Mercedes city leaders mull forensic audit
Mercedes city commissioners may soon decide whether to conduct a forensic audit of the municipality’s finance department after an independent accounting firm’s report uncovered several violations of internal purchasing policies and procedures.
Forensic audits are investigative in nature and are commonly performed to assess the lawfulness of finances or spending.
In the May 31 report conducted by Brownsville-based Burton, McCumber & Cortez LLP, city accounting procedures were evaluated based on methods agreed upon by the firm and Mercedes city leaders.
Referred to as “exceptions,” the report found four cases of procedural breakdowns that include emergency purchases of more than $3,000 not being reported to the city council, the accounts payable clerk having the ability to print signed checks and remain involved in the procurement process, and invoices for certain projects or services being paid without verification.
Also, turnover in the purchasing department has been blamed for the firm’s inability to determine when the last internal audit of the department was performed.
With regard to emergency purchases, the report found that the public utilities department “has a practice of purchasing goods and services without the use of purchase orders or prior approval from finance department as required.” This includes the requirement of bids, quotes or purchase approvals not being performed or obtained.
On the invoices, the report states that contractual agreements for engineering services and construction “are not forwarded to the finance department for record keeping and reference.” While the City Commission may have approved some of these cases, the finance department “did not have the documentation to ensure that the contract award amount did not exceed invoiced billings.”
Previously reported instances in which the City of Mercedes paid for the electricity bills for local nonprofit organizations were referred to as “on-behalf payment arrangements” in the findings.
In the case of the Valley Initiative for Development and Advancement, the report noted that an agreement between the city and VIDA to pay the latter’s bills on the condition that the nonprofit reimburse the city monthly has been terminated.
The amount of electricity bills through March that were paid by the city on VIDA’s behalf was reportedly $15,636.47 over 24 checks. The city has since been reimbursed monthly and received $15,190.51 through March 31, according to the report.
A more highly-scrutinized issue involved the city’s payment of $35,487.47 in electricity for the Texas Valley Communities Foundation.
In June 2012, the foundation purchased a building located at 1098 W. Expressway 83 for $10 from the city, but the electricity account had not been transferred to the foundation, the report read. This is in line with the account of now-former City Manager Ricardo Garcia, who the commission placed on unpaid suspension on March 30 amid these issues coming to light.
Garcia has since resigned and filed a lawsuit against the city, Mayor Henry Hinojosa, Place 4 City Commissioner Ruben “Chano” Guajardo and Leo Villarreal, who at the time was a candidate and has since been elected to the Place 1 post on the commission.
At the heart of the controversy surrounding Garcia’s ouster and subsequent legal action was the city’s payment of the aforementioned bills. He maintained that city leaders were long aware of the agreement between Mercedes and VIDA, and contended that he wasn’t aware of the foundation electricity account snafu until satisfying an open records request that uncovered as much.
The report further states that as many as 57 months elapsed before the discovery was made and the account was transferred to the foundation, which has since reimbursed the city in two installments — one in March and the other in April.
Another item of note in the report includes $61,973.95 of upgrades to the 911 communications network for Mercedes, Donna, Weslaco and San Juan being covered entirely by the city.
A formal interlocal agreement had not been signed with the cities to “ensure timely payment,” with the cities of San Juan and Donna still owing Mercedes $1,973.95 and $20,000, respectively, as of March 31.
Third parties and notes
Procedural issues with third parties were also of concern in the report. Among them is the city allowing $1,122.56 in water consumption for Mercedes Baskets Full, and electric bills for the Mercedes Chamber of Commerce and Development Corporation of Mercedes being charged to the city’s account.
The corporation has paid $2,274.83 of these bills, which are not outstanding.
According to the findings, the corporation also owes the city $374,336 in two outstanding notes. This occurred after the city extended unsecured credit to the corporation in June and July of 2014 and 2015, respectively, and has received just four of 16 quarterly payments on one note and four of 12 on the other.
Another note, this one with a principal balance of $127,543 remaining, consisted of the Mercedes Industrial Foundation acquiring two tracts of land using a city loan with 3 percent interest. The industrial foundation contends that, according to its records, the note was paid in full on April 1, 2015.
“The finance department was not able to reconcile the balance of this note receivable due to limited accounting information,” the report read.
The four-page report does not include an opinion nor were the findings considered an examination or review. The report also acknowledged that more may have been uncovered if “additional procedures” were performed.
This coupled with the nature of the findings is why now-former Mercedes City Commissioner Jose Gomez requested that forensic audits be conducted.
Elected officials, however, tabled discussion on the forensic audits at the June 20 meeting. Commissioner Howard Wade anticipated bringing the matter back to the commission at the first meeting of the new governing body, which consists of two members who were recently elected.
City Secretary Arce Felix did not say whether the audits would be on the agenda for a meeting planned on Wednesday.
Commissioners Cris De Leon Hernandez and Guajardo could not be reached for comment. Hinojosa mostly declined comment and Villarreal said he preferred learning more before discussing the matter.
Wade deferred further comments to City Attorney Juan Molina, who did not return calls seeking comment as of press time.
Hinojosa did say that the city is letting the corporation decide whether it will conduct its own forensic audit.
Hernan Gonzalez, executive director for the corporation, said it was unlikely that such action would be taken.
“As you know, we have a yearly external audit done … and nothing in their findings ever suggested that we needed an additional look at our financial statements, so unless the board thinks otherwise I see no need for it,” Gonzalez said. “This is just political grandstanding. It (report) was made to be used by the City Commission. It does mention the DCM on two notes we owe the city, but we had communicated with the city manager that on one account we had a sizable overpayment, and we’re working through that.”