For the past four years, Amsterdam city officials have been working with "inadequate, inaccurate and incomplete" accounting records to craft the city's budgets.
According to an unofficial draft of the state Comptroller's procedural audit obtained by The Recorder Friday, because of the lack of accurately recorded receivables, cash and liability, there is no way to ensure the city will be able to continue operating.
Without knowing how much cash the city has, how much it owes in outstanding payments and how much debt it has, "the mayor and the city council are preparing budgets and making financial decisions without basic information about the city's finances."
According to the report, the Standard and Poor's Rating indicates Amsterdam's finances have "significantly deteriorated over the past four years due to softening revenues and continued expenditure growth."
The report states auditors have met with city officials on numerous occasions to explain the severity of the state of its accounts. However, city officials have taken "no appreciable action" to address the situation, the report says.
The city has not yet closed its books, began an audit or filed its annual update document for the 2011-12 and 2012-13 fiscal years.
The councilmen and Mayor Ann Thane met with state officials Friday morning to discuss parts of the report they believe are incorrect -- one being the report's claims that the city has had no part in trying to eradicate these problems.
Though there are some issues they are challenging, Thane said that doesn't discount the fact that there are problems that need to be readdressed.
Thane said she puts blame in having an elected controller with no experience in municipal accounting. She said she's been asking the controller's office for reports and reconciliation for at least five years but has been ignored. Thane has also attempted, without success, to ensure necessary reports were distributed to the council.
"I hope people don't forget that we wrote to the state to ask for this audit," Thane said. "We've known these problems have existed for years. It's like having an infection. You're sick, you're sick, you're sick, but you don't know what's causing it. Now we've identified several areas that need to be worked on."
According to the report, the city's unrestricted fund balance decreased by 81 percent from 2007 to 2011. It reported a fund balance of $3.4 million in unreserved funds in 2007, which dropped to $620,076 in the fiscal year ending 2011.
The city appropriated $608,000 in the 2010-11 budget but appeared to use closer to $1.3 million. The AUDs of 2011-12 and 2012-13 have not been filed,. However, statements from the city indicate the city has been depleting its fund balance due to a combination of flat property tax revenues and underestimated expenditures.
Looking into the accounts, auditors said that when deposits matched receipts, receipts didn't match centralized accounting records. When receipts matched the centralized accounting records, the receipts didn't match the deposits. As a result, they were unable to ensure the city's reported revenue was accurate.
Because of "poor accounting records," auditors couldn't determine if all revenue was deposited into the city's accounts.
"If money is missing from city receipts, it would be difficult or impossible to identify the shortage because the records are so unreliable," the report states.
The city reported more than $13 million of billed receivables as of June 30, 2012, however, according to a report of unpaid bills, the accounts showed only $9 million of unpaid funds. Similarly, in March of this year, the city reported its receivables totaled more than $25 million, though only $14 million was shown.
The city recorded $800,000 of principal and interest payments, but did not record the renewed bond amounts for 2012-13. As a result, it failed to record nearly $1.4 million of principal and interest paid.
In formulating the 2012-13 bond notes, the city used incorrect figures from the past fiscal year which offset or decreased expenditures in the capital projects fund.
This happened again when the city used the 2012-13 bond notes to decrease $3.1 million of expenditures in the capital projects fund. These entries caused total expenditures to be understated by more than $4 million in both 2011-12 and 2012-13.
Deposits and disbursements
Again, because of the poor accounting records, the auditors were unable to accurately measure the city's results of operations. After analyzing cash transactions as a substitute, they found money paid out exceeded money coming in during 2011-12 by more than $7 million and from 2012 to March 2013 by more than $4 million.
"Our analysis of deposits and disbursements indicates severe negative fiscal trends," the report states. "Furthermore, if these trends continue, the city will experience cash flow problems and may deplete cash entirely in the future, putting the city into fiscal stress."
Long-term financial plan
The report states the city has not developed a comprehensive, long-term plan or adopt a "realistic" budget.
"Had such a plan been in place, it would have been a useful tool to address the financial deficiencies noted in this report," it states.
The auditors said it is unlikely the city will be able to create a long-term financial plan because of the poor accounting records. However, they recommended officials start developing a plan as they work to get the financial records into a "useable condition" along with other suggestions.
Attached to the end of the procedural audit is a list of seven suggestions given by the auditors. They include: the control should ensure accounting records are complete, accurate and maintained in a timely manner; the mayor and council should ensure the control completes monthly reconciliations; the controller should prepare monthly reports to the council; the council should ensure debt proceeds are deposited; the controller and office staff should attend training; the mayor and council should use references when developing future budgets; the mayor and council should develop a long-term financial plan.
Finance Committee chairman and 5th Ward Alderman Richard Leggiero called a committee meeting for Tuesday where the audit would be discussed.
Thane and 1st Ward Alderman Joe Isabel each wrote in an e-mail they thought a meeting was premature. Thane later said the state asked they didn't release the report until they had a chance to release the final version.
"The state is reviewing the initial draft findings and recommendations with administration and the council in a confidential manner [Friday,]" Thane wrote. "The city then has 30 days to initiate an audit response letter to be signed by the mayor, to correct any perceived inaccuracies in the report before it's finalized."
She said the final report will be sent to the city mid to late November, where, from that point, the city will develop a final corrective action plan.
"Therefore, I would suggest this committee meeting be canceled unless there are other matters to be discussed," Thane wrote.
In a voicemail left by 4th Ward Alderman Dave Dybas Friday night, he said because the report is not confidential, the meeting has not been canceled and the audit and the city's response to the audit will be discussed.
"This is all good," Thane said. "We have nothing to hide. We've identified areas and now we're going to fix them."