A “Shell game” may have occurred through the earlier management of Williamsport-based River Valley Transit and the use of state and federal grants for purchases other than transportation may have taken place, based on the findings of auditors who reported much in the tax books kept by the previous management of the bus services.
A dazzling audit plan by RKL, the firm hired by Mayor Derek Slaughter, was shared with the city council’s finance committee on Tuesday. It covered from July 1, 2019 to June 30, 2020 and included the issuance of a “opposing opinion.”
While the audit was ongoing, River Valley Transit, the city and region’s bus service, was under a state investigation by Attorney General Josh Shapiro, a candidate for governor. , who Slaughter said had his Criminal Division agents review the issues and review the finances and use of the grants. in previous years, while Gabriel J. Campana was mayor and William E. Nichols Jr. was city manager of transportation and city finance manager. Slaughter forwarded financial irregularities in 2020 to District Attorney Ryan Gardner, who referred them to Shapiro’s office. Shapiro’s agents did not comment but recently visited a council meeting.
“Today’s presentation … although alarming, was not surprising” Slaughter said.
âUnfortunately, these are the financial issues that I have had to sort out and sort out since taking office as mayor.
“The misallocation and embezzlement of taxpayers’ money by the previous administration is totally unacceptable”, he said.
“In our opinion, we really cannot say whether the income statement balances and the assets held and liabilities owed are really appropriately linked to River Valley Transit,” said Mark Zettlemoyer of the audit firm. He was joined by his colleagues Tim Kraft and Brad Steinweg.
âMuch is related to the grant activity and the flow of money between the city component and the flow of money with some of the donorsâ, said Zettlemoyer.
For example, auditors said they tested and sampled transactions, reviewed supporting documents to ensure they were in line with organizations’ activities and performed in accordance with government auditing standards, and tested using samples. transactions to determine eligibility related to grant activities.
“Our opinion was unfavorable” said Zettlemoyer. âWe couldn’t get enough comfort from the information we had and the nature of the transactions we saw to provide clear financial statements. “
“Our opinion is that the financial statements do not fairly present the financial position of River Valley Transit or the office”, he said.
Balance sheet issues
Transport assets registered by the respective authorities, subsidies receivable, fixed assets and that sort of thing – “These are numbers that we cannot feel comfortable with”, said Zettlemoyer.
âWe could not determine which assets were for RVT versus those which were related to the city and which reflect or have an impact on the net assets in finance leases and property under capital leases. “, said Zettlemoyer.
Another area that the auditors noted with difficulty was the allocation of pensions in relation to the allocation of the costs of pension contributions.
Sometimes pension contributions for the RVT component showed inconsistencies in transactions.
Another area of ââconcern was about liability.
For example, when the State Department of Transportation (PennDOT) awards a grant of $ 4-5 million, those funds are recorded as a liability until they are used for specific grant purposes.
“If they (PennDOT) give a $ 4 million grant and it’s to fund a public bus service, those grants are deemed earned and recorded as revenue,” the listeners said.
However, the auditors said that there were a number of expenses that were not expenses related to River Valley Transit.
“These were costs related to other entities paid for these funds and were not used and are unearned income”, the firm said. âThe state could recall these funds if it wishes. “
In addition, there have been events in previous years where state funds were used for things other than public transport, auditors said.
One of the concerns raised by auditors was about unearned income. This is when the funds are used for a particular service and the service has not been provided.
For example, when and if $ 10,000 is donated by an organization to operate a special bus route, these are not earned if the services are not yet provided. There was a lot of unearned income that shouldn’t be in this category, according to the audit.
There were items that River Valley Transit was able to provide and the services were “Hooked on unearned income and launched into operations whenever necessary without examining the substance of the transactions” the listeners said.
The auditors acknowledged that they had difficulty paying off long-term debt. To bring River Valley Transit’s debt to nearly $ 11 million “Is very unusual”, indicated the audit project.
âWhat appears to be the city was using River Valley Transit to fund local projects, whether it was building downtown buildings, green space, or use on the streetscape, then River Valley Transit was using its grant funds to pay off debt service related to those, listeners said.
The grant money was supposed to go towards public transit, and much of it was intended to write off debt between entities such as the Williamsport Parking Authority under inter-municipal agreements, auditors said.
âWe looked at the debt payments by the authority, transferred to the authority, and we could not reconcile what was paid by River Valley Transit and what was recognized as a transfer on the authority. parking “ the listeners said.
Auditors said it could be related to accounting systems, but those would be transferred to many general ledger accounts.
âWe basically do everything differently than we could doâ, Slaughter said of the unfavorable audit report.
“We work with all the agencies”, he said, adding that technical assistance has been offered, financial software packages and advice occur regularly with PennDOT and the Federal Transit Administration.
The draft audit was reviewed Tuesday by the finance committee and forwarded with a positive recommendation to the board for discussion on Thursday.
Today, Acting CFO Joseph Pawlak is working with the audit firm and trying to gather correct information on debt service payments between River Valley Transit and the parking authority. Details are being blocked, such as the amount of the local share for annual state operating grants and management oversight.
“It can’t happen again” Councilor Liz Miele, chair of the committee, said she supports the creation of an ad hoc committee specifically to look at River Valley Transit.
“I think it is becoming clear that even the board working with the administration does not have the in-depth knowledge to fix everything that has happened and the reasons why it has happened,” said Board Chairman Randall J. Allison.
Listeners and transport officials must sit down at the table and help the city rebuild what happened then – “As Liz said – it won’t happen again”, Allison said.
Council and administration agreed that there was a need to establish an oversight committee on River Valley Transit.
Slaughter, who requested that the audit be carried out when Baker Tilly was ousted from town as an auditor, said the administration was continuing to do everything to remedy the situation. He said the city accepts the advice and will implement better accounting metrics and use new technological software to track finances.
Adam Winder, general manager of River Valley Transit, said he and others are cooperating and working with PennDOT, the Federal Transit Administration and auditors to clear up any inconsistencies in the future.
The mayor’s reaction
âToday’s audit is the first step in giving me some basic accounting of our financial statements.
The city is awaiting the River Valley Transit 2020-21 audit and the city’s 2019 and 2020 audits which are nearing completion.
“As we move into the next budget sessions, we need accurate accounting of our finances to produce a budget” he said.
Budgets should be based on real facts, not guesswork, which these audits will provide, he said.
âOnce the audits are completed, I will have the basic financial data I need to govern well,â Slaughter said.
âSince taking office, I have cleaned up and continue to clean up the city’s finances, contracts and other obligations.
âTaxpayers deserve an administration that is a responsible and ethical steward of their taxes.
“I assure you that I have been and will continue to be fully committed to getting the city’s finances in order.”