Archive for Friday, June 2, 2017

Audit finds the city failed to bill businesses for hundreds of thousands of dollars in payments

Lawrence City Hall, 6 E. Sixth St., is pictured on May 3, 2016.

Lawrence City Hall, 6 E. Sixth St., is pictured on May 3, 2016.

June 2, 2017

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An audit of the city’s billing procedures found that poor record keeping, insufficient employee training and a lack of oversight caused payments worth hundreds of thousands of dollars to go uncollected by the city.

“It’s not the best news in the world, but it’s something that we feel people should be aware of,” said the city’s finance director, Bryan Kidney. “And that’s what we’re doing is making sure people understand our goal is to take care of things and get things fixed if they’re not being done properly.”

Last month, City Manager Tom Markus ordered an independent audit of accounts receivable after Riverfront LLC asked for a summary of payments owed to the city. Markus said when staff in the city’s finance department went through the financial records, it appeared there were bills that may not have been sent out. Markus said he was concerned the issue affected multiple accounts.

An initial assessment completed as part of the audit confirmed Markus’ concerns, finding that at least 10 leases — of either city land or property such as communication towers — have missing billings or payments. Kidney, who joined the city staff in 2015, said the city doesn’t yet know the total value of the missing payments, but some of the leases listed are thousands per year.

Kidney said that thus far only the unpaid land lease payments for Riverfront LLC have been totaled. Riverfront LLC owns the Riverfront Plaza, formerly home to the Riverfront Outlet Mall, and is operated by Dan Simons. The Simons family is also the former owner of the Lawrence Journal-World.

The land the Riverfront Plaza sits on is owned by the city, and Kidney said that beginning in 2011 the city stopped sending bills for the land lease payments, amounting to $287,000 in missed payments. Though Kidney said the assessment completed so far is not a forensic audit, it appears nothing nefarious was going on. He said staff turnover, new software and a miscommunication between departments is the root cause of the unsent bills.

“It does appear it was just a mistake,” Kidney said.

In addition to the unsent bills, Kidney said that following an amendment to the Riverfront’s lease agreement in 2010, there was also a mistake or some confusion regarding the amount owed annually. Kidney said Riverfront’s rate is $36,000 per year while Simons believes it to be $5,000 per year.

Kidney also said part of the problem is that there is no reconciliation process in place where the city would make sure that a billing matches what is outlined in the lease.

“This should have been caught back in 2011 and it wasn’t,” Kidney said.

Simons said he approached the city regarding the amount of the land lease because there was a buyer — that recently pulled out of the deal — interested in purchasing the east side of the Riverfront Plaza. Simons said he paid what he believed to be the proper rate until he stopped receiving a bill a few years ago.

“But obviously there’s two sides to the story, so hopefully we’ll continue to talk,” Simons said.

Simons said he renegotiated the Riverfront’s land lease with former City Manager David Corliss in 2010, and made the new payments until 2013, the year he said they stopped receiving bills. He calculates the unpaid amount owed to the city to be $20,000, and said he intends to pay that amount immediately.

“As for the difference of opinions and the difference of dollars, I truly believe that we are correct,” Simons said. “I don’t know if that has to go to a judge, an arbitrator or what. Or just good old fashioned, ‘hey, you think I owe this and we think you owe this, let’s meet somewhere in the middle and get going with the business of the day.’”

The other leases without billings or payments identified by the audit are: the Marriott hotel at the Riverfront Plaza, Lawrence Douglas County Bioscience Authority, LWC Partners (located at the Lawrence Municipal Airport), University of Kansas Athletics Inc., Shelter Inc., AT&T;, New Cingular Wireless LLC, Sprint, T-Mobile, and Verizon. The only amounts identified for those leases are $10,585 per year for LWC Partners, $1,200 per year for the Shelter Inc. and $1 per year for University of Kansas Athletics Inc. Kidney said how many payments went unsent or unpaid is yet to be determined.

The assessment identified a broad list of billing errors being made by the city, including issues with data conversion, communication, training, controls, and tools. The assessment states that some bills were not added to the city’s new software system, that the billing team isn’t necessarily aware of “when or what they should be billing” and that employees are not aware of how to set up bills in the system or how to create control reporting. Regarding the lack of controls, the report states the following:

“Currently, an Administrative Support II associate is solely responsible for the miscellaneous billing. He allocates one day a week to this task, operates in a largely manual environment with little oversight, few controls and no written procedures.”

As with the uncollected lease payments from Riverfront LLC, Kidney said he does not think that the issue was more than a mistake.

“In my professional opinion, I have not seen anything that lends itself to anything other than just mistakes,” Kidney said.

Based on the findings of the initial assessment, city staff have entered into an agreement to have the auditing firm help verify that all city properties are correctly billed. The initial assessment is expected to cost about $17,000, and the next phase is estimated to cost under $20,000, according to a city staff memo to the City Commission.

“The next step is actually to help us get in and just really nail down and pin down anything that’s not being billed properly,” Kidney said.

