Audit raises concerns about GRU, Reichert House

Gainesville Regional Utilities (GRU) level of debt and the amount of money it sends to the city each year, and the city’s oversight of the Reichert House Youth Academy (RHYA) were some of the main problems identified by the state auditor general in a report released Monday.

The 18 findings from the preliminary report remained mostly unchanged in Monday’s final 63-page version of the operational audit.

In addition to the municipal utility’s debt concerns and the five findings related to RHYA operation and oversight, the audit identified other areas of concern, including:

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  • Gaps in city personnel knowledge and experience that weakened financial reporting and prompted the city to spend money on outside auditing help
  • A need for monitoring and transparency in Ironwood operations, the city-owned golf course.
  • Insufficient controls and policies related to purchasing cards and a need to improve travel fund policies and procedures.
  • Inadequate policies and procedures for conducting pre-employment background checks
  • Problems in completing some annual employee evaluations and in communicating the results of others to the employees.

The city’s audit committee, made up of Mayor Lauren Poe, Commissioner David Arreola and appointed audit committee member Harold Monk, will discuss the state audit report at its 3 p.m. meeting Tuesday. The state auditor’s office is expected to participate in the meeting via Zoom.

GRU debt and the general fund transfer

The audit examined GRU’s long term debt to net position ratio, a statistic that demonstrates the extent to which the utility is financing its operations through debt rather than available assets. In comparing GRU’s debt-to-net-ratio to four other similar Florida municipal utilities, the audit found GRU’s ratio is approximately five times higher than its peer utilities.

GRU’s electricity rates were also “significantly higher” than comparable utilities, the audit found.

A continuing high debt-to-net ratio can negatively impact GRU’s credit rating, the audit noted. Decreased credit and bond ratings can impact GRU’s financial future by making it more expensive for GRU to issue new bonds, which in turn makes it more expensive to fund operations.

GRU acknowledged the debt-to-net ratio’s potential negative impact on its credit rating during the first of a series of special meetings about GRU’s financial performance and budgeting process.

“GRU is considered highly leveraged by all three rating agencies,” said Claudia Rasnick, GRU’s chief financial officer, in a presentation to the commission during the Dec. 1 special meeting.

The credit agency ratings will be discussed in greater detail at the next special GRU budget meeting in February, Rasnick said.

The amount of the general fund transfer also could affect the utility’s credit rating, the audit noted.

The general fund transfer, which was $38.3 million in 2020-21 and which is budgeted for $36.3 million in 2021-22, supports city services such as police, fire, parks and recreation, and public works.

The city commission agreed in July to lower the general fund transfer by $2 million every year through 2027. However, according to the audit, the city commission sets the amount of the general fund transfer based on the money the general government needs each year to fund services versus setting an amount based on what GRU is able to pay.

The audit recommended GRU improve its debt ratio by developing a long-term debt management plan and that the city adopt a “sustainable methodology” to calculate the general fund transfer.

Reichert House Youth Academy program

The RHYA is an afterschool program for at-risk youth. Currently the RHYA runs out of the Gainesville Police Department (GPD).

The audit found a lack of sufficient oversight of the operations and Reichert-associated non-profit organizations.

“The pervasive lack of controls and ineffective oversight over RHYA Program operations increase the risk that fraud, waste and abuse could occur without timely detection,” according to the final report.

Some of the funds used to operate RHYA flowed through the now-dissolved non-profit organization, Reichert House, Inc. Having money come through the non-profit decreased the organization’s transparency.

Specifically, the non-profit wasn’t required to comply with public records laws or open meetings laws or publicly post its budgets. It also meant that the non-profits funds could avoid financial controls like annual audits and budget-determined expenditure limits.

The state audit recommended the city assert more “oversight, control and transparency” with the Reichert House operations and weigh the use of non-profits to fund operations.

If the city continues to use non-profits to fund Reichert House operations, the state audit suggests tightening the controls on the operations and making the budgeting and financial transactions more transparent to the public and to the commission.

Interim City Manager Cynthia Curry told the city commission in December that she had already spoken with the police department and Police Chief Tony Jones about improving Reichert House.

“We will … do what we need to do to make sure whatever concerns come out in the state auditor’s report, we will address,” Curry. “We will address them appropriately and forthrightly. It will not be a delayed response.”

The city official response

The city compiled a response to the preliminary report by a Dec. 22 deadline, but officials have kept their response to the audit private, citing confidentiality.

The final version of the audit was initially slated to be released before Dec. 31, but the auditor general’s office asked for more information, said Rossana Passaniti, the city’s public information officer, in an email to media members.

The city’s additional response also is being kept confidential, Passaniti said.

Following the preliminary audit’s release, Mainstreet Daily News requested to talk with city personnel about the final audit. But Gainesville’s City Auditor Ginger Bigbie and Curry have said through the city spokesperson that they “politely decline” current and future interviews about the audit.

However, in a letter to department directors that was attached to the final audit, Curry said she was establishing a policy review committee to inventory the city’s policies and recommend policy updates and additions.

“I feel it is important that the city establish a framework that ensures the organization is establishing and adhering to policies that are consistent with best practices in local government,” Curry told the leadership team in the Dec. 7 letter.

As part of its duties, the policy review committee will set timelines for reviews, develop a central system to post policies, and work on an employee feedback system for policy changes. The committee also will develop communication strategies and a training system for policies.

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