City of Killeen, TX

City Council Visioning SessionCity of Killeen – Forensic AuditMarch 21, 2017

4828 Loop Central | Suite 1000 | Houston, Texas 77081PH: 713.968.1600 | FAX: 713.968.1601 | www.mcconnelljones.com

City of Killeen, TX

AgendaA. IntroductionsB. Engagement MilestonesC. Today’s ProcessD. Areas for Risk-Based Analysis

1. Capital Outlays2. Bond Money Usage3. Inter-Fund Transfers4. Pay Increases5. City/Owner Agreements6. Private Roadway Ownership7. Post-Recall Spending

E. Q&APAGE 2

City of Killeen, TX

Engagement Milestones

July 31, 2017

Draft Report

On-Site Interviews, Walk-Throughs,

Survey and Testing

April 10, 2017

Kick-Off Meeting

Presentation

April 10 – 28, 2017

April 10 – June 30, 2017

July 7, 2017

July 24, 2017

July 17, 2017

Audit Advisory Committee Briefing

(May 16, 2017)

Management Comments

Analysis & Benchmarking Final Report

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City of Killeen, TX

Discuss• RED FLAGS – Concern and details of past events.• RISKS – What you consider today’s risks for the

activities under audit.• FUTURE – Your vision for the future.

Today’s ProcessA look at the past with an eye towards the future.

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City of Killeen, TX

• Determine if fraud and/or gross mismanagement exists

• What were the reasons for this dramatic increase in spending?

• How were these capital projects financed (e.g., bond issuance, federal/state grants, general fund revenues/reserves)?

• Were there significant cost overruns (change orders due to renovations, etc.)?

Objectives

Capital OutlaysConduct an analysis of the City's significant capital projects during the period

Scope Period• FY2002 through FY2016

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City of Killeen, TX

Capital Outlays

1. 310 percent increase 20062. New counsel members

briefed on increase in 2016 (chart of get well plan)

Water improvement plan being funded with revenue bond could not negotiate with other sourcesWhat was counsel told to get the agreement & how fully briefed on ownership, Etc?Was there any discussion between mamangement and counsel members on long-term budget impact?

Authorization processCommunication processesFull disclosure of full costs of capital expenditures and impact on future budget

Communications, authorization process to ensure capital outlay funds are properly authorized before votingAll associated risks are clearly identified and communicated to counsel prior to making decisions

Your thoughts…Risks FutureRed Flags

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City of Killeen, TX

To determine: • Were bond funds spent legally and

for the purpose for which the bonds were approved [e.g., were idle funds used for other purposes]?

• Were funds remaining after project completion, if any, used appropriately and legally?

Objectives

Use of Bond MoneyReview the City's Major Bond Issuances

Scope Period• FY2002 through FY2017

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City of Killeen, TX

Use of Bond Money

What were counsel told? How did they make the decisions? Was verbiage changed?Monies from bond for Cunningham Rd never went to Cunningham roadHow did money get placed in incorrect fund? Was bond funds ever borrowed to be used elsewhere with anticipation to pay back?What, when and how was counsel informed.Inconsistent process, policies and procedures around bond usagePark money not spent, drew interest, how was interest money spent? (All bonds)Policy compliance – did we purchase bonds for projects when excess of reserve funds available?

Lacking mechanisms when being presented bond requests (no cover sheet to tell in advance of the bond history)Documentation of bond issuances Documentation trail of bond summaries and ability to have smooth leadership transitionMoney not spent for a period of time after issuance but costs incurred. How does actual outlay correlate to projected costs?Have payments exceed revenues?Refunding/refinancing bond issuesHow is bond money exhausted before project finishedBond ordinance and polices should be specific as to usage and sanctions

Adopt policies aligned with bond provisions and agreements and include punitive sanctions for non-complianceInclude time limitations for bond usage and commencing associated projectsBetter up-front planning and implementation plan for bond issuancesBetter communications and overview of all bonds in place when discussing bond issuanceComprehensive orientati8on process for new counsel members during ransition periodNeed to provide a continuity document

Need full capital improvement plan

Your thoughts…Risks FutureRed Flags

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City of Killeen, TX

To determine: • Were transfers from restricted funds

allowable and legal? • Were the transfers authorized? Are the

City's policies governing inter-fund transfers adequate to prevent misuse or misallocation of restricted funds?

