State Comptroller Thomas P. DiNapoli on Friday released a local government audit that criticizes city officials for poor record keeping and failing to file required financial reports.
DiNapoli’s report is critical of incumbent city Treasurer Mike Gifford and other city officials for not maintaining accurate and complete financial information to adequately manage city operations.
“The treasurer did not maintain accurate accounting records,” reads the audit. “The treasurer filed the required annual financial reports late for fiscal years 2016 and 2017 and did not file the reports for 2018 or 2019 as of Dec. 2, 2020. Without accurate financial records, the Common Council did not have accurate financial information to monitor the city’s financial condition, and does not know the city’s current financial condition.”
Gifford, who has served as the city’s elected treasurer since the 1990s, announced in December he would not seek re-election in November. He was the first of a mass exodus of incumbent leadership for Johnstown with Mayor Vern Jackson, Councilman-at-large Craig Talerico and 2nd Ward Councilwoman Kathi Iannotti all deciding not to run for re-election.
Three candidates have filed political party petitions to run for city treasurer to replace Gifford: Two Republicans –1st Ward Councilman Bradley Hayner and Thomas D. Herr — and Democrat Thomas Suydam, a certified public accountant.
Gifford could not be reached for comment Friday.
Gifford was at the center of controversy in September when he seized control of two bank accounts containing approximately $3.2 million in water revenue from the city’s independently elected Water Board and its clerk. The water revenue accounts factor into DiNapoli’s criticism of Gifford for not filing city financial reports in 2018 and 2019.
In September Gifford said he needed control and oversight of the water revenue accounts in order to accurately file the needed financial reports for 2018 and 2019. He said legal disputes between the city government and the independently-elected Johnstown Water Board had disrupted the delicate process of how Johnstown’s city government fronts the costs of paying for the city’s Water Department expenses and is then reimbursed from checks written by the Johnstown Water Board clerk.
Gifford in September said he had uncashed checks from the city’s water fees, as well as sewer fees, going back “at least a year” held in the safe in his office. He said he stopped processing checks from the Water Board clerk in October 2019, partly in response to the Water Board’s decision to hire outside legal counsel to defend against a Fulton County grand jury probe of alleged official misconduct on the part of Water Board members. The probe ultimately resulted in no indictments.
Gifford said he believed it was illegal for the Water Board to hire its own attorney, and if he continued to process their checks it would appear as though he were “signing off” on that activity.
From October 2019 until he took control of the water revenue accounts in September 2020, Gifford said the city’s general fund had been used to pay all of the water and sewer expenses, and he needed control of the water revenue accounts in order to accurately reimburse the city for the expense. But he denied that was why he took control of the accounts.
“Certainly, it’s a cash drain, OK, but our cash flow has been excellent, during my time here, which is why we’re able to handle it,” he said in September. “At some point, the cash is not good, and then you have to [rectify it]. We will be doing that after the budget gets finished.”
Gifford argued he had the legal authority to take control of the water revenue accounts because of an investment policy passed by the city Common Council in April 2020 that gives the city treasurer sole signatory control over all of the city’s bank accounts.
Gifford took control of the accounts shortly after the Common Council in August voted unanimously to place a voter referendum onto the November ballot to abolish the Johnstown Water Board.
But on Election Day the majority of voters rejected the proposal. City voters rejected a similar referendum from the council to abolish the Water Board in 2015.
The Johnstown Water Board has since filed a lawsuit against the city, Gifford and Jackson, seeking to regain control of the bank accounts.
Unlike most upstate New York municipalities, Johnstown has never been able to use its water fee revenues to offset local government expenses or mitigate tax increases, because the city’s independently elected Water Board has had legal authority over the funds.
State law requires municipal water revenues to be used to pay for the system’s water department’s expenses, but any “profit” collected above the cost of running the water system can be used to pay for other local government expenses and to offset the need for property tax increases, but in Johnstown and neighboring city Gloversville that option is not available because they have independently elected Water Boards.
Gifford in December said none of the water revenue money from the accounts he took control of in September was used to balance the city’s 2021 budget, although he maintained that it would have been legal for the city to use that money for general fund expenses, if the council approved it. He said the city of Johnstown has never used water revenue money to balance its budget during his tenure as city treasurer.
DiNapoli also criticized the city for having inadequate security protocols in place for city information.
“City officials did not adequately safeguard information technology resources to ensure personal, private and sensitive information was protected,” reads DiNapoli’s audit. “The failure to protect PPSI can have significant consequences on the city, such as reputation damage, lawsuits, a disruption in operations or a security breach. Auditors determined that city officials did not develop adequate IT policies and procedures or provide IT security awareness training. City officials did not have a complete and accurate IT asset inventory. They also did not properly manage user accounts or ensure unneeded administrative and user accounts were disabled. Sensitive IT control weaknesses were communicated confidentially to officials.”
DiNapoli also criticized the city Common Council for not having a better system of accounting for the city’s Fire Department ambulance service.
“The council also did not adequately plan and monitor emergency medical services financial operations,” reads the state comptroller’s announcement. “As a result, the city could lose out on significant revenue.”