The town of Sterlington engaged in deficit spending for eight months in 2017 and may be unable to continue operations in the next year, according to a recent audit.
Bosch & Statham, a certified public accounting firm in Ruston, prepared the audit of Sterlington’s finances for the fiscal year ending Dec. 31, 2017. The audit report, which was late and originally due June 30, detailed Sterlington’s numerous financial troubles.
The audit’s report on Sterlington’s finances was bleak. According to the audit report, Sterlington has incurred millions of dollars in bonded indebtedness, may be unable to pay back that debt, continues to incur major legal expenses, has overspent its budgets for several months, has not realized large sales tax receipts as anticipated, and has a negative balance of some $157,000 available for spending.
“As a result, there continues to be substantial doubt about the Town’s ability to continue as a going concern within one year after issuance of the financial statements,” stated the audit report.
During the 2017 fiscal year, general fund revenues totaled some $1.4 million while expenditures reached some $1.3 million. After all transfers, Sterlington posted a $36,193 surplus. With the surplus, Sterlington’s general fund balance rose from $6,904 to $43,097.
The general fund balance did not leave enough to absorb deficits in every other town fund, though. Sterlington posted deficits in all its other funds: a negative $48,562 in the road construction fund, a negative $102,668 in the recreation fund, and a negative $341,976 in the sports complex fund.
“There was deficit spending during eight months of the year,” stated auditors. “We did not identify any formal plan by management to eliminate the deficits.”
Sterlington Town Council members Lucy Holtzclaw and Caesar Velasquez each diminished the severity of the audit report.
“I just don’t see bankruptcy coming yet,” Holtzclaw told The Ouachita Citizen. “It will be tight, and I know that.”
In a separate interview with this newspaper, Velasquez said, “I don’t think the picture is as dire as it looks.”
Holtzclaw and Velasquez are each running for mayor of Sterlington in the Nov. 6 election. Mayor Vern Breland resigned from office in early October.
The two officials — Holtzclaw and Velasquez — had different ideas about how to address Sterlington’s finances.
Holtzclaw took over as mayor pro-tem for one week in October before Town Council member Kerry Elee was asked to serve as interim mayor. She said that one week expanded her knowledge of Sterlington’s troubles and the work needed to address them.
“It’s not hard,” Holtzclaw said. “I know things look bad, and I know we don’t have a lot of money. I’ve learned a lot more in the last few weeks, but we will not do anything like that again.”
According to Velasquez, the key to restoring Sterlington’s financial stability required resolving a lawsuit with Greater Ouachita Water Co. over control of water infrastructure as well as launching a municipal water system. Each effort would, however, require more spending.
“We still have some irons in the fire that could bring us out of the slump,” Velasquez said. “We do have a lot of money tied up with the sports complex and the litigation. If we can get beyond this lawsuit, we can get a water treatment system and be self-sustainable.”
Velasquez said Sterlington’s future was tied to the success of the Sterlington Sports Complex and the sales tax revenues it brought in as well as possible revenues from a municipal water system.
“We’ve got money invested right now in the water infrastructure, and if we can’t get that situation fixed, we would have trouble paying our bonds,” Velasquez said.
Bid law violations,
no purchase orders
Some problems uncovered during the audit sparked a more comprehensive investigation by the state, which has not yet released the results of its probe. Auditors declined to include several other items in their audit report because the state Legislative Auditor’s Office is “investigating multiple possible compliance issues at the Town that may have occurred during the audit period.”
“The environment may leave the Town at a higher risk for errors, fraud, waste, and abuse,” stated the audit report. “Federal and/or state laws and regulations and/or town policies may be violated.”
For example, auditors discovered that Sterlington does not use purchase orders.
“We noted no documentation of the person initiating purchases or approving purchases,” stated auditors.
Some of Sterlington’s largest contracts during 2017 did not comply with legal requirements, specifically by not soliciting bids as required under the state Public Bid Law.
When asked about the town’s spending problems, Holtzclaw said such poor financial management would not continue.
“Oh, no,” she said. “There won’t be any spending like that. If we need to buy something, even if it’s small items, we need to get three quotes and get the best deal.”
Velasquez said deficit spending could be avoid by making each department head at Sterlington accountable for meeting their budgets.
“I want to make sure all spending is done properly and in an accountable manner,” Velasquez said. “Every department head must review their budgets and make sure their budgets stay within spending limits. Fiscal responsibility will be a priority.”
Auditors uncovered a plethora of exceptions to prescribed statewide agreed-upon procedures within their review of Sterlington’s finances. For example, auditors obtained evidence from their review that showed an “unhealthy tone at the top,” “possible management override of controls,” and lack of communication between officials, departments, employees and contractors.
“That referred to something in the past,” Holtzclaw said. “That is the old administration.”
Velasquez, whose candidacy for mayor was endorsed by Breland, did not mention Breland when asked about the meaning of an “unhealthy tone at the top” or “possible management override of controls.” Instead, Velasquez claimed those concerns were simply issues the auditors “were unhappy with.”
“It was a myriad of small things regarding spending and monetary items,” Velasquez said.
Breland, who resigned from office prior to the release of the audit report, provided a statement to the Legislative Auditor’s Office, disputing the auditors’ findings.
“Having read through the report the Town does not understand and/or agree with some of the exceptions,” Breland wrote. “The Auditors did not provide support for their comments which leads the Town to believe some of these exceptions could be incorrect.”
During 2017, Sterlington’s debt increased by $7,710,000, including $4 million in sales tax revenue bonds to finance the sports complex and $4 million in utility revenue bonds to finance water and sewer projects.
Auditors noted that Sterlington incurred debt in previous years “based on the assumption that the Town would be operating its own water system by now.”
“If the Town is unsuccessful in the current lawsuit, which is at the appellate court, there could not be enough revenues to support the debt it has incurred,” stated the audit report.
The sports complex also has caused financial troubles for Sterlington, according to auditors.
“The Town hasn’t seen the increase in sales tax revenues that was expected which could lead to future problems paying the debt it incurred to do the construction,” stated the audit report.
Velasquez said the Town Council was working to form a financial oversight committee to monitor Sterlington’s spending. Though he said the committee would operate independently of the mayor and aldermen, he said the committee’s members would likely be made up of the mayor, an alderman, the town clerk and the town’s financial accountant.
“Going forward, we are implementing a financial oversight committee that would be separate from the mayor and aldermen to review what is being spent and how it is being spent,” Velasquez said. “This committee would answer directly to the mayor.”
Velasquez said the formation of the financial oversight committee was currently underway and was not dependent on the election of a new mayor, which is expected next week.
events in 2017
Sterlington entered into lease-purchase agreement with Government Capital Corporation on Jan. 16, 2018 to finance the equipment and hardware needed to install a water management system. The amount financed was some $2 million at 3.79 percent interest.
Sterlington also incurred some $2 million in bonded indebtedness on April 16 to complete the sports complex facility and parking facility. The bonds carry and interest rate of 5 percent.
Sterlington entered a cooperative endeavor agreement on Aug. 9 to pay $105,000 to install sewer lines for a local developer. The town made that payment on Sept. 7.