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Derby City Hall, in a Wikipedia photo.
DERBY — City government is now required to appear in front of a state finance commission after failing to make adequate progress to fix long-standing financial reporting weaknesses.
The Municipal Finance Advisory Commission (MFAC) voted on Aug. 16 to designate Derby a ‘tier 1’ municipality. The vote was unanimous.
Derby had already been appearing in front of MFAC on a voluntary basis to improve deficiencies in audits going back years.
However, some MFAC members on Aug. 16 questioned the accuracy of financial information coming from Derby, along with a lack of concrete answers, and said the city appeared to be falling behind after making progress.
Derby has been voluntarily working with MFAC since September 2020.
A clip from the meeting is embedded below.
The ‘tier 1’ vote makes Derby’s appearances mandatory, and comes with the following general requirements:
1. Derby’s ‘chief executive officer’ (the mayor) “must appear before the Municipal Finance Advisory Commission (MFAC) to discuss the municipality’s financial condition and the implementation of measures to improve the municipality’s financial condition.”
2. Derby must “prepare and present a five-year financial plan to the MFAC for its review and approval.”
3. Derby must “provide written information to the Commission as requested.”
4. Derby must “implement remedial measures to correct unsound or irregular financial practices and to improve the municipality’s fiscal condition as identified by the MFAC.”
In a letter from MFAC Chairwoman Kathleen Clarke Buch to Mayor Rich Dziekan dated Sept. 6, the “setback” in Derby is described as follows:
The city’s June 30, 2022 audit report issued in June 2023 showed the city used $1.9 million in fund balance to deal with an operating deficit – while previously projecting a $1.1 million operating surplus.
“The city and board of education were unable to fully explain the $3 million difference between the city’s projections and the audited results,” according to the MFAC letter.
The city’s audit report shows nine “significant/material” findings, each of which has been repeated over a number of years.
There has been “significant turnover” in the city’s financial office and other several key departments. MFAC noted Derby has been without a finance director for a year – and, during that time, no one has applied for the job.
Also, “the city’s financial reporting and monitoring has proven to be unreliable with significant variances between City projections and audited results.” MFAC noted that since Derby is historically late in completing financial audits, the city lacks the ability to make informed decisions while putting together the annual budget.
“In addition to the above matters, there have been several recommendations previously made by the Commission which have not been implemented to date and for which we believe contributed to the City’s recent setback,” the MFAC letter concludes.
The Derby portion of the Aug. 16 MFAC meeting is embedded below.
Regarding the $1.1 million projection that turned into a $1.9 million deficit, Derby Chief of Staff had said previously that insurance claims came in much higher than predicted. The city administration erred in April 2022 by including about $1 million in state grants that was never going to arrive, but said later the city would be able to absorb the mistake. Click here for a full story on that issue.
While the designation as a ‘tier 1’ community gives MFAC more oversight over Derby’s financial practices, it is not a state takeover of the city budget. It is not as severe as being referred to the oversight of MARB (the Municipal Accountability Review Board).
If Derby doesn’t make progress with MFAC, there’s a chance the city could receive a ‘tier II’ or ‘tier III’ designation, which would bring the city under MARB for additional oversight.
In addition to voting to make Derby’s appearances mandatory instead of voluntarily, MFAC sent Mayor Diekan a detailed letter with seven specific recommendations members of the commission want to see happen.
Those recommendations include establishing a separate internal service fund for health insurance costs in order to better track the money.
MFAC also recommends the city and Derby Public Schools establish written policies and procedures to track purchase orders. Both the city and the school district have issues with department heads handing over info about purchases, which impacts the reliability of the data being submitted to the state.
The complete list of MFAC recommendations is embedded below.
“The majority of the recommendations have previously been communicated to the City but have yet to be fully implemented,” according to an email from a state official to the Dziekan administration.
Mayhew, the mayor’s chief of staff, said on Thursday the letters from the state had arrived the day prior and that he had not read them over in detail with Nancy Balsys, the city’s deputy finance director.
“From what I understand from the meeting, nothing has changed procedurally, but I still need to review that letter with Nancy,” he said.
Mayor Dziekan faces a primary on Tuesday against Alderman Gino DiGiovanni to see who gets the Republican line on the Election Day ballot on Nov. 7.
DiGiovanni said the MFAC situation shows why he should be elected mayor.
“I am concerned about our current state of affairs. A small city like Derby can’t afford such a costly mistake. With no finance director, who is in charge of our finances? We need a leader with business experience,” DiGiovanni said.
Joseph DiMartino is the Democrat running for mayor. He blamed the Dziekan administration for the situation.
“The City of Derby is in serious financial crisis due to the continued incompetence of the Dzeiken/Mayhew administration and their inability to handle the financial affairs of the city. This is completely unacceptable and disgraceful,” DiMartino said. “This embarrassment will cost the city more money. This is why I firmly recommit to conduct a full forensic audit of the City’s finances for the last six years if I am elected Mayor.”
