HARRISBURG—Problems with the city of Harrisburg’s aged water delivery system, including suggested water theft, have accounted for the bulk of fiscal loss in the water and sewer departments, this according to the assessment done of the 2012 audit of the city’s finances and the auditor, Tanner Marlo of Marion, and the city’s water superintendent Kelly Hefner.
However, not everyone is convinced that the reason for a loss of approximately 275,000 gallons of water per day is so easily explained away by leaks and theft.
And the release of the audit is merely the first step in trying to track down what’s cost the city potentially millions in revenue in a public utility that is yet another venture between former mayor/city attorney Robert Wilson and a governmental entity, in which he stands to make a small fortune while everyone else is struggling to pay their bills.
The audit further revealed that there were some problems within an ESDA (Emergency Services and Disaster Agency) fund, which is where money to help with post-tornado damage and cleanup from a year ago went.
Nearly a half-million dollars are unaccounted-for in the fund, the existence of which is news to some who have been following the recovery of the 2012 Leap-Day Tornado (February 29; also being called “The tornado without an anniversary,” featured on page 16 of this issue), as the agencies involved in post-tornado relief have by and large been not-for-profit and private, not governmental, as ESDA is.
How the audit and results play in to the September 2012 termination of former city treasurer Charlie Will, or whether it does at all, is a topic at issue as well, but that was not explored during discussion of the current audit.
Will, a CPA who has conducted extensive audits of governmental entities in the past, had been investigating the losses in the water department and attempting to enforce his own controls when he was let go last year.
He did, however, seem pleased with the results of the 2012 Tanner Marlo audit when all was said and done, this being expressed during the February 7, 2013 city council meeting where the results of the audit were presented at length.
Audit overview
The meeting began with Carlos Tanner giving an overview of the entire audit, encompassing not only the two issues of deficits in the water department and ESDA fund, but of police pension funds as well.
Tanner explained how the city had restricted funds (government cash available for government purposes) and utility funds, and how “cash to bills coverage” in the city worked (taking the governmental cash reserves and dividing it by the city’s annual cash flow). This ideally should be a balance of 50 percent, and that the city should have six months of the years’ bills “in reserve,” this “reserve” being enough money to cover the city’s bills for that period of time.
“Less than six months is for an emergency,” Tanner explained, “greater than one year is strong reserves. So the city is falling in that seven-month ratio.”
Tanner explained that the city was “a little weaker” in utility funds, however, with a 25 percent, or three-month, cash-to bills reserve ratio.
“The city needs some work there,” Tanner said.
Current audit matches predecessor’s
He covered other items such as liabilities, city debts, city debits, income expense summary, and other facets of the audit.
Pension funds appears to be a problem, and will be discussed in upcoming issues of Disclosure.
Where the problems came in involved “previous findings from the ‘predecessor’s’ audit,” according to Tanner. The “predecessor” was Charlie Will, former city treasurer.
And it appeared that Tanner’s assessment of the audit agreed with what Will discovered…right before he was let go.
The findings
Chief among Tanner’s findings were:
1. Internal controls must exist. They must be sufficient enough that any material misstatements will be discovered and corrected during the preparation of financial statements. Financial statements, during the audit, were misstated by an overstatement of net assets by $1,599,037. Tanner didn’t explain this to the extent that the obvious was clear, but here it is: In an overstatement of assets, that basically means that either the city is claiming it has more money/assets on-hand than were disclosed…or they’re claiming less expenditures than what was able to be identified. Sources have indicated that some “documents” proving the assets mentioned do indeed belong to the city were unlocatable. That could account for it. But unless a forensic audit is done, the real cause of the “overstatement” may never be found.
2. Water Department controls were inefficient with the water clerk and deputy water clerk having identical access and duties. Misappropriations could occur without detection because they are all performing single duties along with each other. Explanation: The two clerks were, and presumably still are, doing each other’s duties interchangeably. The solution would be to separate their duties, it was later explained, so that there would be a “checks and balances” in the department.
3. The water and sewer department’s billing system did not produce an accurate listing of accounts receivable detail. Explanation: This lent to the above problem about controls, and could be addressed in the same way. Tanner advised that there must be “adequate reporting capabilities in the water and sewer departments to ensure transactions are posted correctly in the ledger. Accurate reporting aids the city to make decisions and improve finances.
Software issues?
“Reporting capabilities in the water and sewer department have not provided correct balance and listings in accounts receivable,” he noted. “Software and reporting did not provide a detailed analysis, which is a reported weakness. Reporting capabilities are restricted. There is a deficiency in software training, which also contributes to a lack of detailed reporting. City official managers are restricted in their ability to monitor the controls in the billing and collection. This increases the risk of misappropriation occurring without detection. As a result management is limited in their ability to achieve goals.”
Tanner recommended that the city put in some new software.
“I think that was started last year,” he said about a problematic software program put in place by a Carterville firm. “I think that you maybe should have some more training and more follow up to restructure the billing and collections. Train staff on the integration and create reporting lines to monitor the system to produce accurate reports.”
Addressing the half-mil in tornado funds
Tanner then addressed the matter of $490,000 that could not be found, as it related to disaster response money.
“Accrued expenses of the government must be accurately determined so as not to misstate balances,” Tanner reported. “This year, and during the crisis the city met with the tornado, we met with the engineer and verified the disaster expenses to an extent but we could not verify ALL the estimate.”
Tanner went on to report that in the ESDA fund, “there was $1,185,000 of accrued debt disaster expenses. Of those, $695,000 could be confirmed with the city engineer.
