Gulfport 2005-2006 Audit Reveals Problems in City Finances

Story and Photos by Keith Burton - GCN 2/20/08

Gulfport city council members Tuesday received their copy of the 2005-2006 fiscal year audit of the city's finances and not all was as it should be, according to a copy of the report obtained by GCN.

The audit is required by state law and was prepared by independent auditors hired by the city. The firm Wright, Ward, Hatten & Guel prepared the report. A representative of the company was on hand at the council meeting Tuesday to go over the report with the council. Mayor Brent Warr had left the council meeting by the time the auditor began her report.

The auditors said that the report, which was dated July 19, 2007 was late in getting to the council. The council had not seen the findings, or what is called the management report, until Tuesday's meeting. The auditor's spokesman told GCN that the delay was partly due to a death within the company, and the complexity of the information as a result of problems stemming from Katrina in compiling records.

The auditors found a number of problems, some major and several minor problems. The auditors also had some recommendations that will be implemented by the city and its Chief Financial Officer Mike Necaise.

The auditors found:

• Monthly budget reports were not being submitted by the administration at the regular meetings of the City Council, which is required by state law.
• Several reports required to be submitted to the State Auditor's Office and other state agencies were not timely filed.
• Donated monies in the form of donations due to Hurricane Katrina were not formally presented to the City Council and initially deposited into a bank account that was not a city depository.
• That purchase orders were being created after the invoice was received and the amounts on the purchase orders were being changed without proper approval or without a new purchase order created.
• Some expenditures and liabilities incurred against separate budget appropriations were not presented to the governing authorities (the City Council) on a monthly basis as required by state law.
• Policies and procedures for the collection of fines had not been established and that collection efforts were limited.
• Bank reconciliations were not being prepared accurately or timely.
• The hiring policies and federal identification requirements was not met by all city employees.

Regarding the finding on the Katrina donations, the auditors noted that the State Auditors had reviewed that finding.

"During this "emergency" mode of operation, some donated funds were not initially deposited into the appropriate account. Since this event, a review was conducted by the Mississippi Office of the State Auditor. The State Auditor's response as to how the city handled these funds is as follows: "While procedural mistakes may have been made in the handling of the donated funds, it appears that the donor's intent has been followed." The city has conducted a comprehensive review of all donated funds and corrective action was taken to ensure that all donated monies have been accurately and appropriately reported."

The auditors also found that the city has nearly $11 million dollars in uncollected fines. Of that amount, the auditors believe only about $7 million can be collected. This is not a new finding. The collection of fines is also a problem for many other cities. But the auditors encouraged the City Council and the administration to develop a collection plan.

The auditor's report is not fully detailed, it is a management tool and there are a lot of details and interesting information that is behind the scenes.

The donated money, according to City Councilwoman Barbara Nalley, was deposited into a non-interest bearing account at Coast Community Bank. This is a bank where Warr once served on its board. The city's independent auditor said that the bank eventually paid interest on the amount.

The donated money in the account totaled $725,000. The money represented $500,000 donated to the city by the city of Chicago, and $225,000 donated by Mississippi Power. The money was donated for Jones park improvements. The city has placed the money into its general fund and budgeted the money in their capital projects budget for Jones Park.

Both the independent auditors and the administration suggest that the problems with the donated monies was of inexperience and mistakes. But Councilwoman Nalley says this is not the case.

"We have plenty of experienced staff employees who know what the requirements are. The employees notified the mayor and he chose to ignore them. I don't think that at the time, there was an accurate count to the total amount of monies that came to the city. We don't know how much money actually came to the mayor's office, but we do know what the bank said they received. By the director finance's own admission to me, he does not know all the monies that went to the mayor office. The mayor did not go through the proper channels to handle the money given to the city," Nalley told GCN.

Regarding the total amount of money and material given to the city, both Nalley and Councilman Bryan Carriere have told GCN that they have never seen a total amount. During Tuesday's council meeting, the independent auditor was asked and responded that she would have to get back with them on that as she did not have those figures at hand.

Nalley was the sole "no" vote on accepting the audit. Nalley says she did not like the part where the money for the donations was closed by the State Auditor's Office.