiscal 2003 books led to a revised fiscal 2004 general fund budget that projects a shortfall of $112,010.

During the preparation of the budget adjustment ordinance, which has yet to be presented to the board, city officials discovered that fiscal 2003 general fund expenses were slightly more than anticipated, while revenues, particularly those from merchant licenses, were far less than projected.

Greer first reported these "anomalies'' to the city's Ways and Means Committee during a July 7 special meeting. That meeting also included a closed session in which committee members met with City Attorney Rob Golterman to discuss to discuss legal and personnel matters.

The panel took no action during the closed session other than to decide information presented to the Ways and Means Committee during the closed session needed to be presented to the Board of Aldermen during a closed session, according to Greer. The Board of Aldermen met the following night — July 8 — in closed session after its regular open meeting to discuss legal and personnel matters

Regarding the request for proposals for auditing services, Greer said Friday, "We are in a position where we have to have our fiscal year '01 and fiscal year '02 financial statements redone. That's about as much public as I can get on what we've found, but obviously there are problems in '01 and '02. We already know that. The board has been made aware of that, but they've not seen the full report — nor have we. It's still being finalized right now.''

He continued, "... I do believe that by Oct. the 14th, the next board meeting, that report — or at least a verbal overview of that report — will be presented to the board in executive session. I can't tell you whether something's going to be made public at that time. I can tell you that a report will be made public, but it will largely be based upon what, if any, action the board wishes to take at the time as to the release of that.''

Reminded of his comments at the Jan. 18 Ways and Means Committee meeting about how aldermen were led to believe the city's general fund was balanced when that was not the case, Greer said, "There's no question about that, that there were some transfers made between funds that were other than what was approved by the Board of Aldermen and my opinion at the time, which has not altered, was that was done to mask the true balance of the general fund.

"In all honesty, I thought that by, it would have been probably April, May, I really thought that I had a pretty good handle on where it was, what that number was ... The surprise occurred when we tried to close the books ...,'' he added.

When attempting to close the books, city officials discovered inflated revenue projections along with expense adjustments that had been approved by the board, but had never been posted to the general ledger. "And between those two, that created a very wide gap. It was really beyond the ability of either of us ... to track that down and that's what I talked to the board about,'' Greer said. "... Because of the nature of it, we have secured some outside assistance in taking a look at that.''

The request for proposals also notes that the city is planning to change its fiscal year that begins July 1 and ends June 30 to a calendar fiscal year that would begin Jan. 1 and end Dec. 31.

"That's one thing we incorporated into that so that the auditors would know that we've got to do it a certain way ...,'' Greer said. "In essence, what I think it does is extends this fiscal year for another six months and then we start Jan. 1st of '05, I guess that would be, with the first full calendar fiscal year. Internally, we've been converting a lot of the spreadsheets and trend sheets, things that we use to track some of our revenues and expenses into calendar year for history in preparation of that.''

Changing to a calendar fiscal year makes good fiscal sense, the city administrator said.

"From a planning standpoint, based on the way our revenues come in, the way construction seasons run, all of those things lend themselves to a calendar year as opposed to (the current) fiscal year,'' he said.

Because the city has little control over the amount of sales-tax revenue it receives, changing to a calendar year would allow the city to better control its expense position, he explained.

"All of those things that are critical to our success in a given year, occur in the first half of the year and if there are adjustments that need to be made, you can still make an adjustment,'' Greer said. "If we have a really bad Christmas and we don't find out about that until March ... we don't have time to recover. So this is just better fiscal management. This is a better opportunity to stay on top of things ...''

The city administrator emphasized the standards outlined in the request for proposals for auditing services will enhance the administration's credibility.

"It's very important to me that this administration establishes credibility ... I want a good audit. If we have problems, I want them identified,'' he said. "I want a true sense of independence, that there's not just one person that is solely accountable and responsible for responding to the inquiries. I want it publicly presented, the board fully aware of what's going on, the public fully aware of what's going on and if we have problems, then we want them identified so we can fix them.''

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