Council Audit Committee to Strengthen Role

Auditor agrees to eliminate "violation" wording related to city attorney; issues raised push committee to more active engagement year-round

The Jan. 24, 2013 meeting of the Ann Arbor city council’s audit committee signaled a more actively engaged role for that group in the future. It was prompted in part by a report submitted by the city’s outside financial auditor late last year – on which the committee did not appear to have a unanimous consensus at the Jan. 24 meeting. The audit was conducted by the firm Rehmann, which is now in the first year of a five-year contract to perform auditing services for the city.

Sumi Kailasapathy (Ward 1) questioned conclusions by CFO Tom Crawford about travel and mileage policies.

Sumi Kailasapathy (Ward 1) questioned CFO Tom Crawford’s conclusions about the travel and mileage policies at the audit committee’s Jan. 24, 2013 meeting. (Photo by the writer.)

Listed among other relatively minor matters in Rehmann’s report was a note identifying three instances of an employee who had claimed mileage reimbursement despite receiving a vehicle allowance. At a scheduled Dec. 20, 2012 meeting of the audit committee, the dual claims were described by Rehmann’s Mark Kettner as a “double dip.” Those claims were also cited in Kettner’s written report as a violation of city policy.

The Chronicle’s write-up of the auditor’s presentation late last year to the audit committee – which did not achieve a quorum on that occasion – included the result of additional reporting: Mileage claims made by city attorney Stephen Postema caused the auditor to flag the issue in his formal report.

But at the Jan. 24 committee meeting, Kettner revealed that he’d been convinced to change the wording of the note. The new wording will not indicate a “violation” of city policy. At the meeting, however, Kettner indicated that a note about this issue would still be included – with the exact wording yet to be settled. City CFO Tom Crawford’s written response to the auditor’s report includes email messages that show it was Crawford and Postema who made a successful effort to convince Kettner to alter the report’s wording.

The wording of Postema’s employment contract factored into arguments made by Postema and Crawford for a revision to the auditor’s report. When Postema made his reimbursement claims, his contract at that time provided for “travel” expenses in addition to a vehicle allowance. Postema’s vehicle allowance was eliminated late last year, as a result of his annual performance review. Also factoring into the argument for revising the auditor’s note was Crawford’s contention that the city’s written policies don’t provide clear guidance on the question.

However, at the Jan. 24 committee meeting, Sumi Kailasapathy (Ward 1) challenged Crawford on that point. [Kailasapathy was elected to the council in November 2012 – running a campaign that stressed her credentials as a certified public accountant.] She reviewed the logic and specific wording of each of the city’s relevant policies, with particular attention to the meaning of the word “travel” – and reached the conclusion that the mileage reimbursements had not conformed with city policy.

And even though Kettner has agreed to change the wording of the note in his report, Kettner wrote in a Jan. 18 response to Postema and Crawford: “… from a business practices standpoint, our conclusion (with or without the existence of a policy) was it would be illogical and, therefore inappropriate, to make mileage reimbursements to persons having a car allowance.” Kettner’s response also indicates that his conclusion of inappropriateness was not based on a review of Postema’s employment contract.

At the Jan. 24 meeting, Crawford interpreted the fact that he and Kailasapathy reached different conclusions about the appropriateness of the mileage claims as evidence that the written policies didn’t provide clear guidance.

Stephen Kunselman (Ward 3) seemed to reflect the general sentiment of the two other committee members present – Chuck Warpehoski (Ward 5) and Margie Teall (Ward 4) – in concluding that he didn’t think anyone had been trying to “game the system.” Kunselman indicated little enthusiasm for delving into the wording of Postema’s contract or existing city policies. He was more interested in making sure that the relevant policies would be revised and applied in the future – not just for the travel and mileage policies, but for the other issues identified in the auditor’s report.

Kunselman also indicated that he was keen to see the audit committee take a more active, engaged role – throughout the year, not just once a year on the occasion of the auditor’s report. The committee as a group also seemed favorably inclined toward adopting a more proactive approach. The committee’s extended conversation about the relationship of the city’s part-time internal auditor indicated that while the internal auditor would still report to Crawford, the audit committee would be looped into the ongoing issues that emerged throughout the year as they arose – instead of six months after they happened. It could result in meetings of the committee at other times besides the occasion of the annual auditor’s report.

