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Auditors, Williamsport mayor: River Valley Transit finances ‘alarming’

KAREN VIBERT-KENNEDY/Sun-Gazette Trade and Transit Center I in Williamsport.

A “shell game” may have taken place by prior management of River Valley Transit based in Williamsport and use of state and federal grants for non-transportation purchases may have occurred, based on findings by auditors who flagged many items in the fiscal books kept by prior bus service management.

A blistering draft audit by RKL, the firm hired by Mayor Derek Slaughter, was shared Tuesday with City Council’s finance committee. It covered July 1, 2019, to June 30, 2020, and included issuance of an “adverse opinion.”

While the audit was being done, River Valley Transit, the city and regional bus service, remained under a state investigation by Attorney General Josh Shapiro, a gubernatorial candidate, who Slaughter said had its criminal division agents looking into matters and reviewing finances and grant usage in prior years while Gabriel J. Campana was mayor and William E. Nichols Jr. was city transportation general manager and city finance director. Slaughter turned over financial irregularities in 2020 to District Attorney Ryan Gardner, who referred them to Shapiro’s office. Shapiro’s agents have not commented but recently visited a council meeting.

“Today’s presentation … though alarming, was not surprising,” Slaughter said.

“Unfortunately, these are the financial issues I have been dealing with and straightening out since I took over as mayor.

“The misallocation and misappropriation of taxpayer money by the previous administration is completely unacceptable,” he said.

Questions unanswered

“In our opinion we really can’t tell if the balances on the income statement and assets owned and liabilities owed really are appropriately related to River Valley Transit,” said Mark Zettlemoyer of the auditing firm. He was joined by colleagues Tim Kraft and Brad Steinweg.

“A lot of it relates to grant activity and the flow of money between the city component of it and flow of the money with some of the grantors,” Zettlemoyer said.

For example, auditors said they tested and sampled transactions, looked at supporting documentation to make sure they were in line with activities of the organizations and done in accordance with government auditing standards and tested using sample transactions for eligibility related to grant activities.

“Our opinion was adverse,” Zettlemoyer said. “We could not get sufficient comfort from the information we had and nature of transactions we saw in order to give clean financial statements.”

“Our opinion is the financial statements don’t fairly present the financial position of River Valley Transit or the bureau,” he said.

Balance sheet issues

Transit assets recorded by the respective authorities, grants receivable, capital assets and those type of things — “those are numbers we can’t get comfortable with,” Zettlemoyer said.

“We could not get comfortable what assets were for RVT versus what assets were related to the city and that reflects or impacts on net assets in financing leases and property under capital leases,” Zettlemoyer said.

Another area auditors noted difficulties with was pension allocation as far as cost allocation of pension contributions.

The pension contributions sometimes for RVT component showed inconsistency in transactions.

Another area of concern was on the liability end.

For example, when the state Department of Transportation (PennDOT) would provide a grant of $4 million to $5 million, those funds are recorded as a liability until they are used for specific grant purposes.

“If they (PennDOT) give a $4 million grant and it is for funding public bus service, those grants are deemed earned and get recorded as revenue,” the auditors stated.

However, the auditors said, there were a number of expenses that were not River Valley Transit-related expenses.

“They were costs related to other entities paid for these funds and were not used and are unearned revenues,” the firm stated. “The state could call those funds back if they choose to.”

Moreover, occurrences in previous years were found where the funds from the state were used for things other than public transportation, the auditors asserted.

Unearned revenue

One of the concerns auditors had challenges with were in unearned revenue. That is when funds are used for a particular service and the service was not provided.

For example, when and if $10,000 is given by an organization to run a special bus route, those are unearned if not provided services yet. There were a lot of unearned revenue that should not be in that category, according to the audit.

There were items that River Valley Transit may have provided and the services were “hung up in unearned revenue and pulled into operations whenever needed without looking at the substance of the transactions,” auditors said.

Auditors acknowledged difficulty sorting out long-term debt. For River Valley Transit’s debt to be nearly $11 million “is highly unusual,” the draft audit stated.

“What appears is the city was using River Valley Transit to fund local projects, whether they be to build downtown buildings, a green space or use on streetscape, and then River Valley Transit was using its grant funds to pay for the debt service related to those, the auditors said.

The grant money was supposed to be for public transit and a lot of it was to clear debt between entities such as Williamsport Parking Authority under intermunicipal agreements, the auditors said.

“We looked at debt payments by the authority, transferred over to the authority, and were unable to reconcile what was paid out by River Valley Transit and what was recognized as a transfer on the parking authority,” the auditors said.

The auditors said that might be related to the accounting systems but these would be transferred into numerous accounts in the general ledger.

“We are essentially doing every single thing differently that we could do,” Slaughter said of the adverse audit report.

“We are working with all of the agencies,” he said, adding technical assistance has been offered, financial software packages and consulting is occurring regularly with PennDOT and the Federal Transit Administration.

The draft audit was reviewed Tuesday by the finance committee and forwarded with a positive recommendation for council to discuss on Thursday.

Corrective action

Today, the interim finance director Joseph Pawlak is working with the auditing firm and trying to assemble correct information on those debt service payments between River Valley Transit and the parking authority. Loose ends are being tied up such as the amount of local share to match the state annual operational grants and management oversight.

“This can’t happen again,” Councilwoman Liz Miele, committee chairwoman, said adding she supported the establishment of an ad hoc committee specifically to review River Valley Transit.

“I think it is becoming clear that even council working with the administration does not have the depth of knowledge to fix everything that happened and the reasons it did,” Council President Randall J. Allison said.

Auditors and transportation people need to sit down at the table and help the city to reconstruct what happened so — “as Liz said — it does not happen again,” Allison said.

Council and the administration agreed that a need exists to establish an oversight committee on River Valley Transit.

Slaughter, who asked for the audit to be done when Baker Tilly dislodged from the city as its auditor, said the administration continues to do every single thing to fix the situation. He said the city is accepting advice and will be implementing better accounting measures and using new technology software to track finances.

Adam Winder, River Valley Transit general manager, said he and others are cooperating and working with PennDOT, Federal Transit Administration and the auditors to clear up any inconsistencies moving forward.

Mayor’s reaction

“Today’s audit is the first step to give me a baseline accounting of our financials.

The city is waiting for the 2020-21 River Valley Transit audit and 2019 and 2020 city audits which are being completed.

“As we move into the upcoming budget sessions, we need an accurate accounting of our finances to produce to a budget,” he said.

Budgets have to be based on actual facts and not guesses, which these audits will provide, he said.

“Once the audits are completed, I will have the baseline financial data needed to properly govern, Slaughter said.

“Since taking office, I have cleaned up and continue to clean up finances, contracts and other city obligations.

“The taxpayers deserve an administration that is a responsible, ethical steward of their tax dollars.

“I assure you that I have been and will continue to be fully committed to getting the city’s financial house in order.”

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