photo by: Nick Krug

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

As city officials were responding to the news of a $17 million misstatement in the city’s utility fund, a Lawrence city commissioner revealed new information that showed the severity of problems that the city’s finance department has been trying to correct for years.

Commissioner Stuart Boley said recently that in October of 2014, the city missed making a bond payment that was due on city debt. The missed payment is the type of event that could cause the city to suffer a reduction in its bond rating, which would cause the city to pay higher interest rates on its millions of dollars in debt.

Boley disclosed the incident as he was asked about a recent Journal-World article that identified a $17 million misstatement in city budget documents related to the city’s water and sewer fund. While acknowledging that misstatement was serious, Boley said he believed the city’s finance department had made great improvements from where it once was.

“My trajectory of the finance department goes back to October 2014,” Boley said. “The city failed to make a bond payment in October 2014.”

“That was the low point of the finance department,” Boley said, “and we have been working to get better ever since then. It sometimes has been two steps forward and two steps back. But building that expertise and having the right staff takes time.”

This is the first time the Journal-World has reported on the missed payment. Boley said he doesn’t believe the city ever alerted the public about the error. Boley, who was not on the commission at the time, said he learned of the missed payment only in recent months.

The Journal-World on Monday confirmed basic details of the incident with the city’s finance department. Finance Director Jeremy Willmoth, who was not with the city at the time of the incident, said he did find records that confirmed the missed bond payment. According to records, the city had a $46,951.11 interest payment due on Oct. 1, 2014, for a set of general obligation temporary notes — a type of short-term bond — that had been issued earlier that year.

However, the city did not make that payment on Oct. 1. The city did not make the payment until Dec. 15, 2014, after the city received a delinquency notice. Based on the records, Willmoth characterized the missed payment as an “administrative error.”

Willmoth said he did not find any records indicating that the city had to pay a penalty for the late payment. He also didn’t find any records indicating that the city’s bond rating suffered as a result of the late payment. The 2014 temporary notes received the highest rating that Moody’s bond rating service provides for those kinds of bonds. A 2015 issuance of temporary notes by the city received the same rating. Boley, however, said the incident didn’t go completely unnoticed by the bond rating agencies. He said for the past five years, the city has had to disclose the missed payment among the reams of paperwork that are provided to potential bond buyers.

Many of the top executives who would have overseen the bond payment in 2014 are no longer with the city. David Corliss was the city manager at the time, but he was hired for a city manager’s job in Colorado in April 2015, at a time when the Lawrence City Commission was undergoing a major change in members following voter angst with the city’s role in the controversial Rock Chalk Park project.

The finance department was without a permanent leader at the time of the missed payment. Longtime finance director Ed Mullins retired from that position in September 2014. The city’s next finance director, Bryan Kidney, did not begin his duties until February 2015.

It is not clear what role the turnover in the department at that time may have had in the missed payment. But turnover issues have been cited in other mistakes in the finance department. The city in 2017 reported that the finance department failed to send bills over the course of several years for nearly $700,000 worth of lease payments that were due to the city. A follow-up audit found that billing schedules were often tracked only in the email calendars of certain city staff members, with staff individually emailing out invoices. When those employees left their positions with the city, the billing schedules never got transferred to anyone else.

Boley, who is a retired auditor with the IRS, said turnover has been an issue with the department. He said it also has been important to publicly bring forward the mistakes that city officials have found in the department. He credited former City Manager Tom Markus, who replaced Corliss, with being more public about finance findings than past administrations. Markus’ office, for instance, publicly announced the $700,000 of missed billings on leases and ordered an audit that he also publicly released.

“What Tom brought us was transparency,” Boley said. “He owned the accounts receivables mess, for example.”

Boley acknowledged the city has had several negative findings about its financial practices recently.

“We have been through a lot,” Boley said. “This 2018 audit was tough.”

The 2018 audit found the city had a “lack of internal controls over its financial reporting,” and auditors required about $60 million in adjustments before they would attest to the accuracy of the city’s financial reports.

That audit has gotten most of the attention recently. However, the city’s 2017 audit also found a lack of internal controls and raised several red flags about the city’s practices. Many of those concerns weren’t corrected in 2018. Boley served as Lawrence’s mayor in 2018, after previously winning a City Commission term on a platform that highlighted his expertise in financial matters.

When asked this week why more improvements weren’t made to the city’s financial practices in 2018, Boley again pointed to the turnover issue in the department.

“We had a change in the finance director and we had significant turnover in the finance department,” Boley said. “I think that is part of it.”

Kidney, the finance director who replaced Mullins, left in September 2018 to take a finance position in Independence, Mo. Willmoth, the current finance director, began in November 2018.

That will make the 2019 audit the first one that Willmoth has been fully responsible for in Lawrence, Boley said. Boley said he expected that audit, which will be released next summer, to show significant improvement in city practices.

“I expect that, yes,” Boley said. “We have high expectations for accuracy and transparency.”