Northwest Indiana Discussion

http://www.in.gov/sboa/WebReports/B41655.pdf

2011 Hammond City Audit:

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE
AND OTHER MATTERS BASED ON AN AUDIT OF THE FINANCIAL STATEMENT
PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
TO: THE OFFICIALS OF THE CITY OF HAMMOND, LAKE COUNTY, INDIANA


A deficiency in internal control exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent or detect and
correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies
in internal control, such that there is a reasonable possibility that a material misstatement of the entity's
financial statement will not be prevented or detected and corrected on a timely basis. We consider the deficiencies described in the accompanying Schedule of Findings and Questioned Costs as items 2011-1,
2011-2, 2011-3, and 2011-4 to be material weaknesses.


Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City's financial statement is free of
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, noncompliance with which could have a direct and material effect on the
determination of financial statement amounts. However, providing an opinion on compliance with those
provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results
of our tests disclosed instances of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are described in the accompanying Schedule of Findings and
Questioned Costs as items 2011-1, 2011-2, and 2011-4.

2011 Hammond City Audit: http://www.in.gov/sboa/WebReports/B41655.pdf page 15
Defeasance of Bonds
In January 2012, $10,695,000 of the bonds commonly referred to as 'The River Park Bonds' were
defeased prior to their maturity date of 2018. The bonds were refinanced in order to take
advantage of lower overall interest rates. The Offering was rated as an 'A' by Standard and Poor's.

New Debt for Matching Federal Financial Assistance
In March 2012, an ordinance was passed by the Hammond Common Council which authorized the
borrowing of up to $17 million to be used as a local match to leverage $45 million in federal funds
for infrastructure improvements. The financing will be backed by gaming pledges of the Common
Council and the mayor for a term not to exceed six years.

Healthcare Coverage
Ordinance 9160 was passed by the Hammond Common Council in May 2012 in relation to
healthcare coverage and benefits for all City of Hammond employees. The new plan benchmarks
the healthcare insurance plan for the State of Indiana employees.


Loan to the Water Utility
In July 2012, the Civil City entered into an agreement with the Hammond Water Board authorizing
the temporary transfer of $500,000 to the Water Department at a rate of 0 percent for a period not
to exceed 12 months.

The question arise, why a need to borrow $$$ to the Water Department? The answer appears later in this thread, when it appears State Auditors question how the money appears elsewhere, in a line item created by one of McDermott's minions, then spent with out government body authorization. It wind up in some other fund to pay contractors as a $599,000 similar loan?


http://www.in.gov/sboa/WebReports/B41655.pdf page 16

Note 9. Restatements

For the year ended December 31, 2011, certain changes have been made to the financial state-
ment to more appropriately reflect the financial activity of the City as follows:
Cash and
Cash and Investments
Investments January 1, 2011
Fund January 1, 2011 Restatement As Restated Redevelopment Authority Debt Service: Cash and Investments placed on the books in the beginning of 01/01/11 $ 5,491,650 Reinstatement$ (5,491,650) End of year cash and investments available $ Zippo!!! Nada$

Port Authority Payroll Withholding Fund -83 83
The Redevelopment Authority Debt Service Fund accounted for funds used to retire debt. The
accumulated balances were placed in trust in December 2010 to defease the remaining debt
balance. This balance held in trust is no longer considered the property of the City. Thus, the
associated debt and cash and investment balances have been eliminated from the financial
statement presentation.

The Port Authority Payroll Withholding Fund cash and investment balance and related activity had
been inadvertently excluded from prior years' financial statement presentations.

http://www.in.gov/sboa/WebReports/B41655.pdf page 42

FINANCIAL STATEMENT
The Financial Statement initially prepared by the City Controller was inaccurate and incomplete. As the errors and omissions were discussed with the City Controller, he agreed to make the corrections to the financial statement as presented in this report.

Some cash and investment balances reported in the prior year financial statement as of December 31, 2010, did not agree to the cash and investment balances reported in the current year financial statement
as follows:

General Fund Reported Cash 12/31/2010 ($28,203730) Reported Cash January 1st, 2011 $(16,203,728) Difference: ($12,000,0001)

http://www.in.gov/sboa/WebReports/B41655.pdf pg 42

Fund
Transit $ ( 375,309)
Homelessness Prevention and Rapid Re-Housing Program (HPRP) (16,083)

The activity of funds held in a trust account was not reported in the financial statement because the
activity is not recorded in the City's ledgers.

This includes in ADDITION to an account whereby the Water Utility was repaying
a loan from the Redevelopment Commission. The loan repayments totaled $562,848 were deposited into a
an account, not the original account, but another unrelated account with no receipts for the deposit written.

The Chief Executive Operator (Would this be Tom's Pal Eddie?) at the Water Utility indicated that the loan originated in 2009 from the TIF Allocation Marina Expansion Fund.Officials could not explain why the repayments were not receipted back to the fund from which the loan originated.

Disbursements were made from the trust account to two contractors from these repayments totaling $559,936; bypassing the procedures established by state statute for disbursing governmental funds.



http://www.in.gov/sboa/WebReports/B41655.pdf page 43


The activity and cash balance of the payroll withholding fund for the Port Authority were excluded
from the financial statement, and the receipts and disbursements reported for the Water Utility were over-
stated by $1,607,093 and $628,889, respectively. Therefore, the cash and investment balance at year end
was overstated by $978,204.

