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Important Notice and Disclaimer: The following information is provided from documents that are available as Public Record from various sources and is provided for the convenience of the citizens of Spring Hill. The City of Spring Hill does not make any representation as to the conclusions that may be drawn from making these documents available for public inspection. All attempts have been made to insure that the information provided is accurate. INVESTIGATIVE AUDIT REPORTCITY OF SPRING HILL MAY 1,2007, THROUGH OCTOBER 31,2007 State of TennesseeComptroller of the TreasuryDepartment of Audit Division of Municipal AuditAugust 26, 2008 Click Here to Download the Complete Audit 
Contents Letters of Introduction Executive Summary Background Information Findings and Recommendations Letters of Introduction
Executive Summary
Investigative Audit of Selected Recordsof the City of Spring HillFor The Period May 1,2007, Through October 31,2007
Initial Communication From Alderman Jonathan Duda to Tim Underwood
Findings and Recommendations
Finding 2: Failure to properly segregate and oversee expenditures of adequate facilities tax Supporting Materials: Private Acts 1988, Chapter No. 173 (HB 2436) of the Tennessee General Assembly Spring Hill Municipal Code Title 5 Resolution 06-36.pdf Resolution 97-34.pdf YE 2003 Audited Financial Report.PDF YE 2004 Audited Financial Report.PDF YE 2005 Audited Financial Report.PDF YE 2006 Audited Financial Report.PDF Ordinance 06-35.pdf Recommendation: To comply with the requirements of the authorizing private act and with the enacting ordinance, the board should prohibit the commingling of money received from any other source with adequate facilities tax collections. The board should adopt a Capital Improvements Plan that includes all of the provisions required by the Municipal Code and by Private Acts 1988, Chapter No. 173 (HB 2436) of the Tennessee General Assembly. All expenditures of adequate facilities tax must be restricted to the prioritized projects that comprise the Capital Improvements Plan. The board should monitor the city's changing needs and routinely update the Capital Improvements Plan. City's Response (except Alderman Mitchell): We concur. The Board of Mayor and Aldermen for the City of Spring Hill is currently updating the current Capital Improvements Plan for a five-year period, previously adopted as Resolution 06-36 to ensure that the required provisions as required by law, are met. Alderman Mitchell's Response: I do not concur with Finding 2. Statements made by the state clearly show that the city did in fact segregate adequate facilities tax (AFT) from other revenue streams. The fact that the state was able to identify the total amount of AFT funds collected form 2003-2006 is in itself an indication of the segregation of funds. The issue of supplementing the AFT account from other funds does not invalidate the segregation of the AFT. Had AFT funds themselves been deposited in other accounts or AFT funds moved to other accounts, then the claim of improper segregation could be made. The bottom line here is that the AFT funds were in fact kept in a separate account and were in fact accounted for independent of other revenue streams. Therefore, they were segregated as required by code. The second statement that AFT funds were improperly spent is not accurate either. The only example given by the state for inappropriate use was the purchase of "worn-out" police vehicles. Around 2003, the board voted to change city policy as it pertained to police vehicles. Prior to 2003, all police vehicles were used by three different shifts during a single 24-hour period. The board approved a new vehicle policy where each policeman on the force was assigned his or her own personal vehicle. Vehicles were no longer shared across shifts. As the city grew in population and geographical size, the police force in turn grew in staff by approximately three per year (one per shift). This growth in police staff corresponded to growth in the city's fleet of police vehicles. The state admits that organic growth of the fleet meets the test for appropriate use of AFT funds. Since the state did not provide any additional examples of disbursement for ongoing operations, I contend that this finding is not valid. Lastly, the lack of a current Capital Improvements Plan (CIP) is immaterial to this finding. The state does NOT claim that the CIP of 1997 was fully realized. The state only claims that it was not renewed in 2002. The lack of renewal would not in itself eliminate the validity of the plan unless all items on the plan had been accomplished leaving the city with zero items on its CIP. I contend that the natural intent of the Capital Improvements Plan would still be in effect until all the items had either been completed or removed from the plan. Furthermore, the state claims that the CIP of 1997 contained "long-range" items that were anticipated needs for the next 