State audit confirms lack of control over credit card expenses in City Hall

Official report disputes allegations leveled at special council meeting
By Dan Aznoff | Jul 06, 2018

Members of the Mill Creek City Council have remained virtually silent in the wake of an Accountability Report published by the state Auditor that indicated the city has not corrected ongoing issues over purchases, potentially placing public “resources at risk of loss or misappropriation.”

(The annual audit is completed in two parts: The Financial Statement Audit, in which the city was given a clean bill of health, and the Accountability Audit has two separate reports, which last year advised the city to tighten up its rules regarding usage of city-issued credit cards. It’s that part of the annual audit that has landed the city in hot water.)

The Auditor’s office expanded its annual review to cover the past three years based on the review of purchases made by the city manager. The report cited City Manager Rebecca Polizzotto for an unusual number of city-issued credit card charges without proper documentation.

The City Council held a special meeting on Friday, June 8, specifically to approve a statement written and read into the record by Mayor Pro Tem Brian Holtzclaw that denied charges that the city manager was under investigation.

However, while the Auditor’s office technically doesn’t do “investigations,” it does release “findings” that, in this case, revealed the poorly-documented expenditures and revealed excessive purchase of meals and alcohol on Polizzotto’s city credit card. In addition, an attorney from Mountlake Terrace has been investigating complaints by city employees about Polizzotto’s leadership.

Holtzclaw disputed an article posted online by The Beacon, claiming it was filled with misquotes and misinformation.

Reporters from local newspapers as well as a film crew from KOMO TV documented the brief meeting called to approve the statement supporting the city manager.

The mayor pro tem did acknowledge that The Beacon had posted a correction to the one quote attributed to an official in Olympia that she later denied.

He also asked his colleagues on the council to avoid any interviews with the press.

 

Too little, too late

Records indicate the city received its draft of the Auditor’s Report on May 3, more than a month before Holtzclaw went on record with his accusations. According to city officials, the response to the Auditor’s Report was written by Polizzotto and Mayor Pam Pruitt.

Repeated requests submitted by The Beacon for comments from councilmembers have gone unanswered since the report was issued on June 21. Holtzclaw declined to address why he chose to attack members of the media a month after the city was made aware of the audit, rather than address the serious findings in the audit itself.

He did, however, send a note to The Beacon indicating he would be on vacation until the first weekend in July. His note came 10 days after the first of several inquiries from The Beacon.

Councilmember Jared Mead replied to the request by saying he was not present at the last council meeting and had not been briefed on the report. Mead joined the council to approve the measure condemning the statements that were later substantiated in the Auditor’s Report.

The controversy that has surrounded Polizzotto stemmed from the city manager’s extended absence from City Hall. The city manager has not attended a council meeting or been in City Hall since mid-April.

Pruitt has defended Polizzotto, saying the city manager has worked long hours without a vacation since becoming city manager in July of 2015. The mayor said Polizzotto has been home recuperating from a respiratory infection.

That explanation was questioned by members of the city staff who said they have seen Polizzotto driving near downtown and shopping at local retailers.

The council voted to place Polizzotto on 45 days of administrative leave in late June after she had used up her sick leave and most of her paid vacation.

One city official said the difference in how the city manager’s absence is identified is an important factor.

"The council actually took Rebecca off medical leave and put her on paid administrative leave for 45 days to address 'issues,'" the unnamed official told The Beacon.

Another member of the city staff said Polizzotto would not be able to respond to a request for a comment from The Beacon because she does not have access to her city computer or her official email under the guidelines of the administrative leave.

 

Thanks, but no thanks

The auditor thanked the city for its assistance during the audit process, but seemed frustrated with the city’s response written by Polizzotto and Pruitt to the Audit Report that was focused on issues that were not covered in the initial document.

“The basis of our finding in this audit was not reimbursement, but charges to city credit cards,” the report stated. “State law (RCW 42.24.115) directing employees to repay unallowable charges exists as a remedy for recoupment only.

“However, strong policies and procedures would prevent unallowable expenditures from occurring, eliminating the need for repayment.”

 

Official audit

The original audit conducted by the state covered city expenditures for all of 2016 and part of 2017. The review of charges for meals, employee recognition and travel-related expenses was expanded to cover the three years between 2015 and 2017 based on “previously reported concerns related (with) the city’s policies and procedures governing credit card usage and lack of detailed support for transactions tested in the prior audit.”

The audit identified 24 purchases for $2,048 without itemized receipts. Of those, $992 in expenses was charged on the credit card assigned to Polizzotto.

The findings prompted the Auditor’s office to expand its review.

“Because the card assigned to the City Manager had the highest dollar volume lacking detail support, we expanded our testing of this card and reviewed 52 additional purchases between 2015 and 2017.”

The expanded review revealed $1,622 in charges “with unclear purpose.” The charges in question included $269 for alcoholic beverages, $995 for meals and $398 for employee recognition items.

 

Off the mark

The city’s response to the audit, written by Polizzotto and Pruitt, pointed out the city had adopted a new business expense policy with directors in City Hall reviewing expenses charged to city credit cards.

The council approved the modifications to the city’s policies at its meeting on March 27, 2018.

The council’s action did address the causes of concern outlined by the state. The Auditor’s office answered the city’s response by reaffirming the audit was not done on reimbursements, but into charges made on city credit cards.

“As a result of not effectively monitoring credit card purchases, the city cannot demonstrate all expenditures were for a valid public purpose,” the Auditor’s office stated.

The Auditor recommended the city establish internal controls to ensure all transactions are properly supported with original, detailed documentation that clearly identifies a public purpose.

The state office also recommended, “The city ensure that its policies and procedures require itemized receipts paid with public funds.”

The Auditor went on to suggest the city clarify and/or establish policies and procedures for meals with meetings and recognition activities, “including allowable purchase and applicable spending limits to ensure the city is not at risk of gifting public funds.”

The state law (RCW 42.24.115) directs employees to repay unallowable charges as a remedy for recoupment only.

“However, strong policies and procedures would prevent unallowable expenditures from occurring, eliminating the need for payback.”

Charges on the 10 city-issued credit cards in 2015 totaled $72,196. The total charges jumped by almost 60 percent in 2016 to $122,714. The charges on city credit cards dropped slightly in 2017 to just under $118,000.

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