Miami

Audit blasts Miami finance department

 

Miami finance leaders failed to meet more than half of the city’s financial integrity standards, according to an internal audit.

kmcgrory@MiamiHerald.com

The last time Miami found its finances in chaos, the City Commission approved a set of financial integrity principles to guide city leaders and protect public funds.

A decade later, city leaders have been ignoring them.

Miami failed to comply with eight of its 13 financial standards in the 2010-11 budget year, according to an internal audit published late last month.

Among the shortcomings listed in the report:

• The city failed to keep 20 percent of revenues, or about $93 million, in reserves.

• The multiyear financial plan did not account for anticipated changes in operating expenses, debt-service payments or reserves.

• The finance department did not issue reports at the close of each month, and fell months behind in delivering the annual financial report.

“History has a way of repeating itself in the city of Miami,” said Joe Carollo, who was mayor when the city adopted the financial integrity principles in 2000 after the budget meltdown of the 1990s. “The [principles] were put in place for a reason. If the city keeps putting them to the side, we’ll never get out of this mess.”

The audit offers the latest critique of the city finance department, which had another year marked by constant controversy and turnover at the highest levels.

Most recently, budget officials announced that Miami had closed the last fiscal year with a $37 million surplus — $29 million more than had been projected. The announcement outraged union leaders and employees who agreed to millions of dollars in concessions in September believing the city’s finances were tight.

This week, City Manager Johnny Martinez acknowledged that there was “room for improvement” in the finance department, and that he planned to follow up on the financial integrity principles.

“We’re going to look through the audit and make sure the deficiencies are being addressed,” he said.

City commissioners say they will hold Martinez to his word.

“He needs to take this department, which has traditionally been somewhat of a weak spot, and make it into our strong suit,” Commission Vice Chairman Marc Sarnoff said. “That needs to be his top priority in the first quarter of 2013.”

Chief Financial Officer Janice Larned did not return calls seeking comment.

Miami adopted the financial integrity standards in the aftermath of the 1996 crisis, when the city ran back-to-back deficits and needed the help of a state-appointed oversight board.

The audit examined whether city leaders had followed the principles in the 2010-11 budget year.

Since then, there has been significant turnover in the finance department. Budget director Danny Alfonso was hired near the end of the 2010-11 fiscal year. Larned landed the department’s top job in December.

A new finance director, Steve Petty, came on board in March. But Petty resigned in October, after it came to light that he had been given the job without meeting the minimum qualifications.

City auditors have yet to determine if the department adhered to the principles in 2011-12.

And Miami is still not meeting its standards for reserves.

Martinez, the city manager, said building the rainy-day fund has been a priority, and noted that much of this year’s $37 million surplus is headed to bolster the reserves. The balance will be about $56 million, or about 12 percent of revenues.

“It keeps the city healthy for a rainy day, and the rating agencies look at that,” Martinez said.

But Commission Chairman Francis Suarez said the administration hasn’t been doing enough to hit the 20 percent figure required by the financial integrity ordinance.

“I don’t want us to get to our reserve levels by accident because we stumble upon money,” Suarez said. “We’re required to have a plan. I haven’t really seen that.”

The audit also criticized the city for failing to issue the 2011 annual financial report on time.

In its response, the finance department blamed the delays on technology updates and the U.S. Securities and Exchange Commission investigation into city bond issues.

Martinez said he expects the 2012 financial report to be finished on time.

He also plans to address the 12 vacancies in the department, which he said have contributed to the ongoing problems. Vacant positions include finance director and treasurer.

“We’re working with a search firm to fill those two positions,” Martinez said. “And we’re getting résumés for the other positions. We’re looking at the talent that we have within the city of Miami to fill in some spots in finance.”

Sarnoff, the commission’s vice chairman, said Martinez should consider offering higher salaries to attract top candidates.

“However they do it, they need to get competent and stable people who view their jobs in the city of Miami as long-term jobs,” he said.

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