20 years. Therefore, I do not concur with the state's contention that Spring Hill did not have a CIP for the years 2003-2006. Auditor's Rebuttal to Alderman Mitchell's Response: Prior to preparing this report, auditors interviewed eight of the nine members of the board of mayor and aldermen, including Mr. Mitchell. The board members' responses indicated that, as a body, they were unaware of certain requirements pertaining to adequate facilities taxes (AFT) set forth in the Spring Hill Municipal Code, including the restriction limiting AFT expenditures to items on the Capital Improvements Plan. On more than one occasion, the City of Spring Hill spent AFT for projects and purchases that were not part of a Capital Improvements Plan. For example, in August 2007 the board approved Resolution 07-36, to replace eight police cars (three annual payments in excess of $100,000 each); the 2006 Capital Improvements Plan did not include ANY allocation for the police department. Also, the 2006 audited financial statements disclosed over $1.3 million of AFT spent on the library; the Capital Improvements Plan had NO allocation for the library. We restate that the "Impact Fees" (AFT) account had a ($614,929) DEFICIT balance at the end of fiscal year 2006. The board's approval of the library project is documented by Resolution 05-17. Finding 2 included no opinion whatsoever about the adequacy of the 1997 Capital Improvements Plan. No such opinion should be implied by the reader. In actuality, the 1997 plan contained many of the same deficiencies cited pertinent to the 2006 plan. The 1997 plan (Resolution 97-34) does not indicate that it considered the city's 20-year requirements. The Division of Municipal Audit did not express an opinion on the "realization" of the 1997 Capital Improvements Plan. No such opinion should be implied. Monitoring the progress of completion of a Capital Improvements Plan is the responsibility of management; we found no evidence that Spring Hill officials and employees have attempted to do this. The existence of an outdated, though incomplete, Capital Improvements Plan in no way waives the requirements for spending AFT required by the Municipal Code and by Private Act. Regarding the question of AFT expenditures funding ongoing operations, specifically the matter of increasing the size of the city's fleet of police cars versus replacing vehicles already in service, on at least four occasions since 2003 the board has approved resolutions that explicitly used the term "replacement vehicles." Between July 1, 2005, and October 31, 2007, every GMAC payment came from AFT. In addition, every disbursement of greater than $10,000 to Chevrolet dealers over the same period consisted of AFT. In addition to police cars, the city's accounting records indicate that AFT paid the entire cost of leased 911 communication equipment between July 1, 2005, and September 30, 2007. Each monthly lease payment was greater than $1,000; most exceeded $3,000. There was no allocation of the expense between the portion reasonably related to growth and the amount resulting from ongoing operations, relative amounts that would have been determined by management. (Auditor's Note: According to the Spring Hill business office, the city no longer uses AFT for these lease payments.) Finally, the Municipal Code dictates that AFT must be "deposited in a separate account." Apparently, the 1994 board of mayor and aldermen intended to have a more stringent segregation of funds than what is achieved by making separate entries for AFT in the accounting records. As stated in Finding 1, the board never authorized transfers from utility accounts to AFT. Mr. Mitchell has characterized the transfers as supplementing AFT. However, transferring utility money to the AFT account, then issuing a single payment from the AFT account, is inconsistent with observed office procedures. The business office employees routinely allocated payments for a single billing statement between multiple bank accounts. The city issued payments for electricity, telephones, and engineering services partially from the utilities checking account and partially from the general fund (this is not intended to be a complete list of payments issued from more than one checking account). We reiterate our finding that Spring Hill employees and officials failed to properly segregate and oversee expenditures of Adequate Facilities Tax, based on criteria set forth by a Private Act of the Tennessee General Assembly and by ordinances and resolutions approved by the Board of Mayor and Aldermen of Spring Hill. Finding 3: Multiple instances of ignored bid requirements-no documentation of allowable exceptions Supporting Materials: Link to Tennessee Code Annotated 6-56-3  Resolution 06-68.pdf (Original Authorization for Winchester Community Building) Resolution 07-50.pdf (Authorization for Additional Funding for Winchester Community Building) Link to Tennessee Code Annotated 62-6-103 Invoice Cherry Grove Sewer