DIRECTOR LANCE HINES: Writes mayor about elay in financial reporting. BRIAN CHILSON

City Director Lance Hines has complained  to Little Rock Mayor Frank Scott Jr. about delays in delivery of monthly financial reports for the city.

In an e-mail to Scott shared with other directors, Hines wrote in response to delivery Aug. 29 of a report for May:

I would have you note that this May 31, 2019 financial report was by ordinance mandate required to be submitted to the Board on or before June 30, 2019 at the very latest. See 2.248(a) and (b).

It is a mystery, that your administration refuses to comply with a policy directive of the City Board codified as an Ordinance of this city. How can I and the other directors properly oversee the City’s financial conditions if your administration isn’t promptly providing us with accurate and timely financial information? No private company could conduct its business in this fashion. Moreover, Sara [Lenehan, the finance director] was required to give the Board written notice before the 21st day of June, 2019 that she could not timely submit the report by the 29th of June, 2019 and state what “circumstances beyond the City’s control” prevent the timely delivery. Even in such an event, the report must nevertheless be delivered to us within 30 calendars after the 29th of June, 2019 or July 29, 2019 at the very latest.

We were told that as soon as the 2018 audit was finished we would be up to date on our current financials. I look forward to hearing when we will receive June 2019 and July 2019 reports.

I am not comfortable holding any 2020 budget discussions until our current financials are up to date and published per our ordinance.

The Arkansas Democrat-Gazette recently quoted Scott as saying he hoped for an earlier start and more public participation on the 2020 budget. This year’s budget was approved Dec. 19, two weeks after a draft budget was presented. Scott had been elected mayor the month before.

I’m seeking a copy of the May report and an accompanying report on variances that prompted Hines’ response. I’ve also asked the mayor for a response.

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UPDATE: Here’s the report on budget variances.

And here is the May budget report, which shows revenues $1.3 million below budget, with sales taxes, the biggest single source of revenue, continuing to lag behind projections.

UPDATE II: The mayor called this afternoon. He said the problem is an outdated ordinance that dates back perhaps 20 years. It’s impossible to complete a full monthly report on a timely basis because of a two-month lag in state reporting of the key element of revenue, the sales tax collections. So the May figures weren’t available until August. Scott said he didn’t favor filing monthly reports with estimates for incomplete categories and would introduce an ordinance to change the reporting requirements. He said he didn’t think the ordinance had been fully complied with in years, though it wasn’t immediately clear if it wasn’t filed in a timely fashion or filed but with some estimated information. Scott said in any case it wasn’t good financial practice to work on estimates.

Also, the city distributed August figures to directors later in the day and that report presents a somewhat brighter outlook on sales tax revenues, with the total ahead of budget.

 

UPDATE III: Later Thursday, Scott sent this e-mail to Hines in response.

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Director Hines:

As we discussed at the Board’s agenda meeting on August 27, the second quarter financial report will be presented to the Board on September 10.<x-apple-data-detectors://1>  We received our June sales tax revenues on Thursday, August 22 and distributed the results to the Board on Monday, August 26.  We will not receive July sales tax revenue results from the State until the end of September.

Your email has caught me by surprise.  It appears as though your concern regarding the timing of financial reports is new to this administration, but I looked back at the date of issuance for all of the monthly financial reports from January 2007 forward, and the City has never met the timelines outlined by Ordinance 18,605 (December 18, 2001).  I did not have reports prior to that time readily available to review to determine whether the City has ever met the requirements of the 2001 Ordinance.  I understand the need for timely and accurate financial information, but I do not believe that closing the books on the 15th day following month end will provide accurate information.

As you are aware, the General Fund’s primary sources of revenue are received two months behind, including Sales Tax and Property Tax .  For example, sales tax receipts for June 2019 were received by the City on August 22, 2019 (53 days after June 30<x-apple-data-detectors://6>).  Due to taxpayer confidentiality laws, the City has very little insight regarding tax revenues.  Revenues fluctuate significantly from month to month.  If the reports are issued within the timeline set in the Ordinance, they will contain estimated revenues rather than actual revenues.  The accuracy of monthly revenue estimates will vary significantly.  As someone with banking and finance experience, I’m not comfortable with providing incomplete financial statements.

In addition, expenditures would likely be understated if the books are closed that quickly.  The bi-weekly payroll is for the two week period ended on the Friday before the current pay day.  Therefore, the first payroll of each month includes salaries, wages, and benefits for the previous month.  In some months two payrolls include pay from the previous month.  For example: The 9/6/19<x-apple-data-detectors://8>payroll is for the period from August 19 – August 30.  The November 1<x-apple-data-detectors://10> payroll is for the period from October 12 – October 25.<x-apple-data-detectors://11>  The November 15<x-apple-data-detectors://12> payroll is for the period from October 26 – November 8.<x-apple-data-detectors://13>  The payroll is split between the months based on the number of days that fall within each month in the pay period.  If the books are closed too early, a week or more of payroll expenses may be missing from the month being reported.  In an environment such as the City, where the majority of personnel are paid hourly and overtime varies (such as Police, Fire, Public Works, and Parks personnel), the City’s largest expense would not be accurately reflected.

Monthly presentations of financial reports to the Board of Directors was discontinued in December 2016, because the Board frequently deferred the presentations.  Prior to my January 2019 swearing-in,  City Manager Moore and Director of Finance Lenehan, made the decision to present quarterly financial reports beginning in 2017.  We continue to distribute monthly reports, and post them to the City’s website, but they are no longer formally presented to the Board.

For historical background on this subject, please find attached the Financial Reporting Ordinance 18,605 and two other Ordinances associated with the Restricted Reserve and Financial Policies.  I have also attached a schedule depicting the dates reports were issued from January 2007 – Present.  None of the reports were issued in the timeframe required by the December 18, 2000 Ordinance.

If timeliness is more important that accuracy, we will consider issuing reports utilizing forecasted information.  However, I am concerned that a forecasted financial report would not be as valuable to taxpayers.  I look forward to discussing the best course of action for presenting the financial condition of the City in an accurate and timely manner as possible at our September 10th Policy Discussion where we will start the necessary steps to address our 2020 budget.

I Appreciate You,
FSJ