Winter Springs city auditors: No financial emergency

The Florida Legislature’s Joint Legislative Audit Committee issued a letter Tuesday to state agencies to halt plans to withhold state money from Winter Springs. That loss of revenue would have started as soon as week’s end.

The letter, from JLAC Coordinator Kathryn DuBose, was sent to the Florida Department of Revenue and the Florida Department of Financial Services. 

“The City has now submitted the required financial reports,” DuBose wrote in a letter you can read here. “Please remove this municipality from the list of municipalities subject to further state action and do not withhold any funds from it.”

That means Winter Springs got its 2022 audited financial statements into state regulators late – but within the 30-day grace period that could have jeopardized state funds.

In some ways, the 2022 audited financial report is a Rorschach test for the city’s financial wellbeing: How flush or broke the city is has been interpreted differently based on who reads the report.

Mayor Kevin McCann pointed to the city’s unused cash funds of $61.8 million – including $37.7 million that can be spent on anything the commission wills – as proof that the city is “in financially great shape.” 

But State Sen. Jason Brodeur said he looks at the city’s $8.8 million in general fund reserves, and not the $92 million McCann told lawmakers the city had “cash-in-hand” in December and asks: “Where is all their money?” 

Commissioner Cade Resnick looked at the report and raised the specter of needing to raise taxes. “From my point, I’d rather do it slowly,” Resnick said. 

What’s in the report

The auditors were tasked with determining if the conditions of a financial emergency exist. Those conditions are spelled out in Florida Statute 218.503, and include things like not being able to make payroll or pension payments.

“External audit found that the city did not meet the conditions of financial emergency,” auditors wrote.

But that doesn’t mean the city is in the clear yet.

The Joint Legislative Audit Committee referred Winter Springs to the governor’s inspector general’s office. That office doesn’t just have audit authority: The office has subpoena powers and the backing of law enforcement. If the office deems that the city of Winter Springs is in a state of financial emergency, the governor could appoint a state board to oversee Winter Springs’s budget. 

Much of that could hinge on the results of the financial documents the city sent to Tallahassee, and McCann says that seems to still be up for interpretation.

“What we seem to understand and see as a reality, there are folks in Tallahassee who don’t see the same reality. I’m not exactly sure why,” said Winter Springs Mayor Kevin McCann. “Everything I see and all the ink on the paper and all the audits, I’ve yet to see anything in any type of financial crisis. All evidence points to the contrary.” 

Andrew Collins, adjunct professor at Florida State University, serves on the city of Opa-locka’s Financial Emergency Board. Opa-locka was embroiled in an FBI investigation and embezzlement crisis in 2016, and the governor appointed a board to oversee the city’s finances. 

Collins has no relationship to the city of Winter Springs or state officials conducting the investigation. Oviedo Community News asked him to read through the multiple audits that have been done. 

“Overall, nothing in the independent external audited financials for the year ending September 30, 2022, raises immediate concerns in my view, but there were several material weaknesses and significant deficiencies in internal controls which were identified in the audit which need to be addressed immediately,” Collins wrote.  

Specifically, auditors flagged what are called “material weaknesses” in four areas: Financial Close and Reporting, Bank Reconciliation, Capital Assets and Pooled Cash Management. These are weaknesses in the day-to-day process that could potentially mean fraud or mismanagement could go undetected. 

“Adopting a strong system of internal controls over financial operations is the best way to stay out of the headlines and avoid both perceived and real instances of fraud, waste, and abuse,” Collins wrote. “It’s no accident that this single category addresses the most serious concerns from both the Auditor General and the external audit firm.”        

Collins said that Winter Springs getting referred to the office of the inspector general was the right call. 

“In my view, it is appropriate for JLAC to refer the City of Winter Springs to [Executive Officer of the Governor] Chief Inspector General’s Office to determine if the city is in a state of financial emergency,” Collins wrote. “This is an important function of that office and one that provides a balanced review of the fact pattern to ascertain risk to Floridians going forward.”

From a political standpoint, the thing that triggered the investigation of Winter Springs was what McCann said to members of the JLAC committee in December – that Winter Springs had $92 million in reserves, which JLAC’s Sen. Jason Pizzo said concerned him after it appeared that may not be the correct figure.

McCann said he was referring to the city’s “holdings at Regions Bank,” not what the city had in reserves. In reality, Winter Springs has $8.8 million of reserves for its general fund, separate from its wastewater division. 

Sen. Brodeur was unhappy with that discrepancy, and made the motion a week later to send Winter Springs off to the state’s inspector general. In an interview with Oviedo Community News, Brodeur said he expects the inspector general’s team to visit Winter Springs. “My guess is they put it in the queue for March or April,” he said. 

He said from there, it’s two options: City officials were “just confused,” and better fill out their audits on time every year going forward, or the city needs an oversight board.

“These people really have no idea what they’re doing with their city. They’re either incompetent, or they’re hiding something,” Brodeur said. “Either way, that needs to be fixed. Get people out.”

One issue flagged by nearly every audit: High staff turnover. Winter Springs has been operating with an interim city manager for nearly a year. And after the top candidate for manager withdrew in November, the city is restarting the process of hiring a search firm to find a permanent city manager. 

“The reason for essentially all of [the findings] is the vacancies and turnover of personnel in the finance area,” said Ron Whitesides, the partner with Purvis, Gray & Co., to commissioners. “Some of these are gonna show up again next year … some of these will appear on the [2023] report as well.” 

One bright spot? The city has hired Holly Queen to serve as its new permanent finance director. 

Queen will be facing a June deadline to get the next audited financials done. 

By the numbers

• Governmentwide, Winter Springs had $41.8 million in revenue in 2022, from sources including property taxes, fees and grants. Expenses were $38.8 million, leaving a surplus of about $3 million.
• The assets and deferred outflows of the City of Winter Springs exceeded its liabilities and deferred inflows at the close of the most recent fiscal year by $142,390,321 (net position). Of this amount, $37,696,135 (unrestricted net position) may be used to meet the government’s ongoing obligations to citizens and creditors.
• As a result of the current year’s activities, the government’s total net position increased by $2,977,199 or 2.14% from the prior year.
• As of the close of the current fiscal year, the City of Winter Springs’ governmental funds (better known as the general fund) reported a combined ending fund balance of $42,549,942. About 21% of this total amount, $8,841,680, is available for spending at the government’s discretion (unassigned fund balance).
• At the end of the current fiscal year, the unassigned fund balance for the general fund was $9,073,964, or 55% of total general fund expenditures. That would last about six months.
• As a result of current year’s activities, the City of Winter Springs’ total debt decreased by $2,322,176 (7%).
  • SOURCE: Winter Springs audit for the year ending 2022.