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More than a year ago a single resident urged the Palm Coast City Council to conduct a “forensic audit” of all city departments. The resident had zero evidence of the kind of wrongdoing or lawbreaking that would justify anything like a forensic audit. His repeated calls for whistleblowers produced zero response. Nevertheless, as a few–very few–other voices joined his call, the council, after some seesawing, agreed to at least get itself and the public an education about forensic audits, their cost and their alternatives.
Joel Knopp of Orlando-based MSL, an accounting firm that works with some 50 local government, provided that education today. He said along the way that a detailed analysis of every department’s books and procedures over the past five years would cost about $500,000. There’s no appetite for anything like that on the council. There’s no reason for it.
But the council today agreed, if only as a further measure of placating a mistrusting public, to spend around $45,000 on a citywide “risk assessment” that would potentially identify risks or concerns that could then be addressed in a more targeted way.
The decision did not diminish differences among council members over whether to even go that far.
Council member Nick Klufas, who was first to put the brakes on a forensic audit last year with a simple question (“where’s the fire?”) doesn’t want to see an inquisition. Council member Ed Danko disagrees. “I’ve never seen anything dishonest here,” he concedes. “But that’s not what the public thinks is what matters.” He did not define “the public,” and himself attributed the original call for a forensic audit to a single person. Mayor David Alfin wasn’t sure the city needed to reassure the public about its books with what would amount to a PR effort.
Council member Theresa Pontieri sees a risk assessment as answering what public concerns there are with a limited, less expensive analysis that, if it were to find anything amiss, would be followed with a more targeted second step.
“Let’s scratch the surface and see if a risk assessment does say, Hey, this is a high risk for you,” Pontieri said. “If everything comes back as low risk, then I can’t justify spending further tax dollars looking into it. But we have to start somewhere. We can’t just continue to say, everything is great, don’t look here, as a PR campaign. That’s not going to pacify our residents, nor should it.” She specified: “I do not think that a forensic audit is required. I do not think there’s been any misappropriation of funds. I do not think there’s been any mishandling of funds in this organization. What I do think, and this is what I said earlier, is that an organizational wide efficiency, we’ll call it a check, can never hurt a large organization.”
Klufas wanted to make sure that any type of assessment that translates to a third party deciding that this or that department could use fewer people or fewer vehicles. That will not happen. At least not with the step the council agreed to.
The city will issue a request for proposal (RFP) seeking accounting companies that can do the citywide risk assessment, preferably for no more than $45,000. But it’ll be the next council’s decision: Alfin, Klufas and Danko will be off the council by the end of November.
As for that education: Knopp confirmed what the majority of the council suspected. A forensic audit is a non-starter.
“We see that term forensic audit tossed around quite a bit in the government circles” and in headlines, Knopp said. The term is often misunderstood because of its uses on television, or by people who assume in vague terms that there’s abuse going on. “It’s kind of a misconception that the forensic aspect is going to identify a specific issue in the organization, and so I think the public kind of gets confused on what that means,” Knopp said.
The Association of Certified Fraud Examiners defines forensic accounting as the use of accounting “involving potential or actual civil or criminal litigation. So really, there is this idea of litigation that is entailed in a forensic audit that’s going to be the end result, that it’s going to end up in court under being tried and being cross examined. So there’s really a very specific kind of documentation method that goes into a forensic audit.” The idea is to look for wrongdoing. But there are other necessary steps before getting to a forensic audit.
For instance, if there’s cash or inventory missing, payroll fraud or an alert from a whistleblower might lead to an investigation in a particular department. Even then, it’s not a forensic audit, but an investigation that may determine whether further steps are necessary. (None of those things have happened or been reported in Palm Coast.) Either way–whether for an investigation or a forensic audit–“there should be a factual basis or good reason for any investigative step that’s taken. So it’s not just let’s do these procedures just because they sound good,” he said. It’s all about defining the scope based on evidence. If there was miscommunications within a department, or an employee was overwhelmed and made mistakes, it doesn’t mean a further investigation is warranted.
