Local accounting firm works to sort out city finances

Work is ongoing to sort out the city’s financial records as the El Dorado City Council continues to await final numbers from 2020 in order to adopt a 2021 city budget.

Local accounting firm Emrich and Scroggins, LLP, has been tasked with the endeavor and has said the job is going to take quite a bit of time, breaking the news to council members with the old adage that since the issue was not created overnight, it is not going to be resolved overnight.

On March 10, Council Member Vance Williamson, who also serves as Finance Committee Chairman, said he had reached out to Emrich and Scroggins to get the city treasurer’s office in order.

The announcement came moments after the city’s Finance Committee, which is made up of city council members, emerged from a lengthy executive session and voted 6 - 2 to relieve former City Treasurer Trena Dean of her duties.

Council Members Willie McGhee and Andre Rucks voted no on the measure.

Dean, who had served as city treasurer for exactly nine months, was given the option to resign or be dismissed.

She did not tender a resignation.

Council members cited several reasons for the move, including not having received a monthly financial report since November of 2020, year-end budget numbers for 2020 or a 2021 budget draft.

Consequently, the council has not been able to approve a 2021 city budget or balance the previous year’s budget.

In February, the council voted to continue operating from the 2020 budget.

By March 31, Stacy Scroggins said his firm had spent a little more than week gathering information and assessing the state of the city’s financial records.

Scroggins said E&S is in the beginning stages of determining the scope of the problem and he laid out the strategy by which the firm plans to approach the issue, particularly in the middle of tax season.

Key detail

A key detail that E&S has found is that the city’s books and bank statements were not squared away in 2020, Scroggins said.

“Very few accounts are reconciled past March of 2020. Some are not reconciled at all,” he said. “That has to be done before you can have a financial statement.”

He also said E&S has ded

icated a CPA, Michah Larry, to the city project.

“He’s reconciled a few accounts just because he could, but for the most part, we’re at a point where we kind of need to know who has access to the system, who does what, who’s responsible for what, because we’re going to need to ask some questions about some things and we’re going to need to know who to contact,” Scroggins told council members.

Reconciling the city’s books is E&S’s first priority and will not likely be “that difficult,” he continued.

He reiterated the need for points of contact in City Hall, saying that different employees have input information into various city funds.

Council Member Paul Choate expressed concern about the employee turnover rate that has occurred in City Hall within the past two years in such positions as accounts payable, city collector, payroll clerk and treasurer.

Williamson said City Clerk Heather McVay, who has been assisting E&S with information-gathering now has full access to the city’s accounting software, CenterPoint Fund Accounting.

E&S previously assisted the El Dorado Water Utilities in implementing the CenterPoint software and in 2019, Scroggins suggested that City Hall upgrade its accounting system from Incode to CenterPoint.

Offering some clarification, McVay explained that E&S needs information such as the users of the CenterPoint system and which employees collect money for business occupation licenses, write checks, make bank deposits, etc.

“Right, because if there’s an issue with a deposit, who do I talk to? Who did that deposit?” Scroggins said, adding that E&S will start with McVay to direct CPAs to the appropriate city employee.

Action plan

Once E&S gets a month or two under its belt, the project should “start flipping along pretty quick,” Scroggins said.

Because E&S is not familiar with the city’s finances, Scroggins said the firm will get with the Finance Committee at some point to go over information that has been collected and seek guidance.

Plans are to start reconciling accounts, based on the end-of-year financial statement for 2019 and issue monthly reports as the work progresses, said Scroggins.

He said E&S also plans to submit a preliminary report for the council to review before hard financial statements are released.

Williamson said that once the information is updated, the council will then need to compile a list of budget adjustments to approve the 2020 city budget.

“We’ll have a year-end comparison that the council has asked for to move forward with the ‘21 budget,” Williamson said.

He said the council typically adjusts the city’s annual budget on a quarterly basis, but a few changes affected the routine last year.

Budget adjustments were last made during the first quarter of 2020, just as the coronavirus (COVID-19) pandemic broke in El Dorado, Williamson said.

The city then appointed a new treasurer, Dean, in June of 2020 and Williamson said the last financial statement council members received was last November.

“And the question is how valid was November with none of the accounts having been reconciled?” Choate asked.

Scroggins said financial activity was not recorded in some funds, but E&S does not yet know how pervasive the issue is or how it will affect the city’s financials.

“Our position is we don’t do a financial statement until it’s reconciled so I wouldn’t put any value on a financial statement that wasn’t reconciled,” he told council members. “Hopefully, those items will not be significant, but we don’t know that.”

McGhee asked if E&S will provide updates throughout the process.

Williamson said yes, noting that he has spoken with Scroggins about the matter and there have been discussions about possibly holding monthly meetings to provide council members with regular updates as the work advances.

