A generally positive audit detailing the financial health of the city of Northport was tarnished by suggestions that city officials made some decisions irresponsibly, intentionally circumvented rules and possibly broke state law.
The Northport accounting firm LeCroy, Hunter and Co. has audited the city annually since 2008. The firm presented the findings of its 2016 audit Monday night, and much of the news was good for the city — sales and property tax revenue were both up from last year, and the auditors submitted their report as an unmodified opinion, which essentially tells creditors that the city’s financial reporting is sound.
The problems for the city came in the form of six “material weaknesses” the auditors found in the city of Northport last year. The audit defines material weaknesses as “a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.”
The first weakness identified was the city’s failure to adequately staff its finance department and monitor its accounting operations. The audit called for monthly financial reports to be prepared and presented to the council and said without them, choices are being made without understanding how they will affect the city’s financial health.
“Because proper financial reports were not obtained by the council, numerous decisions were made without regard to the current financial position of the city and its budget,” the audit states. “No comparison of actual expenditures to budgeted expenditures was performed on a monthly basis to determine the need for budget amendments or future cash flow needs.”
The auditors recommended that the city immediately hire additional accounting staff to enable the finance department to work in a timely manner and keep the council informed about Northport’s overall financial situation.
Councilman Rodney Sullivan, who was named chairman of the city’s finance committee in January, said Wednesday that the city is already in the early stages of hiring another accountant and that the finance committee will begin presenting monthly reports sometime soon.
“Everything they’re presenting in the audit, we’ve worked on, thought about and talked through,” Sullivan said. “Our finance department does a wonderful job, but right now they’re not staffed where they need to be, but we’re working to fix that and we’ve got a report in place that will be given out monthly very soon. That’s already underway, it’s almost complete, it will be in place soon.”
The last two of the six material weaknesses referenced specific incidents.
The first allegation is that a city employee instructed a third-party vendor to break up their invoices into small pieces so that expenditures did not have to be approved by the City Council.
City code allows the city administrator to spend $5,000 without approval from the City Council — any expense higher than that must be put to a vote.
According to the audit, “a third-party vendor stated that they were instructed by a member of management at the city of Northport to submit invoiced amounts below the threshold requiring council approval thereby circumventing established controls.”
“The intentional collusion between members of management and third-party vendors to submit invoices below threshold amounts requiring council approval does not serve to safeguard public assets and opens the door for misappropriation and corruption to occur.”
City Attorney Ron Davis said Wednesday that he was the “member of management” referenced in this report and that the situation in question started in December 2016.
Davis said the effectiveness of the city's cybersecurity was in question at the time, and in a Dec. 12, 2016, executive session with Mayor Donna Aaron, interim City Administrator Joseph Rose and the five members of the City Council, he outlined the severity of the danger Northport was in.
“At that time, if someone were to hack into the city network, they would have had access to over 300 city employee names, addresses, dates of birth, Social Security numbers, family information and bank account information,” Davis said. “They also would have had access to the names and addresses of over 14,000 city water customers, many of whom pay their bills by bank draft, so they would have had information about bank account records saved as well.”
Davis said he told the council that it needed to access the vulnerability of its computer, network and email systems without broadcasting its weakness before the problem was solved. He proposed paying Viperline Solutions, a Birmingham IT firm, $9,100 to perform the assessment but wanted to find a way to do it without adding the expense to a council agenda.
“I had reservations about putting a contract to assess internet security issues on the council agenda at that time, because it would not take an IQ in three digits to guess that hacking in may be easy if we were concerned about this,” Davis said. “It’s not that hard to connect those dots.”
Davis said he suggested cutting Viperline’s $9,100 into amounts below $5,000 so that the firm could be paid without appearing on a public council agenda, but the plan was never put into action and the council voted to approve the expense during its Feb. 20 meeting and a check was written to Viperline in early March.
“My suggestion to split the bill so the city administrator could pay it with the council’s blessing was never done,” Davis said. “There were never any checks under $5,000 issued; the check was issued for the full amount by the council in March.”
Davis said the auditors never discussed this matter with him, and he doesn’t understand why this 2017 matter was included in the 2016 audit.
“I did not make one penny off of this, the only thing I was trying to do was protect the city, which is my job,” Davis said. “I wish they had talked with me about it, because I would do it again and there was never any attempt to hide anything from the elected officials or the city administrator before anything was done. They all knew about it, approved it and instructed me to move as quickly as possible.”
Not adhering to applicable laws
The audit’s last identified material weakness specifically references the April 2016 resignation of then-city administrator Scott Collins, whom the city paid $124,000 upon his departure.
The auditors say city officials approved the buyout without a full meeting of the City Council and may have broken the Alabama Open Meetings Act.
“The disbursement (of the $124,000) was made on April 15, 2016 prior to the occurrence of the scheduled council meeting,” the audit read. “Communication between city personnel indicates that the decision to disburse the funds was made by three council members without the inclusion of the remaining council members.”
“The disbursement of public funds prior to council approval circumvents established controls that safeguard city assets. Conducting council meetings behind closed doors is in violation of the Alabama Open Meetings Act. Controls in place were not followed by responsible personnel. Applicable laws may not have been adhered to.”
This is not the first time such allegations have been made about Collins’ departure, but their appearance in a publicly available audit pushed city officials to address them.
Davis, the city attorney, said at the time that the majority of the council was in favor of replacing Collins as city administrator. However, at the time, that position was protected by civil service status, which allows employees to appeal their discipline or termination to a board independent of the City Council.
“This led to the possibility of the council voting to remove Scott Collins as the administrator, Scott Collins appealing his removal to the Civil Service Board, the board disagreeing with the City Council and putting Collins back to work as administrator,” Davis said Wednesday. “That situation could very well have led to a dysfunctional government, where the city administrator was at odds with the City Council.”
Instead of facing that possibility, Davis said the council at the time opted to pay Collins a $124,000 buyout so he would leave Northport amicably.
At issue is the timing of the decision. Three checks were made out to Collins on April 15, 2016, but the council did not vote to approve those expenses until it met three days later, leading to questions about how the checks were written without the council meeting behind closed doors, which would have violated the state’s Open Meetings Act.
Councilman Sullivan did explain how the decision was made last year, but he said the council did not break the law.
“The Open Meetings Act was followed to a ‘T.’ ” Sullivan said. “This is beating a dead horse once again, that’s dead and gone, but this being the 2016 audit, we knew it was going to come up again.”
Davis referred questions about the decision to pay Collins to members of the City Council at that time, but he said to his knowledge, no complaint about the matter has ever been filed with the Alabama Ethics Commission, or if one was, the commission found no merit in it.
He also said the auditors really have no business saying whether or not city officials broke the law.
“We have very good auditors,” Davis said. “But they’re not attorneys and they’re not hired to give legal opinions.”
Davis, like Sullivan, said the issue should stay in the past.
“This issue has been kicked to death long enough,” Davis said. “It was in last year’s audit, it’s in this audit, it was 16 months ago, it was four city administrators ago, it was with a different mayor and a different City Council, but unfortunately, it’s going to overshadow what I think is a very positive financial audit as far as the city of Northport is concerned.”
Reach Stephen Dethrage at email@example.com or 722-0227.