THE MISSISSIPPI LEGISLATURE

The Joint Committee on

Performance Evaluation and Expenditure Review

Report # 576

A Review of the Pat Harrison Waterway District’s Expenditures, FY 2011-FY 2013

Executive Summary

Introduction

PEER received a legislative request for a review of the expenditures of the Pat Harrison Waterway District (PHWD). Legislators had received complaints that the district has not been prudent with its expenditures. Complainants alleged excessive district spending on nonessential items procured through the agency’s credit cards.

The PEER Committee sought to determine whether the Pat Harrison Waterway District utilizes its funds in a prudent manner to fulfill its statutory purposes. PEER limited the scope of the review to fiscal years 2011 through 2013. Also, because of the PEER Committee’s longstanding practice of not reviewing the subject matter of litigation, PEER’s fieldwork and this report did not touch upon or address subjects that were in litigation involving the Pat Harrison Waterway District and Lamar County and are currently on appeal.1

Background

MISS. CODE ANN. Section 51-15-103 (1972) created the Pat Harrison Waterway District, composed originally of fifteen counties in the southeastern quadrant of the state: Clarke, Covington, Forrest, George, Greene, Jackson, Jasper, Jones, Lamar, Lauderdale, Newton, Perry, Smith, Stone, and Wayne. Presently, the district operates three programs: recreation, flood control, and water management.

The district has a board of directors consisting of a member from each county appointed by the board of supervisors in that county and three members from the district at large appointed by the Governor (see MISS. CODE ANN. Section 51-15-105 [1972]). The district currently employs seventy individuals (fifty-five full-time and fifteen part-time) in divisions that include personnel, payroll, accounting, purchasing, marketing, reservations, parks, and maintenance.

Revenues

The Pat Harrison Waterway District collected a total of $16,890,050 in revenues from FY 2011 through FY 2013.

The Pat Harrison Waterway District is funded by a combination of ad valorem tax collections, fees, and miscellaneous revenues, as follows:

• Ad valorem tax collections--State law requires that counties that are members of the PHWD contribute a portion of their ad valorem tax collections for the support of the district and its programs. From FY 2011 through FY 2013, the district collected $8,017,296 (47.5% of its total revenues) from member counties’ ad valorem tax contributions.
• Fees--The district receives part of its revenues from fees generated at its nine parks and various recreational facilities (e. g., admission fees, rental fees, and profit from sales of concessions and firewood). From FY 2011 through FY 2013, the district collected $8,756,830 (51.8% of its total revenues) from fees generated by the district’s recreational facilities.
• Miscellaneous--The district’s miscellaneous revenue sources include investment income and timber sales, although the district did not report receiving any revenues from timber sales in FY 2011 through FY 2013. From FY 2011 through FY 2013, the district collected $115,924 (.7% of its total revenues) from investment income.

Expenditures

How does the Pat Harrison Waterway District budget for its expenditures?

Because the district lacks precision in budgeting for its programmatic and operational expenditures, it cannot ensure that it spends its funds in accordance with the requirements of state law or that a third party, such as a member county, can easily track the sources and uses of funds.

Based on a review of the district’s FY 2011 through FY 2013 budgeting, PEER concluded the following.

• As required by state law, PHWD provides member counties with an annual budget of expenditures for support, maintenance, and operation of the district.
• Because PHWD staff prepare the district’s annual operating budget based on the previous fiscal year’s estimated expenditures rather than the previous fiscal year’s actual expenditures, neither the district’s board of directors nor member counties have a clear understanding of the district’s actual expenditures.
• PHWD does not calculate and ask for each county’s pro rata share of the district’s budget (up to the statutorily capped amount) when making its annual funding requests to the counties.2 Rather, the district asks each county (except Jackson County) for an amount equal to 7/8 mill. Thus a county could unknowingly be paying more than its pro rata share by paying the full 7/8 mill (or 2/10 mill for Jackson County).
• Because PHWD does not prepare a five-year plan of projects as required by state law, the district cannot accurately prepare its annual operating budget and member counties are not informed of projects that the district plans to undertake.
• The district’s annual operating budget does not incorporate some of the costs associated with the district’s maintenance needs because it does not include costs of maintenance projects identified either through the district’s current Parks Review Committee or through a more formal preventative maintenance plan.
• Because the district does not validate counties’ ad valorem contributions, it cannot develop an accurate budget or ensure that it spends the statutorily required amounts on projects within each member county.

How did the district expend its funds from FY 2011 through FY 2013?

The Pat Harrison Waterway District expended the majority of its funds in the budget categories of Salaries, Wages, and Fringe Benefits and Contractual Services during fiscal years 2011 through 2013. PEER notes that because of the PHWD Board of Directors’ monthly meeting schedule, each month the district pays each attending member per diem for two days and reimburses mileage for two round trips to Hattiesburg at the state rate, with expenditures of $143,678 for board meetings during the three-year period of review.

Do the district’s expenditure patterns result in a significant cash balance?

