The city of Hoover’s chief financial officer on Monday night attempted to ease any concerns about the city’s financial condition following a troubling forensic audit that became public in August.
That audit found no evidence of financial fraud, malfeasance or asset misappropriation but it did reveal numerous problems in the Finance Department, including erroneous financial reporting, deleted and destroyed financial records, unbalanced transactions, unreconciled accounts, IRS penalties and a lack of experience, skills, training and communication.
Some members of the public have expressed alarm at the findings and sought answers from city officials about the state of the city’s current and future finances, even calling for an outside investigation by state officials.
Hoover Chief Financial Officer Jennifer Cornett, who started with the city in January and called for the outside audit, on Monday night gave a report to the Hoover City Council and public, saying that many of the findings in the audit were not a surprise to her and that the city already has begun corrective actions to remedy the problems. She also emphasized the city is not hiding anything.
“The city is totally committed to transparency, accountability and responsible government,” Cornett said. “The city is being proactive and responding to address these issues.”
While it is true that the city’s general fund balance was overstated by $36 million in unaudited financial reports for fiscal 2022 and 2023, there was no indication of any missing money, Cornett said.
Instead, significant transfers made to capital projects were not named as committed funds in financial statements, which left an incorrect and inflated balances, Cornett said.
“Corrective action was taken to cure this when audited financial statements were published,” she said.
There also were errors made in recording regular general entries, accrual entries and auditor adjustments in prior years, and many of those errors point to a need for additional training and increased staffing levels in the Finance Department, Cornett said.
“These problems are going to be addressed moving forward with training, oversights and self-checks and reconciliations,” she said. “So moving forward, a system of self-review and quality control measures will be implemented to ensure the reliability of those interim financial statements.”
DELETED & DESTROYED RECORDS
While both electronic and paper files were destroyed or deleted from the offices of the former city administrator and former chief financial officer and treasurer, the city’s finance staff — with assistance from the city clerk’s office, the city’s auditors and legal team — has been able to recreate permanent financial files, Cornett said.
While some documents could not be recovered, “none of the supporting documentation or proof related to financial transactions was removed,” she said. “We do not believe any mission-critical information was lost in the process.”
Furthermore, the city has reported the deleted, missing and destroyed files to the state attorney general’s office and increased the frequency and retention period of backup files, Cornett said.
While the Finance Department is understaffed compared to similar size cities in Alabama, steps are being taken to remedy that, Cornett said. Two former employees, retired Chief Financial Officer Robert Yeager and Melissa Woods, a retired division director over the general ledger and payroll, were brought in to assist with unraveling the financial picture, and Woods has come out of retirement and was appointed as a full-time provisional employee in a new senior financial analyst position.
“She is really going to be instrumental in training new hires and existing employees in the historical best practices for the city,” Cornett said.
Also, a payroll expert from a company related to the city’s auditors is providing on-site review, guidance and training in payroll processes and helping develop written payroll policies and procedures, Cornett said.
A total of four new positions were approved for the Finance Department by the Hoover City Council since the outside audit was completed, and the council on Monday night approved $55,000 to convert conference room space into offices for three of those positions.
The city’s finance staff also has gathered finance policies and procedures from peer cities as a starting point for developing more of its own formal, written policies and procedures, Cornett said.
Care will be taken to fold in existing policies the city has related to debt, investments, the general fund balance and budget stabilization, she said. A substantial amount of work already has been done on policies related to grants and payroll, she said.
The city’s conversion to a new accounting and software system under the previous chief financial officer did not go smoothly, leaving some people overpaid and some underpaid and leading to incorrect W-2 reports to the Internal Revenue Service, Cornett said.
“The payroll staff has worked tirelessly since implementation to correct payroll problems related to incorrect employee paychecks,” she said. Now, “payroll checks are going out on time and are accurate.”
A software trainer came in to assess the situation in August, but that did not result in an immediate solution, Cornett said. “We are currently evaluating our options,” she said.
The city already has paid $78,000 in penalties to the IRS for erroneous and late reports and has hired a division of its audit firm to represent the city with the IRS and help remedy the discrepancy in the city’s reports to the IRS, she said.
Additionally, the city properly reconciled its financial accounts in the second quarter of this year and now has a documented process for reconciliations moving forward, Cornett said.
Some issues in the Finance Department are expected to be resolved by the end of March, and others are targeted for resolution by the end of June, she said.
Despite the problems, “today, the city is in a strong financial position and has a large reserve — cash and investments,” Cornett said.
Also, during a September Investment Committee meeting, the city’s financial advisor told city officials the city’s AAA bond rating remains secure, Cornett said.
“My team and I take our responsibilities and charge over public dollars seriously, as does the mayor, council and rest of city government, and we want to demonstrate we are faithful custodians of your funds,” she said. “We are committed to addressing all the concerns found in the report and plan to provide updates each quarter until all of the remaining issues are resolved.”
Several City Council members thanked Cornett for her report and her efforts to verify the city’s financial condition before giving official financial reports to the council. Councilman Curt Posey, chairman of the council’s Finance Committee, said Cornett kept the council informed about the situation along the way.
