LCG auditors cite problems in handling of funds

The annual audit of Lafayette Consolidated Government includes almost two dozen findings of problems with the way business has been done.

In their response, the Guillory administration agrees with some of the findings and lays out plans to address issues - like problems with gas cards, for instance - but disagrees with some of the findings dealing with larger dollar amounts, stating that one finding was "based on incorrect information" and another "is inconsistent with the law and should be removed."

The firm that conducted the audit, Kolder, Slaven & Company, has been conducting LCG's annual audits since 2008. That firm has been conducting governmental audits in Louisiana for more than 35 years. Governmental accounting has its own set of standards; in order to conduct the required annual audits for a government a firm must be approved by the Legislative Auditor's Office.

In their letter, the firm does address some of LCG's responses to their findings.

"The Government’s responses to findings 2022-012 through 2022-018, which are described in the accompanying schedule of findings and questioned costs, appear to be inconsistent with the source documents and other information observed or obtained by the auditor," the letter states.

The findings referred to are all findings related to the Guillory administration's detention pond projects.

Here's a list of the findings of the audit, followed by the management's response.

If you want to read the entire audit for yourself, including an extremely detailed response from the Guillory Administration, click here. The first pages are the Guillory Administration's analysis of the audit; the audit itself starts on page 17. The findings detailed below start on page 290; you can find the detailed response from LCG starting on page 322.

Many of the findings were related to the Guillory Administration's detention pond projects:

Spoil Banks Project: Contract

• Auditors listed three findings in connection with this aspect of the project, stating they first occurred in 2021 and 2022.
• Auditors said it's possible that this project, which currently is the subject of a federal lawsuit, a state lawsuit and investigations by several agencies including the U.S. Army Corps of Engineers, the U.S. Environmental Protection Agency and the Louisiana Legislative Auditor, violated city policies on consolidated cash management, sales tax dedications and the state Public Bid Law. (To read our latest story on this situation, click here)
• The state bid law requires LCG to publicly bid any public works contract that exceeds $250,000. But LCG used an "as-needed excavation and disposal services" contract to remove the spoil banks, which are located in St. Martin Parish. That contract originally was bid at $390,000 but the project ended up costing almost $3.7 million and included "significant additional line items," auditors found.
• The original contract was for work within Lafayette Parish, and the removal of the spoil banks on St. Martin Parish property that LCG partially owns altered that property, auditors state.
• LCG agreed with part of this finding, but disagreed with another part of it. Discussions were held with public works and purchasing officials "after discovery of the technical violation," LCG's response states. They decided that the only violation was related to the location of the project outside the parish. They believe the work done under an "as-needed" contract complies with the bid law, and argue that excavation contracts are commonly used by public entities.
• LCG also argues that the amendments to the contract are basically a change order, and that the work is still excavation and removal, as the original contract required. The difference is the "different, more difficult environment, which required different equipment."

Spoil Banks Project: Acquisition of Property

• This finding was first noted in 2022.
• Auditors said LCG may have violated the Home Rule Charter that sets up the government by purchasing 41 acres of land in St. Martin Parish. In doing so, LCG referenced a Parish Ordinance that contained "geographical project limits" that didn't include St. Martin Parish. The Administration must have proper approval to purchase property, auditors said.
• LCG doesn't agree with the finding, stating it is "based on incorrection information." The ordinance auditors cite isn't correct; it authorized purchases for the Coulee Ile des Cannes project. Instead, LCG argues, the St. Martin Parish property purchase was authorized by two other ordinances: One that declares the "Stormwater Management Project" a public necessity, the other which authorizes the "Bayou Vermilion Spoil Bank Removal Project."
• The Stormwater ordinance authorizes "determining and evaluating locations for and the design and construction of detention ponds along" Bayou Vermilion, and includes a map that shows the entire Bayou Vermilion watershed, LCG argues.
• The Spoil Bank ordinance budgeted $3.8 million and "triggered" a section of the charter that authorizes Guillory to "sign contracts for projects specifically identified in the approved operating and capital improvement budgets or as specifically identified by ordinance."

Spoil Banks Project: Property Purchase

• This finding was first noted in 2022.
• The Louisiana Constitution forbids that anything of value that belongs to any governmental entity be loaned, pledged or donated to any person, group or corporation - public or private.
• By purchasing the property where the spoil banks project was done for "an amount higher than the appraised amount," LCG may have violated the state Constitution, auditors found.
• LCG paid $84,000 for 2/3 interest in 41 acres to accomplish the project. An appraisal valued the property at $42,000 and a revised appraisal was for $31,500.
• "To pay anything above the current fair market value is prohibited" by the Louisiana Constitition, auditors wrote. "Additionally, the Government made alterations to said property without reimbursement of the cost from the 1/3 interest property owner."
• LCG does not agree with the finding, stating that the purchase price was based on an appraisal and "negotiations with the landowners." One appraisal wasn't clear that it was estimating the value of a one-third interest, and notes that LCG was prepared to expropriate - or purchase it without the owners' permission - the property. While every expropriation is different "the amount paid by the City for the subject property is wel within the overall cost of an involuntary acquisition of the subject property through expropriation," LCG's response states. That's because LCG is allowed to consider how much it would cost to use the legal process to expropriate a property in deciding how much to pay for it during a negotiation, the response states. The removal of the spoil banks also "did not increase the value of the land or increase functionality" for the other owners, so no reimbursement isn't supported by law, the response states.