“The remaining amount of $490,000 could not be specifically identified by confirmation. The treasurer (Will) identified those as estimated disaster expenses which have yet to be incurred using professional judgment. The effect is, the financial statements could be not estimated or were not completely accurate depending on not having an updated estimate. So as those funds were extended, as those projects were incurred, it should be reevaluated.”
Tanner CPA recommended that the city does reevaluate it and revise for the proper amount.
In other words, nearly a half-million in unaccounted-for funds is basically given a pass by the auditors in the hopes that “someone”—perhaps the city ‘engineer,’ Jim Brown (who is reported to not really hold a certificate as an engineer through the state as required by law)—will be able to “someday” account for the missing funds.
It is important to note at this juncture that the audit was begun at fiscal year ending April 30, 2012. The tornado had occurred roughly eight weeks prior to materials being gathered for, and assessed by, the audit. While material was gathered for the audit reportedly all the way up to September 2012, the months of May-September weren’t audited.
Therefore, it appears that the half-million unaccounted for would have had to go missing in a time period of eight weeks only…a relatively short period of time for such an amount to be unaccounted-for.
Perhaps something within the audit will explain the amount, ultimately; but for now, it just looks bad.
Kelly Hefner, Harrisburg’s water superintendent, explains to the city council that ‘smart meters’ will help more accurately track water usage, and that “losses” aren’t exactly leaks, but are coming from water theft along the water lines, and inaccurate meter readings.
Big meter ‘deadly accurate’
Addressing the water loss issue was water superintendent Kelly Hefner, who described the “big meter” that measured water coming out of water provider Saline Valley Conservancy District as “deadly accurate.”
“Which is good for them,” Hefner said, “…not so much for us.”
Hefner explained that water loss is defined as the difference between the amount of water the city purchases from Saline Valley and what the city ends up billing its customers for.
Some things that contribute to why water loss is happening, he said, was that some of it is leaks, some of it is inaccurate meters, also authorized unmetered use such as fire fighting, street sweeping, hydro-flushing the city’s own facilities and un-authorized metered use, which equals people stealing water.
“We have people stealing,” he insisted “They get the meter and put their own pipe in and turn it back on after it’s been turned off. We have a lot of that.”
Last year’s water loss was 22-23 percent of water coming from Saline Valley Conservancy District (SVCD). The national average water loss, according to the American Water Works Association, is 17.2 percent. Those are both to the EPA recommended 10-15 percent deviation, which they find acceptable.
Hefner said the city has done extensive leak surveys, repairing over 70 leaks in the last six months.
“Leakage is not our problem. I can tell you that,” Hefner said.
Meter replacement requested
Hefner noted that during the last billing cycle, the city had three leaks, one in last week of December and two in the first two weeks of January. The estimated loss was a little under a million gallons on those three leaks. Taking into account the city’s authorized unmetered use from their own facilities, the highest estimate for that use, Hefner said, was 150,000 gallons.
Hefner said if they account for all the leaks they had and all the water they used themselves, that basically leaves one thing: The meters themselves.
Replacing meters is something Hefner says they deal with everyday.
“We are averaging losing 20 old meters every month because they fail,” he told the council. “They’re grossly inaccurate; sometimes they run backwards.”
Last time meter replacement was done on a wide scale approach was in 2005 under Fearheiley’s administration as mayor, Hefner said.
In the last six months the city replaced 20 commercial and 122 residential meters with the latest greatest thing, “smart meters.” The city is currently trying to get all their route to “touch-read” these meters, which can be read by walking by and touching the meters with a wand. The city still has 284 residential meters in the ground that are still the old “manual read.” At best guess, Hefner said, most of those are at least 20 years old.
The cost to replace an old meter with a new smart meter is $115 each; or, replacing those existing 284 meters will cost $35,500. There are 30 more commercial meters to replace with a cost of $41,000.
The department has already spent $74,000 this year replacing meters.
“What we are looking at is replacing all our meters and getting on a schedule,” Hefner said. “Right now we are having a propagation survey done to find out how viable it is for us to do radio reads. We can either drive by or we can have a tower. There are a few opinions. We need to be looking for grant money and this is considered a ‘green’ project. But it’s hard to come by. People are lined up for that stuff. We can look to some long term low interest funding or we are probably gonna have to look at installing the system in stages, a route at a time.”
Charlie Will, former city treasurer, was on the agenda on February 7, 2013, to discuss the findings of
the city’s audit done by Tanner Marlo from Marion. The findings mirrored Will’s, who was doing a reconciliation and audit of the water department and other accounts before his termination in September 2012.
Bottom line
The bottom line in the water loss is this:
The SVCD one of former mayor and current attorney Robert Wilson’s many business ventures, and which obtains water in Gallatin County, then sells it, not only back to Gallatin but to residents outside the area, including Harrisburg and points beyond, is properly metering water leaving their facility for purchase.
That water is arriving in Harrisburg for distribution, where the city is then billing out the individual purchasers (citizens and businesses, as well as other, smaller municipalities such as Muddy).
Somewhere in between that, over a period of four years according to Will’s audit of the situation, the Harrisburg water department has purchased almost 500 million gallons more than it billed. The Tanner Marlo audit is showing that over 25 percent of water purchased simply never gets billed to the individual customers once it gets to Harrisburg.
The bottom line of the water loss is the same as the bottom line of the unaccounted-for disaster funds: Until a forensic audit is done—which requires detailed paperwork and reconciliation of every single dime, not just someone’s “word” that they have documents laying around “somewhere” that show assets, expenditures, etc.—there will only be “suggestions” as to what happened to it. And with the unaccounted-for funds now reaching into the millions, such a forensic audit may need to take place sooner rather than later, before wrong motives begin to be ascribed to people in charge of the funds that are ‘gone.’