The city of Santa Fe’s seemingly chronic financial management problems lingered into the 2019 fiscal year.

A newly released outside audit of the city’s finances for the fiscal year ending June 2019 uncovered “significant deficiencies” and “material weaknesses” in its internal controls, including failing to perform a year-end reconciliation that resulted in misstatements of about $1 million in the city’s utility receivable accounts.

Auditors also issued a “qualified” opinion on federal programs, meaning that in their evaluation, the city has not completely followed general accounting and reporting standards — potentially jeopardizing future federal funding.

State Auditor Brian Colón said Thursday the situation is so serious his office is going to keep a close eye on Santa Fe.

“The red flags that I learned about early on were deeply concerning,” he said in a telephone interview. “After the audit has now been completed, I am still deeply concerned.”

The unflattering audit comes about three years after a blistering report of the city’s finances, known as the McHard Report, which similarly found inadequate internal controls and other problems. The McHard Report was followed months later by the state-mandated annual financial review, which uncovered additional financial issues. At the time, Mayor Alan Webber said he would use the McHard Report and the state audit to help guide the city.

But challenges persist.

The city was six months late in providing the latest financial review, and it also failed to timely respond to certain requests made by the Office of the State Auditor, which was conducting fact-finding procedures in response to an unspecified misconduct allegation, according to the audit.

The city’s tardiness and failure to respond to requests were among 21 deficiencies, weaknesses and other compliance issues identified in the audit, which was conducted by the Albuquerque firm CliftonLarsonAllen.

Mary McCoy, the city’s finance director, did not respond to questions the city requested be sent by email, including why the Comprehensive Annual Financial Report was submitted late.

But in a statement, the city said the audit itself received an “unmodified” opinion, or what it called “the equivalent of the best ranking and the highest level of assurance, for the second consecutive year.”

“An unmodified opinion/unqualified opinion is an independent auditor’s judgment that an organization’s financial statements are fairly and appropriately presented, without any exceptions, and in compliance with accounting standards,” the city said.

Colón said the city has nothing to brag about.

“They are still having a challenge managing, maintaining, reporting out, reconciling and meeting their obligations for for federal funds. That’s a huge issue,” he said. “They had a qualified opinion on the [Community Development Block Grant Program] for noncompliance with their requirements. They had a qualified opinion on the airport improvement program. Why? Noncompliance with the requirements.”

Noncompliance results in the potential for decreased federal funding, as well as possible undercharges or overcharges to the grants, the audit found.

Colón said it “remains to be seen” how the city’s shortcomings will affect its ability to obtain federal funding.

But he cautioned “these are the types of findings that jeopardize federal grants and limit your ability to get future federal grants.”

During testing of federal revenue, auditors found the federal share of expenditures “were more than revenue recognized in the financial statements by approximately $3.5 million.”



“The city did not claim reimbursements for incurred federal expenditures within the city’s availability period (60 days),” according to the audit. “As of June 8, 2020, a period of over 11 months after year-end, the amount owed to the city from the federal government was still outstanding.”

In response to the findings pertaining to federal grant money, the city wrote it is in the process of implementing a Grants Management Division to try to resolve the issues. The division is part of a sweeping reorganization proposed by Webber but has not yet been approved by the City Council.

The city’s bookkeeping problems could be affecting residents in their wallets.

The audit identified material weaknesses in a category called “accrued liabilities — guarantees and customer deposits.”

The city’s accounting records reflect a nearly $3.2 million liability for deposits related to land use.

“Customer advances in the amount of $1,389,802 are included in the city’s accrued liabilities on the accompanying statement of net position. When testing these balances, it was determined that, in the past several years, the city has not performed a comprehensive reconciliation,” the audit states.

The effect?

“The city may be holding funds that should be returned to customers and residents of the city of Santa Fe,” according to the audit, which identifies lack of reconciliation as a recurring problem.

“This city lacks an effective internal control structure over the financial close and reporting process to allow for timely and accurate financial reporting,” the audit states. “Specifically, the city is not adhering to a monthly or quarterly accounting close schedule.”

Auditors reported observing “a low level of collaboration between departments, which contributed to the challenges in obtaining audit evidence.”

Although it wasn’t identified as a problem in the audit, the city’s Finance Department has had a high level of turnover under McCoy, who has headed the city’s finances since July 2018, a few months after Webber was elected.

