2018 Presidio audit details several record-keeping issues

The 2018 Presidio audit found that the city administration regularly failed to pay employment taxes to the federal government, as it was not filing quarterly payroll reports to the IRS.

PRESIDIO – The City of Presidio received another adverse opinion, which is the worst score an auditor can give, in its 2018 audit that was released earlier this year. After outlining a number of record-keeping shortfalls in the report, the auditor concluded the city’s financial statements as a whole do not fairly represent its actual financial position.

One of the biggest findings from the audit –– which spans the fiscal year between October 2017 to September 2018 –– was that the city administration regularly failed to pay employment taxes to the federal government, as it was not filing quarterly payroll reports to the IRS. These reports, known as 941s, track how much money the city has withheld from a city employee’s paycheck in the form of social security, Medicare, federal income tax, etc. The city is then supposed to forward that money, along with the report, to the IRS every three months.

Joe Portillo, who was the city administrator during the time frame of this most recent audit, disputes that the city wasn’t submitting these reports while he was in office. “Could there have been a mistake on a 941? Yes. Are there any absent 941s, and the answer is no,” Portillo said.

Through an open records request, The Big Bend Sentinel obtained all of the 941s submitted to the IRS during the 2018 fiscal year. According to the dates on the records, Portillo did fill out the 941s in a timely manner. The IRS would not comment on whether the agency received the reports or the attendant employment taxes by the deadline though, citing privacy laws. The auditor, Doak Painter, also would not comment on the discrepancy.

Portillo did acknowledge that the city hadn’t submitted its 941s between late 2013 until 2016 when he was hired as city administrator. Marco Baeza, the city administrator prior to Portillo, also admitted that the city had not been filing the reports while he was in office. The previous city audits identified this same issue, writing that the city could be on the hook for several fines from the IRS. In fact, Portillo said the city had accrued fees totaling close to a million dollars for not filing these reports.

Brad Newton, the current interim city administrator, confirmed that the city had amassed these fees, but said the city was able to pay them off in 2017 thanks to a donation from Energy Transfer Partners, which built the Trans-Pecos pipeline. The million-dollar check was ostensibly supposed to go toward expanding the city’s recreational facilities, but had to be used to settle its accounts with the IRS.

“We managed to get one playground piece of equipment built, then [the IRS] came in and took the rest,” Newton said.

This audit is just one in a series of adverse audits the city has received since at least 2013. Previous audits have identified many of the exact same issues highlighted in the 2018 one.

Portillo said that he inherited a financial mess from his predecessor, Baeza. “I think the thing that people need to realize is that it was broken for many many years,” Portillo said. “It is very difficult when you’re in arrears, and you’re trying to recover from something that happened four or five years ago. It didn’t happen overnight. It’s not going to get fixed overnight.”

The auditor identified several other record-keeping shortfalls in the 2018 audit besides not filing the 941 reports. The auditor concluded that the city was not regularly reconciling its bank account with its ledger books. A bank reconciliation is the process by which the finance director matches up the numbers in the city’s bank accounts with those in the city ledger. Without regular bank reconciliations, transactions might not be accounted for in the city ledger, according to the auditor’s report.

Similarly, the city was not coordinating with the Presidio Municipal Development District to determine how much they owed each other. Newton, who was the head of the development district during the 2018 fiscal year, said, “As far as I know there were no discrepancies on the PMDD side.” He said that the city’s finance department is in charge of reconciling the accounts, and so he wasn’t involved with the process back in 2018. “I’m fairly confident that all money that comes in from PMDD is properly tracked now,” Newton added.

The auditor also found that the city was not in compliance with its bond covenants for both the library and the fire station. Bond covenants are certain obligations the city has to those who issue the bonds. In this case, the city was required to submit annual reports and income statements at the end of the year to the United States Department of Agriculture, which issued the bonds. In the report, the auditor said, “We were contacted by the grantor agency stating the bond covenants for both the library and the fire station were out of compliance due to repeated unanswered requests for items associated with bond covenants.”

If the city continually fails to live up to the agreement in the covenant, future grantors might be unwilling to do business with the city. The USDA did not respond by print time to say whether the city was still not in compliance with its bond covenants.

While Portillo was hoping for a better opinion in this most recent audit, he said residents should rest assured that the city is correcting its past mistakes. “I am completely confident that we tracked every nickel coming in and every nickel going out. As far as lost funds, or any kind of theft or embezzlement, that is not a concern of mine,” he said. “The point is we’ve got through all of the delinquent audits, and we’ve been trying to catch up ever since.”

“As chief elected official, the buck stops with me,” said Mayor John Ferguson, but added that he felt as if the auditor, Doak Painter, was not properly communicating with the city throughout the course of the audit. Painter has been auditing the city for several years but –– according to Ferguson –– would not be performing the 2019 audit.

Ferguson also said that the city was expecting the audit to be completed in September 2020, not January 2021. As The Big Bend Sentinel previously reported, the city lost out on a grant to purchase two new ambulances after it was unable to produce up-to-date audits.

Despite all of the city’s past financial woes, Ferguson is focusing on moving forward. He said, “I feel the city in good faith has been working really hard over the past two years to rectify our deficiencies and to be accountable in the manner we should be in regards to audits.”

Glorissel Muniz –– the city’s current finance director, hired in November of 2018 –– agreed, saying that the city has implemented a number of new internal controls and procedures to ensure the city’s financial books are in check. She said that the city has found a new company to work on the 2019 audit and is waiting for tax season to come to a close to begin the process.