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Audit takes issue with VPD debt

The financial condition of the Vashon Park District puts it at risk of not being able to meet its financial obligations or maintain its current services, said state officials, who recently audited the district.

Earlier this winter, the state Auditor’s Office conducted an accountability and financial audit of the district for 2013, examining the district’s financial condition as well as other areas, including its capital assets, contracting procedures and grant agreements. Auditors delivered the results to park district general manager Elaine Ott, and the commissioners discussed the report at their board meeting two weeks ago.

In their response — a required element of the audit —  the commissioners pledged to develop a long-term financial plan for the district and deliver it to the Auditor’s Office by June 30.

The state released the final version of the audit on Monday.

“I think they gave us some very valid conclusions,” said commissioner Scott Harvey, who was seated in November. “It gives us a benchmark moving forward.”

In most areas, the auditors say, the district complied with state laws and its own policies and procedures, but the auditors reported the district’s poor financial condition as an official finding.

“Anytime we have a financial condition, we consider it serious,” said David Smolko, the state employee who conducted the audit. “We think it is something the public should know.”

The audit report highlights what the auditors say is the biggest risk to the district’s financial picture: the amount it pays to debt service — a number that has spiked in recent years — compared to its annual revenue. Debt service includes only principal and interest paid and does not include loan balances. From 2009 through 2011, that debt service percentage was small, ranging from 1.6 to 3.3 percent of revenue. In 2012, debt service rose to 9.2 percent of revenue, and in 2013, the report says, that amount rose to more than 37 percent of the district’s approximately $1.3 million in revenue.

At the recent board meeting, Ott and the commissioners questioned whether there were errors in the auditors’ report. That discrepancy was later resolved, Ott said, and the auditors’ numbers stand.

In an interview following the audit, Smolko noted that in recent years, park district revenue has declined because of a decrease in levy dollars, yet the district has continued to spend a considerable amount of money, taking loans for expenses it could not cover.

“To me, the board was just not recognizing that,” he said.

Currently, the report says, the district has two bonds that mature in 2015 and 2018 with balances of $184,334 and $149,839 respectively, a line of credit with a $150,000 balance and a $40,455 five-year loan payable until 2018.

Smolko added that the 2012 audit found that there had been a lack of planning, management and oversight in constructing the VES Fields.

The current condition of the district — thinly staffed and in considerable debt —  is a result of those lapses, he said.

Commissioner Bill Ameling, at the recent board meeting, said he took issue with the auditor’s findings. He felt the report was filled with pejoratives, he said, and that he believes it is a matter of opinion how much debt is too much.

“This is a guy who has never run a park district in his life, and he has got to write something down, and he says it adversely affected the district,” Ameling said. “I don’t see where the debt adversely affected the operations of the parks.”

Smolko, however, said that auditors look for trends, and even if the debt service numbers were smaller but increasing, auditors would have included that as a finding because of the continued direction of the debt.

Ott said that while she understands the auditors’ concerns about debt, there is more to the story than the numbers tell.

“We are improving. There is no question in my mind,” she said.

Ott joined the district last February, and at that time, she said, the district had $141,000 in unpaid bills from 2012. It paid those off by the end of the year and has met all of its 2013 obligations as well. In 2012, the district borrowed $200,000 in the form of a tax anticipation note, or TAN, and did not pay anything back on it that year. In January of 2013, it borrowed $50,000 more from that line and then paid the full $250,0000 off in June of last year, when the note was due. In July, the district applied for another TAN, Ott said, and borrowed $300,000. It has repaid $150,000 and had expected to pay off the TAN — or a considerable portion of it — with grant money the district was expecting from the state’s Recreation and Conservation Office (RCO), which awarded funds for the VES Fields project. The RCO funds, however, have been slow in coming, Ott said. Had those funds been given when expected, she said, the district would have ended the year with little or no TAN debt and no outstanding bills — a considerable improvement over the end of 2012 — but that does not appear in the audit report, she said.

Regarding TANs, Smolko said the district should stop relying on them, echoing what other officials have said, that doing so is not a normal practice for park districts. Instead, the district should work on increasing its cash reserves and draw from those during lean times, he said.

While Ameling made his negative feelings about the final portion of the audit known at the meeting — at one point suggesting that the district should ask for a “competent auditor” — other commissioners in follow-up conversations spoke more positively.

“I think it is really instructive,” said Lu-Ann Branch, now the board president. “It keeps front and center for us what some of our focus needs to be on.”

Doug Ostrom, who was seated in January and serves as the treasurer, said he believes that the audit was a useful process but that he would not comment yet on his view of the overall health of the district, as he would like to evaluate it using different measures.

“The picture is more nuanced than the amount of debt paid,” he said. “For example, paying down principal can be a good thing.”

Harvey noted that islanders will vote on the levy in 2015, and he believes the district can improve its financial picture by then.

“We need to get our act together so we can get the levy passed next year,” he said.

Part of getting that act together, he said, is creating the financial plan the commissioners promised, something he thinks the board can accomplish fairly easily by June 30.

In addition to financial issues, the auditors identified a few less pressing areas of concern, including the development and maintenance of a capital asset inventory, complying with its own policies regarding contracts and depositing money in a timely way. Those issues did not rise to the level of official findings, but were presented to the district in a letter.

One of the issues — tracking assets — drew praise from Ameling, who said the district does not have a current inventory of its assets, their conditions and potential liabilities — from land to lawn mowers — and he would like to see one.

“I find this management letter to be dead on,” he said at the meeting.

Ott said district officials plan to create such a list; they have all the necessary information and just need to compile it, she said.

The auditors also noted the district had not consistently followed its policy of obtaining quotes for purchases under $40,000, and that the district has not always made deposits on the same day funds were received. Ott said both problems will be remedied.

State audits cost the district roughly $10,000, Harvey noted, and the next audit is scheduled for next year, meaning the district will have been audited three times in three years, far more than the once every three years schedule it had been on.

“My goal is when they come back they will be satisfied we got our house in order and won’t be coming back for three years,” he said.

Looking ahead, Smolko said it will be a financially challenging time for the district until next year, when one of the bonds is paid off. Also, he said, he believes the board is addressing the financial concerns and that Ott is a capable general manager.

“I’m impressed with Elaine,” he said. “If they build up reserves and get her some help, that will be a start to turning things around.”

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