Alarmed by perpetually late audits of city ledgers — some years overdue — Hopewell city leaders are grappling with the fallout and grasping for an accounting of how the money flowing into city coffers has been spent.
The costs of the work have grown, ballooning from an anticipated $125,000 to $815,000 for a 2015 audit, for example. As more annual deadlines for filing the reports with state and federal government have come and gone, consequences have piled up.
For now, Hopewell has no bond rating and therefore cannot afford financing for a new firehouse needed to replace two aging stations.
“We could borrow money, but it would be tremendously expensive to borrow money, so we’re not doing anything,” said City Manager John M. Altman Jr.
Some City Council members alarmed by the delay want a forensic accounting of what’s been spent. Others fear that would further complicate Hopewell’s attempts to ascend from a morass officials say is grounded in staff turnover and the rollout of new financial reporting software.
The state office charged with fielding mandated reports of local expenses and revenues lists Hopewell among three localities in Virginia — out of 171 cities, counties and towns — that have not yet provided the state their annual comprehensive financial reports for the 2018 fiscal year. The other two are Petersburg and Warren County.
The audited report is due to the state by the end of November, about five months after each budget year comes to a close on June 30.
Hopewell’s fiscal year 2015 report was submitted on Sept. 12, 2017 — nearly two years after it was due. The 2016 report was turned in on Oct. 30, 2018, again nearly two years overdue. The fiscal year 2017 audit was submitted in June, about 18 months late.
Altman said he hoped the 2018 report would be finished in the next month or two.
Martha Mavredes, the state Auditor of Public Accounts whose office receives the reports, said earlier this month that she was particularly concerned that beyond the late state filings, Hopewell is years behind in providing an annual audit of federal money that’s earmarked for school spending and other costs.
“This is very unusual,” she said of Hopewell’s late audits of federal funds. “I don’t know of anyone who is this delinquent other than Hopewell.”
On Thursday night, the city got one piece of its missing financial puzzle when Rob Churchman, a partner with Richmond-based Cherry Bekaert gave the council a copy of the city’s long-overdue audit of federal funds provided to the city for the 2015 fiscal year.
The audit cited various material weaknesses in the city’s finances, including problems with reconciling the city’s cash balances and inaccuracies that had been recorded in the city’s general ledger.
Subsequent audits of federal funds provided to Hopewell for the 2016 fiscal year and beyond have not yet been completed.
Mavredes said that if federal money was spent on the wrong program or for the wrong purpose, the federal government could ask to have that money repaid from the city. That problem would be even worse if the city was misspending the money year after year and didn’t realize it because it hadn’t completed that annual audit, Mavredes said.
Mayor Jasmine Gore said she wants the city to focus on getting its audits of federal funds caught up because of the potential impact on education spending in Hopewell.
“That affects federal funding, which affects Title I funding, which affects schools,” Gore said.
Amid delays, the City Council voted 4-3 this month to have the city seek a forensic audit of Hopewell’s finances. Supporters of the measure said they wanted that deeper dive audit to get a fuller picture of the city’s financial status. Others, such as Councilwoman Janice Denton, worry another layer would detract from the city’s ability to finish its overdue audits.
Altman told the council that a forensic audit is typically done in cases where there is concern about illegal activity.
“We haven’t seen any indication from the auditors where there has been any illegal activity that would warrant a forensic audit,” said Altman, adding that “Just a wide open forensic audit without anything specific as to what we’re looking for, I’m just cautioning the council the cost of that could be rather expensive.”
Gore noted that the city’s 2017 audit discussed fraud that occurred prior to the 2016 fiscal year in connection with Hopewell’s oversight of the Children’s Services Act, which serves kids who have serious emotional or behavioral problems. As a result of that fraud, the city was required to pay the state nearly $1.5 million, the audit says.
Gore said the late audits have distracted city officials from critical issues, such as stormwater management projects and building a new fire station.
“When constituents are asking for certain things to be done, and it’s your job to be accountable and do them, you can’t even begin to try to push policy or do projects if you don’t even know what your money is looking like,” Gore said. “You can’t even begin to ask staff to help you brainstorm or try to implement something if they can’t even dedicate any time because they have to work on the [reports].”