Performance audit finds governance and finance weaknesses; auditors report about $1.4 million in potential fraudulent card charges

Auditors told the Seat Pleasant City Council that a performance audit of city revenues and expenditures from July 2019 through June 2023 identified 13 findings across governance, ethics, policies and financial controls and that the city reported potential fraudulent credit‑card transactions totaling approximately $1,400,000.

The audit presentation said the review covered “all the revenues and expenditures of the city for the period of July 2019 through June of 2023,” and that the team “had 13 audit findings and related recommendations,” auditor Lisa Newman said during the council meeting. The auditors recommended the council restrict itself to policy‑making per the charter, update policies and procedures, improve procurement and documentation practices, and strengthen cash and investment controls.

Why it matters: The report identifies systemic weaknesses across multiple administrative functions — governance, procurement, hiring, travel, revenue recording and cash management — and documents delayed annual audits and large uninsured cash balances, items that affect transparency and financial risk for the city.

Audit highlights and council response

- Governance and roles: Auditors told the council the charter assigns policy duties to the council and day‑to‑day operations to the city manager; the auditors recommended clearer internal routing for employee complaints and that the council “ensure it’s restricting its activities to policy setting as authorized by the charter,” Newman said. Interim City Manager Demetrius Harris told the council staff and leadership were already implementing many changes and meeting regularly to catch up on controls.

- Policies and procedures: The audit found many city policies and procedure manuals in draft form or out of date, including the accounting manual last revised in 2014. Auditors recommended the city establish and maintain current, separate procedures for budgeting, procurement and accounting to reflect the new accounting system and state requirements.

- Cash management and investments: Auditors reported that bank balances exceeded FDIC coverage and that, in fiscal 2022–23, the average uncollateralized amount was “almost 5,300,000.0” (as stated in the report). Auditors recommended updating the investment policy, executing collateral agreements with the financial institution, and periodically moving available funds into investments.

- Business personal property tax: The auditors’ analysis showed Seat Pleasant’s business personal property tax rate is substantially higher than comparable municipalities and the statewide average; the report said surrounding rates ranged from about 0.55 to 2.25 for FY 2023–24 while the city’s rate was described as about 12 percent. Auditors recommended evaluating alignment with neighboring jurisdictions.

- Procurement, expenditures and travel: The audit found limited or missing contract documentation for vendors, missing supporting documentation for a sample of expenditures (though documentation improved over time), inconsistent travel reimbursement policies between elected officials and staff, and late retirement contribution payments for multiple fiscal years that were only paid in FY 2024.

- Revenues and audits: Auditors said revenue recording was limited for FY 2022–23 and that auditors could find supporting documentation for only 12 of 62 selected ledger transactions; they also noted that the state requires annual municipal audits by Oct. 31 and that several audits were late (the 2020–21 audit completed April 2024; the 2021–22 audit completed Oct. 2024; the 2022–23 audit was ongoing as of Jan. 25). The auditors recommended continuing efforts to complete timely audits.

- Potential fraud: Auditors disclosed, as required by auditing standards, that credit‑card statements showed potential fraudulent transactions totaling approximately $1,400,000. The audit presentation said the city had canceled the card, had not yet issued a replacement, and had notified federal authorities; the presenter said law enforcement review was ongoing. When Councilman John asked for an update, council leadership said the matter would be discussed in closed session.

Quotes and attributions

Lisa Newman, presenting the audit, summarized the scope: “Our audit covered all the revenues and expenditures of the city for the period of July 2019 through June of 2023.” She also told the council: “We had 13 audit findings and related recommendations.”

On the potential fraud, Newman said auditors were provided credit‑card statements showing “potential fraudulent transactions totaling approximately $1,400,000.”

Next steps directed or discussed

- The council scheduled a closed session to discuss the potential fraud and related personnel or investigative matters.

- The auditors recommended, and council members discussed, that city management update and finalize policies and procedures, improve procurement recordkeeping, review investment and collateral arrangements with banks, adopt a formal budget calendar and forecasting process, and institute annual fraud‑awareness training.

- Interim City Manager Demetrius Harris and finance staff said they are working to complete the outstanding audits and to address recommendations; the finance director reported the FY 2023 audit was proceeding and that bank account collateral letters of credit had been obtained.

Official actions on the meeting record

- Approval of the meeting agenda: The council approved the meeting agenda by unanimous vote earlier in the session (no individual roll call tally recorded in the transcript excerpt).

- Motion on boards & commissions application: A motion to approve a new consolidated board/commission application (the document that removes the so‑called “box” question about convictions) was moved and seconded but failed on the council floor. The vote, as recorded on the meeting transcript, was 1 yes, 3 no and 3 abstentions; the measure therefore failed.

Context and what the council said about priorities

Council members and the mayor acknowledged the breadth of the audit work and said they would prioritize implementing the recommendations. Mayor Porter and other council members repeatedly emphasized the need for continuity in administration and for finance and human resources to finalize updated procedures. Several council members asked for more detail on particular items (for example, the fraud investigation and the bank collateralization) and for follow‑up reports to committees, particularly the finance committee.

What the audit does not say

The auditors’ presentation and the meeting transcript record recommendations and descriptions of findings but do not represent council or staff admission of criminal liability. The auditors reported potential fraudulent transactions and that the city had notified law enforcement; any criminal determination is the responsibility of law enforcement and courts.

Ending

Council members and staff said they will return to the audit recommendations in committee and in future meetings and that a closed session will address the sensitive fraud‑related matters. Auditors provided the council a full written report and the presenters said the council would receive the extended report for more detail on the items summarized during the meeting.