REVISED-Raj went back to India; did the City of Coatesville’s money go with him?

Quest Column 

by Stacy Bjorhus

Former Finance Director at city of coatesville

REVISED-General Ledger Maintenance 

And the Maintenance Staffer’s Return to India

The DEM’s BLOG written and posted by James Pitcherella, September 20, 2011 titled “Can the FBI, in India,interview people that worked in the USA?” reminded me of so many things that Dharmesh Kalaria (Raj) said to me during the time that I worked in the Finance Department, that I felt that I needed to draft a brief outline of recollections from that time frame.  Raj was employed at the City as the General Ledger Maintenance staffer.  His title was “Programmer Analyst/Senior Accountant”. 

When I began my employment with the City I saw that the General Ledger was in a terrible state of disarray, and I couldn’t understand why.  I asked about Raj’s background and I was told that he had an Accounting Degree and an Advanced Degree in Programming from a university in India.  I asked to see his diploma and a copy was provided to me, however it was not in English.

General Ledger Maintenance does not require a staff member that has an accounting degree, as long as the staff member understands the basic functions of accounting and the basic requirements of the position and expectations under Generally Accepted Accounting Principles (GAAP) and expectations defined in Governmental Accounting Standards Boards (GASB) manuals.  I was told by City Management that Raj was a genius and well versed in GAAP and GASB and I did not have to worry about his many capabilities.

My first ‘Ooops’ was when I asked to see the files with back up for the Journal Entries that had been recorded.  Raj explained that he did not need hard copy back up for the journal entries.  If a journal entry was required he would enter it in the software module and the general ledger would accept it.  I asked about documentation for the entry and Raj tapped himself on the forehead with his index finger and said, “It’s all right here!”

Failure to understand the requirements of back up for journal entries combined with the Department’s failure to have the 2008 General Ledger balanced by September 2009, and receiving phone calls from the City’s outside auditor asking when I thought the General Ledger could be balanced so that their team could come into the City and get the 2008 Audit under way, gave me serious concerns about the City’s Finance Department to function with GAAP GASB expectations.

The City’s General Ledger for 2008 was out of balance by an enormous dollar amount.  The problem was blamed on the Software Module that the City had contracted for the 2008 operating year.  I contacted other municipalities who were using the product and it appeared that only Coatesville was having problems.  It was clear that the City’s knowledge of the product and implementation of the product was so poor that issues of enormous magnitude were unavoidable.  The underlying problem originated with data entry that was entered into the module as one sided entries for a prolonged period.  (Accounting entries need to balance, so a debit and a credit must be entered so that batch debit and credit entries will equal zero when debits are subtracted from credits.)  Additionally the City did not reconcile the opening 2008 balances to the 2007 Audited General Ledger Year End Balances.  The City had engaged a Temp Employee who was repairing the General Ledger on a line by line basis.  (The City’s General Ledger had tens of thousands of lines of data.)  He and Raj had been associates at an organization prior to Raj’s employment with the City.  He had been hired as a Temp by the City prior to my engagement to correct the 2008 General Ledger one line at a time.  Each week after I was hired in mid September 2009 I’d ask him to run a Trial Balance, and he’d tell me that he could not.  The data is not ready for a Trial Balance.  Raj supported his answer.  By the end of my third week of my employment I told him to run a Trial Balance whether or not the General Ledger was ready for a Trial Balance.  He said “ok” and he left for lunch.  When he returned from lunch he walked into Mr. Harry Walker’s City Manager’s office and he told Mr. Walker that he had been offered a permanent position in the City of Boston and he had to leave for the position that day.  By three o’clock PM he was gone.  The City’s General Ledger was still in shambles.

I had a contact from my previous employer, from an IT firm who was a software engineer.  I contacted him and he stated that he felt that he would be able to help the City resolve their unbalanced 2008 General Ledger.  Mr. Walker accepted my suggestion that we engage him for this task.  He arrived, reviewed the program and diagnosed that he could unravel the 2008 GL, identify the problems, and bring the program into balance, on a system’s basis not a line-by-line basis.  Two weeks later we had a balanced General Ledger.

Once the General Ledger was balanced it was determined that a large sum of cash could not be accounted for.  The City’s outside auditors came into the city and completed the 2008 Audit and they established that approximately $160,000 in cash could not be accounted for.

City Council determined that the 2008 Audit citing $160,000 of unaccounted missing cash required the services of a forensic auditor.  Services of three private citizens, with forensic auditing experience were offered to the City, by a third party organization that had knowledge of these volunteers.  The three volunteers would come to the City as a team (each with a different skill set of forensic experience) to review the City’s records.  Only two of the volunteers met with City Management the third decided that they did not have the free time to commit to the project.  Their skill sets were accounting and banking.  When the enormity of the task was explained to them only the auditor with accounting expertise agreed to assist the City.

At this point in time (mid 2010) Raj asked multiple questions about forensic auditing and what would a forensic auditor review and what would he be looking for?  I accessed Google and I printed up definitions of Forensic Auditing, and I asked Raj to read it and to ask any questions that I might be able to answer. 

