Image: Montgomery County Auditor Phyllis Martin, “The Grand Duchess,” spoke to the Montgomery County Commissioners Court as though they were a group of 3-year-olds when she presented the County’s Comprehensive Annual Financial Report and another document she called the “PAFR.”
Conroe, April 6 – In presenting the Montgomery County government’s Comprehensive Annual Financial Report and a taxpayer-funded propaganda pamphlet she called the “PAFR,” Montgomery County Auditor Phyllis Martin, also known as “The Grand Duchess,” treated the members of the Commissioners Court and the public like they were a group of 3-year-olds. Martin began her presentation speaking very slowly as follows:
“Good morning, gentlemen. I have three reports to present to you today. The first one is the Comprehensive Annual Financial Report. You have it in front of you and it looks like this. It’s the big one. [Martin paused to allow Precinct 2 County Commissioner Charlie Riley and Precinct 1 County Commissioner Mike Meador to figure out which of the three documents in front of them was the biggest, to select those, and to place them in front of themselves.] This report is called a CAFR which stands for Comprehensive Annual Financial Report. [Riley begins to nod his head to show minimal understanding.]”
The Grand Duchess then began to read a PowerPoint presentation which every effectively avoided the basic findings of the CAFR for Fiscal Year 2017. Rather than report the childish presentation of Martin, this article discusses the critical points of the CAFR itself.
First, the organizational chart of the Montgomery County government has now changed. Previously, citizens (voters) were at the top of the chart with a line connected to the County Judge and County Commissioners showing that the citizens are the highest level of government. It shouldn’t be particularly surprising that elitist County Auditor Martin and County Judge Doyal have disconnected citizens from the organization chart shown in the CAFR, so that they’re only in a box unto themselves marked, “Determined in Elections by Voters.” In other words, the only use Doyal and Martin ever had for citizens, who in their minds just get in the way, are to procure votes from them once every few years.
As Martin noted at a meeting of the Board of District Judges last week, the CAFR is not a full examination audit, because no outside auditor full examines the books and records of the County government. Rather, it is merely a test audit where the outside audit firm accepts the books and records which the County Auditor maintains and then audits. The outside firm may test a few entries to ensure accuracy. Primarily, however, the County Auditor audits herself, because, in violation of the principles of Generally Accepted Accounting Principles (GAAP), the County Auditor is the County government’s bookkeeper, a manager (of the budget function and of her large bureaucratic department), and the self-auditor. That is a violation of GAAP Rules 3.31 to 3.38 as promulgated by the United States Government Accountability Office (GAO), which issues the so-called “Yellow Book” of GAAP rules.
While Doyal and the Commissioners Court often claimed that the County government only spent $358 million during Fiscal Year 2017, the audited CAFT actually revealed $416,033,913 of expenditures, an increase of over $46 million from the previous Fiscal Year 2016. At the end of Fiscal Year 2o17, which occurred on September 30, 2017, the County government had a fund balance (unspent funds) of $56,058,124.
The County had $643,965,932 of long-term debt as of September 30, 2017, an increase of more than $30 million in debt from the previous year. Among that debt, the County owes more than $50 million on certificates of obligation, which are intended for short-term small amounts of debt.
The County’s balance sheet summarizes as follows:
- Assets of $1,253,505,528;
- Liabilities of $681,891,830;
- Deferred inflows of “resources” of $2,530,753;
- Net Position of $624,667,565.
There are numerous deficiencies in the CAFR, particularly its failure to identify conflicts of interest, nepotism, and violations of law within the County government, as GAAP requires in this report.
In addition to the CAFR, which is the primary function of Martin’s job as County Auditor, Martin wasted her and her staff’s time and County taxpayers’ money with the preparation – and publication – of a simplified document which the Grand Duchess refers to as the “Popular Annual Financial Report” or PAFR. It’s little more than condescension and a public service announcement in which Martin and Doyal attempted to brag about the wonderful services Montgomery County’s bureaucratic top-heavy government provides while failing to show the massive explosion of expenditures and wasteful spending.
Martin ought to re-name the PAFR a more apt name, the UPUIAFR (pronounced Up-YOU-affer) for “UnPopular Unnecessary Insulting Annual Financial Report.”
