Fraser receives finance report

By: Nick Mordowanec | Fraser - Clinton Township Chronicle | Published February 3, 2016


FRASER — City finances will play a major role in Fraser for the next few years.

A recent audit report presentation delivered by three Plante Moran representatives at the city’s Jan. 14 council meeting dictated that a pragmatic approach will be paramount when it comes to the future.

The audit report covered the 2014-15 fiscal year, which annually runs from July 1 to June 30. It covers the city’s presentation of the finances, rather than the economic or financial well-being.

It covered numerous areas, including compliance, which includes budget variances, unclaimed property and late penalties for payroll tax remittance; internal controls, like weaknesses in bank reconciliations and significant deficiencies in purchasing procedures; and unmodified opinion, which is the highest level of assurance an auditor can provide.

Plante Moran, hired in April 2015, said that from an accounting perspective, receiving an unmodified opinion is like receiving an ‘A’ on a report  card.

The city’s general fund increased $563,214 during the aforementioned fiscal year, and it continues to operate at a loss. The 2014 fiscal year’s adjusted loss was $802,624.

The knock on the general fund was that there were too many open bank accounts, $1.5 million in unliquidated investments and “negative” pooled cash.

Maybe more alarming was the area of pension contributions: Over the past two years, $1.1 million of required pension contributions were not made. If pensions had been fully funded, the general fund would have had more than $1 million worth of fund balance on June 30, 2015.

The water and sewer fund generated a net of $2.2 million, with capital and related financing using $1.5 million. The same fund lent $1.7 million to other funds, though, for cash flow purposes. The ending cash balance of $430,758 was below the recommended minimum of $3.1 million.

Plante Moran offered suggestions to the city on numerous fronts that included cash, the general fund, water and sewer fund, and healthcare benefits.

It was advised that the city close unnecessary accounts and liquidate investments as they mature; have a monthly budget to report to city council, which includes a five-year projection; conduct a rate study of the water and sewer fund, taking into account eventual price increases by the Great Lakes Water Authority; and consider new or different providers in terms of health plans.

Councilwoman Patrice Schornak said she would not put an “A” grade on the audit report. Rather, she deemed it a “C-minus” and said she got chest pains just looking at it.

“It sounds like the only options we have at this point is to raise water rates — which everyone is already in arms about, myself included — and tax rates to stay above the curve,” Schornak said.

Mayor Pro-Tem Mike Carnagie said the city can’t go backward.

During and after the meeting, City Manager Rich Haberman said the city is “OK,” with the report citing an 18-percent fund balance when the preference is 20 percent.

Haberman said the 2014-15 fiscal year was a fairly good year, ending on a surplus with revenue exceeding expenses. He said the city’s finances are currently more balanced and recouped since December 2014.

He added that he made decisions a few years ago so Fraser didn’t bottom out, saying it’s a struggle to make things work every year.

“It’s just saying the same thing we’ve been talking about for years: the general fund is expensive and there’s not enough revenues being generated to pay expenses,” Haberman said. “The choices are quite simple: You either cut services or raise revenues.

“I understand the dilemma that the council faces. As a city manager and as the one who has to go and sit there and report things nobody really wants to hear, I understand a council member telling their neighbor, ‘I had to vote to raise taxes.’ That’s something nobody wants to hear.”

Mayor Joe Nichols called the report “very disappointing,” but said he wasn’t shocked because the former council predicted tough times were ahead.

He cited three major factors in the report: being behind in pension payments and not yet ratifying union contracts; not being able to generate enough new revenue in a city that is approximately down 30 percent in that area; and being underfunded in the water and sewer fund when residents already pay increasingly high rates.

“That puts forth that we need even more diligence and extra effort by every sitting member of council, and outside resources for studies to find out what it is we need to do to become fiscally healthy and do everything possible in regards to water rates for the residents,” Nichols said.

He said he wants residents to understand the “urgent financial crisis” facing the city, saying tough decisions need to be made.

During the meeting, he read verbatim passages from past internal control reports issued by Abraham and Gaffney, a public accounting firm formerly hired by the city, dating back to 2010.

Nichols cited how the firm identified certain deficiencies in internal control that are considered to be “material weaknesses,” and others that are “significant deficiencies.”

“During the course of our audit, we noted that while most of the bank accounts were reconciled with the general ledger, the city’s general cash account was not reconciled to supporting records in a timely manner,” Nichols read.

Haberman responded during the meeting that adjustments had to be made, and that they could have been resolved in a timely manner when the books closed.

He later expounded by saying that he is not the finance director and found out after the fact regarding things a former finance director neglected. It didn’t change the outcome, though, he said.

“I talked to our auditor and he said it didn’t change our numbers,” Haberman said. “He failed to close the books properly. Expenses and revenues were accounted for.”

He said he gave five-year projections in 2012 to the then-City Council. He said the city would find itself in deficits while still digging out of the hole of the recession.

The next step is to review another budget, and the likely scenario is to either make up revenue or look at services, which he called “intuitive.” Property taxes are going up 0.3 percent because of the Headlee Amendment and Proposal A, and he said he’s pretty sure expenses will go up faster than that.

In response to the Abraham and Gaffney reports, Haberman said he was told improvements were made every year and that the council received the same reports.

The city is not in dire straits, he added, as was the impression some received from the report.

“You get weary in the sense that you have to report and hope council will act a little more aggressively, but I also understand their reluctance to do so,” Haberman said.