At that point Raj said, “We are all going to jail.”  I asked him why he thought that the staff would all go to jail.  Raj’s response, “If you go back to 2005 you will find about two million dollars ($2,000,000).”

The volunteer auditor was in City Hall for several months.  He was working about three days a week, and he was digging through records not initially intended to be reviewed from the City’s viewpoint.  At one point the volunteer and City Council had a heated exchange and the volunteer determined that it would be best for all parties if he did not continue reviewing City documents.

Raj’s comments to me that ‘We are all going to jail’ and ‘If you go back to 2005 (5 years) you will find two million dollars’ were eye opening comments.  These two phrases continued to push me to review data records.

Data that was readily available in the Finance Department was 2008, 2009 and at that point in time 2010.  I spent long hours at home cross referencing 2008 records specifically.  The 2008 records strongly indicated that a forensic audit was required.  I continued cross referencing data from prior periods at home, and I cross referenced current cash receipts, billing and collection data, and the General Ledger’s data entries during working hours in my office.  City Management authorized me to document any discrepancies that I found relating to Finance Department records for professional Forensic Auditor review, which I did.

City Council took proactive steps in 2010 after the volunteer auditor resigned.  They engaged a firm to review the items that the volunteer auditor had identified, and referred to as ‘Special Legal’ when discussed in Council Sessions.

Special Legal supported that a forensic audit was in order and they were tasked by City Council in 2011 to craft a Request for Proposal (RFP), review the RFP’s when they were remitted, and select a firm to access City Hall and perform the long awaited Forensic Audit.

Raj resigned on a Monday in late August 2011.  In the period prior to this he had routinely spoken of getting a mortgage from a U. S. mortgage company for property in India.  At one point in time he mentioned that he was in the process of purchasing an apartment complex in India, and I wondered ‘how’?  He was paid less than $60,000 per year and he had a wife and child and his parents were living with them in a rented apartment in Millview Apartment Complex.  He was the only person in the household that spoke English, and the only household member that was employed.  A City of Coatesville staff member told me that Raj had confided to them that he had squirreled away $250,000 for a down payment on an apartment complex in India.  I reported this to City Management, finding it disconcerting that someone who had worked for the City for two years ($60,000 annual salary) was able to squirrel away a sum of money, in that magnitude.  City Manager told me that it wasn’t any of my concern and it was most likely an inheritance or he had been squirreling the money away for a prolonged period, far longer than his employment with the City.  Yes, both of the possible explanations were valid, but I would have been more comfortable if Raj’s comment to his co-worker had not been in confidence.  I would have been more comfortable if Raj had openly stated that he had been saving money for the purpose of returning to India as the owner of an apartment complex, for instance.

REVISED DOCUMENT BEGINS HERE

In early 2011 (late February if I remember correctly) Raj sent his family back to India, and it was stated that his father was going to manage an apartment complex that he (Raj) had purchased.  In the summer (June I think) Raj moved from Millview when his lease expired to an apartment in Malvern with a friend of his.  In the first weeks in August he sold his car.  He called in for days off in that time frame explaining that he was having car trouble, and then began coming to work in a rental car.  On Monday morning, August 22, 2011 Raj came to work at 10:00AM and walked into Mr. Rawlings City Manager’s office and announced that he had decided just that weekend to resign from the City.  He had purchased a plane ticket the day before and his decision to resign, unfortunately, was unanticipated but necessary due to the many pressures put upon him.

Prior to Raj’s August departure Special Legal had performed the RFP duties assigned to them.  Calls were coming into the Finance Department to get more information regarding staffing, volume of records, etc to get a better idea of how they would respond to the RFP, for pricing purposes.  It was apparent that a Forensic Audit would in fact occur, and it could be assumed that it was no longer a question of ‘if’ but now it was a matter of ‘how soon’.

Prior to the time that Raj resigned I had routinely reported to Council and Management that the Financial Reports were not accurate due to data in the General Ledger that was not being accurately maintained by the General Ledger Maintenance staffer.  He was directed to confirm the accuracy of the General Ledger entries prior to closing the books for the month.  I routinely found numerous errors in the closed books.  Raj insisted that he was overworked and my expectations were unrealistic.  His complaints were upheld by City Manager and Asst City Manager and I was told that I could not press Raj to perform so much work.  Therefore correcting journal entries were routinely made in periods after Financial Reports were due to City Council.

Immediately after Raj resigned the City Manager Rawlings advised me that the City was under a Hiring Freeze and the position would not be filled.  I alerted him that General Ledger Maintenance was a critical departmental position, and the department was already understaffed.  The position should be filled as soon as possible.  Mr. Rawlings advised me to begin to perform the duties myself until the position could be filled.  Shortly before my termination Mr. Rawlings had engaged the City’s outside auditing firm to send in the City’s lead auditor (one day per week)  to help with the General Ledger. 

