City issues, then removes, new financial statements
Hyattsville has removed links to the original fiscal year 2021 financial statements from the city website
The city of Hyattsville removed links to previously issued fiscal year 2021 audited financial statements from its website after residents raised concerns about irregularities in expenditures and fund balances. On April 2, 2024, a link to a document titled “FY21 Audited Financial Report (Re-issued April 2, 2024),” appeared on the city’s website but the independent auditor’s report lacked a signature, a fundamental requirement of an audit. City Treasurer Ronald Brooks said in an email “the re-issue [sic] draft report was inadvertently posted.” Both documents remain accessible on the city’s website via search engines.
In the original FY 2021 financial statements released in February 2024, the city said it had spent $923,065 on the fire department in FY 2021, significantly exceeding the budgeted amount of $50,000. According to emails obtained by Route One Finance, Brooks wrote on March 14, 2024 in a response to constituent questions about the overage that he would “discuss with auditors in the morning.” On March 18, 2024, Brooks acknowledged the error via email, saying that the “expense [for the fire department] should have been $50,000.” Brooks also said the city would “do a ‘re-issue of the financial statements’ and re-file the financial statements.”
On February 19, 2024 Lindsey + Associates, the City’s independent auditor, issued a report saying that, in their opinion, the city’s original financial statements with the $923,065 fire department expenditure were “present[ed] fairly.” The statements were then posted on the city website. Route One Finance contacted the audit firm to ask if the February opinion had been withdrawn from the original financial statements released in February, and the email was forwarded to Brooks, who responded and wrote that Lindsey + Associates had not withdrawn the opinion.
Auditing standards require auditors who become aware of a significant accounting error after the release of an audit to “discuss the matter with management” and “determine whether the financial statements need revision.” Brooks’ emails indicate that he had discussed the expenditure error with the auditors and decided to revise the financial statements, estimating they’d be ready within a week.
Standards also require auditors to decide whether management is taking appropriate action to ensure that outside stakeholders know that the misstated financial statements are not to be relied upon. If the auditor believes management’s action is insufficient, then the auditor is to “take appropriate action to seek to prevent reliance on the auditor's report.” Brooks said in an email, “I am not aware of any requirement for the City to reach out to individual users of the audit report to disclose an issuance or re-issue of an audit, other than what is required by the SEC under the continued disclosure requirement.”1
The original FY 2021 financial statements, in addition to being posted on the city website, were presented to city council on March 4, 2024 by auditor Robert Diss and Brooks. At the presentation Councilmembers Danny Schaible (Ward 2) and Emily Strab (Ward 2) asked questions about a fund balance discrepancy from prior year reports. Brooks and Diss denied that there was any inconsistency.
Changes to the financial statements
Despite the February independent auditor’s report and Brooks’s and Diss’s March 4 denials, Route One Finance has noted several changes between the financial statements posted in February 2024 and those posted on April 2, 2024:
Fire department expenditures were revised from $923,065 to $50,000, a 95% decrease with respect to the original amount.2
The city’s net position changed from $3.2 million to $4 million, a 28% increase with respect to the original amount.3
A paragraph representing that the city evaluated subsequent events through February 19, 2024 was entirely deleted.4
The beginning budgetary basis general fund balance in the required supplementary information was revised from $16,727,643 to $21,964,310.5 The original beginning fund balance of $16.7 million in the report issued in February 2024 was inconsistent with the $21,967,271 ending fund balance reported in the same schedule in the FY 2020 financial statements (issued in June 2023).6
The FY 2021 ending budgetary basis general fund balance had been revised from $17,141,909 to $23,251,641, a 36% increase with respect to the original amount.7
Continuing disclosure obligations
According to the city’s2019 general obligation bond documents, the city is required to post audited, if available, or unaudited financial statements to EMMA by March 31 following the close of the fiscal year. The city posted FY 2020 unaudited financials on March 31, 2021, but did not post FY 2021 unaudited financials until July 13, 2022. EMMA shows no records of FY 2022 or FY 2023 audited or unaudited financial statements being posted, which were due on March 31, 2023 and 2024, respectively.
