An independent audit of the Phoenix suburb of Surprise found $16 million of accounting errors that will erase the city’s meager rainy-day fund and blow a $3 million hole in the fiscal 2012 budget.
The audit found that $16 million was misallocated over a decade to finance new city facilities.
Mayor Sharon Wolcott said Surprise will have to cut its fiscal 2013 budget to resolve the current year’s deficit and rebuild the rainy-day fund.
Arizona law requires cities to adopt balanced budgets.
“The fact is past mismanagement, as documented, will have longer-term financial impacts,” Wolcott said. “This could limit our opportunities to provide the level of services residents of Surprise have come to expect.”
Surprise transferred $10 million from the general fund to resolve the situation for fiscal 2012.
In February 2010 the city released an audit that found $73 million had been misused to help build a city hall and public safety headquarters.
Chief financial officer Scott McCarty said the accounting errors dated back to at least 2000.
Wolcott said the necessary correction to the city books wiped out Surprise’s $7.4 million rainy-day fund, which was already underfunded by $5.6 million due to accounting problems discovered in early 2011.
She said two outside audits are under way to determine how the city handled revenue from development agreements and impact fees.
The money was dedicated to growth-related facilities.
The audits are expected to take eight months to complete, according to Wolcott.
Those reviews could result in additional financial problems for the city, she warned.
“One year from now, we will finally have a complete picture of the state of our finances and be on our way toward solving our problems,” Mayor Wolcott said in her state of the city address last week.
In September, Fitch Ratings lowered its rating on a 2003 series of wastewater revenue bonds issued by the Surprise Municipal Property Corp. to AA-minus from AA. Fitch assigns a positive outlook.
The debt is rated AA by Standard & Poor’s.