Line 05-16-2007.pdf Resolution 96-08.pdf Resolution 04-25.pdf (Original Authorization for Miles Johnson Parkway) Resolution 06-09.pdf (Authorization for McCutcheon Creek Sewer Phase 1) Bid McCutcheon Creek Sewer Phase 1.pdf Resolution 06-54.pdf (Authorization for McCutcheon Creek Sewer Phase 2) Bid McCutcheon Creek Sewer Phase 2.pdf Recommendation: To comply with applicable purchasing law and to ensure that the city receives the highest quality goods and services at the lowest price, the board should require compliance with the Municipal Purchasing Law of 1983. This should include adhering to requirements for competitive bidding. City's Response: We concur. The Board of Mayor and Aldermen of the City of Spring Hill will be presented a Purchasing Policy Ordinance given to the Budget and Finance Advisory Committee, prepared by the city administrator, finance director, and city recorder, and brought before the full board of mayor and aldermen for approval, which will include policies for competitive bidding. Finding 4: No professional services contracts on file for city attorney and engineer Supporting Materials: Contract Dempsey and Spring Hill re Wastewater Treatment Plant 10-18-2004.pdf (Engineer Contract Dated 10-18-2004) Contract Dempsey 09-11-2006.pdf (Engineer Contract Dated 09-11-2006) Link to Tennessee Code Annotated 12-4-106 Recommendation: To ensure that the city receives needed services at agreed upon prices and to comply with applicable state law, all professional services contracts should be put in writing and approved by the full board of mayor and aldermen. Copies of all such contracts are required elements of the official minutes of the board's meetings. City's Response: We concur. As allowed by law, the Board of Mayor and Aldermen of the City of Spring Hill has reviewed formal contracts for the city attorney and city engineer and it is anticipated that the board of mayor and aldermen will accept and executive these professional services contracts on August 18, 2008. Finding 5: Inadequate separation of duties Recommendation: To decrease the risk of undetected errors and irregularities, management should review employees' responsibilities to ensure that no employee has control over a complete transaction. City's Response: We concur. As allowed by law, management will review employee responsibilities as to separation of duties and will also evaluate the need for a new employee to be dedicated to accepting payments only. Other employees will be designated to preparing deposits and recording collections. Finding 6: No purchasing policy Supporting Materials: Link to Tennessee Code Annotated 6-56-307 Recommendation: To ensure that the City of Spring Hill purchases items at the best price and in the most advantageous manner, the board of mayor and aldermen should adopt and enforce compliance with a comprehensive written purchasing policy. Adherence to a qualifying policy can also allow management to determine that each purchase serves a valid municipal purpose and that funds are available and have been budgeted BEFORE the city has been committed to disbursing city funds. City's Response: We concur. The Board of Mayor and Aldermen of the City of Spring Hill will be presented a purchasing policy ordinance given to the Budget and Finance Advisory Committee, prepared by the city administrator, finance director, and city recorder, and brought before the full board of mayor and aldermen for approval, which will includes policies for competitive bidding. Finding 7: City library bank account not accounted for in city records Supporting Materials: Resolution 01-23.pdf Recommendation: To ensure that deposits to and disbursements from accounts listed as belonging to the city are consistently subjected to the internal control requirements of the manual, the board of mayor and aldermen should require all such accounts to be included as part of the city's financial records. City's Response: We concur. As allowed by law, the city recorder will take full responsibility for the Library Memorial Fund bank account. The city will operate the library system as a component of the municipal government. Finding 8: Checks issued with a single signature Recommendation: To decrease the risk of unauthorized disbursements, municipal officials should require that every issued check be signed by two of the people which officials have authorized on the bank signature card. City's Response: We concur. As allowed by law, all checks for payments or payroll will have two authorized signatures. Finding 9: Inadequate support for disbursements Recommendation: To document that each disbursement was for a valid municipal purpose, officials should ensure that adequate supporting documents are maintained in the municipality's files in accordance with the Internal Control and Compliance Manual for Tennessee Municipalities. Before signing a check, authorized individuals should review adequate supporting documentation to determine that the disbursement is for a