“The Madame Gu of Portsmouth Politics.”
Charge-off Chicanery
In a letter
dated 16 July, 2012, Charles Barga of the state auditor’s regional office, in
Athens, notified Portsmouth city auditor Trent Williams that the
city’s latest state audit, for 2011, revealed that the city had
continued to violate statutes regulating accounting
practices. Barga reminded Williams that “Ohio Revised Code Section
5705.10H states that “monies paid into a fund must be used only for the
purposes for which such a fund has been established.” He also pointed out
that in Portsmouth “monies [are] being paid into funds and subsequently
used contrary to their restricted purposes.” Williams has not been obeying those
restrictions for some time. Through a procedure that he
puzzlingly calls “charge-offs,” Williams has been making what Barga calls “unallowable allocations,”
that is he has been taking money from one fund illegally to pay the expenses of another. Why?
Apparently in order to help pay the salaries and raises for the
mayor, the city auditor, the city solicitor, and other city
employees, including the fire and police department employees. As a
result, even during Portsmouth’s chronic periods of financial shortfalls,
the Portsmouth city auditor has used unallowable allocations to help
pay salaries and provide raises, using funds, that is, “contrary to their
restricted purposes.”
Williams
calls the transfers he makes “charge-offs.” He considers them allowable
but the state auditor considers at least some of them unallowable. I have
looked in vain in many dictionaries to find a definition of charge-off in
the sense that Williams uses that term. What hard copy and online dictionaries
do say is that a charge-off is an
uncollectable or bad debt. For example, Wikipedia defines charge-off as “the
declaration by a creditor (usually a credit card account) that an amount of
debt is unlikely to be collected.” Merriam-Webster traces this sense of
the word as far back as 1892. Why does Williams misuse the word? Instead of
calling an unaccountable allocation an unaccountable allocation, he calls it a “charge-off,”
perhaps to fool taxpayers. He appears to be misusing the word to try to cover up his
shady accounting practices. He may have fooled the public, but he has not
fooled the state auditor. In the city’s 23 July response to Barga’s 16 July
letter, which has Williams name at the bottom, the word “charge-off” is used thirteen
times, but Barga had not used it even once in his letter to the city. I am
assured by a Certified Public Accountant that “charge-off,” in the sense that
Williams uses it, is not a word that is part of the accounting lexicon, except when
it refers to an uncollectable debt.
Williams should stop using the word “charge-off” and say what he apparently means—namely “indirect costs” or what
Barga calls “allocation
adjustments.” Indirect costs or allocation adjustments are legal,
provided those who resort to them prove they are warranted, which too often,
according to Barga, is not the case in Williams’ bookkeeping. In
Williams’ bookkeeping, “charge-offs” are the means by which he
attempts to get around the restrictions placed upon the city’s spending
practices by Ohio Revised Code Section 5705.10H.
Crux of the Matter
The crux of
the matter, the point in dispute between the state auditor and Williams, is the
city’s abuse of “charge-offs.” The city has used funds designated for sewers,
water, street maintenance, etc. to pay salaries and benefits of other
departmental employees. The result is that now many of those funds are in
deficit positions and the infrastructure, for which the funds were supposed to
be used, are falling into disrepair.
City water, sewer, and sanitation fees have increased steadily over the years
to cover ever increasing salaries and benefits. In 2010, over $1,000,000 was
transferred from the water fund to cover salaries, overtime, and benefits of
fire department personnel. Only the salaries and benefits of the water and
sewer departments should be paid from the Water and Sewer Funds with a
reasonable charge by the General Fund for administrative expenses. The city has
used the charge-off methodology to justify the increase in water and sewer fees
for years by charging fire department salaries and benefits to the Water
Fund and then passing the cost to the residents in the form of higher water and
sewer fees.
The amount
of the charge-offs could not be justified by Williams, other than to say he has
always done it that way. The first sentence of the city’s letter (23 July
2012) in response to Barga states, “The
City of Portsmouth has used a system of payroll ‘charge-offs’
historically for as far back as at least 1993,” or about the time
Williams became auditor, although it may be that cooking the books actually
began when the notorious Tom Bihl was city
auditor. Regardless of when the illegal practice actually began, precedent
is the main argument the city uses to justify these “charge-offs.” Not
only in the first sentence, but on page two of the city’s reply, the
claim is made that “The City [in 2011] continued to use the same method
[charge-offs] consistent with the past many years . . .” In
the third and final page of the city’s letter, the claim is again made that “.
. . the City has used a consistent methodology over many years”
[emphases added]. In other words, the city has been doing it this way for so
long (and getting away with it!) so Williams should be granted some
slack and not be required to change his methods immediately. But doing
something wrong, unethical, or illegal for twenty or more years doesn’t make it right or mean
we have to put up with it any longer, does it?
Poisoning the Money Supply
In the New
York Times (8 Aug. 2012) there was a report on the trial
of Madame Gu Kailaithe, the wife of a prominent Chinese Communist official. She
was convicted of poisoning a British businessman associate. Because she
told the court there were extenuating circumstances—she claimed the
British businessman had made threats against her son—she is expected to be
spared the death penalty. The son is a student at Harvard’s John F.
Kennedy School of Government, so her claim seems specious. To my way of
thinking, Trent Williams is the Madame Gu of Portsmouth politics.
He is the poisonous auditor of Portsmouth’s finances. He feels he should
be granted a pardon and given more time to rectify any mistakes and balance the
books. Will the state auditor buy his argument?
First
Ward councilman Kevin Johnson recently circulated an email reminding voters
that the City ended Fiscal Year 2011 with a deficit of $1.4 million,
which the state auditor responded to by putting the city on Fiscal Watch. The
deficit projection for FY2012 is even more, $1,418,719. This is just the
General Fund and does not include deficits in other funds such as Water and
Sewer. At the beginning of 2012, the sewer fund had a $600,000 deficit, so, as
usual, crooked politicians in the Municipal Building city raised our
sewer fees 10% to help cover the deficit.
The state
auditor can place financially troubled municipalities in three fiscal
categories: Caution, Watch, and Emergency. Portsmouth was in Fiscal Caution
last year, and now, even after the city’s income taxes were increased it
has moved on to the next most serious condition—Fiscal Watch. If the state
auditor does not buy the convoluted excuses and veiled threat of
financial catastrophe in the city’s letter of 23 July, Portsmouth may
be declared in Fiscal Emergency. But there could be a silver lining if
that happens. If the city is placed in Fiscal Emergency, the State will take
over the finances of the city as it took over the finances of Scioto
County, where there reportedly has been financial improvement. If what’s good
for the goose is good for the gander, then what’s good for the county should be
good for the county seat, Portsmouth.
Confucius Says
I have compared Williams to Madame Gu. A saying attributed to Confucius is, “Never seek
illicit wealth.” Another could be, “Never resort to charge-off chicanery to
hoodwink taxpayers.”