Objectives

Inter-Fund TransfersReview the Significant Transfer of Funds Between the Enterprise and Special Revenue Funds

Scope Period• FY2010 through FY2017

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City of Killeen, TX

Inter-Fund Transfers

Vehicle replacement fund (now closed) Items placed into enterprise funds because that is where the money is at the timeRestricted funds to general fundInformal borrowing between funds with intention to pay back (no confirm plan)

Lack of transparency and clarity for inter-fund transfersCompliance with established polices – do we have the right policies?

Well designed comprehensive polices, procedures regarding inter-fund transfersFull disclosure prior to inter-fund transfers being madeAdvance communication to counsel in advance of $50k threshold

Your thoughts…Risks FutureRed Flags

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City of Killeen, TX

• 3 percent City-wide cost of living adjustment (COLA) implemented in June 2014

• 8 percent salary increase for civil service positions implemented in October 2014

Objectives

Pay IncreasesReview City’s Fiscal Planning for the Short-Term Funding and Long-Term Impact

Scope Period• FY2014 through FY2017

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City of Killeen, TX

Pay Increases

Pay increase started through pro-rate in prior year (first approved in June 2014 for immediate effect)Identify funding source for initial 6 months (approx $500k), and funding sources for following periods? Weere there fund transfers to cover the increaseWere any job classification and staff position levels changes during the period (job title, etc)Were salary adjustments paid in retro?

Changing pay grades with retro pay Policies related to pay grade changes and retroactive application of increasesEarmarking money for pay raises and used for new FTE positions

Present identified revenues sources for all contemplated pay raises and actions (short-term and long-term)Competative compensation plan that are funded

Your thoughts…Risks FutureRed Flags

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City of Killeen, TX

To determine:• The City's participation is in

keeping with best practices. (Sampling)

Objectives

City/Owner AgreementsReview City’s Fiscal Planning for the Short-Term Funding and Long-Term Impact

Scope Period• FY2002 through FY2016

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City of Killeen, TX

City/Owner Agreements

2013 water structure for $750k agreement oversizing infrastructure master plan (tied to ordinances) became bound to the agreementsWhat amount over agreements were paid over existing city/owner agreementsWere agreements applied evenly? Was there a pattern?

Change order impact on city/owner agreementsIncurring debt and refunded debt Associated with city/owner agreements associated with oversize projects

Volume increasing. Has the spirit changed? What is the cost impact?Are we loosing control with city/owned agreements?

Structure city/owner agreements so that they are mutually beneficial to th ecity and developer interests

Develop and follow policies and procedures governing city/owner agreements and ensure compliance

Your thoughts…Risks FutureRed Flags

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City of Killeen, TX

• Compare the City's private roadway ownership and City participation to best practices to assess the overall efficiency of the City's arrangements.

Objectives

Private Roadway OwnershipReview City Participation, if any, in Private Roadway Maintenance / Improvement

Scope Period• FY2002 through FY2016

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City of Killeen, TX

Highway 439, Watercrest, Chaparral road –at what point were we authorized o spend money (did we spend before we owned?)What are the monetary obligation for the roads?HOA’s private roads now want maintenance. What happens when HOA Roadway ownership and city participation in roadway maintenance and improvementWhat is city’s obligation when annexed areas do not include adoption of road

Determine city’s responsibility and liability for private road ownershipManagement process to analyze impact of accepting/taking roads

Process for accepting authorizing and managing private public roadway ownershipObligations for future roadwaysShaping and codifying policies for future

Complete, comprehensive, unbiased information to be provided when items being presented to Counsel for consideration and approval

Your thoughts…Risks FutureRed Flags

Private and Public Roadway Ownership

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City of Killeen, TX

To determine:• Did Council ratify expenditures

as required? • Is there any evidence of fraud or

abuse of funds during the period?

Objectives

Post-Recall SpendingReview Significant Expenditures During the Six-Month Period Without a Fully-Seated Council

Scope Period• November 2011 – May 2012

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City of Killeen, TX

Was a declaration of emergency standing to allow city manager to make any decision necessary to operate the city?Were expenditures presented and discussed retroactively, ratified and voted on? (day to f=day and inter-fund transfers, etc)

Proper expenditures made and follow processInexperienced counsel making decision on expenditures, consent agendas for expenditures swept into one vote for multiple items

Comprehensive contingency plan developed for catastrophic event reducing counsel members (making it non-functional counsel)Continuity book (to cover at least 6 months of operations)

Counsel input into weekly agenda items (volume)

Your thoughts…Risks FutureRed Flags

Post-Recall Spending

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City of Killeen, TX

Questions

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