Friday, April 20, 2012

Financial Workshop Last Night

Deede Weithhorn, a commissioner in Miami Beach and a municipal auditor in her day job, has been contracted by the city to analyze our finances. The city held an audit workshop last night. The workshop was sparsely attended by citizens, only four of us were there. That is not good.

 The short recap of the presentation is that Ms. Weithorn is reviewing the reporting and the organization of our financial statements. This is good news because the issue is not the integrity of the finances but the poor way that the information is communicated. Weithorn's experience could help get the right information at the right time to the commission and to the citizens. I hope so.

 I saw some red flags last night and the commission has to be very clear and insistent on how these recommendations are presented and kept.

 First a joke: The definition of a good accountant is one who always reports 2+2=4. The definition of a great accountant is one who replies, "How much do you want it to be?"

 That's what passes for accounting humor but it has a really clear point. Because finances are complex, it becomes easy to hide behind technical jargon and complex explanations, yet most people understand the concept in basic terms.

 A reserve is commonly understood to be a savings account. It is money that is held aside in the event of something happening. Simple enough. Now just like other savings accounts, there can be specific purposes - rainy day fund, retirement fund, new car fund, Christmas Club (remember those?), education fund. Most people with budgets and income understand that.

 The city reserve is no more complicated. A certain amount of money is set aside for disasters, another amount for capital expenses, another amount for utility issues, and sometimes an amount for unexpected operational issues.

 Ms. Weithorn's explanation was abstruse, unnecessarily complicated, and she should bear that in mind. It's not her job to educate us on complexity but to make the complex understandable. She may not be able to help it. Plain English is a second language for accountants and elected officials but I hope she does better in her final report.

 Beyond the reserve, to me it is very clear that the city commission lacks two things - timely reports on the financial status and lack of information about the impact of financial decisions.

 Let's deal with the first one - timely reports. Much has been made about the need for a new financial software system and we do need one. But that won't fix the problem. A good system will help but the issue is being comfortable with uncertainty.

 It's the job of the finance manager to give best estimate reporting quickly and not wait until every column is balanced and every account is reconciled. Each month, before the commission meeting the finance manager needs to provide a best estimate in simple terms as to the financial condition of the city.

 The second is more complex. What is the cost of buying a service and what is the long cost of ownership? Simple example - a consumer buys a new car in cash. How much should she plan on spending to maintain the new car? You have to plan for that money. Our code should require a financial impact statement for every item before the commission. This has been done by custom in the past but apparently has fallen by the wayside. There's no reason to wait. The city administration should start doing this now and the commission needs to codify it.

 New subject - Cross charging performance reports. Let me zero in on the big one. Our legal bills are out of control. This is not because of greedy lawyers but because of deliberate management decisions to force personnel issues into court. Now this is a bad move and it should stop now, but its effects are hidden when the legal services are kept as a separate budget item in the reports.

 The money that the legal services spend should be charged against the budget of the consuming department. It's only that way that the city can decide what the core issues are and either fix them, avoid them in the future or decide this is worth spending money on.

Finally, the Citizens Budget Oversight Board started with good intentions.  I resigned from it when I could not abide the insistence that the committee meet only during the work day.  They've produced nothing useful anyway.  And any board that contains the strip club developer who owes well over a $1,000,000 in back taxes as a voting member is not worth my time or yours.   It should be  dissolved.

 Kevin Vericker
April 20, 2012

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