Montgomery County’s “financial portal” reveals problems from lack of full audits of County government books, harm of inept County Treasurer, Auditor

Montgomery County’s “financial portal” reveals problems from lack of full audits of County government books, harm of inept County Treasurer, Auditor

Image: An appropriate portrayal of the Montgomery County government’s financial accounting and reporting methodology, especially since the County government lacks a County Treasurer with a college degree and has a County Auditor who is not a CPA.

Conroe, January 25 – Montgomery County’s governmental “financial portal” reveals additional problems from the failure of the County government to comply with Generally Accepted Accounting Principles (GAAP) and to have any person – either internally or independently – do a full examination audit of the books and records of the government. The “financial portal” does have discrepancies from the County’s Consolidated Annual Financial Reports (CAFR) and from the Budget “actual expenditures” reports presented in the Official Budget of Montgomery County. Once again, it’s a failure of the County Treasurer Stephanne Davenport, the County Auditor Phyllis Martin, County Judge Craig Doyal, and the entire Montgomery County Commissioners Court to track the financial numbers and to insist that everything is correct.

In all fairness to Davenport, Martin, Doyal, and the Commissioners, none of them have the proper financial background to implement the appropriate financial controls for the Montgomery County government. Not even Martin, the County Auditor, is a Certified Public Accountant (CPA). Montgomery County is the largest county in Texas that does not have a CPA as its County Auditor. Davenport does not have a college degree. None of the members of the Commissioners Court have any background in accounting.

The Golden Hammer, Montgomery County’s leading daily newspaper, has criticized the County government for its failure to follow GAAP and for its failure ever to have full examination audits even if they’re internal as opposed to an outside independent auditor.

Fundamentally, the problem is that County Auditor Martin makes the bookkeeping entries for financial transactions in the County government, creates financial reports from her ledger, and then audits herself. The so-called “independent audit” firms don’t really audit the County government in the form of a full examination audit. Rather, those outside firms merely examine Martin’s reports to determine whether they comply with reporting requirements.

The financial reports of Montgomery County basically come in three forms. First, there is the CAFR, which Martin prepared with the approval of the outside audit firm. Second, there are the Official Budget presentation’s listing of “actual expenditures” and “actual revenues” received during a particular fiscal year. The CAFR and the Budget’s actual numbers should be identical.

On Thursday, January 18, 2018, however, both County Treasurer Stephanne Davenport and her opponent in the March 6, 2018, Republican Primary Election, Melanie Pryor Bush, who owns and manages a bookkeeping firm and has three college degrees, including a B.A. in Economics, discussed the County government’s “financial portal” which contains separate reports of the County’s Budget and expenditures. The “financial portal” is cumbersome to say the least. One may find it by going to the County Auditor’s Home Page at www.mctx.org, clicking on “Financial Transparency,” and then clicking on “Financial Transparency Portal.”

The “financial portal” comes from a different method of creation than the CAFR and the Budget, according to a source inside the County Treasurer’s Office who spoke to this newspaper on condition of anonymity for fear of reprisal from Davenport and her husband, corrupt local political boss Marc Davenport. The “financial portal” contains a calculation directly gleaned from the County’s check register. Davenport claimed that citizens could view the County’s check register on the “financial portal,” a false claim. Nevertheless, the “financial portal” does contain a summary of the check register contrary to the CAFR and the Budget, which contain summaries of County Auditor Martin’s bookkeeping.

The problem is that the numbers don’t match, although the differences are not particularly extreme. Here’s an example of the numbers from Fiscal Year 2016 (12 months ending September 30, 2016):

Compilation by The Golden Hammer, data from Montgomery County.

The County government’s actual expenditure numbers for the Montgomery County Historical Commission, a County Department, are all different from the CAFR to the Fiscal Year 2018 Budget report to the County’s “financial portal.” For the Library Department, the CAFR and Budget Actual numbers are identical, while they’re different in the “financial portal” presentation. Ironically, the County Auditor’s budget expenditures differ from the CAFT to the “financial portal” contained within the Auditor’s own home page on the County website.

The Golden Hammer has found over twelve hundred differences between the “financial portal” on the one hand and the CAFR for 2016 on the other hand. In other words, there are differences between the audited numbers and the reported numbers.

What do these numbers tell us?

Montgomery County remains starved for a true full examination audit in accordance with GAAP.

For the first time in the history of the State of Texas, on May 18, 2017, 435th District Court Judge Patty Maginnis issued an order appointing a Committee on Finance pursuant to Section 115.033 of the Texas Local Government Code and called for an independent audit of all Montgomery County books and records. Maginnis appointed a three person Committee on Finance consisting of Landon Estay, Brenda Webb, and James E. Wiggins, accountants who will work independently and receive total compensation of $15 each for their services (in accordance with the Texas statute enacted long ago when that seemed like a lot of money and when county finances were far simpler).