That reflects a transition from the role that the audit committee has played as recently as two years ago. The committee did not meet at all during that year, even to review the FY 2010 auditor’s report – because audit committee chair Stephen Rapundalo declined to call a meeting. Kunselman complained at the time about the lack of a committee meeting. Rapundalo was not re-elected in 2011 – when he had faced Jane Lumm, who received more votes than Rapundalo that November.

Travel versus Mileage

The note in the auditor’s formal letter, previously conveyed to the city last year, reads:

Employee Expense Reports. We reviewed various employee expense reports to ensure reimbursements were properly supported and approved. We noted in three instances, that an employee was requesting and receiving mileage reimbursement while also receiving a car allowance, which violates City policy. After further inquiry, it was determined that the City became aware of this situation during the year and has since implemented procedures to address this issue.

Travel versus Millage: Background

As The Chronicle previously reported, a request of the city made under Michigan’s Freedom of Information Act revealed that city attorney Stephen Postema made three claims for mileage reimbursement, despite having a vehicle allowance. One was for a professional meeting in Grand Rapids, while the other two were for court appearances in Cincinnati and Lansing. [.pdf of city of Ann Arbor response to initial FOIA request] [.pdf of follow-up city of Ann Arbor response with additional, corrected data on vehicle allowance amounts]

Up until his performance review in November 2012, Postema’s employment contract provided for a vehicle allowance:

Section 2.14 Car Allowance. Employee shall receive a car allowance calculated at $330/per month.

The resolution approved by the city council as the result of the city attorney’s performance review – which included a salary adjustment upward that is just slightly less than the value of the car allowance – explained the elimination of the car allowance this way:

Whereas, The City Attorney has offered to eliminate his contractual car allowance of $330/month as of January 1, 2013, as has been done with the City Administrator’s contract;

Even though the “whereas” clause seems to invite the conclusion that city administrator Steve Powers also had a vehicle allowance specified in his contract, and that it was also eliminated in the context of a regular performance evaluation, that’s not the case. Previous city administrator Roger Fraser had such an allowance, but Powers, who took over the city’s top job in the fall of 2011, never had such an allowance in his contract.

The initial discussions of the city attorney’s performance review are handled by the council’s administration committee. It currently consists of Sally Petersen (Ward 2), Margie Teall (Ward 4), Christopher Taylor (Ward 3), mayor pro tem Marcia Higgins and mayor John Hieftje. At the time of Postema’s performance review, former Ward 2 councilmember Tony Derezinski served instead of Petersen. Higgins did not respond to an emailed query from The Chronicle asking if she was aware of the issue with Postema’s mileage claims at the time of Postema’s performance review. Hieftje responded to that same query saying he was not aware Postema had made mileage claims.

In his response, Hieftje also insisted that the current review of travel and mileage policies was not caused by Postema’s mileage reimbursements:

I should note that going forward there will be a clarification of city policy regarding mileage reimbursement. However, this was not triggered by Stephen’s being reimbursed but as an overall response to something that came up as a minor issue in a “clean” audit.

In an interview with The Chronicle on Jan. 11, 2013, Hieftje explained his written assertion in part with the idea that Postema does not report to the city administrator but rather to the city council. [Under the city charter, the city council hires and evaluates two positions – the city attorney and the city administrator.] From that, Hieftje concluded that whatever policy revisions might be undertaken now by city administrator Steve Powers would not affect Postema’s reimbursements, because Postema’s reimbursements would be governed by his employment contract.

However, Postema’s employment contract explicitly states that reimbursement is to be made under standard city procedures:

Section 2.2 Business Expenses. Employee is authorized to incur such reasonable budgeted travel, cell phone expenses, entertainment and other professional expenses as are necessary in the performance of his duties. The City will reimburse Employee for such expenses in accordance with standard City procedures.

Hieftje seemed unaware during the Jan. 11 interview that the city’s response to The Chronicle’s record request had linked Postema’s mileage claims to the auditor’s note. At the conclusion of the interview, after being shown the records, Hieftje conceded the connection between Postema’s mileage claims and the policy review.

