Dorchester County Faces Financial Transparency Issues

Dorchester County’s government has failed to submit legally required annual financial reports and audits since 2020, and now the county is facing consequences. 

On August 4th, the ratings firm, Moody’s Investor Service, published a notice that it was placing Dorchester County on review citing a lack of financial information. Moodys said, if it does not see up-to-date financial information within 30 days, it may de-list Dorchester County from any credit rating.

And the Maryland Office of Legislative Audits, which oversees and collects these audits states and guidelines that failure to submit current audit reports on time can result in all state money, grants and aid to the county being discontinued. 

County officials now say they’re frantically scrambling to assemble years of financial statements and audits, and they say the problem was something they didn’t much discuss until recently.

“This is priority one. Since the start of this council, basically January 1st,” says Lenny Peffer, president of the new County Council. “We have thrown a fair amount of extra money into this trying to get every person and firm that we can to help us with this situation. This is not something that we’re taking lightly. This is not something that we’re just saying, ‘Hey, this is a rebellious action of Dorchester County not to do this.‘ It was just a whole cascading number of issues.”

County leaders have cited multiple problems that hit them in 2020. The county struggled with a new accounting software system, then Covid hit along with a sudden exodus of senior staff in the finance office. Then computer hackers locked the county out of its own records. 

Dorchester recently has gone through four or five finance directors depending on who you ask, and ever since 2020, Dorchester has not had a full-time dedicated county manager. 

Even so, Mike Spears, who retired last year as the county’s longtime finance director, said the situation is incredible.

“At one point I was told by the auditor, well, we’re two weeks away from a financial statement, so I can’t imagine that we are here in August of 23 and I left in November of 22 and we’re still not with a 21 audit.”

If you’re wondering how years of failure could take place without any notice to the public, consider the path one local resident took to discover some answers. 

Last year, Gene Lauer, a Cambridge resident, was working with a group called Dorchester Citizens for a Better Government on a charter petition. He heard mention there could be things to discover regarding the county’s finance department. 

Lauer, with 40 years experience himself as a county administrator in Prince George’s County and as county manager of Charles County, was intrigued. He contacted Dorchester County and filed a public information request. 

Among the documents he received was something that was not posted in the 2020 financial statements on the county’s website. It was a report to the commissioners from the auditors citing serious deficiencies in the county’s accounting and other departments leading to inaccuracies delays and faulty records.

“They also had 17 pages of correcting journal entries made worth about 27 million. I’ve never seen anything like that in my 40 years in government quite that bad. Checks not deposited for up to three years. I mean, this is mind boggling stuff. 

“So my review revealed was rather shocking when I looked at what the auditor’s comments were on FY 20, which plays into why they probably haven’t been able to have an audited financial report for 21 and ultimately, I guess beyond. 

“They cited in the auditor’s report material weaknesses. Now, auditors classify weaknesses by three categories. Material is the worst. They also identified, basically, its lack of internal checks and balances and controls that you got to have to make these financial statements accurate.”

“This is very fundamental stuff. Every government does this, and it was very shocking to see these kinds of comments. So this is all perplexing about what really who was advised of what actions were taken. The former finance director was very frustrated. He had staff turnover. He mentioned software. I said, well, has the council been directly advised about this? And I think the answer was, no.”

There were also records of the previous county council President, Jay Newcomb, explaining to state officials why the 2021 finance report would be even later. In his September 30th, 2022 letter to the office of Legislative audits, Newcomb stated that the county anticipated completing the fiscal year 2021 audit by December of 2022.

 He wrote, “Dorchester County is committed to ensuring that all future audits are completed and submitted to your office by the due dates.”

However, that didn’t happen. The promised 2021 report remains outstanding to this day. Not only that, but Dorchester County has failed to submit any report for any year since 2020. 

Do you think this could have an effect on the bond rating?

“Yes, I do,” Again, Eugene Lauer. “I can tell you that first of all, if they downgrade whatever the bond rating is or just delist it, you’ve got bond holders holding these bonds. Now they’re going to be paid out their interest when the bonds become due and presumably the face value. But what it can do is devalue the bonds if they want to sell those bonds before they come due. So the implications of that, you would think there could be some very unhappy bond holders.

“And essentially the lower your credit rating, the more interest the issuer. In this case, the county would have to pay on its bonds or capital leases, and that is not a good thing.”

The current county council and management say they have been inherited a disaster and they’re working to fix it. Interim county manager Jeff Powell listed an array of efforts.

“We brought in a second CPA firm to help catch up. We’ve had consultants, additional consultants in besides the audit firm. We’re doing a GFO, a Government Finance Officers Association study, on the finance office and procedures and best practices that haven’t been being done. We’ve staffed up, we’ve got some new staff in there. We’re throwing every resource we can at it.”

The situation with the county’s finance department –  high staff turnover, lack of accountability, missing leadership, scant oversight –  raises questions about a continuing culture of half measures and temporary personnel substituting for thorough policies and experienced professionals in key positions in Dorchester County government. 

Spears, who served as finance director for 27 years, said attracting solid candidates for the finance department and making sure they stay is exceptionally tough for Dorchester, whose constrained tax base means salaries are among the lowest of any county in Maryland.

“A lot of it is tone at the top. You’ve got a really top-notch county manager and really top-notch HR person that can help with recruiting. I think you can overcome sometimes some of these lower pays.”

When asked if part of the drive for a charter amendment was to cure the problem with the county manager, Lauer said yes. 

“Yes. Several things. First of all, it’s clear that very short-lived county managers, interim county managers, potentially unqualified county managers for that kind of position. I’m not talking about anybody currently on the scene. 

“Council interference in the operations of government, firing people without reason, we believe has created a severe morale problem in the government that prompts this kind of turnover.” 

“So I’ll draw a contrast to the city of Cambridge,” Lauer said. “We’ve had three city managers now it’s moved the city along wonderfully. The city manager we have now who I have a lot of respect for, he came from Ohio. He’s amazing with the options alternatives. He provides very reasoned decisions. A county manager, let’s say, with those kinds of qualifications and credentials, would be on top of this thing. The minute something occurred.

“The laxness, the inability to follow through to have and follow rigorous accounting and financial management procedures is very concerning and something I’ve never seen anything like that in my time.”

When asked about the 2020 report and possible alarm bells, Lauer agreed. 

“Yes. That should have set off immediate alarm bells and somebody asking, what are we doing for fiscal year 2021? 

“This is a big thing, not being able to produce an annual financial report so that citizens are assured everything is on the up and up, that they’re getting accurate information, and that the council’s basing its decisions on accurate information. That’s a big deal.”

Council President Pfeffer said the county commissioners who were in the previous administration were unaware of the 2020 auditor’s critique. But nobody could explain why they didn’t notice for years that the county’s annual audits were either late or never showed up. 

Pfeffer said, none of that makes a difference now.

“Do I take responsibility? Absolutely, 100 percent, ” he said. “I was on the council then I’m the president of the council. Now, I’m not trying to shirk any of my responsibilities or fault with this, but we’re just hoping and asking for understanding from the state and the other stakeholders to work with us. Again, this is nothing we’re trying to hide from anybody. What’s current is available on the county website? Anything that’s not current, that’s not there, it’s not available yet, but we’re not trying to hide this at all, but it’s just a fact. That did happen and we apologize for it.”

By Jim Brady