Last Friday, the City of Hoover released the findings of its forensic audit in a press release titled "No Misappropriation of Funds, Financial Malfeasance or Fraud Found."
1819 News first reported the forensic audit on June 5, when Councilwoman Khristi Driver testified during a Certificate of Need hearing that the city's legal counsel had hired a new firm.
Driver testified, "My understanding of the purpose of the audit would be to take a look at all of our financials to make sure that everything is in order and to follow up on some of the observations that were made in our most recent audit from our regular auditor."
The completion of the audit and release followed months of near silence broken by Mayor Frank Brocato with an audit update on August 5 and an update from a Kroll investigator last Monday at the Hoover City Council meeting.
In his update, Brocato noted that the city has "consistently received clean audit opinions" under his supervision.
The mayor explained that the city was performing the audit through its attorneys to maintain attorney-client privilege. However, no attorneys were copied on internal emails between council members related to the audit. The email from council president John Lyda to other members of the council on April 9 stressed, "I know there is a shared desire to get moving on this ASAP so that we can get assurance that the recent discovery of financial disarray is due to human error or carelessness rather than fraud."
Mayor Brocato confirmed that, saying, "The intent here was to identify the scope and scale of the issues, which we've done, and now we're in the best position to do a better job moving forward.
"We are reassured that Kroll found no indication of fraud, financial malfeasance, or misappropriation of funds. Despite the challenges identified, Hoover remains in a strong financial position. I am pleased with the steps we are taking to correct these deficiencies, and I have confidence in our focused leadership team. With this independent review as our benchmark, we will continue to provide the accuracy and transparency our taxpayers expect and deserve."
The tone of the conclusion of Kroll's investigation differs from the press release. Kroll noted, "Essentially, the repeated issues and failures of the Hoover Finance Department over the last approximately four years can be attributed to a 'perfect storm' of multiple negative factors coming together at the same time. A lack of internal controls and a multitude of staffing issues, both compounded by the inadequate Munis system implementation, created an environment within the Finance Department where issues were not resolved promptly and accurately, and backlogs began to mount. Staff that lacked experience and technical skills found themselves overwhelmed and without the proper training to adequately perform critical tasks within the Department.
"Although we did not identify specific evidence of financial malfeasance or asset misappropriation by Hoover employees, the deficiencies noted throughout this report could create an opportunity to commit financial fraud."
While the report includes a number of problems over recent years, the city and mayor continue to tout clean audits, saying, "Earlier this week, Hoover also released its 2023 fiscal year audit, prepared by BMSS, LLC, which received an "unmodified" or clean opinion — the highest opinion an audit can receive."
The Kroll report specifically states, "In performing our forensic accounting and review and analysis of the Finance Department operations, we had certain limitations in our scope of review, including a lack of accurate financial reports available from Munis and potentially thousands of electronic files that were deleted without any audit trail or definitive indication of who may have been responsible."
The city has yet to address pending questions related to the audit's cost and funding. Lyda's email stated, "The cost is estimated to be between $145k and $177k and is expected to take between 60 and 90 days."
The following are 10 observations from the report in the order in which they were reported:
"In performing our forensic accounting and review and analysis of the Finance Department operations, we had certain limitations in our scope of review including a lack of accurate financial reports available from Munis and potentially thousands of electronic files that were deleted without any audit trail or definitive indication of who may have been responsible."
"All of the Finance Department staff interviewed by Kroll were of the view that their teams were understaffed, lacked documented policies and procedures, and did not obtain formal training on their roles and responsibilities."
"We were also advised by several individuals that, in their view, their colleagues did not have the necessary knowledge, experience, and skills to perform their duties effectively and efficiently."
"The dearth of experience and apparent lack of accounting skills and resources within the Finance Department has been present for several years and continues today... The lack of a fiscal policies and procedures manual was also raised by BMSS as findings in both of their FY 2021 and FY 2022 audits. This finding was noted by BMSS in each of their Management Letters to the Mayor, City Council and Management of Hoover, as shown in the excerpt below."
"According to BMMS, 'any delays for the issuance of the FY 2022 audit were due to the problems with Hoover's financial books and records, including the lack of reconciliations, payroll discrepancies, and incorrect general ledger entries, as discussed throughout this report.'"
"Errors and/or oversights…raise concerns regarding the reliability and accuracy of the financial reports - especially when we see the same or similar errors repeated on multiple documents."
"A comprehensive period-to-period review and analysis of the financial filings and reporting, including tracing and re-calculating amounts and transactions back to internal accounting records and source documents has not been performed to date."
"A combination of an increased workload, competing priorities, and a stated lack of focus on the critical importance of timely reconciliations created an environment where months would go by without the bank reconciliations for the pooled cash account being completed. This pattern still exists as the September 2023 bank reconciliation was not completed until March 2024. Delays in completing the subsequent monthly reconciliations currently remain with April 2024 just having been completed in early July 2024."
"Hoover's inability to address Form 941 issues that began in the first quarter of 2020 and continue today, have caused the City to incur additional costs to resolve the issue. Cornett is actively working to resolve Hoover's prior Form 941 discrepancies and has taken steps to ensure that Form 941 is timely and accurately completed going forward."
Apryl Marie Fogel is a Birmingham resident who frequently appears on, and guest hosts radio programs around the state. She can be reached at aprylmarie@altoday.com or on X and Facebook at @aprylmarie.
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