There are other ways to put residents’ minds at ease, what Knopp refers to as different types of “engagements,” a word he used synonymously with “inquiry.” There is the “attestation engagement,” which is a form of third-party or independent audit that examines procedures or financial statements, testing accuracy and transparency or the effectiveness of internal controls. In this case, the council would define the scope of work, and the auditor would report the findings. There are also lower levels of “engagement” with more limited results.
Then there’s the risk assessment, which is what the council finally agreed to, even though it already gets risk assessments: The city conducts annual audits, which include such assessments by an independent firm. Knopp made some distinctions. An organization-wide audit “typically is a much more in depth process, looking not just at the financial side of things, but also operational types of departmental operations, looking at efficiencies,” Knopp said. It could help identify processes that could restore trust, whether by making performance metrics clearer or identifying departments that the public has concerns about–if any.
“And really, I think the risk assessment, while it is entailed in the financial audit, I think it can be a very good starting point as an organization,” Knopp said, since the assessment would be both financial and operational, looking at performance metrics and efficiencies within departments. Those cost from $15,000 for small organizations up to $45,000 for bigger organizations, with additional costs if further analysis was sought into specific departments. It’s best to narrow the risk assessment to departments if “higher concern,” Knopp said.
But as Pontieri noted, the council hasn’t identified any departments of concern. The concern, for Klufas, is the council, especially when embers of the council are reinforcing public doubt about the city, he said, in an uspecified allusion to Danko.
“I find it troubling that we’re starting to conflate the terms efficiencies with forensic audit,” Klufas said. An auditing firm conducting a risk assessment and looking for efficiencies isn’t going to tell Palm Coast how to run its golf course better (the course lost $430,000 last year, as Danko repeatedly noted in the last two weeks.) Wrongdoing, he said, is not the same as using one type of golf cart as opposed to another if there’s potential savings there. Knopp confirmed it: forensic audits and risk assessments “are not in any way overlapping as they’re definitely very separate types of engagements.”
“Our issue here really is that perception that we discussed earlier, and this was brought before the council by one specific person who I’m very disappointed to see couldn’t be here today for whatever reason,” Danko said. “But the bottom line is, despite that person there, there is a perception out there in the public, and it’s been going on for a while.”
Danko was right up to a point: the “forensic audit” bandwagon was the recurring bugle call of resident Ken McDowell, and was glommed onto by a few other people in public comment segments. But any perception of corruption has been limited to a few voices and to generalities, Danko’s included. McDowell’s repeated calls for whistleblowers to step forward, contact the Sheriff’s Office or the State Attorney’s Office or the FBI has yielded nothing, though the city employs close to 650 people.
For Danko to say that some form of engagement could “reassure the public,” describing it as a “paintbrush,” was a significant turnaround from the times when he’d echoed McDowell’s charge and pressed the city administration for follow-through.
“It almost sounds like a public relations initiative,” Mayor David Alfin told Danko.
“Anyone could do a PR thing and just spin something and oh, we’re wonderful, we’re great,” Danko said. “But that’s not going to reassure the public one bit. We need some group coming in that knows what they’re doing, knows what to look for. Basically you’ll be turning over every stone, looking under every rock, to reassure the public. I think that’s what we would have to do to make this worthwhile, to get that perception. Now again, that will be up to the next council, no doubt.”
Pontieri was more interested in a targeted risk assessment–looking at the capital project fund, for example, or the utility fund–paired with an efficiency analysis that could improve city procedures–not because she is questioning how the city is run, but as a valuable step toward potential improvements. “I don’t think that it could hurt to have that done depending on the price,” she said, but only if it’s worth the price.
Ray Stevens, a candidate for a council seat in November’s runoff and a retired cop, said the council was “seeking to do a criminal investigation before you even know a crime has been committed.”
Jim says
Spending $45k for anything when there is absolutely no information that supports it is ridiculous. I’d rather see it spent paving 100 feet of road…..
Celia Pugliese says
That’s why we need Ray Stevens on the city council to bring a sense of reason and common sense to the city council.