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Report clarifies Tower ambulance fund balance

Answers critics’ claims of misappropriations

Marshall Helmberger
Posted 10/13/21

TOWER— For nearly three years, city officials in Tower have faced allegations that they “stole” nearly a million dollars in apparent profits from the city’s ambulance service …

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Report clarifies Tower ambulance fund balance

Answers critics’ claims of misappropriations

Posted

TOWER— For nearly three years, city officials in Tower have faced allegations that they “stole” nearly a million dollars in apparent profits from the city’s ambulance service to finance city projects and other spending.
Annual reports from the city’s auditors appeared to bolster those allegations, as they indicated huge fund balances in the ambulance fund, which tipped the scales at nearly $900,000 in 2018.
In some cases, residents of both the city and neighboring townships that pay into the city’s ambulance replacement fund, were calling for the city to repay the money to the ambulance service.
Yet, following several months of investigation, including lengthy discussions with the city’s auditors and a review of more than 33,000 journal entries between 2006 and 2018, city officials revealed at Monday’s meeting of the city council that much of the fund balance never existed.
Rather, it was a case study in how the rules of government accounting don’t mesh easily with a medical payment system where the bills that providers send to insurers rarely coincide with the actual payments that the provider will ultimately receive.
“What the auditors record in the fund balance is the amount billed for ambulance services,” according to a city council agenda item report drafted by Acting Mayor Dave Setterberg with support from Clerk-Treasurer Victoria Ranua. “When we bill for the ambulance, we may bill $3,000 and onlyreceive $500,” noted Setterberg at Monday’s meeting.
The disparity is a reflection of the different ways that the city and government accountants track revenues and expenditures. The city of Tower has long operated on a cash basis, which means that revenues and expenses are recorded in the city’s bookkeeping program as the monies associated with them either come in or go out.
Government accountants, on the other hand, record revenues and expenditure as they are billed or incurred, even though it may be weeks or months before the funds arrive or the bills are paid. At the end of the fiscal year, the auditors convert the city’s financials from the cash method of recording to the accrual method. While the shift doesn’t impact most of the city’s funds to any great extent, that’s not the case with the city’s ambulance fund.
The council report provided this week explains: “Unlike other businesses or government activities, the amount received for medical services is nearly always LOWER than the amount billed. This is unlike our Hoodoo Point Campground, airport fuel or utility funds. What we charge for a nightly camp site, a gallon of aviation gas, or for quarterly utility usage is typically what we receive with only minor adjustments for canceled reservations, fuel equipment malfunction, or late utility payment. The city of Tower or its billing contractor bills out for ambulance services provided. What the patient’s insurance company pays is typically less or much less than the amount billed.”
This discrepancy isn’t a problem for a city that manages its books on a cash basis, since the city only enters the amount of money actually received from an ambulance bill. But the auditors, using the accrual method of accounting, calculate ambulance revenues based on what was billed, not what actually came in the door. That means that the ambulance fund balances shown in the audit reports never existed, at least not as cash, and in nowhere near the amounts that the auditors described.
The disparity is a reminder that government accounting is very different from the ways most people track money, a point that Setterberg said the city’s auditor Devin Ceglar made clear during a meeting to discuss the issue. “He said most people shouldn’t be reading audits thinking that they understand them,” recalled Setterberg. “That was an eye opener.”
In part because the auditors never explained this disparity in their annual reports, it allowed a dispute to linger for years over an ambulance fund balance, supposedly tapped by the city to pay for non-ambulance purposes, that was largely a fiction.
By exaggerating revenues to the city’s ambulance service, the auditors also exaggerated the service’s true fund balance. And because the auditors are required to balance city funds at the end of the year, the auditors routinely used these apparent ambulance service surpluses to cover, at least on paper, deficits that appeared in other city funds. Those calculations were reflected in a “Due To-Due From” analysis that the auditors provided each year, which suggested that the city had borrowed heavily from the ambulance service when there’s little reason to believe that’s the case. Setterberg’s investigation did find two cash transfers from the ambulance service to the general fund, both made in 2014, although neither amounted to more than a few thousand dollars and appeared to be correcting entries.
