Reprinted from

Auditor faults Elysian in city hall purchase
 

State investigation uncovers sloppy accounting, employee compensation

By Dan Linehan
Free Press Staff Writer

ELYSIAN — Shortly after Councilwoman Tiffani Atherton took office in early 2006, she asked her colleagues on the Elysian City Council to request a state audit.

Rumors about city cover-ups swirled in the Le Sueur County town of about 540, and Atherton said a state investigation would put some of those concerns to rest and help the city fix the ones that were valid.
 

Besides, she warned, residents would collect signatures and request an audit themselves if the city didn’t. Her motion was defeated 3 to 2.

Elysian residents — with help from Atherton and fellow Council Member Jason Coon — proved her right, collecting 69 valid signatures, enough to prompt a state audit.

They circulated a petition that led the state auditor to examine a wide range of city practices, from its budget to its employee compensation to the purchase of a new city hall. The report was released early last week.

“I’m trying to represent the citizens that are fed up with a lot of the things that have been going on in Elysian for quite some time,” Atherton said. “A number of citizens have felt they haven’t been able to receive a straight answer.”

Elysian’s mayor, Mack Evans, said he’s satisfied with the audit’s report. He said he voted against requesting an audit last year because taxpayers would have to pay for it.

Now, he’s frustrated that the city will have to foot the investigation’s $20,000 bill.

And he says the petitioners inflated that bill by having auditors look into minor issues, such as a petty cash fund that spent an average of $31.52 per month. The auditor looked into other issues, such as whether the city clerk obtained a building permit for work done on her home, and found either no problems or minor ones.

Evans emphasizes what he views as the state’s financial problems as well as Elysian’s positive qualities when asked about the audit.

“ This is a great town,” he said. “I’m proud that I live here.”
 

Buying, fighting city hall
 

The petitioners asked state auditors to look into a bevy of issues, but it’s the purchase of a new city hall building that generated the most ire among residents.

When Elysian bought a former pizza restaurant in 2006, it paid $ 237,786 — nearly twice the amount the property was assessed at by Le Sueur County. And there was no appraisal to update that price.

The auditor’s report reads: “Because of the large discrepancy between the purchase price and estimated market value (nearly 100 percent), an appraisal of the property before the purchase of the Pizza Palace would have been appropriate.”

It’s “a huge sore spot with a number of residents,” Atherton said.

Another $60,183.50 was paid to remodel the former restaurant.

In addition, the city conducted the sale without a referendum, which is required by law.

“As citizens, we should have had the right to vote on the purchase of city hall,” she said.

Also, the city didn’t have a statute-mandated “opt-out” provision with the sellers. Such a

provision would have allowed the city to back out of the deal at the end of any calendar year, said David Kenney, an attorney with the state auditor’s office.

Pat Nusbaum, the city clerk and administrator, said the city talked to contractors and a Realtor as it negotiated with the Pizza Palace’s owners, Dale and Phyllis Arndt, now of Waseca. The Arndts bought land for the restaurant for $10,150 in 2003, county records show.

The Arndts did not return a phone call left Thursday.

“ They felt it was justifiable, what they paid for it,” Nusbaum said of the city’s economic development authority, composed of city staff and two city council members. There were “several discussions” about the purchase, she said.

Evans said he didn’t ask for an appraisal because it would have cost more money, and he was told there was no similar building in Elysian to make a comparison with. Nusbaum said the city had been paying rent since 1987 at a previous location.

Greg Hierlinger, deputy state auditor, said he didn’t see any city documents that helped explain the reasons for the purchase, or why the price was so much higher than the assessment.
“Approvals made by the City Council and the EDA were not always clear,” the report stated.
And Atherton said the Realtor who Nusbaum referred to is actually a city councilman.

Employee pay under lens
 

There were also several concerns about how the city compensated its four full-time employees.
In lieu of health care, city employees received $500 per month, tax free, with the payments not being reported as income. Those payments had risen from $250 in 2000. The Internal Revenue Service requires that government requires employees to verify that such cash payments are actually used to purchased health care. But no such verification was asked for.

Nusbaum said the city has since required that documentation.

The audit also found the city didn’t follow its own rules concerning overtime.

First, employees receiving overtime didn’t receive prior approval from Nusbaum, or, in her case, the council.

Second, the city’s personnel manual says overtime is warranted for “unusual circumstances,” but overtime was the norm during the past two years.

In 2006, the city administrator, public works superintendent and assistant superintendent collected overtime during an average of 90 percent of their pay periods.

The audit suggested hiring additional employees, using flexible time or instituting salaried positions.
Atherton said overtime is sometimes necessary, but “it seems to be taken advantage of without oversight.”

Evans said operating a city means that it’s sometimes not practical to have prior approval of overtime, such as weekend snowplowing.

Much of the rest of the audit concerned “internal controls,” accounting lingo referring to business practices that help a business, or unit of government, perform its functions.

The audit didn’t find city documentation to support payments made by the city, nor did it find the city had written accounting policies. Hierlinger, the deputy state auditor, said it’s “probably not uncommon” for small cities to have these issues.

Future in city’s hands
 

In cases when its investigation is prompted by citizens’ concerns, the state auditor’s office doesn’t follow up after it makes a report.

Cities of Elysian’s size are required to have an annual audit, though it’s very different from the investigation performed by the state. Hierlinger said he would guess the city’s annual auditor would make a decision on whether to implement the recommendations. He said the state investigation didn’t examine whether or not the private auditor ought to have caught these problems.

Atherton said past auditors didn’t catch the improper healthcare payments, but did make note of problems.

“For one reason or another they seem to keep being ignored,” she said of previous reports.
Atherton said she’s optimistic the city will make changes, though she says it might take awhile. Three city council members are up for election this fall. ( Atherton isn’t one of them.) Elysian resident Greg Olson, who has worked with Coon and Atherton on the petition, said Evans is more interested in handing out medals than tackling difficult financial issues.

“ They seem to think that this is a wonderful little community and there’s no place like this anywhere in southern Minnesota,” Olson said. “ That’s fine, but from my perspective there’s all these financial things that are frankly in disarray.”

Or, as councilman Coon put it: “ Things may not have been as perfect as some people think they actually are.”

Atherton said she wants the city to “move forward and lose this ‘us versus them’ mentality.”

But news the audit’s $20,000 price tag is the city’s responsibility has triggered even more controversy. Some have taken to calling the bill “ Tiffani’s tax.”

“I’m hopeful that a lot of good can come out of this,” she said.