Failure to complete, file 2022-23 audit blindsides Council
The City of Vero Beach failed to complete an audit of its financials for the fiscal year ending Sept. 30, 2023, and file a copy as required with the State of Florida on time in 2024, a mistake it still hasn’t rectified that will cost taxpayers at least a quarter of a million dollars, and which could potentially put $32 million of yet-to-be-awarded utility grants in jeopardy.
This unprecedented failure was kept from the public and not formally brought to the attention of the Vero Beach City Council by City Manager Monte Falls or Mayor John Cotugno for more than three months. (See accompanying columns on how this unfolded, and who knew what when.)
After the Florida Joint Legislative Auditing Committee voted on Feb. 10 to put 34 noncompliant municipalities around the state – most of them, except for Vero, tiny rural towns and cities – on 30-day notice that they’d lose access to most state funding starting in early April, Vero Beach 32963 attempted to contact City Manager Monte Falls.
When he finally returned the call eight days later with the city attorney on the line, Falls said he had been “flabbergasted” by the news and had promptly begun an inquiry.
He said that on Feb. 17, he had informed the City Council of the non-compliance problem and the impending cutoff of state funding. He also said he had asked for City Finance Director Steve Dionne’s resignation. Dionne could not be reached for comment.
If Vero had been able to get its FY 2022-23 audited financials completed and filed by this Friday, Feb. 28, the enforcement could have been avoided. But according to Falls, who said he planned to provide a full explanation of the debacle to the City Council this week, the earliest the work now could be completed would be mid-April.
Vero’s audited financials for FY 2022-23 should have come before the City Council to be reviewed and voted on a year ago, as councils have done like clockwork every March or April for decades. In fact, every year since 1983 until this past year, the City of Vero Beach has won accolades for its financial reporting.
National accounting firm Cherry Bekaert’s accountants were selected by the city back in 2012 to review Vero’s books and accounting processes annually, and produce the required reports, opinions and financial schedules the city staff needs to file each year with the State of Florida.
Cherry Bekaert has a whole Government and Public Sector division which does this type of work. The city pays the firm $38,500 per year for auditing services. The audit typically takes a few months to complete, with city finance staff providing access to bank statements, electronic records, personnel who handle cash, and anything the auditor needs to spot-check accounting accuracy.
The auditor does not file the financial paperwork for the city, like a CPA might file a tax return. Auditors only conduct the audit and produce the financial statements the city needs to file to comply with Florida Statutes.
It’s yet to be seen if Vero Beach will need to delay or cut expenses or projects from the city budget once the full extent of the losses from the failure to file are realized.
Monthly draws of Vero’s share of certain state sales taxes will be forfeited and returned to the state’s general fund on the 15th of the month until accountants finalize the audited financial statements, the Vero City Council accepts the results, and the city files the audited financials with the state.
According to the city’s published budget, Vero was set to receive $1.5 million in optional half-cent sales tax money this fiscal year. Assuming those funds are doled out in equal monthly draws, and Vero misses the April and May payments, that’s a quarter-million in lost revenue that will need to be cut from the city’s expenses, or drained from reserves.
Other types of funding will be withheld until the state receives and reviews the audit, notifies the Florida Department of Revenue and all relevant agencies managing grant funding process reimbursement requests.
If all that is not accomplished by the June 30th close of the State of Florida’s fiscal year, all that funding will likely be lost. Those other sources of funding total nearly $3 million for this fiscal year, based upon estimates in the city’s current budget.
Utilities Director Rob Bolton’s department could take the biggest hit from the enforcement measure, but like the city council members, Bolton was kept in the dark about the city’s failure to file the audited financials. Bolton found out from Vero Beach 32963 on Feb. 12.
The Utility Department is in the midst of numerous costly projects, including the construction of the city’s new sewer plant at the Vero Beach Regional Airport. At last check the price tag on that project is about $340 million, plus debt service. All told the new plant will cost close to three quarters of a billion dollars. State grant money is expected to cover tens of millions of dollars of the cost.
For grants already approved, Bolton can delay submitting deliverables and reimbursement requests until the city gets compliant (as long as it’s all nailed down before June 30), but the real risk lies in three grants Bolton has applied for but that have not yet been awarded.
The three pending grants total $32 million needed to build critical utility infrastructure to protect the lagoon, and to move forward with the Three Corners project.
A $15.2 million Water Quality Grant would help fund the Water Reclamation Facility, and a $1.8 million Indian River Lagoon Water Quality Grant would help pay for converting septic systems onto the expanded sanitary sewer system with Septic Tank Effluent Pump (STEP) systems. A $15 million Alternative Water Supply Grant would help pay for an additional deep well to send more drinking water supply to the city’s reverse osmosis system.
“The portals closed for these grants back in July-August 2024. The rankings for these should be done. The award notice is late. Last year it was before Christmas. I was told awards would be revealed in January but nothing has been awarded yet,” Bolton said.
Grant applications generally compete with proposals from all over the state for a limited pool of Florida Department of Environmental Protection funds. Top-ranked projects get the money. It’s unclear how the city’s non-compliance might impact the fate of grants that have not yet been awarded for funds not yet encumbered.
“The ranking for these projects are based on benefit to the environment. They do have a financial match (50:50) requirement as part of the ranking. I am not aware of a ranking component that would look at the status of our audit,” Bolton said. “These grants are construction grants so we have to front the money and then ask for a reimbursement.”
If those grants are lost, these important programs could be delayed until the next grant award cycle, or the costs that would have been covered by the state will be paid by Vero taxpayers, and by Vero Utilities ratepayers inside the city, in the Town of Indian River Shores and on the unincorporated South Barrier Island.