Crestwood will spend $7,000 to restate '01, '02 statements
An ordinance approving an agreement with Brown Smith Wallace to restate Crestwood's financial statements for fiscal 2001 and fiscal 2002 recently was approved by the Board of Aldermen.
The cost of restating the fiscal 2001 and fiscal 2002 financial statements will not exceed $7,000, and aldermen voted 6-0 last week to adopt the ordinance approving the agreement. Ward 1 Alderman Richard LaBore and Ward 4 Alderman Pat Duwe were absent from the Nov. 25 meeting.
The restatement of the financial statements for the two fiscal years "will incorporate the findings in the forensic audit report that was accepted by the Board of Aldermen at the meeting of Nov. 11, 2003,'' City Administrator Don Greer stated in a Nov. 25 memorandum to the board.
"The scope of these professional services will also include any necessary adjustments to the city's general ledger,'' Greer's memo states.
The Board of Aldermen voted unanimously in October to adopt an ordinance selecting Brown Smith Wallace as the city's independent auditing firm for five years, subject to annual review and approval by aldermen.
As projected, the cost over the five-year period will total $101,700. That amount excluded the cost of restating the city's fiscal 2001 and fiscal 2002 financial statements, which had yet to be negotiated.
In a Nov. 18 letter to Director of Finance Diana Madrid, Larry Pevnick of Brown Smith Wallace wrote the restatement of the financial statements would cost $2,500 for fiscal 2001 and $4,500 for fiscal 2002.
"These fees represent the maximum amount and include the necessary work to restate the financial statements for the years noted, including applicable general ledger work,'' Pevnick's letter states.
Brown Smith Wallace is the same firm that performed a forensic audit of the city's fiscal 2001 and fiscal 2002 records.
The forensic audit of fiscal 2001 and fiscal 2002 was initiated earlier this year after current city officials began an internal investigation into the accounting practices used by former City Administrator Kent Leichliter and former Finance Officer Robert Wuebbels.
Brown Smith Wallace's forensic audit report, released Nov. 1 by the city, alleges that Leichliter and Wuebbels violated the City Charter, numerous ordinances and their duties as fiduciary officers in their handling of the city's finances.
"As a result of our forensic investigative procedures, we have concluded that there have been a staggering amount of disbursements, improper journal entries and misrepresentations to the Board (of Aldermen) of the city's financial position, authorized by Leichliter and performed by both Leichliter and Wuebbels, representing mismanagement of city funds and financial reporting errors,'' the forensic audit report states.
The city filed a lawsuit Nov. 19 in St. Louis County Circuit Court alleging that Leichliter and Wuebbels breached their fiduciary duties by manipulating financial records to misrepresent the city's true financial condition to Mayor Jim Robertson and the Board of Aldermen.
The city's lawsuit also alleges professional negligence and breach of contract by Hochschild, Bloom & Co., which served as Crestwood's independent auditing firm from 1998 to 2002.
During the meeting, Robertson announced that the city had received a letter from State Auditor Claire McCaskill's office stating her office had received a petition requesting an audit of the city's finances.
The Nov. 21, letter, signed by Director of Local Government Audits Thomas J. Kremer, stated a petition containing 1,130 signatures had been submitted requesting a state audit, and 739 signatures were needed to trigger such an audit.
"The St. Louis County Election Board has certified that 1,020 signatures submitted are signatures of registered, resident voters,'' Kremer stated in the letter. "These signatures meet the requirement for a petition audit of the city of Crestwood. We will be contacting you before we begin the audit to discuss our procedures for the audit and any questions you may have.''
Kelley Isherwood of Oakville, chairman of the Crestwood Smart Growth Alliance, told aldermen Oct. 28 that his organization had collected more than 1,100 signatures on a petition requesting a state audit.
During a discussion about the ordinance approving the agreement with Brown Smith Wallace to restate the fiscal 2001 and fiscal 2002 statements, Ward 1 Alderman Richard Breeding said, "With the threat of that audit hanging over our head, how would the state audit affect what is being proposed here?''
Greer said, "The state auditor is required to look at all work that has been completed by the city. It will largely depend upon what fiscal year the auditor chooses to audit. We are in the process of finishing the audit for fiscal year '03. My understanding of their procedures is that they audit the most recently completed fiscal year, but it largely is depending upon when they come in ...''
Breeding said, "... If we spend the $7,000 and then the auditor comes in and audits us, did we waste the $7,000 or was that going to happen anyway?'
Greer said, "No, we have to spend the $7,000. We have to get our financial statements redone for '01 and '02 in order to finish '03 because we do not have a correct ending balance for either of those years. So this is really a precursor to finishing '03 ...''
Noting the city will spend up to $7,000 to have the fiscal 2001 and fiscal 2002 statements restated, Ward 2 Alderman Tim Trueblood asked if that cost could be recovered through the lawsuit filed against Leichliter and Wuebbels.
City Attorney Rob Golterman replied, "If it can, we will make every effort to make that happen.''
Before the board voted to adopt the ordinance, Trueblood said he wanted to be sure that the restatement of the financial statements was something that could not be done "in house.''
"... I just want to make sure I understand this is something you cannot do in house,'' Trueblood said. "We feel we're better in contracting it out to another source for a variety of reasons. Am I absolutely clear that that is why we're doing this ...?''
Robertson said, "If I were to wing that, I'd say it has to do with the independence of the auditors, but the financial people are much more knowledgeable about than I am. Is that correct?''
Greer said, "That's exactly correct ... One of the primary reasons that one does an independent audit is to get your ending fund balance, an auditor's objective statement as to what those are. So this is not something we can do in house. It's not something we should even consider doing in house.''