As of June 30 2013, the district had a cash balance of approximately $6.8 million. Of this amount, the district was obligated to pay approximately $1.2 million to counties upon the completion of approved county works projects. Although the district’s staff considers the remaining balance of approximately $5.6 million to be “restricted,” PEER found no legal or accounting basis for restricting such cash.

Status of Specific Complaints Regarding the District’s Expenditures

Has the Pat Harrison Waterway District complied with applicable policies and procedures governing the use of agency procurement cards?

The Department of Finance and Administration has authorized an agency procurement card program whereby a state agency may make certain small purchases without a purchase order. PEER reviewed a sample of PHWD’s procurement card expenditures for FY 2011 through FY 2013 and, based on the level of detail provided, determined that the expenditures complied with state procurement card regulations as well as with the district’s purchase approval process.

The Pat Harrison Waterway District participates in the state’s procurement card program and assigns procurement cards to nineteen employees, primarily park employees. According to the district’s Procurement Card Coordinator, the cards are to be used for emergency purchases, for after-hours purchases when there is no time to submit a purchase requisition, and for making purchases from vendors who do not accept purchase orders.

For the period FY 2011 through FY 2013, district employees expended $79,446 through procurement cards--five percent of the district’s commodity expenditures for the three-year period. Purchases reviewed by PEER were made primarily from vendors who do not accept purchase orders and were for items such as linens for cabins, postage stamps, and refreshments for district board meetings.

PEER notes that the Committee’s review focused on the PHWD staff’s adherence to district policies regarding approval of purchases for procurement cards and did not include tracking individual items to their ultimate use by the district. Appropriate oversight by district officials and adherence to internal controls by district personnel are vital to ensuring that commodities are appropriately used to fulfill the district’s needs.

Has the Pat Harrison Waterway District complied with applicable policies and procedures governing the use of agency credit cards?

PHWD’s Executive Director has not limited the use of his American Express corporate card to reimbursable expenses incurred on official state business-related travel, as DFA regulations require.

The Department of Finance and Administration (DFA) has contracted with American Express to issue corporate credit cards to employees of state agencies solely for business-related travel.

PEER reviewed the PHWD Executive Director’s American Express corporate credit card records for FY 2011 through FY 2013 and found several instances of noncompliance with DFA’s regulations regarding the use of a corporate credit card. PEER found instances during the review period in which the Executive Director used the card for expenses other than business-related travel and for the travel expenses of persons other than himself. Also, the district routinely paid the Executive Director’s American Express bill rather than requiring him to pay the bill himself and request reimbursement from the district, as DFA regulations require.

Does the district have an annual Christmas party for its staff and local officials?

The PHWD Board of Directors held its monthly meetings for December 2010 and December 2011 at a local restaurant and invited members of the boards of supervisors of the counties within the district, area legislators, and their guests. The district expended $5,507 for meals for both December meetings combined. Individual members of the board of directors personally paid $2,190.90 for meals of spouses or guests for both December meetings combined. The district did not hold a similar meeting in December 2012.

Typically, the Pat Harrison Waterway District Board of Directors holds its monthly meetings in the district’s office in Hattiesburg. However, for its December meetings in 2010 and 2011, the board met at Mack’s on the River, a restaurant approximately eight miles north of the district’s office.

While the PHWD board and staff believe that they have complied with the restrictions placed by the state on meals provided as part of a meeting, PEER makes the following observations:

• DFA guidelines state that meals are allowable “if it is more efficient to provide the food on site rather than leave the premises.” As stated previously, the board of directors typically meets at the district’s central office in Hattiesburg with the regular board meetings beginning at 4 p. m., during which they are usually provided a meal on site, presumably because the district determined this to be more efficient than leaving the premises for a meal. The board held both of the December meetings in question “off site” at a local restaurant, with the meeting times being an hour later than usual. Therefore, PEER questions why holding the two December meetings off site and providing meals at a restaurant would not contradict the district’s reasoning regarding its other monthly meetings.
• DFA guidelines also state that the meeting “must last a reasonable time before and after a meal to be served as part of the meeting.” Typically, the board of directors meets for approximately two to three hours each month. The board conducted business for thirty minutes or less during the two December meetings in question. The minutes do not reflect that the board reconvened its meeting following the meal. Thus the two December meetings appear not to conform with this DFA guideline.

Recommendations

• In order to provide the Legislature and the board of directors with a more realistic presentation of the district’s budgetary needs, PHWD staff should base the district’s annual operating budget on the prior year’s actual expenditures rather than estimated expenditures or the district’s legislatively approved spending authority. Should the district determine that it has a need beyond its typical spending pattern, the district should include a justification in its budget request for consideration by the Legislature during the appropriation process.
• In June of each year, following the PHWD board’s adoption of the upcoming fiscal year’s budget, PHWD staff should comply with MISS. CODE ANN. Section 51-15-129 (1972) by utilizing the most recent assessed valuation of each member county to determine each county’s pro rata share of the district’s annual operating budget. The PHWD Board of Directors should notify each member county’s board of supervisors of the amount of that county’s share of the district’s budget, requesting that each board of supervisors assess ad valorem millage not to exceed the cap set by law to generate funds for that county’s share.
  
