CHICKASHA – The long-awaited audit of the city’s financial records from Fiscal Year 2022 is finally finished, albeit 26 months late, “and it was a clean audit,” Mayor Zach Grayson said. The City of Chickasha isn’t bankrupt.
Although the audit was tardy and revealed some problems, the proverbial bottom line was positive. The city’s assets of $122.85 million were 38.585 times greater than the city’s liabilities of $3.18 million, according to accountants HSPG & Associates of Oklahoma City.
The city’s total net position increased by $5.6 million, and assets exceeded liabilities by$119.66 million. “Of this amount, $29.2 million … is available to meet the government’s ongoing needs,” HSPG reported.
FY22 concluded on June 30, 2022, and the audit of the city’s records was due by Dec. 31, 2022.
At the end of FY22, the city had $2.8 million in long-term debt outstanding, “which represented a decrease of about $742,000 from the prior year,” HSPG found.
The long-term debt picture will change dramatically in the future, though, because of a loan to finance a new water treatment plant and a multimillion- dollar debt incurred to buy two new fire trucks.
The Chickasha Municipal Authority secured a $67.7 million, 30-year loan from the Oklahoma Water Resources Board in July 2023 “for the purpose of constructing a water treatment plant” and “making improvements to the municipal water system,” HSPG noted.
Also, the City of Chickasha approved a “lease and option agreement” with First National Bank & Trust Co. last month on a $3.14 million note for the purchase of a 100-foot aerial truck and a 750-gallon pumper truck. The city will make 120 monthly rental payments at an annual interest rate of 4.75%.
In each case, “This lease/ purchase item will not come on the books until delivery of the truck,” which is not expected for 34 to 38 months, and payments won’t start until approximately one year after delivery, Fire Chief Tony Samaniego told the City Council last year.
Completing ’22 audit was ‘a challenge’ “It was a bit of a challenge” to complete the audit, HSPG Director Andy Cromer told the City Council on March 3. HSPG was retained in June 2023 and started its audit in April 2024, he said. The finished document had not been posted on the State Auditor & Inspector’s website by 6:45 p.m. last Friday.
One troubling issue was that the City of Chickasha maintains more than 50 separate bank accounts, Cromer noted. “It’s inherently complicated,” he said.
That many accounts “appears excessive and creates additional administrative burden to transfer and track payments between the accounts and to reconcile the accounts each month,” HSPG wrote.
Because of what they termed “resource constraints,” the City of Chickasha had “insufficient controls for accurate and timely financial reporting.” Consequently, City Hall “was not able to produce materially accurate financial statements until approximately 30 months after year-end.”
The accountants also admonished the city for how it protects its deposits.
State law requires municipal deposits to be insured or collateralized, HSPG pointed out. “Allowable collateral” under the law “broadly consists” of debt issued by the U.S. Treasury; debt of the state, counties or school districts; or general obligation bonds issued by “any other state.”
On June 30, 2022, “certain of the city’s financial institutions held material amounts of collateral” on behalf of the City of Chickasha “that do not appear to meet this literal definition,” HSPG wrote.
“You have plenty of collateral,” Cromer said. “It’s just not the right kind required by state law.”
During their “testwork” the auditors “noted instances of overpayments, duplicate payments, payments made to the wrong vendor, late payments to vendors,” and “checks were backdated,” Cromer said.
FY22 utility billings ‘made no sense’ Another “item” the auditors singled out was utility billings. In terms of “how much product is bought and how much is sold, that ratio should stay relatively uniform over time,” Cromer said. In FY22, Chickasha’s ratio “made no sense at all.”
At least in part, that was because of a major leak on the waterline between Chickasha and Fort Cobb Lake, the city’s source of drinking water. Almost 28% of the water the city was buying from the Fort Cobb Master Conservancy District was unaccounted for.
In May 2021 city officials established that a major leak was occurring somewhere on that pipeline, but despite repeated searches the location wasn’t discovered for 18 months, until November 2022.
The leak was north of Verden, near Lake Chickasha. The location of the leak went undetected for 18 months because “the water wasn’t ponding,” former mayor Chris Mosley said. “It was flowing from a break in a gravity-fed main and into a nearby creek” which emptied into the Washita River.
“It does not appear that procedures are in place to track or compare water purchases” from FCMCD to water the city sells to its customers, HSPG auditors wrote. As a result, the city “cannot reasonably verify or corroborate” that customers are being billed for the correct volume of water they consume, the auditors wrote.
Some EMS billings weren’t uncollected Cromer also commented on Chickasha’s Emergency Management Service billing. “You contract that billing to a third party,” he noted. In FY22 “you changed that,” and the new vendor “didn’t put enough effort into collecting” overdue receivables, Cromer said. Billings submitted for collections by the previous provider “were not sufficiently monitored to ensure collection,” and as a result the EMS Fund experienced a $152,783 decrease that year.
And that led to Cromer’s fifth comment. “You cannot have a negative balance” in an account. “It’s against state law.” Chickasha’s EMS Fund had a negative balance in FY22.
The city began the year with a deficit of $510,000, which increased by $153,000 during the year, and by June 30, 2022, the EMS Fund reported a deficit fund balance of approximately $663,000, HSPG accountants calculated.
City funds require ‘adequate security’ Continuing, Cromer said the State of Oklahoma mandates that when municipalities put their money into a bank, it “has to be secured by the FDIC or deposits.” The City of Chickasha “needs to make sure that its banks provide adequate security” of city funds.
As of June 30, 2022, HSPG reported, the city was not exposed to:
• Custodial credit risk, which is the risk that in the event of a bank failure, the government’s deposits may not be returned to it.
• Concentration of credit risk, which is when investments in any one issuer represent a significant percent of total investments of the city.
• Investment interest rate risk, which is when changes in interest rates adversely affect the fair value of an investment. The city’s investments with maturity dates were limited to time deposits “that were not exposed to interest rate risk,” HSPG determined.
City Manager Jim Crosby said he, Finance Director Elaine Jensen and other city officials have set a goal of completing their work on the FY23 and FY24 audits by the end of this year. But he cautioned, “Changing 50 accounts won’t be taken care of overnight.”
“We knew before the audit report that we have some problems, and some of these issues will appear again in the FY23 audit and maybe the FY24 audit, too,” Grayson told Southwest Ledger. “But we expect to have those cleaned up by the ’25 audit.” Furthermore, only one person who worked on the FY22 audit is still on the city payroll, the mayor said.
In a related matter, the City Council voted March 3 to retain HSPG & Associates to audit the city’s books for FY23 and FY24.