The City Commission will receive the initial assessment as part of its meeting Tuesday.

Comments

Richard Heckler 6 months, 1 week ago

I say the city taxpayers should receive all of what is owed.

How could a lease agreement suddenly become free? It seems to me names on a lease agreement should have come forward to say "What's Up? Instead of pretending a lease agreement became null and void so to speak.

Mr Simons is correct a court should not be requested ..... so long as all leases are paid up as in the agreement.

Eric Neuteboom 6 months, 1 week ago

Wait a damn minute.

Wasn't it Markus who eliminated the city auditor position a year or so back, as part of his budget cuts?

In fact, it was:

http://m.ljworld.com/news/2016/jul/07/city-manager-recommends-staff-cuts-no-property-tax/?templates=mobile

Markus needs to be asked if the elimination of the city auditor position in 2016 led to this failure. Instead of paying someone on payroll, he's now abdicated responsibility and will likely pay considerably more than the city would have in salary and benefits to a friggin consulting firm! I remember hating this decision at the time, and feel even more so now.

Perhaps the LJW can do a little more follow up, or at least google their own stories for more pertinent info.

Bob Summers 6 months, 1 week ago

I didn't realize the city auditor was in charge of training and morale building.

Thanks for the info!

Ralph Gage 6 months, 1 week ago

I believe the auditor position in question reports to the commission. The city manager ordered an outside audit in this instance.

Morris Jordan 6 months, 1 week ago

City Manager has tried but failed to eliminate the Auditor. He's trying again.

But why is he wasting so much money to identify a problem the City Auditor found three times in the past few years??? $37,000 for something the City Auditor already identified!

"For the third time since 2012, the Lawrence city auditor has cited a lack of control in the way the city manager’s office tracks payments, leading to some being late or going unreceived altogether." LJW, July 15, 2016 By Nikki Wentling

The Manager is trying to sound like a hero, like he found a problem and is fixing it. What a joke!


Bob Summers 6 months, 1 week ago

Clearly taxes will needs to be raised to make up this shortfall in "revenue". Government employees need to be paid. Their medical care needs are on going. Housing for the poor is a must. The hungry need to be fed.

Taxpayers need to make up this shortfall. These government people are needed to make taxpayers lives more livable.

Thank goodness for them.

Clark Coan 6 months, 1 week ago

Yes, if leasees don't receive an invoice they need to find out why. Otherwise, it looks like they are trying to get away with not paying.

Carrie Lindsey 6 months, 1 week ago

Why is the lease for The Shelter $1,200 a year and $1 for the University of Kansas Athletics? That is the real failure of leadership. Perhaps, if the City collects its owed monies, it can also rectify that discrepancy.

Marilyn Hull 6 months, 1 week ago

I applaud Mr. Markus and Mr. Kidney for trying to get to the bottom of this, and for being open about it. Hiring an independent auditor is justified and adds credibility to the process. In fact, I wonder if other aspects of city billing need an outside audit as well.

It's frustrating to be told by commissioners and staff that there is "no money" to invest in certain things, when it turns out there could have been money if collections were handled appropriately.

Morris Jordan 6 months, 1 week ago

They're getting to the bottom of nothing. The City Auditor reported this problem 3 times since 2012. Good that they're finally getting around to fixing it- too bad they're paying $37,000 instead of just following the City Auditor's recommendations.

Charles L. Bloss, Jr. 6 months, 1 week ago

We all make mistakes, but If that were their money, I know they would not be slack in collecting it.

Clara Westphal 6 months, 1 week ago

The city of Lawrence needs to reinstate the position of auditor. It is a position vital to the functioning of government. If Lawrence had its own auditor, there would be no need to pay for an outside auditing firm to do the job.

One wonders why Mr. Markus was so adamant about eliminating the auditor position.

Marilyn Hull 6 months, 1 week ago

The auditor's position was ultimately funded last year. So we have one on the job. The city manager's budget calls for eliminating the position this year.

Andrew Applegarth 6 months, 1 week ago

And one wonders what good reinstating the auditor position would do when this started while the auditor was already 'working' in the position and should have been involved in verifying any changes in billing systems.

Paul Silkiner 6 months, 1 week ago

"One wonders why Mr. Markus was so adamant about eliminating the auditor position."

Because, apparently it was widely known to be another "Good ole boy" position in the local workings of Lawrence Kansas!

GSTT!

Carol Bowen 6 months, 1 week ago

Wow. What a sloppy paper trail. The city needs to do a better job keeping records of lease agreements. The city is to large to rely on handshakes and memories.

Dorothy Hoyt-Reed 6 months, 1 week ago

The city is at fault, and they need to get to the bottom of this, but what about the Leasees? I know I have a budget in my personal life and my business life. If a bill hasn't arrived that I know is coming, I will inquire about it, so I can plan for it.

These bills may be sent out late, but these people still owe it. Pay up.

Bonnie Uffman 6 months, 1 week ago

One wonders why seemingly no one was listening when the city auditor reported this on several occasions over the last few years.

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