Colón said a lack of consistent staffing, in addition to inadequate internal controls, could open the door to fraud and other problems.

“What’s concerning is that these types of situations lead to bad actors having an opportunity to abuse New Mexico’s taxpayers,” he said. “I have no reason to believe that that’s going on right now … but it is true that when you have circumstances like this, this is what opens the door for people to make really bad choices, and that hurts taxpayers.”

Colón said he will continue to monitor the city. He said he has been especially involved in Santa Fe’s financial reporting.

“I was concerned enough that periodically through this and because they were ultimately six months late on their audit, I had been requesting regular updates on this audit work,” he said.

“We do anywhere from 800 to 1,000 audits and agreed-upon procedures on any given year. I sit in on just a handful of entrance conferences and a handful of exit conferences,” Colón added. “The city of Santa Fe is concerning enough that I sat in on the exit conference. That gives a sense of my level of concern with their financial house and lack of order.”

In the audit, the city wrote that it would implement corrective procedures for the findings by June 2021.

Follow Daniel J. Chacón on

Twitter @danieljchacon.

(15) comments

Paul Dirdak Wendy Pomeroy

I must be missing something. Help me out here.

Daniel Chacon writes very clearly that the audit in question was for a term that expired 13 months ago. At that time two programs, The Community Development Block Grant Program and the "airport improvement program" reported audit findings.

As I recall, the McHard Report was described throughout the city three years ago (it is posted on the city's web site) as containing 64 findings that the city was inadequately capable of fraud detection and prevention. Its complaints covered the city's operating funds and all funds across the board. I read the McHard Report and I did not count 64 findings; I counted 67.

Now we see that of all the myriad funds, departments and programs throughout the city, two of them that are funded by federal grants (Trump's Treasury Department, mind you) that are always a nightmare to manage and control, particularly if you inherit them mid-stream from a former administration, are still wonky. So what?

Sounds like an awful lot of good progress to me, and there have also been 13 months of effort beyond the reporting period to accumulate more progress which we won't see audited for another year. That's how audits work in my experience.

The City, according to this paper, quoting no specific source, "says" (sic) that the audit itself, and overall particularly with regard to General Funds, received the "equivalent of the best ranking and the highest level of assurance, for the second consecutive year." I see no inconsistency between that statement and 13-month old, inherited weaknesses, that have since been fixed or still need work, out of the total mess that Finance Director McCoy and her team have been picking away at all this time.

The comments in this string that cannot contain all their hyperventilating need to read the article again for what it actually says and doesn't say. And State Auditor Colon may want to help us understand whether his concerns were related to the specifics of the two funds cited and the audit year reflected and whether the article fully reported the possibly restricted context in which he made them.

Help me out, here. There seems to be some room for misleading impressions.

Paul Dirdak (the spouse of your subscriber).

Dennis Romero

Paul - audits are always done on the prior fiscal year. They are due in November. Yes, it is a big deal. Having an audit due in November turned in the following July is a HUGE deal and a HUGE RED FLAG. Simple as that. I'm not hyperventalating here, as you suggest, just experienced enough to know that there is something amiss in a big way here...

Looking at your post, you seem to think that 64 versus 67 findings in the McHard report wasnt' a big deal.

You seem to think that a qualified opinion on federal programs isn't a big deal - it is, Paul. It really is.

The only misleading impressions I see in the article or in the comments are yours, as you seem to be trying to downplay the severity of a lack of accountability involving public funds.

You are supposedly the former Director of the Central Conference Pension Administration at the General Board of Pension and Health Benefits? I dare say that if you had received a similar set of audit findings in this position, you'd have been terminated.

You also seem to be extremely close with Paul Gibson of Retake Our Democracy, a group that also put up a smoke screen to deflect and distract attention from Rep. Andrea Romero and her audit issues with the Regional Coalition of LANL Communities.

Paul - lack of accountability and potential fraud is a bipartisan issue. I realize you are attempting to defend the administration of one of your fellow Progressives, but I believe your comments do not have merit.

Dennis Romero

Paul - with respect to your comment:

"The City, according to this paper, quoting no specific source, "says" (sic) that the audit itself, and overall particularly with regard to General Funds, received the "equivalent of the best ranking and the highest level of assurance, for the second consecutive year.""

