OAK POINT — The city began its current fiscal year with a substantial deficit in capital funds and only a week’s worth of money in the general fund, a new city audit shows.

 ALSO ONLINE

  2006-2007 Audit Report

City leaders received the annual audit for the 2006-07 fiscal year Monday, five months after it was due.

Independent auditor Tom Gregg said that by the time he finished the audit, he had asked city staff to make more than 30 audit adjustments.

He told the council that, typically during an annual audit, he asks for just four or five such corrections or changes.

Gregg also strongly recommended that the city strengthen the way it handles money in order to prevent future fraud.

“It’s been a roller coaster ride,” Gregg said.

But the audit of city finances as of Sept. 30, 2006, allowed the council to meet its obligation to its bonding company. And the auditor’s opinion also helped the City Council see past an ongoing criminal investigation involving the city’s money.

Missing money

Irregularities with both the city’s credit cards and petty cash came to light earlier this year, triggering a criminal investigation. Amid that investigation, Oak Point's former administrative services coordinator, Jennifer Ashenhart-Hawkins, 27, left her post April 18 and became full-time city administrator in Rhome. Oak Point police arrested her April 27 and charged her with abuse of official capacity.

According to her arrest affidavit, $758.22 in credit card charges had been identified as questionable, and $314 was missing from the petty cash box. She told investigators she knew about the missing money but was covering for the city manager.

The investigation involves both Ashenhart-Hawkins and Richard Martin, former city manager. Martin resigned on April 21 but has not been arrested or charged with any crime.

Rhome Mayor Mark Lorance put Ashenhart-Hawkins on administrative leave May 3. Five days later, the Rhome City Council fired her, citing “no confidence,” according to City Secretary Ramah Burns.

At the end of Monday’s meeting, several members of the Oak Point City Council asked to get an update on the criminal investigation soon.

“I’m tired of telling residents, ‘we’re investigating,’” said Mayor Pro Tem Jim Wohletz.

Audit delays

When the investigation came to light, Gregg asked the city for additional financial documents from 2006, citing the need for more review before writing his opinion and the accompanying management letter.

The Denton Record-Chronicle followed that action May 21 with an open records request of the draft audit and the list of additional substantiation. City officials sought an attorney general’s opinion on the request June 3, saying the documents were likely exempt from public disclosure. The request remains under review.

Meanwhile, the City Council agreed to pay Gregg another $3,000 to go over the additional materials, although the council was advised that the added review was not a forensic audit. Forensic audits look for criminal activity and can cost $25,000 or more. Oak Point paid a total of $12,000 to complete its 2006 audit.

The Texas Local Government Code requires an audit within 120 days after the end of the fiscal year, making the audits for most area cities due at the end of January. The government code provides no penalty for failing to meet that deadline, but a city’s bond rating is tied to the audit.

Acting City Manager Tamara Null told the council that the city had a phone conference with the bonding company this week to discuss the final audit. Oak Point has $860,000 outstanding in general obligation bonds.

In the end, Gregg said the criminal investigation did not materially affect the statements contained in the audit, but he made a number of recommendations to improve the city’s cash position and internal controls.

Poor cash flow

According to the audit, the city had $82,588 in unrestricted funds, or about a week’s worth of spending, as of Sept. 30, 2006. Typically, cities try to maintain about three months’ worth of spending because property tax payments don’t come in until December, Gregg said.

“You need, as a city council, to say that we’ve got to build our reserves … and budget to increase the reserves,” Gregg said.

Later in the meeting, accountant Carol Roberts, who has been helping the city organize its financial tracking and reporting for the past several months, said the city’s cash reserves have improved, but only a little. One developer made a $54,000 payment the city had not budgeted, and the city is pursuing another developer who now owes about $80,000, Roberts said.

Expenses are holding steady, but revenue has decreased, particularly because construction permits are down, Roberts said.

As of May 31, the city had about $1.6 million in its bank accounts, but the use of most of that money is restricted, she said. Of the $400,000 in the general fund, the city needs nearly all of it to pay its bills through December.

Roberts recommended that the city consider several steps to improve its cash position, including reviewing payments made on developer agreements and capital projects to see whether that money could be applied elsewhere.

“There is $329,673 in the account with 4B [sales tax revenue], which is 4B and whole bunch of other things lumped together,” Roberts said.

Capital deficit

In addition to low reserves, the city owed the Upper Trinity Regional Water District  $50,000 for Oak Point’s portion of a regional engineering study for additional wastewater lines. At one time, it appeared that the city would owe as much as $98,000 for the study, Gregg said, “so it [the deficit] could have been much worse.”

But the $50,000 liability combined with the city’s minimal wastewater assets created a $40,000 deficit for the city.

Internal controls

Gregg recommended several ways to improve internal controls, including that the city shore up its wastewater billing process. The audit found that many people connected to the city’s wastewater system had never paid a sewer bill, he said.

In addition, among those who were billed, statements went out inconsistently.

Null told the council that it wasn’t always the fault of residents, since some thought that they were paying their sewer charges as a part of their water bills. She was working with others on the city staff to get all the accounts up to date, and payments were coming in. In addition, she was talking with Mustang Special Utility District about taking over the billing, Null said.

Gregg also recommended that the staff streamline its filing system, which is cumbersome and doesn’t lend itself to being audited.

Roberts, who has been working for the city for several months, asked the council for further direction, knowing that her consulting role would continue to dwindle.

But several council members said they weren’t comfortable with that yet. They wanted Roberts not only to guide department heads in managing their expenses, but also continue supervising the internal controls, such as daily deposits.

“In the past, we’ve had vehicles purchased with the council having no knowledge of it,” Wohletz said. “It just makes common sense … that it all [the current financial controls] stays in place.”

PEGGY HEINKEL-WOLFE can be reached at 940-566-6881. Her e-mail address is pheinkel-wolfe@dentonrc.com.