Spoil Banks Project: Compliance with Sales Tax Dedications

• This finding was first noted in 2022.
• There are two sales taxes that are dedicated for capital projects within the city limits. LCG used $3.2 million from that fund on the spoil bank project, which was located in St. Martin Parish. LCG also used about $84,000 from proceeds from city bond issues to purchase the property.
• Auditors suggest that LCG get an AG opinion about using that money on a project located outside the city limits and the parish, specifically if that would "meet the intended purpose of the voters in the City of Lafayette."
• LCG does not agree with this finding, stating it "appears" to be founded in the assumption that a city can't acquire property outside its corporate limits. LCG can buy property outside the parish lines, the response states.

Lake Farm Detention Pond: State Public Bid Law

• This finding was first noted in 2022.
• Auditors found that LCG may have violated public bid laws when an emergency exception was used to get quotes for the construction of two detention ponds. That process was used under a May 2021 Emergency Ordinance, but it doesn't appear to meet the definition of an emergency exception under the law, auditors said. The emergency declaration was terminated in June 2021, and this project was done in August. After it was done, the same emergency ordinance was used to get quotes for the Lake Farm Detention Emergency Evacuation. But that purchase order wasn't issued until August 2021 - two months after the emergency declaration was terminated. For that project, LCG also failed to publish notice of the emergency meeting, and it also failed to publish the justification for the project's connection to the emergency.
• LCG did not agree with the finding, and denies violating the public bid law. They say the purchasing file for the project might "contain inadequate information" but the public works file contains plenty of evidence as to how the project related to the emergency. LCG says they've taken steps to make sure the right documents are placed in the purchasing file. They also say the emergency declaration was still in place when the contract was signed, and that the project was designed to minimize flooding in the Kings Haven and Ashland Park subdivisions.

Parishwide Drainage Millage

• This finding was first noted in 2022.
• The government collects 3.58 mills in property tax which is dedicated to improving and maintaining drainage in the parish. But auditors found LCG may have violated the dedication by using money from that text to cover the cost of an environmental emergency response. In February 2022 a check was cut for $750,000 out of that account to pay for a project. It was reimbursed 10 days later from another fund. Also, the invoices for the project don't accurately identify the project or the work being performed, meaning some people who approved the spending did not realize it wasn't a drainage project.
• LCG needs to make sure projects are adequately and accurately described, and they need to make sure the right fund is paying for each project, auditors say.
• LCG did not agree with this finding. The invoice might not have been "fully clear," but the project was a drainage project.
• "Fenstermaker and Associates performed hydraulic analysis on the impact of the detention pond excavated adjacent to the coulee and tire pit," LCG responded. "The design was proven to be beneficial."
• Addressing the tire fire was the priority, but the project also benefited local drainage, LCG argues.

Based on the information, it appears this finding refers to a tire fire that happened in Scott; LCG filed a lawsuit over the bill a few months ago. Read about it here. We've asked LCG to confirm that, and will update this story as soon as they respond.

Homewood/Ile des Cannes Detention Ponds: Public Bid Law

• This finding was first noted in 2022.
• Auditors found problems with LCG's use of the Construction Management at Risk (CMAR) process for this detention pond project. It's an alternate way of accomplishing a public project, but there are rules to follow. Auditors say LCG didn't have the correct documentation in the contract file to meet requirements regarding cost estimates at certain times in the process. The first contract was for $4 million, but contract amendments projected a cost of more than $30 million, auditors said. LCG didn't maintain proper documentation for the project, and allowed "significant" cost to be incurred prior to the final design, which eliminated LCG's ability to negotiate the price.
• LCG didn't agree with the finding, and states that the auditors misinterpreted the CMAR statute. Again, LCG claims that the proper documents were in the Public Works file, but never made it into the Purchasing file. Also, LCG says the cost estimates and required timeline are different than those the auditors stated, and also were affected by a court-ordered injunction to suspend all work there. LCG was sued by landowners over the way this property was taken, and won, which resulted in the injunction. In March, LCG reached an $11.5 million settlement with the landowners. Read about that here. Even today, the design of that project isn't complete, LCG states.