The UPUIAFR contains very little information about Martin’s role as County Auditor. It contains no information whatsoever about the massive about of growth in County government spending that has greatly exceeded population growth and inflation since 2000. It contains no information about corruption and waste out of Martin’s office, Phonoscope, ghost employees, massive Commissioners Court salaries, the cost of the County Treasurer’s release of private employee information, more than $13 million of general revenue funds on an unpopular and unnecessary 3 mile tollroad, or the $55 million slush fund which Martin admitted existed during the Commissioners Court meeting on March 27, 2018.
The “Up-YOU-affer” is nothing but pro-government-spending propaganda.
It is not the place of an auditor to brag about the very subject or goals of her financial audit. Her sole place is to audit.
The United States Government Accountability Office publishes the Government Auditing Standards, which are the Generally Accepted Accounting Principles and maintained in a publication sometimes called the “Yellow Book.” The County Auditor’s publication of the advertisement known as the “Up-YOU-affer” reveals her failure to maintain her independence. It is not the place of an auditor to advertise the services and programs of the subject of her audit.
There are three Standards which the County Auditor violated in working with the County government to present the UPUIAFR at a cost to the taxpayers:
GAAP Section 3.31. Internal Auditor Independence – GAAP requires the internal auditor to be located organizationally outside the staff or line-management function of the unit under audit. Furthermore an audit must be sufficiently removed from political pressures to conduct audits and report findings, opinions, and conclusions objectively without fear of political reprisal. In this instance, however, the County Auditor works closely with the Commissioners Court on a regular basis for budgeting purposes. She sits with the Commissioners Court at their regular meetings. The Commissioners Court sets her salary, which is substantially higher than every county auditor in Texas with the exception of Harris County. The County Auditor regularly meets with individual Commissioners Court members (the County Judge and Commissioners) to work with them to establish their department budgets. These meetings occur on an ongoing basis. There clearly is a political relationship with the County Auditor because she not only audits but works on the budget side of the accounting ledger. There is not sufficient independence between the internal auditor and the Commissioners Court under GAAP scrutiny.
GAAP Section 3.35. Nonaudit Work by Auditor. – The Yellow Book makes a major point: “If an auditor were to assume management responsibilities for an audited entity, the management participation threats created would be so significant that no safeguards could reduce them to an acceptable level. Management responsibilities involve leading and directing an entity, including making decisions regarding the acquisition, deployment and control of human, financial, physical, and intangible resources.” The County Auditor has assumed significant management responsibilities for Montgomery County. She sits with the Commissioners Court, interrupts meetings regularly, injects her opinions and her department’s policies as policy guidance for the Court, and supervises the individual Court members in budgeting. As Chief Budget Officer of the County, the County Auditor has direct management responsibilities under the Texas Local Government Code. One cannot criticize her for fulfilling these duties but the dichotomy of her role as Chief Budget Officer and as County Auditor has created this major conflict of interest that suggests the necessity of an independent internal audit of the County’s finances.
GAAP Section 3.36 provides the following examples of practices, which constitute exercising management responsibilities for the audited entity, in which such practices the Montgomery County Auditor engages:
“…setting policies and strategic direction for the audited entity”;
“directing and accepting responsibility for the actions of the audited entity’s employees in the performance of their routine, recurring duties”;
“reporting to those charged with governance on behalf of management”;
“accepting responsibility for designing, implementing, or maintaining internal control”; and
“providing services that are intended to be used as management’s primary basis for making decisions that are significant to the subject matter of the audit”.
Very clearly, the “Up-YOU-affer” doesn’t provide information from the auditor’s actual work as an auditor but instead is a clear attempt to justify expenditures for the County services which the subject of her internal audit hope to continue or expand.
Under Chapter 115 of the Texas Local Government Code, however, the County Auditor is a function of the Judicial Branch of our County government. County Auditor Phyllis Martin’s report, which is little more than an advertisement for which the taxpayers must pay, is an attempt by the County’s management to persuade their constituents to accept “the basis for making decisions that are significant to the subject matter of the audit.”
The PAFR, also known as the “Up-YOU-affer,” reflects Martin’s and her entire staff’s lack of independence from the subject of her audit.