Travel versus Mileage: Significance of the Note

Tom Crawford, the city’s chief financial officer, led off the Jan. 24 meeting of the audit committee by establishing some context for the auditor’s note. He referred committee members to a written response he’d provided them. [.pdf of Crawford's response to auditor's letter]

Crawford reviewed how the basic result of the audit, communicated in the SAS (Statement of Auditing Standards) No. 114 letter, had been essentially a clean audit with two deficiencies. This year the letter had included notes on other matters, of a type that Crawford said he wouldn’t normally expect to see: “I don’t usually look for these comments down here.” The letter typically includes things like a material weakness or other deficiencies, but this year the letter included some other matters, that in Crawford’s experience are usually mentioned orally to staff – the CFO or the city administrator.

Crawford’s portrayal of the notes in the letter is consistent with that of auditor Mark Kettner’s remarks about them – when he presented the report to two audit committee members on Dec. 20, 2012. From The Chronicle’s report:

Kettner described a hierarchy of problems that an auditor can find: deficiencies, significant deficiencies, and material weaknesses.

There are also “other matters” that an auditor is not required to put into writing, he said. But they have to be communicated at least orally, and you have to document who was told and what they were told. So Rehmann’s practice is to include other matters in the management letter, because it’s easier to write down the information.

On Jan. 24, Crawford indicated that typically, the staff just deals with the orally-communicated notes in this category. But because this year the notes were in writing, Crawford said, he wanted to respond in writing. He indicated that a response would be sent to the auditor as well. He wanted the committee to understand that “We take this stuff seriously.”

Crawford welcomed any comments the audit committee members had on the written response. He continued by drawing a distinction between “council policies” and “administrative policies.” Crawford was recommending that the policies be reviewed and he indicated that the revisions to the policies were included in the written response that he’d provided to the committee. He invited questions from the audit committee.

Travel versus Mileage: Definitions

Sumi Kailasapathy (Ward 1) led off questions by focusing attention on the second page of Crawford’s written response. It portrays a lack of consensus among city finance staff about the appropriateness of the mileage claims. But Kailasapathy focused on Crawford’s contention that the city’s written policies don’t provide clear guidance. From Crawford’s written response [emphasis added]:

In evaluating this issue, staff first looks to legal contracts as a guiding document and secondly to administrative policies for guidance. The above employee with 3 trips had an employment agreement (see attached) with the city at the time of travel that included two separate provisions for an auto allowance and for reimbursement of travel expenditures. A review of the travel & mileage policy (see attached APP #504 & #505) revealed they do not provide clear guidance on how to handle this situation. Some finance staff reasonably believed a mileage reimbursement appeared like the same expense was being reimbursed for twice and raised the issue to the CFO. Meanwhile some supervisors and administrators operated with the belief that the vehicle allowance was for ordinary and customary travel within the city/county but not for less frequent out-of-town trips necessary for travel, training, etc.

Kailasapathy indicated that she’d reviewed the administrative policy on travel and on employee mileage reimbursement. She quoted from Policy 505:

The City of Ann Arbor shall pay mileage reimbursement for authorized business travel when an employee uses their personal vehicle.

Kailasapathy said that for her, that sentence is unambiguous: If you use your personal car, then you will be provided reimbursement and that is called “mileage reimbursement.” But in Crawford’s description of the issue, he’d used “travel” repeatedly, Kailasapathy pointed out. That, she felt, was incorrect, because you could come to different conclusions depending on whether it’s considered mileage reimbursement or travel.

By way of additional background on the issue of travel versus mileage, in response to an initial request made by The Chronicle under the FOIA, the city of Ann Arbor did not produce any official “City of Ann Arbor Travel Expense Report” forms for the three mileage claims made by Postema. For other claims, however, such forms were produced. Because the wording of the request had been somewhat vague, The Chronicle made an additional request asking specifically for those forms, if they existed.

After additional back-and-forth with the city in connection with that request, The Chronicle was able to establish that “City of Ann Arbor Travel Expense Report” forms were not submitted for Postema’s claims. Instead, an electronic submission was used, consistent with reimbursement for mileage by city employees who use their personal vehicle for city business. In terms of the distinction Kailasapathy was drawing, the claims appear to have been considered mileage reimbursements, as a opposed to travel expenses. [.pdf of records associated with Postema's mileage claims].