Sadly, the Committee on Finance has made little progress since Judge Maginnis appointed them.

Private Citizens

Judge Maginnis’ order arose after two private citizens – Bill O’Sullivan, who is a longtime political activist and Treasurer of the Texas Tea Party Patriots PAC, and Eric Yollick, a private citizen who is the Publisher of The Golden Hammer – testified to the Grand Jury of Montgomery County on February 9, 2017. O’Sullivan and Yollick testified to the Grand Jury after Yollick had presented a detailed written report concerning major financial problems involving the method of audits and budgeting in Montgomery County to the Board of District Judges on Friday, December 2, 2016.

O’Sullivan has complained about the failure of the Commissioners Court to budget tens of millions of dollars that the Commissioners Precincts spend out of “slush funds” in their accounts. Those funds are wholly outside of the County Budget approved in September of each year. The Commissioners Court then spends those funds improperly through secretive budget “amendments” allegedly based upon “emergencies…[which are] grave public necessities…” They never have identified what the “emergencies” are.

Yollick has complained about the failure of Montgomery County ever to conduct truly independent audits in accordance with the Generally Accepted Accounting Principles which the United States Government Accountability Office (“GAO”) has promulgated and approved as Accounting Standards by the Government Accounting Standards Board (“GASB”), a private accounting trade group. “The fundamental problem in Montgomery County is that the County Auditor acts as the chief budget officer, the bookkeeper, and the auditor. Basically then, she audits herself. To make matters worse, the supposedly ‘outside’ audits by firms, such as Weaver and Tidwell, are not full examination audits but instead merely test audits where they essentially take the County Auditor’s annual financial report, bless it, and slap an opinion at the front of it, while charging the County $60,000 for those ‘services.’”

“The fundamental problem in Montgomery County is that the County Auditor acts as the chief budget officer, the bookkeeper, and the auditor. Basically then, she audits herself. To make matters worse, the supposedly ‘outside’ audits by firms, such as Weaver and Tidwell, are not full examination audits but instead merely test audits where they essentially take the County Auditor’s annual financial report, bless it, and slap an opinion at the front of it, while charging the County $60,000 for those ‘services.’” – – Eric Yollick, Private Citizen

The Golden Hammer has provided extensive coverage about the lack of independent auditing and the failure to follow GASB accounting standards within the Montgomery County government. Please see “Rep. Keough Hails Passage of Major Transparency Legislation Bill To Require County Auditors To Follow Accounting Standards,” The Golden Hammer, April 25, 2017. (Much of Yollick’s report to the Board of District Judges is contained in that article as well as in some of Yollick’s Facebook posts that predated the birth of The Golden Hammer on January 14, 2017.) The article concerning GASB standards is reprinted below for the convenience of readers.

Yollick added, “Several months ago, I mentioned an ‘October Surprise’ in comments before the Commissioners Court. Seeking the appointment of a Committee on Finance to conduct an independent audit is the ‘October Surprise’ to which I referred. Obviously, the process took a bit longer than I had anticipated. I want to thank the wonderful citizens of the Montgomery County Grand Jury, District Attorney Brett Ligon, and 435th District Judge Patty Maginnis for their superb and hard work on this matter.”

In response to a press release which County Judge Craig Doyal issued yesterday afternoon saying that he intended to cooperate with the Committee on Finance, Yollick said, “I would hope Doyal cooperates as should the entire County government. We need an independent audit. I’m hopeful that they won’t find any irregularities, although my report to the Board of Judges found some serious problems, necessitating this independent audit.”

O’Sullivan added,

I became concerned about this situation back when “Barb” Sadler was Judge. In August, just before a new budget went into effect, “IT” presented an invoice for a “Software Update” that was about $1 Million followed by the all too frequently used, “Name a funding source”. It seemed extremely odd to me that an expense of that size would not be budgeted. “Barb” wisely asked if the execution of the order could be delayed a few weeks so that it could be part of the new budget. At that point, the Sales Representative for the Software Vendor stood up and advised that if we delayed the order, we would miss out on the “sale”. I have heard “sales forcing techniques” before and dismissed this effort. The item didn’t pass at the time. About ten minutes later the Auditor announced that they had “found” the money unspent from prior years. In other words, the taxpayers had sent the money in and if unspent, the politicians were keeping it even though not needed for budgetary purposes. Therefore the new Budget would be built from a higher base than was needed. Over time, I also found out that the various “Road and Bridge Funds” were routinely tapped for non-“Road & Bridge” needs. The importance of the restricted use of those funds cannot be overemphasized for not only our Maintenance and Operation (M&O) needs, but also for expanding Mobility without Bonding. I found out that a Grand Jury could force an audit and pursued that approach testifying in support of Eric’s request. Our Road efforts are about twenty years behind needs. Unless we accelerate the importance of Mobility and M&O upkeep, the attractiveness of Montgomery County for business development will recede further burdening homeowners. There’s lots more to this but the County is a $400 Million annual operation requiring a full audit according to GAAP and accounting for not only proper budgeting but properly spending that budget instead of “rat holing” it for a “Slush Fund”.