The auditors do acknowledge that many of the funds they have included in their accounting as ambulance revenue will never be received given the disparities between bills that go out and the actual payments received. Indeed, they track that amount in a separate fund, which they have dubbed “Allowance- Doubtful Accounts.” Exactly how much that totaled isn’t entirely clear, notes Setterberg, because of the confusing nature of the thousands of journal entries he reviewed as part of his investigation. Both Setterberg and Ranua noted that many journal entries in the past were not well supported by notes, an issue which she said the city had already fixed going forward.
Due to the lack of supporting notes with all the journal entries, Setterberg acknowledged it was difficult to track some of the adjustments made over time. So, he used another method to determine the actual cash balance that the service should have available, by totaling all the revenues and expenditures entered into the city’s Banyon bookkeeping software between 2009 and 2018.
“Rather than trying to sort through the quagmire of all the journal entries, we know we have all the revenues and expenditures entered in the system,” he told the council.
That analysis showed a total from all sources of revenue of $3,027,352 versus $2,596,024 in expenditures, for a total ten-year fund surplus, or balance, of $431,328. That’s less than half of the $883,000 fund balance that the auditors reported in 2018. In both cases, those balances included $125,990 in dedicated township contributions for ambulance replacement as well as $133,470 from an insurance settlement from a 2014 fire that damaged the former fire/ambulance hall garage, which Setterberg assumed was dedicated for future capital expenses. The ambulance service, to date, has not replaced the garage, which was ultimately sold to a private buyer and moved to a new location.
According to Setterberg’s analysis, the ambulance service’s actual unassigned fund balance from 2009-2018 totaled just $171,868. How much of that money was still in the city’s ambulance account at the end of 2018 is difficult to determine since ambulance funds were not segregated from the general fund checking account at that time.
Ranua addressed that issue early on by establishing a separate bank account for ambulance operations, which will provide for easier financial tracking going forward.
While some have called for a forensic audit to dig further into the ambulance fund, Setterberg said it’s pretty clear to him that there was never a large balance of actual cash within the ambulance service.
Ranua said the situation helps to illustrate the value of good budgeting. “We should be amending the budget during the year so we don’t end up having these strange conversations about monies that never existed and which we’ll never receive.”
Other council action
In other business on Monday, the council:
• Approved advertising its mayoral vacancy for two weeks, with a deadline for application of Nov. 1, 2021.
• Appointed Setterberg to serve in former Mayor Orlyn Kringstad’s place on both the Tower Economic Development Authority and the Gundersen Trust.
• Heard from Ranua that several city positions currently paid with salaries do not meet the standards for salaried workers and should be converted to hourly. She said she’ll be discussing the job duties and time involved in the various positions with the employees to develop a recommendation for hourly wages. Members of the city council will likely go back to being paid on a per-meeting basis.
• Gave the first reading to Ordinance 2, which relates to utility connections.
• Heard from council member Joe Morin that he had received an estimate for repairs to the city’s grader totaling $21,000. “They feel with the repairs, the grader could be in working order again,” he said. Morin said he is also reaching out to companies about the possibility of leasing a grader.
• Took no action on the possible sale of the city’s former police vehicle.
• Agreed to submit the ambulance replacement contract to area townships for signature, as is. “We can’t delay much more on this,” said council member Kevin Norby. Setterberg agreed, noting that some townships are holding off on paying their ambulance subsidy until the contract is in place.
• Tabled action on a possible adjustment to the run requirement for the city’s EMTs and EMRs. Norby and Setterberg will meet with ambulance director Dena Suihkonen ahead of the next meeting to discuss the issue.
• Tabled action on a request from former maintenance supervisor Randy Johnson for the city to pay him $1,773 for lost investment income he would have received had the city transferred funds in his name to a state retirement program to cover his ongoing health costs. The city was supposed to transfer the funds when Johnson retired in 2018, but never did so, and Johnson said he lost investment income as a result. The council discussed the issue at length and seemed to agree that paying him was appropriate, although they wanted some more time to consider what amount would be appropriate.

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  • Lee Peterson

    The convoluted report on the money missing from the Tower Area Ambulance Service account is more smoke and mirrors, almost funny to read. Regardless, the story between the lines is pretty easy to read. Townships beware.

    Friday, October 15 Report this