Consultant: County operating at loss for past 8 years, $1.5M needed in cuts

MONTCALM COUNTY, Mich. — Commissioners now know they must make at least $1.5 million in cuts in order to balance a budget with a general fund that has been operating at a loss for the past eight years, according to data from a financial firm hired by the county.

Montcalm County's general fund has been operating at a loss since 2008, according to data provided by financial consultants with Rehmann, one of three firms hired by the county to investigate the looming budget crisis and formulate a plan of action to balance the books.

Stephen Blann, director of governmental auditing quality with Rehmann, said the county's history of budgeting in a deficit stretched through 12 of the past 13 years. He said six of the county's funds—general, parks and recreation, child care, friends of the court, the commission on aging, and the office equipment pool—ended the previous year with a deficit, which is a violation of the law.

Blann said in order to cover the deficits, money was borrowed from other funds.

The recurring budgeting of a deficit became compounded because commissioners never amended budgets based on final audit results once they became available. As far as commissioners were concerned, they were operating within their limits, Blann said, while building a budget around "overly optimistic revenue assumptions" — based on property taxes, state shared revenue, grants.

“Had you gone back at looked at where the prior year ended, you would’ve realized you were going into a budget deficit," Blann said, explaining that while the county was coming in under budget on expenditures it was also increasingly coming in under budget on revenue.

“That’s the connection that’s not been there, not only do you have to manage costs of expenses but you need to make sure you’re collecting the revenues and if not you need to adjust spending accordingly.”

Asked to explain the discrepancy, Patrick Carr, chairman of the county board of commissioners, said he and his colleagues had not been given a full audit to review since 2006.

Instead, Carr maintains he and others relied on the reassurances of the county's former controller, Chris Hyzer, who resigned in May to take a job as finance director in Ionia.

“We were taking Chris [Hyzer’s] advice that everything was fine and the audit got completed and that everything was on track," Carr told FOX 17. "We had no reason to question to him.”

John Axe of Clark Hill, also a firm hired by the county, previously said his preliminary review of the situation revealed that auditors did not have meetings with the board of commissioners or the chairman of the commission, opting instead only to share information with the former country controller.

But Axe said on Monday that was not a decision made by the auditors.

“Your former auditors indicated it was at the request of the former controller they not meet with you," Axe told commissioners during Monday's meeting. "They [auditors] had indicated to your former controller they wanted to have face-to-face meetings… and the controller told them it wasn’t necessary."

Reached by phone last month, Hyzer admitted to FOX 17 he chose not to review audits with commissioners, saying it was poor communication on his part. He declined requests to discuss the matter further on camera.

Blann recommended that commissioners institute new budgeting policies that include quarterly reviews.

Since at least 2012, spending has exceeded annual revenue by $2 million or more in Montcalm, draining nearly $9 million from the county coffers in just four years to balance the budget.

Data provided by Rehmann

Data provided by Rehmann

At 57 percent, wages and benefits account for the biggest chunk of Montcalm's budget, as is the case with most counties. By department, public safety and government operations account for two-thirds of the budget, leaving services the county isn't legally required to provide like road patrols or animal control the biggest targets.

Bob Clingenpeel, the county's current controller, said job cuts are inevitable.

“I don’t know how you get around that, people will be losing their jobs and that’s the number one issue," he told FOX 17. "That’s as bad as it gets, all we can do at this point is balance the budget, go forward and make it right.”

Commissioners scheduled a second special meeting on Sept. 19 at 1 p.m. County officials missed a Sept. 12 deadline to submit a deficit reduction plan to the state, risking the withholding of a portion of funding provided through revenue sharing.

The county must approve a new budget by Sept. 30.

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2 comments

  • Charles Buck

    There are several alarming aspects about the financial crisis in Montcalm County highlighted in this article. First, the outside auditing firm does not work for the county comptroller; the auditor works for county commissioners. Please take note that every single one of the ten audited financial reports the comptroller kept hidden from commissions begins with a cover letter from the auditor addressed, “To the Board of Commissioners of Montcalm County.” It’s not even a question whether the auditor should have contact with commissions. Once the comptroller suggested to the auditor that they have no contact with commissions, the auditor had a fiduciary duty to disregard the comptroller and contact the secretary or chairperson of the board of commissioners and notify them of the comptroller’s obstruction and ask to be put on a board meeting agenda. The comptroller’s suggestion might even be a reportable deficiency in financial internal controls between the comptroller and the board of commissioners that the auditor should have noted in their audit of the county’s financial controls. Second, the comptroller works for the county commissioners and not the other way around. It is county commissioners, not the comptroller, who has the ultimate fiduciary duty to safeguard the county’s funds. Full performance of their fiduciary duty must entail reviewing the audited financial reports in a timely manner to remain apprised of the actual financial condition and performance of county funds. Relying solely on the budget, a financial planning process, to inform commissioners of past performance and condition of county funds is a gross dereliction of fiduciary duty on the comptroller’s part and on commissioners’ part. Finally, even ordinary county citizens have a responsibility to make sure the county is spending funds wisely. The county comptroller sent a copy of the audited financial report every year to the Michigan Department of Treasury who diligently posted them online making them publicly available. Anyone could have pulled them up on the internet and watched Montcalm County’s general fund balance melt away over the past ten years. Somebody should have raised questions years ago.

    https://treas-secure.state.mi.us/LAFDocSearch/