Judge Maginnis’ Order

Judge Maginnis’ Order, dated May 18, 2017, became public on Friday, May 26, 2017, around 7:45 p.m, when her Court Clerk circulated the Order to the entire Montgomery County Commissioners Court. The Order provides:

“On January 5, 2017, a Grand Jury was duly selected, empaneled, sworn, charged, and organized as such by the 435th District Court. During the Grand Jury term, Mr. Eric Yollick, a citizen of Montgomery County, Texas, requested of the Montgomery County District Attorney that he be allowed to make a presentation to the Grand Jury. Mr. Eric Yollick did make a presentation to the Grand Jury. On February 16, 2017, the Grand Jury issued a written report, pursuant to Texas Local Government Code…[Section] 115.033, that this Court appoint a finance committee to examine the financial condition of Montgomery County. The Grand Jury’s written request did not suggest individuals for the three person committee, leaving the appointments to the discretion of the judge. The written request was issued during the tax season, at a time when most statutorily qualified individuals [accountants] were exceptionally busy and would be continue to be busy through the month of March, April, and May. The Grand Jury requested to be held over for the purpose of allowing the Court to find statutorily qualified individuals willing to accept the appointed positions and for receipt of the statute-required written report from the finance committee.

“The Court made inquiry of no less than ten individuals to determine if they were qualified for appointment pursuant to the statute, including individuals that were suggested by Mr. Eric Yollick. The Court found that some of the individuals were not qualified according to the statute, and/or did not respond to the Court’s inquiry.

“In accordance with the written request of the Grand Jury and Texas Local Government Code…[Section] 115.033, the Court hereby appoints a finance committee to examine the financial condition of Montgomery County. The committee shall be composed of the following three individuals: Landon Estay, Brenda Webb, and James E. Wiggins, who are (1) citizens of Montgomery County, (2) of good moral character and intelligence, and (3) experienced accountants.

“The committee shall examine all of the books, accounts, reports, vouchers, and orders of the Commissioner’s Court relating to county finances that have not been examined and reported on by a previous committee. [AUTHOR’S NOTE: THERE HAS NEVER BEEN A PREVIOUS COMMITTEE.]

“The committee shall count all the money in the office of the county treasurer that belongs to the county and shall make other examination that it considers necessary and proper to determine the true condition of the county finances. If necessary, on application of the committee, the Court shall send for persons and evidence to help in the investigation.

“On the earliest practicable day after its appointment, the committee shall make a detailed written report to the 435th District Court. The report must:

  1. State whether the books and records required by law are correctly kept;
  2. Fully set out the financial condition of the county and the state of each officer’s account; and
  3. Specify any irregularity, omission, or wrongdoing that the committee discovers.

“The committee shall sign and swear to the report and file it in the office of the district clerk. The district clerk shall deliver a file-stamped copy of the written report to the Grand Jury as soon as practicable after the filing.

“Each member of the committee shall receive compensation for services performed at the rate of $3.00 per day. The compensation shall be paid for a period not to exceed five days and shall be paid from the county treasury upon certification by this Court that states the number of days the member served.

Signed: May 18, 2017.

/s/Honorable Patty Maginnis, 435th District Court”

Conclusion: lesson learned

The “financial portal” clearly shows different numbers from the CAFR and the Budget Actual report, because the “financial portal” merely compiles the County’s check register into the report. The CAFR and the Budget Actual come from the County Auditor’s so-called bookkeeping and financial reports.

Since there is no full examination audit of the County government’s finances, however, no one knows which numbers are accurate, or if any of them are accurate.

Some of the discrepancies between the 2016 CAFR and the “financial portal” are quite large, although many of those differences arise from different definitions for various County government accounts. The County Treasurer and the County Auditor obviously do not coordinate their accounting treatments sufficiently. They may have tried to do so, but lack the knowledge of a CPA in preparing and auditing the County’s financial books.

 

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