‘There was no felonious activity’

The headline is a quote from City of DeKalb’s latest budget meeting, a joint meeting of city council with the Finance Advisory Committee held last week. Alderman Carolyn Morris asked about following up on findings from the TIF forensic assessment . The city manager and the FAC chair responded that no laws were broken, no “felonious activity” occurred, and that was pretty much that.

Let’s take a closer look at the statement that no laws were broken. If a city makes transfers from its TIF fund to its general operating fund to reimburse for staff time spent working on TIF projects, but then inflates the transfers beyond fair reimbursement to “bail out and make the General Fund look better,” as the city manager has aptly put it, these actions run counter to the TIF Act. Criminal penalties may not attach, but committing zero felonies doesn’t equal law-abiding. Taxpayers and taxing bodies got cheated out of returns on TIF projects so city government could enjoy a larger workforce than it could otherwise afford. The loss is real, large, and a result of ignoring rules to work a staff agenda. Don’t let anyone minimize it.

Still, we can focus a bit less on the administrative transfers now. Everybody knows what happened, the local regulations have been fixed, and some sort of proposal is being worked out with the school district. At this point it’s the accounting end that needs our attention. From the auditor’s findings:

The City did not have one single policy document or set of process documents that set out the processes and controls around approving payments and paying vendors or owners of redevelopments out of TIF funds; this meant there was no single clearly articulated standard specifying the types of documents required or the level of review required by the City before payments are made.

The standard appears to be “commit no felonies,” a bar so low it looks like a limbo stick in the final round of the game. The city’s TIF regulations do not address these processes and controls. What’s required is an accounting manual and that’s exactly what the auditor recommends. Where is it?

We analyzed a sample of 85 payments made during the period under review and a number of supporting documents could not be provided, most significantly 16 invoices were missing and proof of performance for 71 transactions could not be provided.

The auditor’s document shows some of the transactions were missing invoices and proofs of performance. Thus no one can actually say with certainty that “no felonious activity” occurred. You can only say that none was found.

The absence of standardized processes and the resulting lack of documentation noted above meant there were few contemporaneous records documenting TIF eligibility for the programs and the expenses approved. Our analysis suggests that while the majority of the transactions were TIF eligible, for 8 of the transactions aggregating to $4 million, we were unable to assess TIF eligibility based on the documentation provided.

Discussion at the budget meeting suggested this fruitless scrambling for documentation was the reason the audit took so much longer than anyone anticipated. The auditor recommends the city compile a policy document with guidelines for record retention and organization to correct it. Who is working on this?

I don’t think anyone is. Outside of the corrected TIF administrative transfer issue, staff and FAC are vague about fixes that are supposed to mean everything’s fine going forward. But the city’s latest annual audit revealed issues similar to those of the forensic audit, including problems with processes and controls that led to material misstatements in the financial reports.

City council’s overall lack of urgency (not to mention the lack of the tiniest bit of skepticism) is stunning. This must change. The forensic audit recommendations are clear, and it’s the job of the city council to make assignments and oversee corrections and improvements to prevent fraud. The Illinois Municipal League says so. The auditors say so. It doesn’t matter how competent and trustworthy the aldermen believe the staff are, it’s still a fundamental responsibility, especially in the face of two troubling recent audits.