Anson Stevens-Bollen
The response—an official one—is coming. Sometime. There's still an awful lot to do.
This past weekend marked seven months since the city of Santa Fe shamefacedly, albeit publicly, let its citizens know that things were not well when it comes to handling cash, tracking money and making sure no one's up to anything untoward with city finances.
On September 28, 2017, the city manager, finance director, attorney and public information officer gathered together a group of three reporters—one from each of the newspapers in town—and explained that the city had hired McHard Accounting Consulting to assess Santa Fe's financial procedures with an eye toward fraud prevention.
They suspected things were amiss. The three-woman team at McHard handed them a report that said things were worse than that.
City ledgers were full of temporary fixes that belied a general mystery behind cash handling and other ways to track city money. The processes for balancing the city's books were fraught with opportunities to fudge the numbers. Too many people had too much access to a computer system that is hopelessly outdated and designed not for government work, but for a manufacturing company. Improperly trained employees had created workarounds that were needlessly complex and stunningly exposed to fraud. The accounts payable division showed thousands more vendors than Santa Fe has residents.
The city leaders who huddled before reporters in the City Council conference room explained that they were already at work fixing some of what the report pointed out. Finance Director Adam Johnson had called for the review after he and senior staff noticed potential problems. City Manager Brian Snyder was on board and helped find the money to pay for the assessment. The city was in the middle of implementing a new software system to plug holes in vulnerabilities.
Today, however, Santa Fe's public information officer is the only city official left from that meeting who still holds his job. The city attorney retired. Johnson left to work for St. John's College. Snyder resigned from his post in late April. And, of course, there's a new mayor. The city's reaction to the fraud analysis has been slow to crystallize.
More than any other single factor, the McHard report defined Alan Webber's campaign for mayor. It has the potential to define his term in office, too. Webber will have to leverage his position as a true outsider at City Hall with few established allies without triggering enough land mines to trip up any meaningful reform effort. Time and again, the new mayor has said he wants to make Santa Fe the most user-friendly city in the country. His response to the McHard report is the key.
Matt Grubs
Alan Webber was on the phone with SFR in late September when he heard about the assessment. To a guy who spent a great deal of his working life paying attention to organizations that worked well—for employees, customers and the public—it sounded more than a little interesting. He has a dog-eared, underlined and sticky-noted copy of it in his office now, and it was never far from his reach on the campaign trail.
"The perception in the world is that it's very hard to do business with the city. It's not well-managed, historically," Webber tells SFR in a recent interview at his City Hall office. As they've been for the six weeks since he took office, the walls are mostly bare. There's a big whiteboard—that great corporate expositor of ideas—on the wall opposite his desk. Webber appears to work mainly off a series of three-ring binders and a laptop, befitting his image as a man on the go. He's running about 10 minutes behind, though it's mid-afternoon and he fares better than most physicians in that regard.
"The McHard report was a big part of the campaign. Not just my campaign, but the campaign texture of virtually everyone who ran in the last election," Webber says of the race that ended in March and began, coincidentally, almost exactly with the review's release.
"When the McHard report came out in September, one reaction was that this was a protective measure to cover your rear end," the mayor surmises. He thinks that sells short the political capital expended by the city to undertake such a review.
"They did it at the perfect moment, when the city was pivoting to a different governing structure and at a time when there's a great deal of interest in the community for change and for evaluating the ongoing operations of the city … [and] how the city does business," he says. "I thought it was a remarkable description of all the things the city needed to fix."
The public doesn't know much about what those fixes will look like because officials have offered few specifics.
What's come to light in the seven months since the report is that much of what the city will do to respond to the fraud prevention assessment depends on new computer software that impacts every part of city operations.
Deputy City Manager Renée Martinez is in charge of implementing the city's enterprise resource planning software. Most everyone just calls it the ERP. The project went out for bid in January 2016 and currently has a price tag of $4.2 million. The city decided on a three-part solution, one part of which has been completed. Most city employees now use an automated timekeeping system called Kronos. The other two parts are programs called Munis and EnerGov, created by a company in Texas.
