PDT Staff Writer
State Auditor Dave Yost’s office has identified multiple adjustments due to unallowable allocations made by the city of Portsmouth.
The adjustments include decreasing the General Fund balance by $718,917; decreasing the Capital Improvement Fund balance by $17,587; decreasing the Community Development Fund balance by $4,329 and decreasing the Sewer Fund balance by $7,957. As a result of the findings, Yost ordered the city to increase the Flood Defense Fund balance by $83,784; increase the Street Maintenance Fund balance by $174,570; increase the Water Fund balance by $399,617 and increase the Sanitation Fund balance by $90,819.
The adjustments were the result of a current audit of the city of Portsmouth for the period of Jan. 1, 2011 through Dec. 31, 2011.
“Ohio Revised Code Section 5705.10(H) states that monies paid into a fund must be used only for the purposes for which such fund has been established,” Charles F. Barga, CPA, Chief Auditor the the Athens Region, said in correspondence with Portsmouth City Auditor Trent Williams. “A Cost Allocation Plan was developed in order to allocate fiscal year 2011 costs to various city departments.” Those allocations are commonly referred to as “charge-offs.”
Barga’s testing referred to the fact that the city’s Cost Allocation Plan included various indirect costs such as fringe benefits and utilities which may be subject to allocation. However, Barga said the city only posted allocations pertaining to wages.
“The approved Cost Allocation Plan included an iteration factor in the calculation to reallocate indirect costs received back into expending funds. This allows for the potential to post the same expenditure multiple times,” The letter said. “The Cost Allocation Plan used total expenditures by department from calendar year 2010 to allocate some indirect costs. These 2010 expenditures included the 2010 unsupported allocation adjustments posted by the city. As such, the percentages used did not accurately reflect departmental portions and were not supported by any other reasonable methodology.”
Barga said the city posted allocations from departments not included in the CAP; Fire Department Fund 101.223; Traffic Lights Fund 101.331; Grounds Maintenance Fund 101.333; Community Development Fund 101.661; Engineer Inspection Fund 101.663; Street Maintenance Fund 231.335; Water Collections Fund 604.774 and Flood Defense Fund 621.225.
“The above noted items resulted in monies being paid into funds and subsequently used contrary to their restricted purposes,” the Auditor said.
Portsmouth Mayor David Malone responded to the letter with one explaining the city has used a system of payroll “charge-offs historically for as far back as at least 1993,” telling Barga the charge-offs are defined by the city as the recapture of payroll expenses incurred by one fund (most often the General Fund) from other funds (most often enterprise funds) for costs of work done that benefit the other fund. For example, Malone said, the function of the Waterworks is to provide water to the users of the city water system, but they also must utilize the Finance Department’s services, and if that was not charged-off, the Waterworks would have to hire staff or contract out all of its accounting functions.
Malone said the city has reduced its use of charge-offs since 2010, the first year the State Auditor took issue with the system, and went on - “We believe even now that the amount of the following two years’ total charge-offs would not now be in dispute, had they not been increased for the one year. The total charge-offs in 2010 were $2,060,000. The city reduced its charge-offs in the current budget year to $1,033,000.
“We respectfully ask that you reconsider this finding taking into account the above information,” Malone said.
Frank Lewis may be reached at 740-353-3101, ext. 232, or at firstname.lastname@example.org