valid municipal purpose and that the charge has not previously been paid. City's Response: We concur. As allowed by law, the city recorder will ensure that supporting documents for all purchases will be a part of each check to be signed by appropriate official,beginning immediately. Finding 10: Inadequate control over fixed assets Recommendation: To better control and account for individual fixed assets and high-risk, moveable property, the recorder should maintain complete, updated records of those items in accordance with the Internal Control and Compliance Manual for Tennessee Municipalities. Officials should require that each of the items is permanently marked or tagged to indicate the municipality's ownership. Also, officials should require that an annual physical inventory of the fixed assets and of the high-risk, moveable property is performed and documented. City's Response: We concur. The city administrator will have the city recorder attend the Government Finance Officer's Association classes on Asset Management and Enterprise Fund Accounting. Also, the newly hired administrative assistant for the financial director will assume responsibility for materials management and fixed asset entry. The city recorder will have the responsibility of entering fixed assets into the accounting system. The City of Spring Hill acquired software to assist in this process in July 2008. Finding 11: Inadequate minutes for meetings Recommendation: To document actions taken by the governing body, officials should ensure that the recorder maintains complete minutes of all meetings of the governing body. The minutes should be kept at the municipality's office and be available for public inspection. The mayor and recorder should sign the minutes to document approval. City's Response: We concur. As allowed by law, the city recorder will ensure all meetings of the governing body are signed and entered into permanent city records and be available for public inspection. All documents pertaining to the described meeting shall be part of the official minutes and attached to the official minutes. Finding 12: Authorized salaries not in budget Recommendation: To ensure proper documentation and communication of approved pay rates, the board of mayor and aldermen should ensure that a detailed pay schedule of all employees is prepared as part of the annual approved budget. The Board of Mayor and Aldermen should ensure that all employee pay is computed using only approved rates. City's Response: We concur. As allowed by law, an attachment showing all hourly and salary amount (a detailed pay schedule) will be attached to the approved budget. This pay schedule will reflect the pay increase authorized by the board of mayor and aldermen for the current year's budget and in future budgets. A copy of the signed resolution authorizing pay increases will also be attached. Finding 13: Inadequate personnel records Recommendation: To decrease the risk of improper payroll payments and to ensure compliance with state and federal regulations, the board of mayor and aldermen should require city personnel to establish and maintain complete payroll and personnel records. City's Response: We concur. A staff employee, under the direction of the city administrator, will assume responsibility for all personnel documents. Finding 14: No documented approval for utility adjustments Recommendation: To ensure accountability for all billings and for determining expected collections, the recorder should require detailed documentation of each adjustment. Each adjustment should be approved by the governing body or its designee. The approval should be adequately documented and maintained in the municipality's records. City's Response: We concur. As allowed by law, a utility adjustment policy ordinance will be presented to the Budget and Finance Committee for recommendation to the board of mayor and aldermen for approval. All adjustments will be approved in writing by the city administrator, finance director, or city recorder and kept on file for audit review. Finding 15: No itemized deposit slips Recommendation: To better account for collections, the recorder should ensure that municipal personnel itemize deposit slips, listing each check separately. City's Response: We concur. As allowed by law, deposit slips will have an itemized listing of payee and amount paid and will be kept with deposit slips that have been validated by the bank upon time of deposit. Finding 16: $174,000 cashier's check not deposited promptly Supporting Materials: Link to Tennessee Code Annotated 6-56-111 Recommendation: To help prevent the misuse or loss of collections, officials should ensure that all collections are deposited intact within three working days into an official municipal bank account. City's Response: We concur. As allowed by law, all funds collected or transferred by city staff will be deposited immediately. Important Notice and Disclaimer:
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