Together, they comprise the ERP and promise to dramatically modernize the way the Santa Fe goes about its business behind the scenes. If it works, the new suite of software programs will reshape the way the people interact with their government, too. For example, it promises a way to apply for business licenses online.
"Online business licenses mean you go from something that takes two weeks right now to 15 minutes," Joshua Elicio, the interim director of city's Information Technology and Telecommunications Department, tells SFR. "From a technical standpoint, if you have 100 applications online and they're approved in 15 minutes, that's roughly a day or two … versus what would take a month to do."
The city's current ERP was designed for private-sector companies. The version the city runs uses terminals that have basic green-screen displays. It's beyond outdated. In fact, there's a sizeable chunk of the population right now that has no idea what a green-screen display looks like.
At a presentation to the City Council in March, Martinez, the deputy city manager, told the governing body that the ERP would also address 83 different issues brought up by the McHard review. Many of them are security and access issues that she's working on with Elicio. Those will further tighten the security net around the all-too-broad sphere of people at the city who can get into parts of the financial structure where they have no business being.
The city will define access by each person's job title, rather than the individual who holds it, giving employees "access to things that you need for your job, but nothing more than that," Martinez explains to SFR on a recent afternoon.
That work is happening now, and, to some extent, was happening even as McHard was completing its assessment.
"A lot of that is going to get done with the implementation of the ERP, but the ERP is 12-18 months away. So that's long-term," says former City Manager Brian Snyder. "That's part of the reason why we've struggled to get a true management response. But there's a lot of these things with [respect to] security or training that we need to do now."
The city has sought out a select group of employees to help with the transition to the new software system. They'll lead construction of the software models for their part of the city and others will serve as subject matter experts. For the extra work, Martinez suggested a pay bump of 10 to 15 percent. Snyder agreed on the raises and OK'd them the day Webber was sworn in as mayor.
The pair of city managers didn't tell the City Council, though, and when word of the raises spread, Webber caught flak for it. The mayor says that, like the council, he wasn't told of the pay hikes. At first, he called it poor communication, but when City Councilor JoAnne Vigil Coppler pointed it out that it might—and did—violate city policy that required letting the City Council know about such pay increases, Webber asked Snyder to resign. He did. Martinez still has her job, though Webber has said that with a full-time mayor, he no longer sees a need for a deputy city manager.
As the city prepares whatever formal response it plans to give to the McHard report, it does so with a temporary city manager, city attorney and city finance director.
SFR asked the city for written departmental responses to the McHard assessment. A city spokesman initially said no such documents existed, then later acknowledged that departments and divisions mentioned in the report were asked to reply to the report's findings. The city has not voluntarily made those responses.
Matt Grubs
The breadth of the mismanagement of the city's financial tracking system detailed by the report is staggering.
When staff from McHard showed up in Santa Fe, among the first things they asked to see was the the audit trail for Santa Fe's accounting software. Not only was the audit trail not available, but it had never been turned on. Apparently, reviewers found, the city wanted to speed up the system's performance and save memory.
City staff now disputes this claim, saying the audit trail function for the financial software has always been turned on. They acknowledge, though, that using it effectively would take a herculean effort.
"It would take weeks, if not months" to decipher the audit trail code, says Elicio, the IT department head. The software is too complex to be useful. "You just don't go and say, 'Show me the audit file.'"
With alarming regularity, employees were changing the city's books to match bank account statements. What's more, without adequate procedures or oversight, they were doing so without investigating why there was a discrepancy.
Accounts which should have been closed long ago were still being used, reviewers said, and reconciling the city's books at the end of the year couldn't happen without creating accounts to hold money that didn't match what should be in the ledger. In short, it was a mess, the reviewers said—and all those workarounds made the city's books ripe for fraud.
Some of what McHard found was tragicomic.