Kailasapathy then appealed to the city’s travel policy, which defines travel in a way that she indicated is consistent with IRS rules, which includes the need to stay overnight:

2.2 General Travel Limitations – Subject to budget limitations, all employees are permitted to attend, subject to authorization by the service area administrator or his/her designee, City work-related overnight conferences, seminars, training, certification programs, continuing education, or other similar work-related educational or professional events. The number of employees from a service area allowed to attend the same travel function will be at the service area administrator’s discretion. Overnight travel will be used only for opportunities that cannot be achieved locally.

Kailasapathy said it’s important to be clear about what it means for someone to be using their personal vehicle. She contended that if an employee has a car allowance, then it is for operating that car – and to her that’s clear. She told Crawford she was disappointed that he was saying the city policies don’t provide clear guidance. She felt the guidance is clear – and that travel and mileage reimbursements are very clearly defined. If you have a car allowance and you’re asking for a car allowance, then you’re asking for the reimbursement for “one and the same thing.” Kailasapathy ventured that a car allowance is not “to park the car in front of your house to look pretty.”

Travel versus Mileage: Intent of a Vehicle Allowance

Earlier in the back-and-forth, Crawford had asked if Kailasapathy was drawing a conclusion about any employee who had a vehicle allowance – and whether “the vehicle they acquire” is still their personal vehicle. Crawford seemed to indicate a view that, to him, it’s reasonable to interpret the intended use of a vehicle allowance to be exclusively the acquisition of a vehicle, not including the operation of that vehicle for businesses purposes.

Responding to Kailasapathy’s “to look pretty” comment, Crawford again reiterated his position that a vehicle allowance was intended for acquisition of a vehicle, saying that if an employee uses their vehicle allowance to acquire a vehicle, that doesn’t make it a city vehicle. Because it’s still their personal vehicle, Crawford contended, the employee could be reimbursed for mileage. He then allowed that it’s at least not clear if an employee with a vehicle allowance could be reimbursed for mileage – because the mileage policy doesn’t mention a vehicle allowance.

Kailasapathy compared the situation to receiving a house as part of your compensation but still claiming rent as an expense. Crawford said he thought Kailasapathy was assuming that the purpose of the vehicle allowance is for the acquisition and use of that vehicle. Crawford asked her what she felt the point of the car allowance was. “Using your personal car to do business,” she replied, giving examples like going to court to defend the city in a lawsuit. Crawford responded by saying, “That’s interesting … that’s not written anywhere what the allowance is for.”

At that point Stephen Kunselman (Ward 3) said, “It’s an outright perk, basically – right? Monetary benefit, car allowance, no strings attached.” Margie Teall (Ward 4) seemed to chafe at Kunselman’s characterization of the car allowance as a perk, saying, “It’s a ‘perk’ if you want to call it that …” Crawford indicated that the vehicle allowance has been used in different ways by different city employees. He was trying to point out that Kailasapathy’s assumption – that the vehicle allowance was meant to cover the operation of a personal vehicle when it’s used for city business – is not recorded anywhere in a written city policy.

Crawford stated that the mileage reimbursement that Postema had been seeking was subject to his contract, which has two clauses that mention travel. At that point, Kailasapathy appeared ready to argue about whether the clauses in Postema’s contract on travel would, in fact, justify the mileage reimbursement. However, Teall indicated no enthusiasm for that kind of detailed debate: “You know, I don’t want get into a contract issue. … I don’t think we can have that discussion here.” Kunselman also indicated he didn’t want to entertain that discussion.

Kunselman came back to the auditor’s note that indicated there had been a “violation” of city policy. It wasn’t the role of the audit committee to interpret the city policy, but rather to have management address any unclarities. Kunselman said it sounded like there were a lot of changes being implemented with respect to car allowances. By way of additional background, in an email to The Chronicle published previously, city administrator Steve Powers wrote:

During the past year, I have removed vehicle allowances from the compensation for service area administrators.

The remaining vehicle allowances are for employees, such as property appraisers, where the use of personal vehicles with an allowance is more advantageous to the City than paying mileage or using a city vehicle.

