Columbia Council Declines to Seek Forensic Audit

April 5, 2010

Investigative Reports

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The NerveDespite presiding over a years-long financial meltdown involving millions of tax dollars, Columbia City Council has yet to seek a forensic audit of the city’s finances to determine whether any criminal activity has taken place during the crisis.

However, a near majority of the seven-member council either supports such an outside investigation or is open to the possibility of one.

Yet, the other council members have declined to call for a forensic audit, or embrace one, even though a city accounting employee was arrested by state police and charged with multiple crimes involving city money  several months before the catastrophe became public.

And even though the crisis has involved everything from the city burning up its rainy day savings to losing money on investments to paying some of its bills twice.

Thus, why the resistance from some council members to a forensic audit, which focuses on the possibility of criminal acts?

In compiling this report, The Nerve set out to answer that question, with a goal of posing it to each representative of the elected body.

The question proves timely amid recent reports that the FBI might be involved in an ongoing investigation by the U.S. Department of Housing and Urban Development into some city-related financial dealings.

For Councilman Kirkman Finlay, it’s been déjà vu all over again – a Groundhog Day venture that began more than three years ago.

“I thought we needed a forensic accounting firm to come in and investigate,” says Finlay, a businessman by trade. “I called for it four years ago because I think we need it.”

It was mid-November 2006, and the full measure of what would turn out to be a train wreck of epic proportions in the city’s finances had not yet come to light.

In the next few years that would follow – month after month in horror story after horror story – details of the city’s financial meltdown were reported in the Columbia-area media, and sometimes even in other locations across South Carolina.

“Taxpayers to foot bill for city’s incompetence,” proclaimed a headline from The (Myrtle Beach) Sun News  on a story about Columbia overpaying “several hundred city employees for at least seven years, and now taxpayers must pay the federal government back plus interest.”

That, actually, was a comparatively minor instance in the disaster. One of the most serious examples of it was the city eviscerating its reserves from a once hardy more than $24 million down to a dangerously low few million.

The Sun News headline continues to ring true. The city has made a lot of progress toward rectifying its finances but has not fully recovered from the mess.

The Fallout

As a result, City Council recently has considered raising property taxes, hiking rates for water and sewer service and implementing a new garbage collection fee.

The council has looked to greater revenues – and hacked personnel and other costs – because the city doesn’t seem to have enough money to fully fund even its essential services.

City Manager Steven Gantt proposed a tax increase to pay for police, fire and garbage vehicles.

A water and sewer service rate hike would help fund hundreds of millions of dollars in deferred infrastructure needs the utility faces.

This while City Council has transferred several million dollars of water and sewer revenue out of the utility, which has its own budget, into the city’s general fund budget to pay for things wholly unrelated to the water and sewer system.

It’s an annual practice the council has engaged in for years.

Meanwhile, a raft of costly misadventures by the council in recent years includes funding for a defunct music festival; a botched plan to build a publicly funded Convention Center hotel; and hydrogen research that has produced, at best, middling results.

The list goes on.

Indeed, the city’s financial apocalypse has been multifaceted and years in the making.

But back in the fall of 2006, the tsunami was yet to be – an impending crisis yonder still too far to see.

Or was it?

After all, in August of that year, then-city accounting employee Tawana S. Shine was fired upon being arrested by State Law Enforcement Division agents and charged with breach of trust with fraudulent intent, conspiracy and 10 counts of forgery involving city funds.

Nevertheless, no one in the city administration sounded an alarm about potential problems in the local government’s finance department. The same goes for Columbia City Council’s seven members – except Finlay.

In a Nov. 14, 2006, letter to then-City Manager Charles Austin, Finlay referred to discussions the council had held five days earlier in a meeting behind closed doors.

Per those conversations, Finlay wrote that he was “highly distressed” about the city’s financial situation. “During that meeting the council was informed that there are problems with the city’s financial and accounting records and practices, including without limitation numerous accounts that are not balanced and cannot be reconciled,” he told Austin. “At that meeting the council was given a timeline of six months for these existing problems to be rectified by existing staff.”

Continuing, Finlay described the six-month timeline as unacceptable. “Problems of this magnitude will require time and effort to correct,” the councilman said.

Finlay then took issue with the idea of using in-house personnel to address the situation. “At a minimum, this use of the same staff that created the problems to rectify the problems creates a potential conflict of interest and/or raises partiality concerns.”

Concluding his letter, Finlay asked Austin to put a plan together to bring in outside auditors to reconcile the books – “in a manner that does not jeopardize the city’s bond rating” – and recommend policies and practices to keep the city’s finances on the straight and narrow.

Finlay copied the letter to his six colleagues on the council.

But like French novelist Albert Camus’ classic tale of disregarded portents in The Plague, Finlay’s warnings went unheeded.

And the disaster, which he says could have been avoided, struck.

If the council had acted, Finlay says, “We probably would be $30 million to $40 million better off.”

The Resistance

So, the question is, why didn’t the council act? Why not a forensic audit?

“We discussed it at length,” Mayor Bob Coble says.

But he characterizes it as a political argument.

Coble points to external accountants City Council brought in through the Municipal Association of South Carolina, including Jackie Breland Consulting of Columbia, to get the city’s books in order. None of them uncovered anything suggesting criminal activity had taken place, he says.

“I don’t think you would strike out on an investigation unless you had evidence to do that,” Coble says.

Councilman Sam Davis agrees. “It’s a legitimate question,” Davis says. But, he says, “I don’t know that there’s any signals or any indications that that is something we need to do.”

Davis says a forensic audit would be called for if City Council had reason to suspect foul play, but nothing to that effect was presented to the council.

Breland says a forensic audit would be much more involved than the work she and the other outside accountants have done for the city. And she says that nothing appearing to be legally amiss has been uncovered in the course of their work. “Nothing showed its face, anyway.”

Still, underscoring the gravity of the problems, Breland describes the fact that no signs of lawbreaking have emerged as “amazing.”

Joining Finlay in the camp that supports a forensic audit is Councilwoman Tameika Isaac Devine. “I think that we will still do that,” Devine says.

She says she feels strongly enough about it to advocate for a forensic audit, partly to answer any lingering questions the public might have as to whether crimes might have been committed.

“I can’t imagine that anybody would be opposed to it,” Devine says.

Councilman Daniel Rickenmann says he was leery of the idea because it could have posed a larger threat to the city’s finances. “You’re talking about destroying the city’s credit rating,” Rickenmann says.

But he says a forensic audit remains an option. Asked whether City Council considered asking for a SLED probe, Rickenmann says, “Yeah, sure did, and it’s not out of the question yet, depending on where we are.”

Former Councilman E.W. Cromartie, who recently resigned and is awaiting sentencing in a plea agreement on federal tax evasion charges, declined to comment.

The seventh council member, Belinda Gergel, did not return two messages left on her cell phone and one at her home.

So, in all, two council members support a forensic audit outright and a third is open to the possibility of such an inquiry.

With seven members on City Council, it would take only one more – a simple majority of four – to make it so.

Reach Ward at (803) 779-5022, ext. 117, or eric@scpolicycouncil.com.