On the surface accessing the City’s auditor as a temporary employee in the Finance Department may have appeared to be a great idea; however the auditor was unable to enter any data in the General Ledger, and he also resisted accessing the General Ledger to draft Journal Entries to reclassify data that had been entered incorrectly since he would be unable to audit the records in the New Year.  He refused to access the General Ledger citing Conflict of Interest issues.  Basically he could not access the City’s database to enter or reclassify data and then audit his own work in the New Year when preparing the City’s Financial Reports.  Accessing the General Ledger’s database would negate his ability to perform an Annual Audit. I believe that he may have been required to perform these tasks after I was severed, and this is the reason that the City of Coatesville’s Year End 2011 Financial Reports are ‘Statements’ rather than an ‘Audit’.

The fact was:  City Management had engaged (at great expense) a temporary employee who could not perform the one task that I needed him to perform.  (Have you seen the movie ‘The Perfect Storm’?  This was the Perfect Storm.)

COUNCIL MEETING ACTION ITEMS AS COPIED FROM CITY’S APPROVED MINUTES:

SEPTEMBER 26, 2011 COUNCIL MEETING (Public Session)

Consideration to authorize a Forensic Audit

Ms. Jorgenson made a motion to approve a Forensic Audit; Mr. Collins seconded the motion. Motion passed 5-0.

OCTOBER 10, 2011 COUNCIL MEETING (Public Session)

Consideration for Dan Becker (sic. Special Legal) to negotiate the price with Reinsel, Kuntz and Lesher for the Forensic Audit.

Mr. Brazzle made a motion to approve Dan Becker to negotiate the price with Reinsel, Kuntz and Lesher for the Forensic Audit; Mr. Simpson seconded the motion. Motion passed 5-0.

OCTOBER 24, 2011 COUNCIL MEETING (Public Session)

Consideration of the Forensic Auditor Engagement letter from Reinsel, Kuntz, Lesher, Inc.

Ms. Jorgenson made a motion to approve a Forensic audit engagement letter from Reinsel, Kuntz, Lesher, Inc. and authorized Daniel Becker to sign the letter; Mr. Collins seconded the motion. Motion passed 6-0.

On Thursday, October 20, 2011, I was called into the City Manager’s office and handed a document titled:  Administrative Leave with Intent to Terminate.  Only four days later, on October 24, 2011 City Council authorized Special Legal to approve the engagement letter with Reinsel, Kuntz, Lesher, Inc (Forensic Auditors).  

As the Finance Director I was committed to achieving all of the goals and challenges that were posed to me by Council at the time of my engagement in September 2009.   At my interview with Council in late August I was challenged with getting the 2008 Financial Records balanced and ready for the outside auditors to complete the 2008 Audit, manage the Finance Department to effect all billings and collections, all reporting functions, grant reporting, financial reports for the grants, cash management, accounts payable review and bringing the accounts payable ‘current’ (subsequently Pension Administration and Payroll were also brought under my control, although Pension Plans were in a state of disarray and Union issues were complicating the Plans’ compliance with Third Class City Pension Law).

A specific challenge aside from the others noted above that was discussed during my interview with Council was:  confirm that the operations within Finance Department are performed correctly and quiet the Daily Local Newspaper’s persistent criticism of malfunctions within the Finance Department.  I embraced all of the challenges imposed and I worked long hours to successfully perform these tasks.

Records that I had gathered with questions of mis-appropriation of cash/collections were in individual files on my desktop.  Beneath my desk were boxes of raw data and folders with types of data that noted collection errors.  All data was available with notations.  The Forensic Auditors would be able to ascertain if data I was presenting had been doctored, by me, based on the raw data supporting my files.  I was confused about the timing of being placed on Administrative Leave.

Mr. Gary Rawlings reported in an article in the Daily Local News (when he was terminated from the City) that I had been terminated due to inaccurate Financial Reports and that I spent too much of my time on the forensic audit.  (I was severed from the City prior to the Forensic Auditor’s engagement, so perhaps Mr. Rawlings intended to state that I had spent too much of my personal time (out of the office) reviewing records in preparation for the City’s pending forensic audit.)

The Forensic Auditor who was engaged by City Council in October 2011 is in the final stages of completing their report, if rumors that I’ve heard from City residents are correct.

I don’t know what time frame the forensic team was engaged to audit.  It would be virtually impossible for them to go back to 2005 since the records prior to 2007 were scant.  The 2008, 2009 and 2010 records (while I was at the City were available in their entirety).  A forensic audit could have been performed on the records, as they existed in the Finance Department on the day that I left.  I left the documented records and all of the City’s data records, organized in individual files on my desktop or by ‘type’ in boxes beneath my desk, with Mr. Kirby Hudson.  I had described the content of the files and boxes regarding the data records with Kirby Hudson on the day that I was severed.  I explained the significance of the data to him, prior to the point that he escorted me from the building.  He stated that he understood the data’s significance and he assured me that he would secure all of the records under lock and key in his private office.

So, coming back to focus:  will the Forensic Audit team (RKL) find that the City’s Finance Department had been functioning like a well oiled machine, with accurate data entry during the period they are analyzing?  Will they assess that the records were distorted due to employees’ insufficient knowledge base and the City’s poor implementation of the 2008 General Ledger Module?  Will they find reasonable answers for the files and documents that I had questioned?  Or, will the auditors have the same questions for the documents that I also questioned? 

I will look forward to reviewing the Forensic Audit Report, assuming that it will be posted at some point in time on the City’s web site.