Report: East St. Louis lacks financial safeguards, records missing, taxes go uncollected

The city of East St. Louis failed to keep proper records, fully collect taxes owed by businesses and follow mandatory banking safeguards in the first full year after state oversight ended, according to a special financial report.

The so-called “Cash Management Review” was prepared by the St. Louis accounting firm of Brown, Smith & Wallace at the request of former City Manager Deletra Hudson and covers 2014. The state Financial Advisory Authority disbanded in December 2013.

The review, which primarily targets the city finance department and treasurer’s office, was designed to detect flaws and weaknesses in accounting practices and not to determine whether money is missing.

While the report has not yet been submitted to the City Council; a copy was obtained by the News-Democrat.

“It is extremely likely that funds have been misappropriated in the city of East St. Louis. This report alone, should be enough for an independent prosecutor investigation of city finances. A special audit should be conducted for the purpose of finding any instances of misappropriation of money,” said Joe Behnken, a certified public accountant and former Republican member of the St. Clair County Board who reviewed the 30-page report at the request of the BND.

According to the report:

▪ The Finance Department failed to provide bank records needed to reconcile major municipal accounts, including the general revenue fund, and auditors said they could not find them. Records for three other accounts were received late and were were not properly signed, as required by state law.

▪ A sampling of 48 businesses showed 24 paid a 1 percent city tax on food and beverages and package liquor sales only some of the time, and the other 24 made “no payments throughout the year.” The tax was increased to 2 percent in 2015.

▪ A bank wire for $136,977 made in December, 2014 that should have been listed in the proper bank account had not yet been posted when an auditor checked in May 2015. “There was no explanation” for why the funds transfer did not show up in records, the report stated.

▪ Four wire transfers totaling $1.3 million were not recorded in the Finance Department’s “general ledger book,” as required by city ordinance.

▪ The treasurer’s office failed to keep a list of bounced checks it received or file overall monthly financial reports. Records regarding taxes on businesses could not be located. “The treasurer’s office could not locate the (tax) documents due to its filing methods,” the report stated.

▪ Copies of tow reports for 10 months could not be found. These reports list whose car was towed at the order of the police department and how much money was collected to retrieve the vehicle.

Former city treasurer Joe W. Lewis, Jr., who lost to Charlotte Moore in the April 7 election, defended the operation of the office.

“Maybe everything wasn’t done in a timely manner, but it was all accurate and I stand by it,” Lewis said. The review also noted that auditors could not locate a surety bond for Lewis, a legal requirement for municipal treasurers in Illinois.

Finance Director Jhonny Campbell could not be reached. His accounting firm, Campbell LLC, is paid approximately $460,000 per year to run the city Finance Department.

“It is incredible that the city contracts out its financial management to a certified public accounting firm that is responsible for the day-to-day accounting functions for the city and the accounting records are in horrible condition,” said Behnken, the private accountant.

Neither Hudson nor Traycee V. Chapman, who replaced Hudson as city manager earlier this year, could be reached for comment.

Former Mayor Alvin Parks, who left office after his defeat in April, said of the report, “It was more than cash management it was really looking at financial operations. It was looking at the treasurer’s office operations. It was just trying to make sure that we know exactly how things are going in finance and treasury.”

Parks, who left office in May after his defeat in the April election, said he has not seen a copy of the draft report.

“Without monthly reconciled bank statements, you have no financial management system,” Behnken said, “Therefore the financial statements for the city were not accurate and could not be relied upon.”

This story was originally published August 1, 2015 at 10:31 AM with the headline "Report: East St. Louis lacks financial safeguards, records missing, taxes go uncollected."