Crestwood aldermen select firm to conduct annual audits of city books
The firm that has been researching Crestwood's financial "anomalies'' will serve as the city's independent auditor, the Board of Aldermen has decided.
The Board of Aldermen voted unanimously last week to approve an ordinance selecting Brown Smith Wallace as the city's independent auditing firm. Besides performing an audit for fiscal 2003, the firm will restate the city's fi-nancial statements for fiscal 2001 and 2002.
Brown Smith Wallace will serve as the city's independent auditing firm for five years, subject to annual review and approval by the Board of Aldermen. As projected, the cost over the five-year period will total $101,700, excluding the cost of restating the city's fiscal 2001 and 2002 financial statements.
Brown Smith Wallace's bid of $18,200 to perform a fiscal 2003 audit was the second lowest of three bids submitted. Larsen Allen submitted a bid of $15,785 and Grace & Co. submitted a bid of $23,500.
Under the City Charter, the Board of Aldermen 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, was ineligible to respond to the request for proposals.
In his recommendation to the board to award the contract to Brown Smith Wallace, City Administrator Don Greer noted that while the firm's bid was roughly $2,400 more, the company would devote 136 more hours in service for the fiscal 2003 audit and an aggregate of 400 additional hours if it audited the city's financial records for five consecutive years.
"I consider that significant because forensic auditors from Brown Smith Wallace LLC have reviewed our financial records for the past several months, including historical financial conditions,'' Greer wrote in the Oct. 9 memo to the Board of Aldermen. "I have a tendency to believe that because of the work completed thus far, Brown Smith Wallace LLC would have a better feel for our financial records and perhaps a better understanding of what it will take to get a quality audit accomplished.''
Greer informed members of the Ways and Means Committee in January 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.
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 July 7.
The financial "anomalies'' have been researched and have led to a need to restate the city's fiscal 2001 and 2002 previously audited statements.
In his memo, Greer also noted that the cost of the restatement of the fiscal 2001 and 2002 statements has yet to be negotiated.
"The restatement was not included in the bid process because of the status of the investigation and timing,'' Greer wrote in the memo. "The restatement of those fiscal years was identified in the request for proposal as a future negotiated arrangement. While, in fact, not part of the financial assessment of the bid package, it would seem logical to me that Brown Smith Wallace LLC will be less expensive to do the restatement of these fiscal years, simply because they have completed the research for the assessment that we have just been through; eliminating the need for redundancy.''
During the Oct. 14 board meeting, Ward 4 Alderman Tom Fagan said, "... I noticed Larsen Allen was the low bidder. I am not an accountant, have no expertise in that area, but it's apparently the administration's recommendation that Brown Smith and Wallace be awarded the bid even though that they are a little more expensive ... I know Mr. Greer outlined the reasons why he thought they were better and I do appreciate that and I think that is a concern and if we are getting a better bang for our buck, I'm not opposed to using Brown Smith and Wallace even though they may be $2,500 or whatever it is higher than Larsen Allen.
"I guess the questions I have include we were not presented with Larsen Allen's qualifications and we were presented with Brown Smith and Wallace's qualifications. That would be one. What are their qualifications? No. 2, did anybody inquire of them as to why they had these deficiencies, if you will, and when I say deficiencies I mean they weren't going to provide us with as much service as Brown Smith and Wallace is proposing. And then No. 3, if there was some discussion regarding deficiencies, what was their response?'' Fagan asked.
Noting that he would be more than happy to give Fagan copies of the responses from Larsen Allen and Grace & Co., Greer said, "... In terms of comparison between Larsen Allen and Brown, Smith and Wallace, I would hesitate to call them deficiencies. The director of finance (Diana Madrid) and I both reviewed the proposals and I would say they're eminently qualified to do the work. The question really came in when we started analyzing the costs associated with who was providing the service and the number of hours that they were committing to do the work.
"They believe that that's a sufficient number of hours to do the work and there's a significant number of hours difference in each of the years. I think it's an aggregate of about 400 hours over ... the next five years and we compared that. We then went back to Grace to see what kind of hours they were looking at committing and there was a match there in terms of that total number, that aggregate number of hours ...''
Greer continued, "I don't want to give the impression that there's anything wrong with Larsen Allen at all. They're eminently qualified ...''
After further discussion, Fagan said, "... I appreciate those answers and those are excellent answers, and that alleviates some of my concerns. And when I said deficiencies, in my notes when I was going through the packet this weekend, I put deficiencies in quotes and I don't mean to imply that there are any deficiencies with Larsen Allen's work. I just meant maybe lack of number of hours or difference in number of hours with Brown Smith and Wallace ...
"This is something that we absolutely have to have done, one. And two, more importantly, we have to have it done properly and correctly. So, I'm of the opinion that you don't want to be penny-wise and pound foolish and if you're telling us along with the director of finance that this is the firm you think is going to better do that, unless I hear something differently tonight, I will give great deference to that and some weight to that, obviously...,'' Fagan said.
In response to a question from Ward 1 Alderman Richard LaBore, Greer said, "Brown Smith and Wallace has done some work for us and we've been very happy with the work they've done and, in fact, in particular fiscal years 2001 and 2002, which are going to be restated, they have some history. I don't know this, have not been able to negotiate with either of the firms for the cost of doing that ... I will do that with the successful bidder. However, it's my professional belief that it would be less expensive to deal with someone who already has a familiarity with our financial records for the period that we're covering ... But I think that's a reasonable assumption to make, if you've spent the last couple of months going over financial records for two periods of time that have to be restated, you have some history.''
Ward 3 Alderman "Bernie''Alexander said, "I would just like to concur with something that Chief Greer has said and that is because of the relationship with Brown Smith and Wallace as far as looking at some of the work they've done previously for the city, I cannot imagine in good faith that they would not be able to give us a very competitive bid on restatement of 2001 and 2002. I don't have any problem with this at all.''
In a separate matter, a Crestwood resident raised concerns about the city's fi-nances and wondered whether a state audit should be requested.
"While I believe the administration is committed to getting finances under control, there have been too many surprises in recent months and 2003 expenditures have not yet been disclosed,'' Jerry Miguel told aldermen in a prepared statement. "Moreover, we are now 3½ months into the 2004 fiscal year and, in my opinion, the 2004 budget still has some questionable numbers in it.''
Miguel also contended the Ways and Means Committee needs to be restructured and proposed a Citizen Oversight Commit-tee to review the city's finances.
Regarding the Ways and Means Committee, he said, "It should not be dominated by senior administration. It could benefit from financially experienced citizen representation.''
As for a Citizen Oversight Committee, Miguel said, "In my opinion, the financial surprises of the recent months could have been prevented by a competent Citizen Oversight Committee.''