A years-long accounting error discovered by Missoula finance staff led to depleted road, parks and general funds after the yearly budgeting session.
At a City Council meeting on Wednesday, the first with four new council members attending, Finance Director Leigh Griffing detailed the error, which was found this fall preceding the city’s annual audit.
Fair warning — this may get a bit into the weeds, but stick with it.
The city’s Capital Improvements Program (CIP), which contains millions of dollars of proposed projects, is supposed to get reimbursed directly after it makes a purchase.
But since those purchases go to almost every city department, including roads, parks, the general fund, or wastewater, at some point the bank funds began going directly into each department’s budget, shorting the CIP.
Since the CIP is so large and complex, Griffing said it was easy to miss the few misallocations for years in a row, starting in 2013.
Finally this year, during the city’s audit, staff combing through CIP incoming monies noticed they were short.
“That’s when the finance department knew something was wrong there,” Griffing said, adding they tracked down the misallocated money just in the last two weeks.
When they rerouted the money back into the CIP it left some other funds short: the city’s parks and road departments were in the red, by about $100,000 and $400,000, respectively. And the general fund, which was on its way to being shored up to $3 million, sat at just over $600,000.
In a memo Mayor John Engen read to the council, he said the city has enough cash reserves to cover the losses, also pulling on incoming money and putting off new purchases and hires in some departments to make up the shortfalls.
“No money is missing, it was merely accounted for incorrectly,” Engen said. “We’ve worked with our auditors and financial advisers to ensure that the steps we’re taking are reasonable and prudent and, while I’d much rather we were building cash reserve than spending it, rainy-day funds are for rainy days.”
After drawing on new revenues and planning for one-time savings, Griffing said the General Fund would be shored up to $1.5 million by the end of this fiscal year, while the parks and roads funds will be balanced over the next couple of years.
Griffing and Jan Schweitzer, the city’s auditor, said they were looking into breaking up the CIP into smaller chunks that would be easier to track.
“Right now that CIP fund … had so much activity,” Griffing said. “It always sat a bit in the negative.”
Schweitzer added, “Anything you can do to break up that big piece and parse it out a little bit more, will be helpful.”
Ward 2 representative Jordan Hess asked how this error, along with lower fund balances, might affect the city’s bond rating and loans.
Griffing said fund balance is only one factor in determining the bond rating, along with the city’s response to accounting problems, including timeliness and transparency. She was confident they still met a high bar on those terms, at least.
“We’re actually in a good place and were actually able to rectify it with minimal effect,” Ward 4 representative John DiBari said.