Around this time last year, the City of Amsterdam’s finances seemed a lost cause. Our Annual Update Document (AUD) for 2011-2012 which is required by NY State was a year late. Even though Deputy Controller David Mitchell, who was hired in March, reported to the Common Council that the city’s finances were fixable, his mere mention of the option of bankruptcy had many people actually believing the city was bankrupt. Just before November’s election, details of NY State’s procedural audit were released, pointing out several serious flaws in how the city organized its financial records. To top it all off, when Mitchell filed the 2011-2012 AUD in October of 2013, the report showed a discrepancy of approximately $1.2 million.
Fast forward to today and it’s obvious the situation has vastly improved. Just this past week, Controller Matt Agresta announced that NY State had accepted the revised 2011-2012 AUD and is optimistic that the remaining late AUD’s will be completed by this January. There is no $1.2 million discrepancy in the revised report.
Wait, what? That’s was a huge discrepancy, how can it just disappear?
I got a chance to talk with both Agresta and Mitchell recently to ask some specific questions about the infamous “missing million” that has been mentioned many dozens of times in the local paper over the past year.
When I began asking Mitchell about the issue, his first response to me was to adamantly state that there were never any funds “missing.” I asked him why the 2011-2012 report showed a discrepancy.
Understanding his answer takes understanding a little bit more about what the AUD report is all about. Basically, one way of looking at the AUD is that it is essentially a checkbook reconciliation report. Any of us who keep a checkbook knows when we get our monthly statement from the bank, we add up all the transactions in our checkbook that the bank indicates have cleared up until a certain cutoff date. That number should match the bank’s number at that same cutoff date. If the numbers don’t match, then we know we have to go back and find the mistake.
Well that’s exactly what happened with AUD. The number that Mitchell put into the AUD for our “bank balance” was $9.2 million. The number that came from the city’s KVS accounting system (the city’s checkbook so to speak) was $7.9 million.
On the revised report, the numbers match up perfectly at $8.9 million. So both numbers were off.
Mitchell told me that one decision he made was to use the city’s highest bank balance during the year rather than the one that corresponded with the cutoff date. He told me he did this in order to show the city was fully capitalized and to support public confidence that the city was not going “belly up.”
Mitchell said he knew the report was incorrect and officially rejected the report himself when it was filed last October. The report was also rejected by the state because of the discrepancy. Mitchell said he filed the report even though it was incorrect because the city risked losing millions in federal aid. Filing the report, even though it was incorrect, ensured that federal funding would not be cut off.
Mitchell told me the decision to use the $9.2 million figure was a judgment call on his part for which he takes full responsibility. He also pointed out that this had been the first AUD that he had ever worked with, given his prior years of experience had been with corporate finances.
Agresta said there were many transactions, both revenues and expenses, that had not yet been recorded in the city’s accounting system, all of which contributed to the incorrect “checkbook” number. He cited approximately $400,000 in outstanding checks and approximately $300,000 in deposits which hadn’t been recorded as contributing to the inaccurate number given by the city’s accounting system.
It’s difficult for me to judge whether Mitchell made the right decision last year. My own impression is that his actions were altruistic and pragmatic, but probably didn’t understand how that decision (and his decision to mention bankruptcy for that matter) would be seized upon by those who seem bound and determined to portray Amsterdam as some sort of failed state.
The good news, however, is that between Agresta, Mitchell, and the accounting firms hired last year to help with the reconciliation process, a lot of progress has been made. New procedures have been put in place and the problem has been shown to to be manageable, not insurmountable. Amsterdam will continue to face the problem of bringing in new revenues to meet our expenses. But there’s a light at the end of the tunnel, and by next year, our books should be in the best shape they ever have been.
(Photo by yokayo)