Denver’s internal accounting and auditing functions are dangerously antiquated, and city Auditor Dennis Gallagher needs to wake up to that problem.
The city’s Financial Management Task Force – made up of business leaders and outside professionals in government finance – are deeply concerned about Denver’s internal accounting and auditing.
The city’s outside, independent auditor agrees – and said so in his report to the task force and city staff on June 8.
Denver’s auditor was not in attendance.
KPMG has audited the city for several years. Partner Ron Filliben pointed out several issues affecting the quality of Denver’s financial reporting:
It takes too long to close the city’s books – 90 days compared to 14 to 30 days for companies under SEC supervision and 7 to 30 days for federal agencies.
It takes Denver more than six months to complete the year-end audit, while SEC entities take 60 to 90 days and federal agencies 30 to 45 days.
There are far too many post-closing/audit adjustments and internal control weaknesses.
KPMG and the task force agree that there are serious structural flaws with Denver’s century-old financial management practices.
Imagine trying to run a $1.9 billion enterprise with 100-year-old bylaws and financial regulations.
Denver’s annual revenues total $1.9 billion, and the 1904 charter continues to govern its financial policies. There are numerous problems:
No one in the city is designated to sign bond-offering documents or certify accounting practices.
Denver’s financial accountability is hopelessly scattered. Accounting is split between the auditor’s office and various city departments, including treasury, revenue, budget and the controller, who reports to the finance director who reports to the mayor.
No one has the overall responsibility for managing accounting, internal controls, business processes and financial reporting.
No one person in the city is accountable for the external audit performance.
The buck stops … everywhere.
For example, the auditor is charged with all the general accounting responsibilities, i.e., the posting of debits and credits, issuing all vouchers, signing contracts, determining if a particular fund balance, contract and request for payment are in order.
The auditor is also charged with auditing many of those very accounts or transactions. That is, the auditor verifies whether various financial systems are functioning correctly and legally, and whether appropriate bookkeeping protocols and other internal controls are in place. Denver’s auditor has both pre-audit and post-audit functions.
So who audits the auditor?
There are solutions to these dilemmas. The most salient are emerging from the months of analysis of the Financial Management Task Force. This group of experienced public- and private-sector financial experts thinks Denver needs a chief financial officer in the executive branch.
The appointed CFO should be an experienced and credentialed financial manager with authority to oversee all general accounting, payroll and financial reporting – functions currently performed by the auditor. This position would have the authority and the resources to build a strong finance team.
The CFO would ensure the general ledger is accurate and timely, not only to prepare financial statements but also to facilitate efficient and effective business decisions. The position would also establish consistent guidelines so that all city departments use the same systems and practices.
Currently, the big departments (safety, public works and general services) use different systems, making it difficult and time-consuming to convert the general ledger into a financial reporting package. This disparity also challenges accountability.
The task force also determined that adequate resources must be devoted to accounting and financial reporting. The city has a dearth of certified public accountants, even though the charter gives the auditor authority to hire as many CPAs as necessary.
Gallagher is resisting any effort to weaken the role of his office. The city charter authorizes him to act as the city’s accountant. His pre- and post-audit functions are not articulated in the charter, nor is his authority to execute performance audits.
His website touts a mission that seems consistent with the direction of the task force: “We are also committed to improving accountability, efficiency, effectiveness and performance in city government.”
But Gallagher’s rhetoric is out of balance.
Taxpayers deserve 21st century accountability, not a watchdog with more bark than bite.
Put the issue on the ballot. It’s time to change the charter.
Susan Barnes-Gelt (bs13@qwest.net) served eight years on the Denver City Council and was an aide to former Denver Mayor Federico Peña. Her column appears on alternate Sundays.
