A Fort Thomas meeting Thursday night finally confirmed no fraud in the city’s finances — instead, years of poor bookkeeping
In February, the city contracted accounting firm Dean Dorton to determine the root cause of the financial discrepancies and rule out fraud. Almost eight months later, the firm reported a total of $847,335 unaccounted for, more than the city had initially thought. The accountants found unrecorded funds from the American Rescue Plan Act, as well as missed and misrecorded payments.
Dean Dorton accountants were present at the meeting after residents pushed for an opportunity to ask questions on the report. The city obliged in an effort to restore trust with the public.
“The CPA license is a public trust license and I don’t take that lightly,” said Josh Shilts from Dean Dorton.
Shilts assured the firm found no fraud after Dean Dorton conducted numerous anti-fraud tests.
What the audit says
In addition to the city’s failure to record years of income from opioid settlements and ARPA funds, officials also failed to record payments being made for payroll purposes. In simple terms, the amount of money in the bank never matched the amount of money Fort Thomas officials believed there to be. The money was not missing, but the books didn’t align with what the bank says.
Dean Dorton focused on a designated “Scope Period” from July 2020 to June 2024, but acknowledged the basic accounting errors extend as far back as 2017. It found the city had discrepancies in both the payments it made and incoming deposits it received. It was able to trace back discrepancies to misrecorded America Rescue Plan Act funds and various issues with payroll processing and tax contributions.
On average, payroll entries were 77 days late each time — some were recorded more than six months after the pay period. This resulted in unrecorded employer match contributions, unrecorded employer match of employee FSA contributions and unrecorded payroll processing fees.
The total number of unaccounted for funds — currently at $847,335 — can still change the further you go back, Shilts said, but they have found no fraud.
“That 847 is a booking error, it’s not a real number,” Shilts said. “It was derived because there was a difference between your bank and what your books said.”
Recommendations
In the forensic audit, the firm makes four overarching recommendations for Fort Thomas to begin straightening its finances, based on the city’s problem areas:
- Maintain separate general ledger accounts for each bank, investment and CD account.
- Establish a monthly close process, including reconciliation of balance sheet accounts.
- Record payroll completely and on time.
- Strengthen journal entry oversight.
Councilmember Brad Fennell asked how nearly 10 years of audit reports went unsuspected by council and city staff before.
“Nearly 10 years of this,” Fennell said. “Nobody did anything, nobody said anything. This is why this stuff's perpetuated. So who knew about it?”
Councilmember Adam Blau jumped in to defend the council, saying nothing was ever flagged or suspicious in past audits.
To avoid this happening again, Shilts recommended the city invest in different auditors every three to five years. Not only that, but the city should also look further than Northern Kentucky for an auditor to remove any conflict of interest.
“Maybe not having a backyard auditor would be a good way to go,” Shilts said. “Get somebody from Ohio, Indiana, Tennessee — there’s a lot of other options out there.”
He also said while the council has a responsibility to have a basic understanding of accounting, they also have to grill the future finance director.
“Their job is to educate all of you,” Shilts said.
Blau touted the current mayor, Andy Ellison, for bringing the issue to the table.
“A lot of people are using these past problems for political reasons,” Ellison said, adding that the politics of the upcoming election have flared this issue.
However, resident Tiffany Hubert said she and other residents had tried to bring up these problems to former officials.
“When I did talk to the mayor, he said, ‘well, the budget never adds up,’” she said. “Well, that makes no sense to me.”
Previously, city officials were at a loss on who they could hold liable for the mistakes — especially because Fort Thomas’ previous accounting firm did not have insurance and both partners of the firm have passed away.
Now, councilmembers pledged to set up quarterly financial committee meetings to give the public an update on the reconciliations.
“It’s a failure of the entire accounting system,” Councilmember Eric Strange said. “The process, the controls either weren’t there or they weren’t being followed.”
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