The city of Missoula will tap its rainy day fund and apply anticipated budget savings and projected revenues to correct a $3 million accounting error discovered during a recent review of the capital improvement program.
While the accounting mistake will impact some budgeting decisions going forward, action is needed now to fix the 2018 budget and close an oversight that likely dates back several years.
“During preparation for our annual audit for Fiscal Year 2017, we identified an error in accounting and budgeting,” said Leigh Griffing, the city’s finance director. “The issue began in 2013 and continued through 2017 with a small and final effect on the 2018 budget.”
Every year, Griffing said, the city creates an operating budget for more than 150 funds. Of those, five are at issue, including the general fund, the road district fund, the park district fund, sewer and the capital improvement fund, or CIP.
As the city begins its annual budgeting process, it plans for routine equipment purchases. Griffing said the CIP covers those purchases using debt through bank loans. Typically, those loans are then paid back to the CIP, which funded the purchase of the equipment.
However, the city realized that the loans were being directed to the four other funds, not the CIP.
“What happened was, the CIP fund bought those pieces of equipment but the bank loan proceeds didn’t get put back into the CIP fund,” Griffing said. “They were accounted for in the general fund, the road district, the park district and wastewater. This is an elusive and complicated error.”
Griffing said the error was reported to the audit firm and the accounting of funds was corrected by placing the loan proceeds back into the CIP. But that left the road district with a negative balance of $400,000 and the park district with a negative balance of $103,000.
The general fund’s starting balance now stands at $614,000.
Griffing expects that ending-fund balance to reach $1.5 million by the end of this fiscal year. She believes that can be achieved through applying new revenues, such as firefighting and charges from the water utility, as well as delayed hiring.
The balance in the other funds will also be addressed, Griffing said. The deficit in the park district will be eliminated this fiscal year, while the deficit in the road district will take several years to rebuild. Both efforts will likely see the delay in some equipment purchases.
Mayor John Engen said Wednesday that correcting the accounting error won’t raise taxes, and it will have little impact on the delivery of city services.
“Staff discovered the error during a reconciliation of our capital improvement program accounts in early November,” Engen said. “Since the issue was brought to my attention, we’ve been working to identify what happened, how to avoid such an error in the future, and the financial consequences of that error.”
Engen said the city must reallocate $3 million and will do so using its cash balance, or rainy day fund. Along with anticipated budget savings, new revenue from development and wildland firefighting, it should be enough to right the books.
However, Engen said, the issue will likely play a role in writing the Fiscal Year 2019 budget – a process that begins early next year.
“No money is missing – it was merely accounted for incorrectly,” Engen said. “It did not change the city’s cash balance, it simply changed the allocation among funds. No money was spent without budget authority and council approval.”