“We believe the Forensic Audit was a worthwhile investment,” explains Fairfield Mayor Kenny Hughes. “The Council and I do have some concerns about the findings; and the City has begun to implement the recommendations given by the auditing firm.”

As most of our readers know, the City of Fairfield had a forensic audit completed several months ago.

W.D. Brown & Associates, PLLC of Dallas was hired this past April to perform Forensic Investigatory Services for fiscal years 2013-2017, plus three months ending December 31, 2017. It is important to note that there were no specific allegations of fraud made by any of the witnesses.

Although the company presented their findings to the public during a Special Called meeting held May 29, 2018, it was several weeks later before the 302-page report was made available. Freestone County Times has examined the entire document.

The audit did NOT find evidence of fraud, theft, abuse or misappropriation of City assets; however, certain actions were identified that could constitute waste.

W.D. Brown & Associates, PLLC were hired to:

–Examine status and proper management of all assets of the City, including real and personal property, as well as, all financial accounts, accounts receivable and payable.

–Examine financial statements and revenue and expenditure documents for all funds and departments.

–Perform field and verification work, including interviews with relevant persons.

They were specifically looking to answer the following:

–Did fraud, abuse, or waste occur in relation to any aspect of the financials or the assets? (See below for Definitions)

–Were all applicable local, state, and federal policies, regulations and FINRA laws adhered to?

–Did City employees and officials act diligently, and in the interest of the City, in relation to handling his or her duties regarding assets and/or financial accounts?

–Were there any misappropriations or negligent handling of City assets or services?

Below are the Findings (F) and corresponding Recommendations (R):

TDCJ Fund

F – Funds were transferred from the TDCJ Fund to the General Fund, possibly against advice received from the City’s Bond Council. Without a showing of proper purpose, these transfers could constitute waste, but not fraud.

F – The TDCJ Fund balance at December 31, 2017 was overstated by $281,790.96. It also appeared that expenditures charged to the Boyd Unit include payroll costs for an employee who rarely worked at the facility. It is believed that improper allocation of payroll costs could be symptomatic of a larger interfund transfer problem and at minimum tends to mask administrative costs, for this reason it was essential for the limited company accountants to get involved, so that they can prevent this mistakes from happening.

R – A detailed reconciliation of the TDCJ Fund should be conducted to insure the $281,790.96 overstatement is not a result of missing or misspent TDCJ funds. Based upon this reconciliation, an informed decision should be made regarding maintaining a separate bank account for TDCJ funds.

R – The allocation of administrative overhead to various funds/projects (the Boyd Unit in particular) should be examined. A proper allocation should be made in the future based upon the actual involvement of the employee(s). The allocation basis should be documented and regularly reviewed.

Purchasing Limits

F – City employees and officials are not always in compliance with the “Purchasing Limits” contained in the Procurement and Disposition Policy and Procedures; in particular, there is a lack of competitive bidding, which in some cases could violate the Texas Local Government Code.

R – The City should consider evaluating the five Purchasing Limits in light of how effective they are regarding implementing the City’s overall procurement goals. This evaluation should keep in mind the number of Purchasing Limits directly impacts the amount of required authorization and attending record keeping.

R – The City should consider maintaining a centralized procurement file where all prospective purchases are documented. Documentation would include classifying each purchase according to Purchasing Limit authorizations and the forms needed as required in the Purchasing Limits. A check list could be prepared verifying the required forms have been prepared and specific authorizations required.

Vendors – Bidding

F – Deficiencies were observed in the City’s handling of vendors, including not vetting potential conflicts of interest, vendor approvals and competitive bidding.

R – The City should establish standard proposal/bid evaluation criteria. The evaluation should be documented.

Vendors – Documentation

F – Review of the contents of accounts payable vendor files revealed what is most noteworthy; many critical documents were missing.

R – The City should immediately perform a top down review of all vendor files. Consideration should be given for performing corporate and personal due diligence for those vendors where Fairfield enters into a contract of material amount. Procedures should be implemented to ensure that under no circumstances should a remittance be made to any vendor without the presence of original and complete documentation sustaining the request for payment.

Hotel/Motel Fund

F – As of May 22, 2018, the current Hotel/Motel Fund balance is $516,560. Since September 2015, barely half of the Fund Balance has been spent for area events. No evidence was found that these funds were misspent.

R – Council, in consultation with Legal Council, should explore ways to maximize the use of Hotel/Motel Funds to promote the City.

Incoming Deposits

F – Did not observe any ongoing efforts to validate the accuracy and completeness of incoming funds.

R – The City Administrator should immediately implement procedures to validate incoming deposits received. This would mitigate the risk of errors occurring and Fairfield receiving the incorrect amount of money and/or a lesser amount of money than they are entitled to. These procedures would also compel the City Administrator and staff to better understand the purpose of these payments and challenge the paying entity if they feel the amount remitted was not correct. As it stands currently, the funds are deposited and recorded into Incode with no known validation.

Bank Reconciliation

F – For an extended period of time, the bank accounts were not being reconciled on a timely basis.

R – Establish a date in the month when bank accounts should be reconciled. Assign the task to a staff member, with final review and approval to be done by the City Administrator. Additionally, this task should be incorporated into the month-end closing process.

Municipal Court Fees

F – In the Municipal Court, fees for Municipal Court Security Fund and Municipal Court Technology Fund were comingled and not held separately as should be.

R – City Administrator should gain familiarization with the Municipal Court software, as well as understanding of the court fee structure and proper amount of fines and fees the Municipal Court Clerk is responsible for collecting and administering. Implement a procedure to calculate the monthly fees that should be transferred into the Court Technology Fund and the Court Security Fund and maintain separate bank accounts for each.

Employee Knowledge of Incode System

F – During interviews with city staff, it became apparent that there was limited expertise in using Incode to its fullest capacity. It was observed that there was little or no interface with the then City Administrator, Jeff Looney.

R – At the direction of the City Administrator, the City needs to perform an internal assessment of its staff familiarity with Incode. This should include all of the primary modules that Fairfield currently has a license to for the Incode platform. Consideration should be given for cross-training staff on all modules.

Mayor Hughes says, “A report will be presented at the September 11th meeting as to what has already been implemented. Our goal is to eventually have all recommendations in place.”

With the recent major changes in leadership at the City of Fairfield have come many changes and updates to the City’s procedures in an attempt to have better controls over possible waste and misappropriation of funds.

As the restructuring continues, Mayor Hughes and Council Members strive to maintain financial transparency and to address public concerns as quickly and as best as possible.

Nicole Schaefer reporting.