  Considering the process and timing provided in law for counties’ appraisal of property, appeals of such appraisals, and approval of ad valorem tax rolls by the Department of Revenue, the Legislature should amend MISS. CODE ANN. Section 51-15-129 (1972) to require that PHWD use the state-approved assessed valuations as of November 1 of each year to confirm the accuracy of the amount of each county’s pro rata share. The section should require member counties to remit their pro rata shares in the form of ad valorem contributions no later than March 1 of the following year.
• Rather than providing member counties with copies of the district’s five-year strategic plan that is an addendum to its budget request to the Legislature, the district should annually compile a five-year plan containing the purposes, goals, and projected costs of projects it intends to implement or is in the process of implementing, as required by MISS. CODE ANN. Section 51-15-119 (2). The district should utilize the five-year plan to help develop its annual operating budget.
• To aid it in developing its five-year project plan (see previous recommendation), the district should develop a formal preventative maintenance plan. Such a plan would allow district staff to:
  
  
  • collect information necessary to identify maintenance needs, plan maintenance projects, set project priorities to target resources toward highest needs, and estimate costs;
  • schedule a timeline for projects and prepare procedures for managing the projects;
  • develop a work order system and keep systematic maintenance records;
  • ensure that maintenance employees have appropriate training to complete the tasks expected of them in a competent and safe manner; and,
  • include appropriate maintenance employees in decisions on facility matters.
• In light of MISS. CODE ANN. Section 51-15-129 (1972), the district should independently validate the ad valorem contributions to be received annually from each member county by multiplying each county’s millage rate dedicated to the district by each county’s assessed valuation. Should a county’s ad valorem contribution differ from the amount calculated by the district, PHWD staff should confer with county officials to resolve the discrepancy. In addition, the district should formally track payments made to counties through its Works Projects program to ensure that the district annually provides back to each county payments amounting to the statutorily required amount (currently 1/8 mill of the county’s 7/8 mill levy and 1/10 mill of Jackson County’s 2/10 mill levy.)
• The PHWD Board of Directors should evaluate the district’s practices regarding the restricting of cash on hand without specific legal or programmatic requirement to do so. In addition, the board should consult with its contract CPA firm regarding the development of a cash management strategy for the district to ensure available cash for operating needs as well as future obligations and unforeseen expenses.
• The PHWD Board of Directors should re-evaluate policies associated with its Works Projects program and impose a deadline by which member counties must complete approved projects and request reimbursement from the district.
• As part of its cash management analysis (see Recommendation 7), the PHWD Board of Directors should re-evaluate its monthly practice of having committee meetings on a Monday and a full board meeting on a Thursday. The board should attempt to limit its meetings to one day per month in order to reduce the financial burden on the district.
• The PHWD Board of Directors should require its Executive Director to comply fully with Department of Finance and Administration (DFA) regulations regarding his American Express corporate card. Specifically, the Executive Director should limit use of the card to business-related travel and request reimbursement from the district for such expenses so that he can pay his American Express monthly charges personally.
  
  Should the board determine that it is necessary for the Executive Director to meet with various government officials regarding the affairs of the district and cover meal costs for such officials, the board should take formal action to authorize such and grant permission for the Executive Director to be provided with a state procurement card. DFA regulations allow food charges on a procurement card as long as the purchase of food has a legitimate business purpose and more than one person is present in the business meeting.
• The PHWD Board of Directors should re-evaluate its practice of having a December board meeting off-site and providing a Christmas-themed meal for directors, PHWD staff, boards of supervisors, legislators and their guests. MISS. CODE ANN. Section 51-15-105 (5) (1972) already requires each director to meet with the board of supervisors of the county from which the director is appointed twice a year. Because state law provides a means of district officials communicating with county officials, an annual group meeting is not necessary and the district should avoid expenses associated with such a meeting.

1   MISS. CODE ANN. Section 51-15-118 (1972) states that the board of supervisors of any county that is included in the Pat Harrison Waterway District may elect to withdraw from the district and that the withdrawing county shall be responsible for paying its portion of any district bonds, contractual obligations, and any other indebtedness and liabilities of the district that are outstanding on the date of the county’s withdrawal. On September 6, 2011, the Lamar County Board of Supervisors voted to withdraw from the Pat Harrison Waterway District. While PEER was conducting fieldwork for this report, Lamar County and the PHWD were in litigation to determine the amount the county is to pay to satisfy the district’s financial obligation. A judgment was rendered on August 29, 2013, but is being appealed by the district. The PEER Committee takes no position in this report on the merits of any argument raised by Lamar County or the Pat Harrison Waterway District respecting the financial obligations of Lamar County to the district or the financial impact of Lamar County’s withdrawal from the district.

2   MISS. CODE ANN. Section 51-15-129 (1972) requires that all of the district’s member counties, with the exception of Jackson County, contribute to the district up to seven-eighths of a mill of the total assessed valuation of their respective county. Jackson County is required to contribute up to two-tenths of a mill.

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