The reporter, Daniel Chacon, attibuted that to a statement released by the City. He was not opining that point. That was a City statement provided to him.

paul pacheco

Audit exceptions happen all the time in state and municipal government! So the city gets a "D" grade! What'all the fuss by the state auditor? The state auditor is only looking to expand his career. It’s free publicity. Those who know politics remember he already ran for governor! The current mayor and his hired administrative people could care less about receiving federal funding! That’s why you voted for him! Webber only nurtures his personal investments and money, not ours! As long as our taxes for services do not increase, we shouldn’t care. After all you can’t fight city hall!

Marsden DeLapp

A few years ago I discovered a contract that the city awarded for $219,000 more than the contractors bid. I reported it to the state auditor and the Santa Fe Police Department. The state auditor did not investigate. The police officer I met with told me they don't investigate corrupt government officials, and refused to look at the evidence I tried to give him.

The state has a serious problem with a culture of corruption. The state auditor being "concerned" and the fact that there is no real accountability for the Mayor and other city leaders tells me that the culture of corruption will continue unchecked.

Mike Johnson

[thumbup]

Stefanie Beninato

I understand that this type of increase on the amount of contractors' bids to skim off the top for that condo in northern NM or the new SUV is still quite common at the city of Santa Fe. Sure hope Colon goes digging and does not take staff's word.

Mike Johnson

My wife, a CPA and the retired former City Controller and Finance and Administration Dept. Director in Houston, laughs out loud every time one of these stories runs. Not only is the Mayor uneducated and inexperienced at city government accounting, auditing, and finance, but so is his leader here. The blind leading the blind. I guess they miss the fact that an audit is a roadmap to fix things, not something to explain away and ignore for years, as was done here. But having competently educated and experienced personnel would certainly help. So typical in this state.

Chris Armijo

Once again our CEO Mayor has a lot to answer for on his fiduciary responsibility and accountability to his constituents that elected him to office, this latest shocking revelation is pre-covid and cannot be attributed to the covid pandemic crises as the Mayor consistently decries, no smoke and mirrors here. I agree that there needs to be a shakeup in the Finance Department and hire experienced and knowledgeable people at the helm, how will this affect our Bond rating and did the City finally make good on the PERA contributions without penalty and interest? Next year may be our year for us true and beloved Santa Feans when it comes to elections, let’s take back our city and vote with our heart and soul and restore city government by the people and for the people and not for a select few, Amen.

Al Chavez

This is troubling.

Solution? Begin with a strong controller, preferably a CPA with proven municipal finance experience. Such a person should employ a manager thoroughly experienced in, and able to comply with, federal contract and grant processes. Her/his team should include accountants that can expertly handle accounts payable, payroll, purchasing, and budgeting functions. They should be supported by solid human resources and internal audit departments. The city council finally, should see to it that all of these positions are not starved for the funds needed to hire excellent personnel. .

I know easier said than done, but the best municipalities don't scrimp on such a team of knowledgeable professionals. Santa Fe surely can afford this.

Mike Johnson

Agreed, but this mayor, and the one before, would never hire such a person, though many are around, they are not politically connected enough to be hired.

Stefanie Beninato

Many are overpaid so I do not understand this theme of needing to pay more.

Ralph Miller

The article should have also mentioned the city's failure to pay funds collected from employees plus the city's portion of retirement to the Public Employees Retirement Association (PERA). The bad audit and city' management believing everything is financially Ok reflects the lack of leadership and transparency from the Mayor, his management team and City Councilors Abeyta, Romero-Wirth, Cassut-Sachez, Villareal, and Lindell who consistently rubber stamp the Mayor's policies. How are the citizens of Santa Fe going to have confidence in the recent fiscal year budget deficit projections?

The high employee turnover in the city's finance department should indicate that something is terribly wrong in Mayor Webber's administration.

Stefanie Beninato

Thank you. Just another example of Webber saying one thing while something completely different is going on. And the city council keeps giving the city manager emergency contract powers too. I could go on about the constant introduction of new computer programs that will be the "real" fix and that are never learned or fully implemented. They certainly do not make citizens' access to the city any easier. Why for example has the Calendar of Events been put to the very bottom of the city's first page as opposed to left at the city clerk's listing that has the yearly calendar and packets for city hall meetings. It seems that city wants to make it extremely hard to participate especially since its shutdown during COVID. The least the city could do is put a link to meetings on the first page clearly marked in the top half of that page

Richard Reinders

Webber should have focused on the audit instead of tearing down statues or trying to homogenize the culture.

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