(The Center Square) – A state audit into Spokane flagged over $170 million in misstatements on Thursday under Mayor Lisa Brown’s oversight after she faced similar issues at the Department of Commerce.
Most of the misstatements were regarding classification and timing errors that the city has since fixed, so administration isn’t in a massive hole. The issues just distorted the amount of money in each fund, when pandemic relief funding was considered “earned” and overstated how much the city had spent.
Chief Financial Officer Matt Boston told the Spokane City Council on Monday that they had nothing to worry about. The city received a clean, unmodified opinion for the most part, except for one finding of material weakness related to financial reporting and another regarding compliance with federal grants.
“All of those misstatements that I just spoke to have been corrected,” Boston told the council on Monday.
The misstatements include understating the general fund by $18.6 million, while overstating the solid waste fund by $1.2 million, the water/sewer fund by $5.8 million, and the aggregate remaining funds by $11.6 million. There was also $7.4 million in investment interest earnings that “did not exist.”
According to the audit, city staff misclassified pandemic relief funding, resulting in an understatement of $14.6 million in “unearned revenue liability.” That issue then caused city staff to understate unearned revenue liability in the citywide financial statements “by $14.6 million and revenue by $22.2 million and overstating beginning net position by $36.9 million and ending net position by $14.6 million.”
The accounting team also misclassified and removed internally generated activity, which led to the city “understating internal balances in governmental activities by $56.3 million and overstating general government expenses in governmental activities by $32.8 million,” according to the financial probe.
The audit pinned the blame on high turnover in the city’s accounting positions that oversee this work.
Brown isn’t directly responsible for the accounting, but her administration oversees the departments and employees that do the work. Before taking office, Brown led the Washington State Department of Commerce, which also faced critical audit findings in 2020 and 2022 during her tenure.
According to the 2020 findings, the Department of Commerce lacked adequate control and failed to properly vet those who received relief funding. The recent audit in Spokane also flagged debarment issues, meaning the city didn’t verify that recipients aren’t suspended from receiving relief funding.
The audit into Spokane tested 13 instances, of which Spokane failed to verify one recipient who had received nearly $50,000. The city later addressed this issue, but it also occurred a few times in 2023.
According to the 2020 state audit, Commerce also had issues vetting recipients, but it doesn’t provide details about who those organizations are. While it’s unclear if the organization is debarred, according to Philanthropy Northwest, Commerce awarded $50,000 to a Spokane nonprofit in 2020, only a week after police arrested the founder, who was a former NAACP vice president, for strangulation.
According to reporting by the Spokesman-Review, Le’Taxione had also been convicted of assaulting an officer, attempted murder and first-degree robbery in the past. Another audit of how Washington spent pandemic relief funds from July 2022 through June 2023 revealed 87 findings, totaling $1.17 billion in questionable costs, with more than $79 million of that attributed to the Department of Commerce.
Brown served as the director from February 2019 to March 2023, including eight months of that audit.
The probe also flagged $114 million deemed “likely improper payments,” in addition to the $79 million.
“The findings in the audit make clear that there is no evidence of fraud or misuse of funds,” Spokane Communications Director Erin Hut wrote in a statement to The Center Square regarding the recent audit. “Instead, the issues identified were related to how funds were reported. Much of this was holdover practice from prior leadership, and corrective measures have already been implemented by this administration to ensure accurate reporting moving forward.”
