Audit: Gladstone in violation of state budgeting laws
Gladstone overspent its general fund allocations by $176,000, even after a last-minute change last year to transfer $541,000 from various departments to patch the budgets of overspending departments.
Auditors concluded that some of the issues came from inadvertent errors on the part of the city's finance team, not allocating enough funding, and in one case paying for two years' worth of insurance during the single fiscal year ending June 30, 2017.
City Administrator Jacque Betz noted that the city's financial manager is "no longer working for the city." Eric Swanson was the city administrator from mid-2016 to mid-2017, the period of time criticized by auditors, but city officials were barred by the conditions of his June 2017 resignation from criticizing him personally.
"I'm not happy," Betz said. "It's very poor financial management."
Oregon law requires auditors to look at certain items to make sure cities are in compliance with state laws. Tonya Moffitt, a certified public accountant with Merina and Company, said the city was out of compliance with a few requirements.
"The prior year, actual resources and requirements on the city's budget document did not match the amounts reported in the prior year's audited financial statements," Moffitt said. "The approved budget resolution for the general fund does not match the budget document, and is also not appropriated by department as required."
A total of about $1 million was spent that the city wasn't able to roll over into the current biennial budget. Gladstone will have to contact state officials in order to determine how to resolve what's been an unprecedented occurrence for Gladstone, and a possibly unprecedented situation for cities in Oregon.
"It was the perfect storm," Moffitt said.
Departments that went over budget included the police department and the city administrator's allocation for the implementation of new software.
"It's very rare to have overages, especially in transfers, because you anticipate those," Moffitt said.
Fire protection was the biggest loser in Gladstone's revised budget. Offsetting police and general administration was the fire department, which underspent by $661,000. Gladstone parks, senior center and library services also had to cut back on their original budgets in order to cover the overages in police and administration.
"There was an ask to go to the council to transfer $541,000, which is a lot," Betz said. "That wasn't even enough; we should have transferred more, but we shouldn't have overspent our line items to begin with."
Councilor Neal Reisner said that the only reason he and other elected officials voted for the updated budget last spring was that they were told they had to vote for it. Swanson had helped the now-former finance director put together the proposed transfer, but it was revised to $541,000 for the June 13 council meeting to include a payoff to Swanson of $40,000 in severance so that he would resign effective June 9.
"The gun was to our head," Reisner said. "The staff report said that if we don't approve this we're in violation of state law."
City officials will ask the Oregon Department of Revenue for advice on how to correct the budgeting problems and return to legal compliance. Gladstone officials said they now will conduct quarterly reviews of department budgets, which auditors believe did not occur before the first half of 2017.
After resigning abruptly as Gladstone's city administrator, Swanson went on to be hired as a city manager for Phoenix, Oregon. He resigned from that position Feb. 7 after less than five months and has committed not to work again in the public sector.