Leased Property Settlement

• This finding was first noted in 2022.
• Auditors found that more than $400,000 from the city's combined bond construction fund was used to pay a settlement to a farmer who was leasing property that was taken by LCG to build a detention pond. Auditors questioned whether the settlement meets the requirements of the bond issues that raised the money in that account, or the dedications of the sales taxes that support the bond issues.
• LCG did not agree with the finding, said it was inconsistent with law and "should be removed. The bonds were issued to pay for public works and capital improvements and detention ponds meet that criteria. It doesn't matter that the money was paid to a person who didn't own the property; case law says people who are leasing property that is taken by the government are entitled to compensation. Even though LCG feels they're correct about this, they say they'll ask for an AG opinion on the matter.

Several other findings also were related to public works projects:
Purchasing Documentation

• This finding was first noted in 2022.
• Auditors found the contract files for several projects did not contain complete information to support purchases. Missing documentation included specifications for projects, appraisals used to determine property value, etc.
• Auditors suggest that LCG review purchasing documentation requirements to ensure that all documentation is submitted as required.
• LCG agreed with this finding, and implemented a new policy that requires all proper documentation be forwarded to purchasing before a purchase request is processed.

Contracts for Public Works projects

• This finding was first noted in 2022.
• LCG executed a $1 million public works project without a contract.
• Auditors suggested LCG get a signed contract for all public works projects that identifies the project specifications, costs and standard terms and conditions.
• LCG officials say the work was done under an emergency ordinance. LCG procedures don't state that contracts are required; the procedure states that contracts could be used. LCG plans to revise the procedure language to make that clear.

Consolidated Cash Management

• This finding was first noted in 2022.
• Auditors found that a consolidated cash account saw an overdraft of more than $19.9 million and used money from the City's General fund to cover it. $19.8 million of that was for the construction of detention ponds in the unincorporated area of the parish, auditors note.
• Even though the city and parish are "consolidated," there are taxes dedicated to specific areas, and "the integrity of those individual funds" must be maintained, auditors states.
• The use of so much of the City's General Fund to cover a project that was done outside city limits may violate the Charter, LCG policies and procedures and tax dedications.
• Auditors suggested that LCG determine appropriate funding sources when overdrafts occur; those sources should be determined for reimbursement grants so that the proper monies are used until the funding is received.
• LCG responded that the current system doesn't allow for allocation of deficits to multiple funds, but they're working to get a new system in place that will allow this.

Compliance with Sales Tax Dedications

• This finding was first noted in 2021.
• Auditors found that LCG may not have followed dedications of the city's 1961 and 1985 sales taxes when $704,739 in sales tax income dedicated to capital projects was used to pay non-capital bills.
• LCG agreed with the finding, and said that a plan is in place to correct the problem.

Finally, several findings were related to other issues:
Gas Cards

• This finding was first noted in 2019.
• Auditors found that active fuel cards were assigned to assets that aren't listed in inventory or haven't been used for months; that vehicles that need fuel cards don't have them; that fuel cards have active PINs assigned to former employees and people who aren't even listed in LCG's employee files.
• If policies and procedures for these cards aren't adequate, LCG won't be able to detect misuse or fraud quickly, auditors said.
• LCG agreed with the findings and listed several revisions that are being made to address all these issues.

LUS Fiber contracts

• This finding first was noted in 2017.
• LUS is required by the Fair Competition Act to ensure contract terms and pricing offered to LCG departments are consistently applied; auditors found that the contract length, terms and pricing vary, with some contracts having higher or lower market prices.
• LCG "does not have procedures for management to effectively review new and existing contracts with internal departments for communication services," the audit states. It's recommended that a policy be crafted to address the terms, pricing and levels of service are "appropriate and are in accordance with the guidelines of the Fair Competition Act."
• LCG responded that LUS FIber is working directly with LUS to update all the contracts to be sure they match those offered to external customers. As needs for additional services arise, "contract terms and pricing dependent on start date and market conditions may vary."

Golf Course collection controls

• This finding was first noted in 2021
• Auditors found that LCG didn't have effective controls over the sales made at their golf courses. In 2022 an employee was arrested and accused of stealing money from the pro shop. Auditors couldn't determine exactly how much cash was stolen, but $66 in restitution was made.
• Auditors suggested that policies and procedures be established to cover the point-of-sale system, and that all discounted or no-charge services be approved by a supervisor.
• LCG responded that they implemented internal control measures, including increased review of video surveillance of the register area.

Suspension of Utility Late Fees

• This finding was first noted in 2022.
• LUS suspended late fee payments for customers between August 2022 and October 2022 because of high temperatures and pricing volatility. You can read our story about that here. This may violation the state Constitution's prohibition against governments making donations to individuals, auditors said.
• LCG said the Constitution doesn't allow the "release of a payment obligation." If late payments are suspended, then no late fees were incurred, and thus there was no obligation created, LCG argues. However, LCG said they'll get a legal opinion on how to craft any future waivers and implement that within six months.

In their review of LCG"s compliance with federal requirements on handling of federal grant money, several issues were cited including failure to meet a reporting requirement LCG said it didn't know about, a reporting issue created by a clerical issue, and a purchase that exceeded appraisals because the purchasing department processed the purchase without having adequate documentation.