The city's Internal Audit Department consists of one person in a rented office outside of City Hall, which she has outfitted with an ad hoc yoga studio and where she was using the kitchen to roast root vegetables when McHard staffers arrived. They said Liza Kerr didn't like to go to City Hall. Kerr did not return calls from SFR, though she's challenged both the report's findings and its tone in other press accounts.
The city's auditor had already been looking at some of Santa Fe's processes. Kerr raised her own red flags about the cashier's office that were underscored by McHard. There, supervisors were maintaining a "jar" of cash that they'd use to resolve shortages in cashier's drawers. Any overages went in the jar. At the end of the month, if there was money left over, the staff would go out to lunch. On the taxpayer dime.
Many employees weren't blind to the problems, but when they began asking questions about internal controls that could protect against fraud or loss, the report says they were bullied by Finance Department personnel. That's a huge red flag for fraud examiners, because bullying is often the telltale sign of large-scale fraud.
So, too, was the fact that a number of employees never seemed to take vacation. When fraud's at play, experts say those involved are reluctant to step away from their jobs for fear of losing control of the scheme.
The city forwarded its findings to the Office of the State Auditor. Since the report wasn't a true audit, it's now in the hands of the independent public accountant who is preparing the city's latest annual review, which the law requires. Santa Fe has asked for two separate extensions, pushing the deadline to later this month.
"It's always a concern when government entities don't have the right checks and balances and the proper procedures in place to safeguard taxpayer money from corruption," State Auditor Wayne Johnson tells SFR. He gave credit to Santa Fe for doing its own review.
The city says it hasn't found proof of fraud. McHard recommended that it dig deeper, and it has in some areas. Snyder has said Santa Fe isn't finished with its review and hiring a forensic auditor to look beyond the red flags for actual crimes still isn't out of the question.
In fraud examination circles, three things have to be present for fraud to occur: opportunity, rationalization and pressure. The first two are self-explanatory, but the term pressure refers to a need for cash. Often that's secret, and often there's an urgency that drives behavior.
Meanwhile, senior city staff has been working hard to ensure the city's formal response to the report comes down far harder on specific processes than it does on specific people.
"There were definitely some hurt feelings. I heard from people in the Finance Department who said, 'I feel like we look like failures,'" Martinez says of the weeks after the report was released. "I can understand that. … The important thing is not to have that stop you in your tracks, but to understand that criticisms are really to incentivize us to improve the way we do things."
Snyder and Martinez say they've seen firsthand the ability of line-level city staff to sit down, analyze a payment process and change it for the better. Along with the mayor and, presumably, other department heads, they've been working to frame the McHard findings not as indictments of specific people, but criticisms of processes that are outdated and desperately need modernization.
But while city managers have been trying to depersonalize the process, it's impossible to avoid some fallout.
The day they announced the report in September, they also revealed that two employees were being placed on paid administrative leave. Teresita Garcia, the city's assistant finance director, has since returned to work, though she's now on medical leave. Garcia is suing the city for the release of information related to her suspension. Robert Rodarte, the purchasing officer, is still on leave. The city has paid him more than $47,000 for that time. The report singled him out for failing to ensure the people he supervised understood basic procurement rules laid out by the state. Rodarte, the report says, told reviewers there hadn't been any training in the past 10 years. He called some employees "untrainable." Meanwhile, he had been traveling throughout the state to conduct training for other agencies.
It's likely the city will act on both Garcia and Rodarte's positions soon, and in the process, reveal more about the suspensions.
For the rest of the city employees, the fallout from McHard will primarily be in the way they go about their jobs. Webber says gaining employee buy-in is fundamental to the city's response. That will be a major challenge, regardless of how many bells and whistles are attached to the new software system.
"Everybody's in favor of change. Nobody's in favor of being changed," Webber says, using an idiom from his days at the Harvard Business Review. "People have worked here for 20 years or 10 years or however long, and they have a sense of 'I know how hard I'm working. I know what I'm doing.' And then along comes a new mayor who says we're going to do it differently."
There will no doubt be a cost to the city in both cash and human capital as it decides how to officially address McHard. The cost of doing nothing, however, could be far greater.
