Alexander annual audit cites illegal activity by PayChex

In 2013 the City of Alexander hired PayChex to handle its payroll. The Arkansas Division of Legislative Audit has issued a report stating some of the duties being performed by the company violates state law. The annual audit was for the calendar year 2013.

The audit says, "The City’s agreement with a private company to perform payroll services, including electronic drafting of a City bank account for the payroll tax deposits, is in noncompliance with Ark. Code Ann. § 14-59-115."

Section (2) (B) of the law states, "The governing body of a municipality may not assign duties relating to the receipting or disbursing of funds to anyone other than an employee of the municipality."

The audit was discussed at the council's February 23 meeting. Both Alderwoman Andrea Bearden and Mayor Paul Mitchell said they know Shannon Hills is using PayChex. Bearden added she's checked state audits for Shannon Hills and said they haven't been cited for any violations.

Mitchell said, "I think they've (PayChex) got more access in some way into our accounts than they do there (Shannon Hills)."

In a recent telephone interview with Bearden she verified PayChex has been providing direct deposit services to city employees and direct depositing payroll taxes into a bank account as required by the Internal Revenue Service. This allows the IRS to make direct withdrawals quarterly.

The infraction is listed in the audit under the "Bookkeeper" section but the bookkeeper took no part in suggesting or hiring PayChex. It was then Mayor Michelle Hobbs who presented the proposal to hire PayChex during the February, 2013 council meeting. City aldermen passed the proposal in a four to three vote. Six of the eight aldermen were new to the council and had only been serving since January 1, 2013.

Another violation cited by the audit is an old one still being dealt with by the city. Prior to 2008 former Mayor Shirley Johnson was spending a portion of state aid highway funds for purposes other than street related expenditures.

The audit says, "State aid for highway turnback funds from previous years was not transferred from the General Fund to the Street Fund, as required by Ark. Code Ann. § 14-59-104. The total amount due the Street Fund at December 31, 2013 was $87,798."

In 2007 this amount reached a total of $159, 913. When aldermen at the time realized state funds were being misappropriated budgets since then have included the General Fund paying back the Street Fund. Since then the amount owed by the General Fund to the Street Fund has declined. In 2008 it was $132,792, 2009 $112,806, 2010 $97,933, 2011 $93,298, and 2012 $87,798.

Bearden questioned why the dollar amount for 2013 is the same as 2012 saying she knows at least $150 was paid from the General Fund to the Street Fund. "It started in October, 2013, $50 a month per General Fund. That should have been $150 that wasn't even reflected," she said.

One issue causing some problems was the combining of five bank accounts into one. In 2013 Hobbs was able to convince enough aldermen to approve combining five department checking accounts into one checking account to save on bank charges. Later, aldermen realized they couldn't properly track spending department by department so they ordered the accounts separated. This apparently hid the $150 transaction, which Bearden stated in an E-mail posted in 2014.

Other violations noted in the 2013 audit listed under bookkeeper include:

1. "Pre-numbered receipts were not issued for all funds received in the General, Police Department, and Fire Department Funds, as required by Ark. Code Ann. § 14-59-109. A similar finding was issued in the prior report."
2. "As previously reported, the City has two lease-purchase agreements that do not comply with Ark. Const. amend. 78, which indicates municipalities may incur short-term financing obligations having a term not to exceed five years." (The lease-purchase agreements are currently part of a lawsuit. One includes the repossessed fire truck.)
3. "Fixed asset records were established, but did not include additions, deletions, control totals, serial numbers, descriptions of property, and cost amounts, as required by Ark. Code Ann. § 14-59-107."

Listed as bookkeepers in the audit are, "Joan Churchill (resigned March 18, 2013)" and "Ruby Whittaker (appointed May 6, 2013)." Actually Churchill was bookkeeper in 2011 and 2012. She was elected treasurer November, 2012 and sworn-in January 1, 2013. In December, 2012 bookkeeping duties were removed from the duties of the treasurer by the outgoing council and the pay for the treasurer was dramatically reduced. She resigned March 18.

Four "non-compliance" items are listed for the District Court clerk. They are;

1. "Police Bond and Fine Fund receipts of $9,760 that were deposited to the Court Automation Fund in error during 2012 were not repaid during 2013."
2. "Pre-numbered receipts again were not issued for all funds received in the Court Automation Fund, as required by Ark. Code Ann. § 14-59-109."
3. "Balances remaining in the bank again were not identified with receipts issued for cases not yet adjudicated and payments made on all unpaid time accounts, as required by Ark. Code Ann. § 16-10-209."
4. "The City has not established a City Administration of Justice Fund, as required by Ark. Code Ann. § 16-10-308."

The District Court clerks listed in the 2013 audit are Katrina Star Wilcox (appointed February 27, 2013, resigned July 22, 2013) and April Cotton (appointed July 23, 2013).

Mitchell told council members the violations for the district court will have to be handled by the district judge.

The audit was conducted in 2014 for the 2013 calendar/fiscal year. The cover letter states, "The Legislative Auditor reports on the fiscal affairs of local governments, as well as compliance with relevant state laws and observance of good business practices to provide accountability for tax dollars expended to support government operations."

The next regular meeting of the Alexander City Council will be held Monday, March 16, 6 pm in city hall. Regular meetings are held the third Monday of the month. The public is invited to attend.