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LOCKPORT – After a state audit charged the City of Lockport with keeping such poor financial records that the Common Council didn’t realize the city was running a deep deficit, officials are promising to do better in 2014.

“We’re going to dedicate ourselves to having an accurate budget going forward,” said Alderman Kenneth M. Genewick, R-5th Ward, the Council’s Finance Committee chairman.

He said department heads are now required to meet with the Council monthly to review their spending, “to make sure all departments are monitored closely.”

“We’re looking at a three-to-five-year plan on how to get out of this,” Treasurer Michael E. White said.

Inaccurate reporting of the city’s financial position produced an estimated total deficit of more than $2.35 million for 2013, the State Comptroller’s Office reported. All four divisions of the city budget – general fund, water, sewer and refuse – were expected to run in the red.

That’s not the way the Council budgeted it for 2013, but the budget was based on false numbers, the auditors said.

“These operating deficits occurred because city officials did not include realistic estimates in the 2013 adopted budget,” the auditors wrote. “In addition, the city’s Dec. 31, 2012, financial position was misstated in its financial statements, which provided city officials with an inaccurate representation of the city’s financial condition.”

The Council was given figures that overstated the city’s assets and understated its liabilities, the Comptroller’s Office said.

“That’s a question for the treasurer,” Mayor Michael W. Tucker said. “The Council has to believe the numbers they get are right.”

Alderman Patrick W. Schrader, D-4th Ward, said the Council learned that all the city fund balances were combined in one bank account rather than separate ones, making it harder to ascertain the true position of each of the four funds.

“I don’t think we knew it until John Schiavone (of Lumsden & McCormick) came in,” Tucker said.

As a result of the projected deficits, three of the four city funds are overdrawn, the audit said. Only the sewer fund still has surplus money on hand.

The city hired the Lumsden & McCormick accounting firm in early 2013 to prepare the 2014 budget and try to clean up the mess.

The city’s response to the state audit noted that a veteran payroll clerk retired, and at the same time, a long-term illness kept the primary accounting position vacant for almost two years, while the Council cut a support position out of the budget. Also, Richard P. Mullaney, the longtime budget director, retired at the end of 2011.

At the same time, the city privatized garbage collection and instituted user fees, billed by the Treasurer’s Office.

As a result, the city response said, the city’s records were not in proper order, and the newcomers couldn’t cope with the demands placed on them.

“This did not happen overnight,” White said. “It was related to issues where we did not have the proper personnel in place. We went two years without a chief accountant or auditor.”

White provided the Council with a 2012 report that showed the general fund had an unassigned surplus of $37,308. Actually, state auditors concluded, the general fund was really $1.15 million in the hole as of the end of 2012.

The auditors complained that White’s office still hadn’t finished its 2012 journal entries by the time the auditors left City Hall in October.

“The fund balance the last couple of years was light,” White said. “(The Council) appropriated most of it to keep taxes down.”

He said the 2013 budget assumed that the city would settle new contracts with its five unions to accomplished savings on benefits. That didn’t happen. After the 2014 budget was adopted, the police union approved a new deal with the city, but the other four unions still have not.

In December 2012, the report says, the city made illegal transfers of $2.3 million, the proceeds of what was supposed to be a short-term borrowing for major projects, to the general fund so the city could continue to operate. The money was paid back to the capital projects fund in January 2013, once the new year’s tax revenue came in, but state auditors said the law says borrowed money may be used only for the stated purpose.

The city issued a $2.7 million revenue anticipation note in October, borrowing against expected water and sewer bill collections to deal with a cash flow crunch. The city’s response to the state audit indicated it will take three to five years to pay this off.

When final 2013 figures come in, the city is expected to have overspent the budgeted amounts for police overtime by $267,000 and Fire Department overtime by $246,000, the auditors concluded.

That was the primary reason the Council voted to lay off eight firefighters and four policemen in its 2014 budget, while raising taxes 1.7 percent.

As it happened, an early-retirement incentive produced retirements by four police officers, thus avoiding layoffs, and one firefighter, reducing the number of cuts in that department to seven.

Ironically, the city blamed a previous early-retirement incentive, in 2010, for the problems with financial record-keeping, leading to some of the departures in White’s office.

White said he has a part-time consultant in mind to help the financial analysis. He wouldn’t name the person, but he said he proposed the name to state auditors, who reacted positively.

Genewick said, “It’s something that hasn’t been presented to the Council. We’ll have to consider it.”

White said the 2014 budget “was formulated accurately for the first time in many, many years. John Schiavone did a great job.”

email: tprohaska@buffnews.com