Auditor finds 'severe deficiency,' or potential for abuse, in Meridian payroll

Whitney Downard / The Meridian Star

Paul Breazeale, an accountant from Jackson, presents an audit of the City of Meridian's finances in Fiscal Year 2018. 

Auditors for the City of Meridian reported a "severe deficiency" in the city's payroll, outlining potential for abuse of the outdated system that relies on manual entry.

"Your payroll, where most of your money is, needs some attention... you've got a lot of things in payroll that need fixing," Paul Breazeale told the Meridian City Council during an audit presentation Tuesday. "We rarely have a severe deficiency. We can't say it any nicer... it's awful tough for me as your auditor to say that."

Breazeale, of Jackson-based accounting firm Breazeale, Saunders & O'Neil, Ltd., estimated his firm had spent approximately 18 years auditing the City of Meridian and presented an analysis of its findings and trends in finances for Fiscal Year 2018.

The 199-page report recommended that the city invest in new software to oversee its payroll system.

"They need to modernize it and get some better tools," Breazeale said. "Anything that increases their controls over payroll."

Attempts to buy software from ADP to modernize the payroll system in the last month have been tabled in city council meetings but Mayor Percy Bland said it needed to change.

"We have a payroll system that needs to be modified. Period. We have a payroll system that needs to modernized. Period," Bland said.

Bland said that three employees spent the bulk of payroll week doing data entry on payroll items when software could alleviate that burden.

"On Tuesdays and Wednesdays (of payroll week) they basically spend the whole day entering those records," Bland said.

Weston Lindemann, of Ward 5, highlighted a finding he found particularly troubling: the potential for fictitious employees to abuse the system.

"There was a concern about the term fictitious employees (that) I thought was a bit alarming," Lindemann said. "We talk about this ADP technology that we're going to bring in to allow the council to closely monitor the payroll so that everything is electronic, we can see if there are fluctuations in overtime pay and things like that."

The State Auditor's Office has an ongoing investigation into the time sheets of some employees, including three with the Meridian Police Department.

"I think having a better ability to analyze that is going to be key, at least from the council's perspective," Lindemann said. "I think it's long overdue to have a system where the council may be aware of what's going on and there can be no reason that a department head or supervisor can claim to be unaware if someone is fraudulently filling out their time sheets and things like that. So, aside from the current ongoing investigations, hopefully we wouldn't have those problems in the future."

While the council managed to decrease spending in the last year, Breazeale said that revenues stayed consistent and the council needed to save more money for unexpected emergencies since it had enough in the balance to cover just over one month of expenses.

"Y'all were trending upward in expenses and now you're trending down," Breazeale said. "You're about one hurricane away so you've got to build that back up... y’all have done the things you need to do. You've cut expenses. But you need to cut more to build that back up."

Breazeale said the city hadn't significantly raised the millage rate in a decade, meaning its revenue into the general fund remained flat.

(Water, sewage and garbage rates, which have increased, go into the enterprise fund, not the general fund.)

Last year, Bland pushed the council to raise the millage rate, noting that expenses had increased for other goods and services since the council had last increased the millage.

"Last year, we spent over $400,000 on that (April 14, 2018) storm that was unforeseen," Bland said. "We can't predict the future, but we do know that there's going to be a bad storm next year.... we have got to make some adjustments in how we do business."

Bland said that 45,000 visitors came to the city for the new Mississippi Arts + Entertainment Experience, bringing in sales tax revenue, which would hopefully continue with the addition of the Mississippi Children's Museum in Meridian.

"We haven't had property taxes increase in the last 10 years and we've got to look hard at that," Bland said. "Hattiesburg and Jackson both have their tax rates higher... we've got to make some tough decisions to compete."

Lindemann pushed back, saying he believed that more cuts could be made and that spending had outpaced the revenue increases.

"We should strive to be more like a city like Tupelo, where their tax rate is much lower," Lindemann said. "In actuality, we can cut taxes, lower our spending over a period of time and still maintain consistent services because the amount of excess we have right now is wasted money."

While Breazeale had an optimistic outlook on the city's finances, Lindemann cautioned that the audit didn't cover perceived performance issues.

"If we did a performance audit and looked at how much is being wasted and lost productivity, that would shed new light on all of these numbers," Lindemann said. "While we have increases in payroll costs we're seeing less services for them. So I think when you take a closer look at the way the city is actually functioning, we're not really in good shape."

Last year, Breazeale's audit highlighted some concerns: overtime pay, the Lakeview Golf Course and concessions. Spending decreased in all three categories, according to Breazeale, but the city still lost money on the golf course, concessions and Union Station. Less accounts receivable in the water and sewer department were 90 days past due, decreasing from 39 percent last year to 30 percent this audit.

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