A lack of planning, a lack of checks and balances, and a lack of oversight were some of the phrases used by the state auditor’s office Wednesday to describe what it found in its newly released audit report of Harrisonville’s city finances.
Nearly 100 people came to the Harrisonville Community Center Wednesday to hear State Auditor Nicole Galloway present the audit report, which primarily focused on finances in 2015. The auditor’s office said it came to Harrisonville to conduct audit work from January to June 2016 and came back again in August 2016. The report detailed findings in 10 separate audit areas, and gave the city an overall performance rating of “poor.”
The report comes nearly two years after more than 600 residents in Harrisonville signed a petition to have the state audit the city’s finances. A city loan to the Highway 71/Missouri 291 Partners in Progress transportation development district, two tax increment financing districts and funding for a new police station had been among some areas of concerns reported by citizens last year.
Those issues were among findings shown in the audit report, as well as other issues pertaining to utility services, procurement procedures and contracts, allocations and restricted funds, cash handling controls, violations of the Sunshine Law, accounting controls and procedures, and capital assets and fuel usage.
The state audit cost the city nearly $70,000, according to Mayor Brian Hasek.
Galloway’s office described Harrisonville in a press release as a city “that has overextended itself and over-committed on a number of taxing district projects.”
Galloway said a lack of planning led to inadequate funding and taxing districts layered on top of each other, boosting sales tax rates in the area. The top auditor said even with multiple sources of public dollars flowing in, the taxing district projects haven’t generated enough revenue to keep pace with payments due, “leaving taxpayers on the hook several times over,” she said.
“The city of Harrisonville is a prime example of the dangers of allowing taxing districts to proliferate unchecked,” Galloway said. “City officials must ensure proper planning and monitoring of projects that rely on public funding to prevent these situations where the city is double taxing citizens.”
The auditor’s office also said financial management issues have negatively affected two redevelopment and revitalization projects that depend on revenue from both transportation development districts (TDDs) and tax increment financing districts (TIFs).
In a graphic provided by Galloway’s office, a TIF is shown layered on top of a TDD in both the Towne Center Redevelopment Area and the Market Place Redevelopment Area. The city issued $30 million in tax increment financing and revenue notes and bonds for these projects, but Galloway says development has not kept pace with expectations. In both cases, her office noted that the developments have failed to generate enough revenue to make required principal and interest payments on the projects.
In one example, the auditors found that in the Towne Center Redevelopment Project, the city inexplicably secured the debt on behalf of the developer and has had to pay more than $1 million out of its general fund to make up the shortfall.
“In this example the developer is taking almost no risk because the city agreed to back a private project with additional public funds,” Galloway said. “When developers count on public dollars to back their private projects, it opens the door for a lack of accountability. Citizens are left paying the price when projects fail to generate the promised developments and revenue.”
Galloway said that in addition, the city “doesn’t adequately track the remaining debt on each project’s individual funding source,” which she said increases the risk that money will be used inappropriately, or for unapproved uses. Because of the number of overlapping project areas, the auditor’s office said it also increases the risk that debts will be paid off in the incorrect order.
In reference to a redevelopment project for road improvements to the Interstate 49 and Missouri 281 interchange, Galloway said the city didn’t adequately plan for the financing of the second phase of the project, with estimated costs totaling $5.4 million. The audit report found that the city is loaning $200,000 in general revenue funds and more than $1 million in restricted utility funds to help pay for the work. Galloway noted the use of utility funds in the road projects as a major red flag.
“The city is only supposed to use these restricted funds for their intended utility-related purposes, and not for general operations of the city, including road projects,” Galloway said.
The report also raised concerns with the city’s failure to follow purchasing policy and failure to solicit bids for more than $1 million in purchases ranging from vehicles and body cameras to road oil and catering services.
Galloway also made recommendations to improve the city’s compliance with the Sunshine Law. The report showed the board of aldermen went into closed session multiple times for reasons not allowable under state law. The city also failed to publish legally required financial statements.
Galloway took questions from citizens after the presentation. Several people expressed concern and frustration.
“I think she (Galloway) did a very good job, and just giving us the facts without a lot of personal opinion, so I think that was done very well,” said Andrea Girard, an attendee. “My gut reaction is that they found a whole lot of things that had gone wrong that they were trying very discreetly to say. I actually wondered if indictments will follow.”
Another citizen, Brenda Cox, said, “I really thought there was going to be more about where the money was, where it was going, where it’s been, why there wasn’t more accountability.”
In a question posed to Galloway, Girard had asked if criminal wrongdoing was tied to any city official. In response, Galloway said the auditor’s office didn’t find fraud or any criminal violations of the law.
“What we’re talking about here is a lack of checks and balances that money was used for a purpose it shouldn’t be used for,” Galloway said. “That’s not necessarily criminal or theft. It’s not used for what it’s supposed to be used for. And (we’re talking about) a lack of proper purchasing and bidding to get the best value for your tax dollar.”
Because the city received an overall rating of “poor,” Galloway said her office will return later this year to complete a follow-up review. She said the city has agreed to take corrective action in almost every instance, and in some cases, the city said it has already started working toward making improvements.
Mayor Hasek said he and the board met with the auditor’s office late last month in an exit meeting to review the findings. The city responded with plans of correction within 30 days after the meeting. Hasek said the city is facing several challenges, but is now moving forward to take action. The mayor said repaying utility funds that were transferred to the TDD and reviewing the city’s utility fund transfers used for administrative charges are among the top priorities.
Overall, the audit has been a learning process for the city, Hasek said.
“You can’t fix stuff until you know it’s broken, but now we know where there are issues and now we know where to focus,” Hasek said. “Until this came out, we focused on things we did know, like putting more money into our streets, but now we know where we really have to focus our efforts for the next year or two.”
The full audit report, including all of the city’s responses to each finding, is available on the auditor’s website for the public to view.