The city has informed the state treasurer’s office that it intends to issue $25,000,000 of “public competitive” debt between January 1, 2024 and July 31, 2024. However, the city’s bond rating (a necessity for most public municipal debt offerings) was previously withdrawn by Moody’s in August 2022 for “insufficient or otherwise inadequate information to support the maintenance of the rating.” At the time, Hyattsville had not released audited financial statements for FY 2020, which were one year and nine months overdue to the state. The city currently has $11,000,000 of short-term debt connected with the public safety building at 3505 Hamilton Street maturing on August 30, 2024.
The city is currently 1 year and 5 months overdue on its FY 2022 audit and 5 months overdue on its FY 2023 audit. Audits are due to the state by the end of October following the end of the fiscal year. The last audit issued within one year of that deadline was FY 2008. Cindy Zork, city communications manager, wrote in an April 5, 2024 email that Brooks “expects to have the FY 21 audit signed and re-uploaded to the City’s website within the next two weeks.”
Pattern of errors and weaknesses
Aspreviously reported in the Hyattsville Life & Times, this is not the first erroneous financial information that city staff has presented to council and the public. In spring 2023, staff initially told council in budget-related presentations that the city would begin FY 2024 with an estimated $28.2 million in the general fund, only to revise that number to $21.2 million after this reporter asked questions about mathematical discrepancies in the presentation slides.
Route One Finance obtained emails between Brooks and city elected officials in September 2023 where Councilmember Joanne Waszczak (Ward 1) asked Brooks about “significant difficulties and challenges” in the audit process and for him to provide “actual language.” Brooks provided portions from FY 2011, 2012, 2014, 2016, and 2017 letters from auditors, but did not mention that the FY 2018, 2019, and 2020 letters from CohnReznick, the city’s former independent auditor, contained nearly identical language about audit difficulties to the FY 2016 and 2017 quotes he provided in the email.8
Route One Finance also acquired FY 2018, 2019, and 2020 letters from CohnReznick to city council that were not included in the audited financial statements available on the city’s website. These letters state that the auditors found a “material weakness” in internal controls in all three years and note that it is a “repeat finding from the prior audit.” Auditing guidelines define a material weakness as a problem that causes a “reasonable possibility” that important financial statement errors will not be “prevented or detected on a timely basis.”
City council members were not the only ones asking questions. Brooks appeared before the state Joint Committee on the Management of Public Funds in early October 2023 and answered legislators’ questions about the city’s overdue audits. Delegate M. Courtney Watson (D-Howard) noted that, other than the county of Dorchester, Hyattsville was the largest government appearing before the committee with late audits, saying, “Your work and our work to oversee your work affects more Maryland citizens than any of the others.” Brooks told the committee that the city was five years late on its audits when he became treasurer, but a review of the city’s audits showed that when Brooks became treasurer in November 2013, the oldest overdue audit was FY 2011, at that time just over two years past the state deadline. Brooks succeeded Elaine Stookey, who resigned after city council learned about late audits.
Lindsey + Associates did not provide their own response to questions. Route One Finance also contacted the city with a separate set of questions than those sent to Lindsey + Associates. Zork wrote in a response to those questions that Brooks would not be able to respond before publication due to professional responsibilities and a stated family emergency, but that he could provide answers by the end of next week. Route One Finance intends to publish additional information when it is forthcoming.
April 20 Update: Route One Finance published an article with additional information from Brooks on April 17 and a follow-up article on the reissued financial statements on April 20.
AU-C 560 .A21 contains guidance on how management may handle a financial statement revision, including notifying users of the financial statements not to rely on the previous statements and auditor report and disclosing the revision in reissued financial statements.
Page 22 in both statements
Page 18 in both statements
Page 32 in the original statements
Page 67 in both statements
Page 51 of FY 2020 financial statements, required supplementary information
Page 67 in both statements
The language Brooks provided for FY 2016 and FY 2017 is as follows: “The completion of our audit was delayed due to the city being unable to prepare, in a timely manner, closing entries, account reconciliations and analyses, and supporting documentation needed by management and the auditors.” The language one of the FY 2020 audit letters addressed to the city council is as follows: “Although we ultimately received full cooperation of management and believe that we were given direct and unrestricted access to the City's officials and senior management, the completion of our audit was delayed due to the City being unable to prepare, in a timely manner, closing entries, account reconciliations and analyses, and supporting documentation needed by management and the auditors. As audit procedures were applied to various accounts, additional adjustments and review was required to prevent potential misstatement of the financial statements.” (emphasis added)