Millions mishandled in Cleveland budget, White, audit reveal

Saturday, September 16, 2000

By CHRISTOPHER QUINN

and MARK VOSBURGH

PLAIN DEALER REPORTERS

Independent auditors found million-dollar math errors, inexplicable numbers and a variety of bookkeeping problems in their review of how Cleveland spent $1 billion last year.

After releasing a draft of the 1999 audit, Mayor Michael R. White yesterday disclosed that the city also mishandled more than $50 million from the Division of Water.

White said he discovered just this week that the $52.5 million was mixed in with general funds last year and then returned to the water division.

In a written statement, White ordered an investigation into the mix-up and the restoration of $977,099 in interest to the water division.

Reacting to Whites disclosure, Councilman Bill Patmon, head of councils Finance Committee, last night said he wanted to cancel Mondays committee meeting and hold "exhaustive and comprehensive" hearings into the citys accounting problems.

Council President Michael Polensek last night said he would consider Patmons request after meeting with other Finance Committee members. Polensek said the mingling of funds was one of the factors that led to the citys 1978 default on bank loans.

"I understand Bills growing concern," Polensek said. "Something is not right here. And I think, quite frankly, we have to figure out what is wrong."

Auditors from Pricewater- houseCoopers did figure out that a new, unwieldy computer program contributed to the citys problems as did inexperienced bookkeepers.

"The financial reporting skills throughout the city of Cleveland have deteriorated significantly over the past five years," auditors wrote in their reports, which eventually will be reviewed by State Auditor Jim Petro.

Auditors have made the same criticism since 1995, and every time the mayor claimed to be working on reforms. %%JUMP%%BUDGET/13-A His office is claiming reforms again, saying the city has improved its bookkeeping in the last eight months, a period not covered by the latest audit.

Frank Badalamenti, manager of the citys audits, said the mayor had increased the number of city-employed auditors from two to 12 since January and that the extra workers had corrected many of the accounting errors cited in past years.

Badalamenti said the city also was working on the problems found in the 1999 report. The degree of the improvements, however, wont be known until the 2000 audit is released next year.

That audit will be performed by Petros staff instead of independent accountants hired by the city. The PricewaterhouseCoopers auditors outlined several problems in the latest audit:

Even though White has adopted a new, citywide computerized bookkeeping program, workers still use old-fashioned computer spreadsheets, typing in numbers rather than retrieving them from the new software. The process wastes time and injects many errors.

The city began using the new computer program, Peoplesoft, without properly training the many people who must work with it. The city says it has begun new rounds of training.

Auditors found the city ledgers replete with mistakes, mostly because of poor training. City officials say they are trying to hire experienced finance workers.

Reports outlining how the city spent federal grants regularly were submitted months past the deadlines. One report misstated income by $1.3 million because a workers math error was not caught by a supervisor. The city failed to balance its books regularly.

The auditors did find some bookkeeping improvements. The 1998 audit cited Cleveland for breaking an assortment of rules in a federal job-training program. The city had failed to visit the trainers, paid bills without proper invoices and overpaid contractors. In 1999, the city visited the trainers, obtained proper records and got back the money it overpaid.

The auditors also noted that after the 1999 books closed in December, city workers caught up on balancing ledgers. "If I were an investor, the first thing Id look at is, did they finish the year in the black, and do they know where their money is? We do," city Finance Director Ronald Brooks said this week before White made his discovery of the $52.5 million in mishandled water division funds.

But the auditors were confused by several accounts maintained by the city, including those for Cleveland Hopkins International Airport and city golf courses, cemeteries and markets.

At the airport, the auditors said the city did not send monthly rent bills to tenants until May and charged too much for some. Also, fees collected by the airport were posted to the wrong accounts. Some May 1999 revenue was entered twice. City officials hope Peoplesoft training corrects the problem.

Also at the airport, the accountants found the city overstated expected income from fees tacked on to car rentals. The special fees pay for buses that carry people from the airport to a nearby car rental center. And the city understated the rental centers bills. City officials said they now monitor the account monthly and balance it four times a year. Auditors also noted that the city no longer produces detailed reports on money earned and spent by Cleveland-owned cemeteries, golf courses, food markets and parking lots.

"We found it very difficult to obtain explanations of activities for these funds and explanations of income and expense fluctuations," the auditors said. City officials say they hope to begin producing the reports again by years end.

Auditors also were confused by the citys "Sick and Vacation Report," which summarizes how much money the city owes to employees for compensatory time and unused vacation and sick time. Normally, those amounts are paid to workers upon retirement.

In 1998, auditors found questionable increases in the number of hours workers had accrued, and, in 1999, auditors found errors in how the amounts were computed.

"The city was not able to provide us with an explanation for the differences," the audit says. City officials said they began correcting the errors last month.

Patmon wonders how the city can start designing next years budget without an accurate picture of its finances.

"How then do we prepare for year 2001 if we cannot make head nor tail of 1999?" he said.

E-mail: cquinn@plaind.com

Phone: (216) 999-4604

E-mail: mvosburgh@plaind.com

Phone: (216) 999-5519

)2000 THE PLAIN DEALER. Used with permission.

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-- Carl Jenkins (Somewherepress@aol.com), September 16, 2000