“Whatever we need to do. That way the whole council knows exactly what’s going on all the time and what it’s taken to get caught up,” Williamson explained.

McGhee said the matter called for a sense of urgency because the council “is kind of driving in the blind.”

“It’s been a mess for a while … We should have called y’all in months ago,” McGhee said to Scroggins.

Scroggins said E&S is fast-tracking the work when possible and Williamson said the firm may be able to dedicate another CPA to the project once tax season ends.

“What I think you’ll see is that we may be a little slow getting January or maybe February but I think once you get to that point when you’ve done a couple of months and you’ve got a routine down, you’re going to see the rest of the year go by faster,” Scroggins said.

Council Member Dianne Hammond said Scroggins, who serves as treasurer of the El Dorado-Union County Recreation Complex Board, previously offered to assist Dean with reconciling the complex budget and finances.

Hammond said that Williamson also offered assistance.

“Yeah, I know all that, but I’m just saying, us as a board should have made an executive decision because we (knew) that it was a mess before the last treasurer,” McGhee said.

Similar points

That information and some of the details that were shared by E&S mirrored points that Dean made prior to her dismissal.

During a city council meeting Feb. 25, Dean addressed several concerns that had been raised by city officials, stressing that she had spent a great deal of time trying to sort out matters in the treasurer’s office.

At the time, Choate read a Finance Committee report that was submitted by Williamson, who was unable to attend the late-February meeting.

“It is the responsibility of the council to approve … a yearly budget and manage the city’s financials,” Choate read.

“When the council is not provided the necessary financial reports in a timely manner, it is impossible for us to fulfill our duties and responsibilities to manage the well-being of the city’s financial health,” he continued.

Dean immediately responded.

“When I first assumed this position, I think the council knows as a whole, the condition the treasurer’s office was in and it’s been a battle getting that office under control,” she said evenly. “Most of the things that occurred should not have occurred.”

She cited several “challenges” that she encountered when she was appointed treasurer and set about trying to correct.

Reconciling bank statements for 2020, state and federal tax withholdings information and mix-ups regarding pension payments for city employees, particularly the El Dorado police and fire departments — who fall under the Arkansas Local Police and Fire Retirement System, or LOPFI — were some of the issues that Dean listed.

Williamson previously said there were instances in which a father and son worked for either the police or fire department, payments for one were applied to the other’s account.

He also said some of the errors occurred under Dean’s watch.

Dean told council members Feb. 25 that she also had to complete the implementation of the city’s new accounting software system.

When 2021 budget preparations began last fall, Dean said she felt that she did not receive advance notice or proper guidance and direction from the council about the process.

She reminded council members that the experience was her first with city/ municipal budgets, having previously served as El Dorado city collector, in executive-level accounting positions with the Art Institute of Houston and Charlotte and as federal funds accountant for the Board of Education for Selma City Schools.

Dean said she did not receive some of the information she needed to prepare 2021 city budget drafts until last October and November, including information that was submitted by Choate for the El Dorado Advertising and Promotion Commission.

Choate serves as treasurer of the commission.

As information poured in from various city departments and council members, Dean said was asked multiple times to revise budget drafts.

The Finance Committee met separately with city department heads and submitted 2021 budget proposals from the respective departments to the treasurer’s office.

Williamson said some the revised drafts contained errors, prompting follow-up meetings with the department heads and Dean.

With the revisions, Dean said all information had to be “re-keyed” into the city’s accounting software.

“It has to be manually re-entered into the system because there is no automatic upload, no update,” she explained.

Further, she said budget preparations started in the midst of a state legislative audit of the city’s finances from 2019.

“A lot of the information that the auditors needed couldn’t be found,” Dean said. “It had to be recreated in some shape, form or fashion …”

She contended that she put in long hours, including nights and weekends, and even worked during medical leave to try to line out matters in the treasurer’s office.

Dean pointed to findings from the city’s 2018 audit year, which stated “that the city’s financial records reflected unsupported liability accounts” and that similar findings were noted for each of the city’s previous five audits, dating back to 2013.

The 2018 audit report also showed that the city’s “bank accounts were again not reconciled monthly, nor were they substantially corrected.”

Per state law, municipalities are to reconcile their cash receipts and disbursements journals to the amount on deposit in banks on a monthly basis.

Dean again referred to the issue March 9 during a specially-called city council meeting that was mediated by attorneys from the Arkansas Municipal League.

“You haven’t had a solid financial (report) from 2019 because, according to the … audit, the bank reconciliations weren’t done and that has been the issue,” Dean told council members then.

On March 31, Scroggins made similar statements, saying, “There’s a lot of reconciling to do.”

Editor’s note: Because of the extensive nature of the issue, this is the second in a series of stories regarding the state of the city’s finances.