Only one of the State Revolving Loans for the Sanitary District was reported in the Schedule of
Leases and Debt. The City omitted reporting debt totaling $20,564,900 for the Sanitary District.
Such errors and omissions should be detected by City officials at the time the financial statement is
prepared; however, the City has not established effective controls to allow for such detection. And how many times have we read this over the years? No changes in administration for understating $21.5 MILLION in debt!

At a minimum controls should include comparing prior year financial statement reported activities and balances to current year financial statement balances and activities. Such comparisons can bring to light unusual activity or
balances, or omissions of funds or debt. Additionally, officials should be comparing year end reconciled cash
and investment balances to the cash and investment balances being reported in the financial statement.
Such a comparison will also ensure all fund cash and investment balances are complete and accurate.
Additionally, the City has not established effective information and communication controls to allow for
complete and accurate financial statement reporting. Such information and communication controls should
include a system for establishing any new bank or trust accounts, so that the proper funds and accounts are
established in the City's financial records.

http://www.in.gov/sboa/WebReports/B41655.pdf page 43

Additionally, the City has not established effective information and communication controls to allow for
complete and accurate financial statement reporting. Such information and communication controls should
include a system for establishing any new bank or trust accounts, so that the proper funds and accounts are
established in the City's financial records.

Indiana Code 5-11-1-4 states:
"The state examiner shall require from every municipality and every state or local governmental
unit, entity, or instrumentality financial reports covering the full period of each fiscal year. These
reports shall be prepared, verified, and filed with the state examiner not later than sixty (60) days
after the close of each fiscal year. The reports must be filed electronically, in a manner
prescribed by the state examiner that is compatible with the technology employed by the political
subdivision."

Governmental units should have internal controls in effect which provide reasonable assurance
regarding the reliability of financial information and records, effectiveness and efficiency of operations, proper
execution of management's objectives, and compliance with laws and regulations. Among other things, segregation of duties, safeguarding controls over cash and all other assets and all forms of information pro-
cessing are necessary for proper internal control.

Controls over the receipting, disbursing, recording, and accounting for the financial activities are
necessary to avoid substantial risk of invalid transactions, inaccurate records and financial statements and
incorrect decision making. (Accounting and Uniform Compliance Guidelines Manual for Cities and Towns,
Chapter 7)

http://www.in.gov/sboa/WebReports/B41655.pdf page 45

OVERDRAWN CASH AND INVESTMENT BALANCES
The following funds had overdrawn cash and investment balances:
Cash and
Investments
Fund December 31, 2011
General (19,598,117) $
Motor Vehicle Highway (1,660,677)
Local Road and Street (162,905)
Parks and Recreation (850,776)
Centrex (78,100)
Diesel Fuel Tax (3,074)
College Bound (305,309)
Community and Economic Development (35,570)

page 46
Neighborhood Stabilization Program (NSP) (44,520)
Energy Efficiency and Conservation Block Grant (EECBG) ASAP Grant (30,610)
Gateways TIF (75,012)
Redevelopment Commission Operating (73,462)
Public Safety ( 236,679)
Water Hydrant Rental ( 117,762)
Local Seizure (8,188)
Community Development Block Grant (CDBG) ( 199,151)
Unemployment ( 409,860)
Henry Unit (Task Force) ( 458,609)
Lost Marsh Golf Course ( 244,270)
Court Costs Due County (13,098)
Payroll Withholdings (4,257)
Homeless Prevention and Rapid Re-Housing Program (HPRP) (16,083)
Transit ( 375,309)
Port Authority Payroll Withholding Fund (101)

http://www.in.gov/sboa/WebReports/B41655.pdf pages 46 & 47

TRUST FUND AT REDEVELOPMENT
In 2009, the Redevelopment Commission loaned the Water Utility $1,415,153. In 2011, the Water
Utility made two partial payments to the Redevelopment Commission as repayments on this loan totaling
$562,838.92. Based upon discussions with the Chief Executive Operations Officer at the Water Utility, the
Redevelopment Commission extended the loan from a TIF Fund, which has since been closed. The repayments
were not posted to any fund maintained in the records of the City. The repayments were wire transferred
to a Redevelopment Trust Account.

Officials could not explain who established the Trust Account or when it was established. The
Executive Director of Planning and Development believes this account was from an "old" bond issue –
construction fund. The money was subsequently used to make two payments to Rex Construction totaling
$545,383.08, and one payment to American Structure Point of $14,552.50. Officials indicated the payments
were for infrastructure improvements at the River Park Area. Claims or accounts payable vouchers were not
prepared.

Because only claims or accounts payable vouchers are included on claim dockets, there is not any
evidence to indicate these payments were approved by the Redevelopment Commission Board. Additionally,
invoices supporting the payments could not be provided for audit as it was indicated that the invoices would
have been submitted to the trustee with the request for payment.

An inquiry was made of the trust officer at the bank servicing the trust. Per the inquiry, the Hammond Redevelopment Commission – General Trust account was opened in June 2011. The trust officer indicated the Incumbency Certificate was signed by Phil Taillon who is the Executive Director of Planning and
Development, and the signature on the Depository Agreement is Jimmie Lambert, President of the
Redevelopment Commission.

http://www.in.gov/sboa/WebReports/B41655.pdf page 51

PAYROLL DEFICIENCIES
Salary Ordinance

Numerous discrepancies were noted between the amounts authorized as compensation to employees
per the salary ordinance and the actual compensation paid.

Two employees in the Controller's Office are responsible for determining the compensation amounts
provided to the Council for approval in the form of a Salary Ordinance. The compensation amounts are
based upon using prior year salary and wages and applying the percentage increases authorized by the
Council and/or union contracts.