Kunselman indicated he felt this was the right direction to go, but didn’t want to spend a lot of time looking back and getting bogged down.

Travel versus Mileage: Revision of the Letter

Kunselman was, however, interested in having the wording of the auditor’s letter revised, because Kunselman felt that the statement that there had been a “violation” of city policy was inaccurate. Based on the material provided in Crawford’s response to the auditor’s comment, auditor Mark Kettner had already agreed to revise the phrase that referred to a policy violation – as a result of a phone conversation he’d had with Crawford and Postema.

In Kettner’s written response to Crawford and Postema, he agrees that the phrase “violates city policy” is incorrect and acknowledges that he was not given Postema’s employment contract for review in reaching his conclusion that the mileage reimbursement was not appropriate. Kettner explained his conclusion this way:

As I also stated in our conversations, from a business practices standpoint, our conclusion (with or without the existence of a policy) was it would be illogical and, therefore inappropriate, to make mileage reimbursements to persons having a car allowance. This conclusion is in the absence of knowledge of an agreement that would reasonably identify that payment of both mileage reimbursement and car allowance is acceptable and appropriate.

The question the audit committee was disinclined to settle explicitly is whether Postema’s contract is an employment agreement that identifies payment of mileage reimbursement and car allowance as acceptable.

At the Jan. 24 meeting, Kettner indicated that he’d be willing to change the phrase “which violates city policy.” After “all the extra stuff that has occurred,” Kettner said he concluded that “there is not a policy per se that says ‘You shall not get a mileage reimbursement if you have a car allowance.’” But he would keep the note in the letter – because even though it involves a small dollar amount, it’s an issue involving policies, procedures and contracts, and he felt the city needs to address it and figure out what to do about it. That’s the whole purpose of it, he said.

In the context of the overall city audit, Kettner said, the mileage issue was really a tiny issue. Crawford indicated he felt that the city’s approach to identifying problems seemed to be working. Crawford indicated that there were differing views by city staff about how the policies should be interpreted, and the fact that he and Kailasapathy had different views on interpretation supported the idea that the policies weren’t completely clear. He said the issue had come to light during the audit – in a minor way – and whenever those issues come to light, the staff re-visits them. Teall added that the review of the policy had already started.

Travel versus Mileage: Recommendations

Recommendations by Crawford responding to the audit note on travel and mileage reimbursements include:

  • Clarify and revise the city’s travel policy to reflect expectations for reimbursement when an employee receives a vehicle allowance.
  • Clarify and revise the city’s travel policy to require travel reimbursement requests for the city administrator and city attorney to be approved by the Council Administration Committee Chairperson.
  • Establish a vehicle allowance policy to clarify expectations for what a vehicle reimbursement is intended to be used for.
  • Communicate these policy updates with staff and have Service Area Administrators responsible for ensuring consistent treatment across the organization.

Responding to a query from Kailasapathy, Crawford indicated he did not necessarily think that travel reimbursements for mileage should be tied in the future more explicitly to an overnight requirement – because it could create a perverse incentive for employees to stay overnight, thus incurring even greater expense to the city. Kailasapathy countered that whether the travel expense was appropriate or not was already subject to a supervisor’s review. In the case of the city administrator and the city attorney, Crawford pointed out, the recommendation is that their travel requests in the future be subject to review by the council’s administration committee.

Role of the Audit Committee

The travel and mileage issue took about 25 minutes of the Jan 24 audit committee meeting, which lasted about an hour.

In the remaining time, the committee discussed some of other items in Crawford’s written response. For example, they discussed the challenge of implementing regular password changes by employees, when they must log on to several different systems – the sheer number of passwords could result in a sticky-note strategy of recording passwords, which is also not desirable.

However, the main focus of the remainder of the meeting could be summarized as dealing with the future role of the audit committee. It was prompted by Rehmann’s observation about the way the city’s internal auditor reports:

We noted through inquiries of various City employees that the Internal Auditor organizationally reports through the Chief Financial Officer. We recommend that the City review this procedure and determine if this function would be more effective if the Internal Auditor reported directly to the Audit Committee.

But the consensus of the audit committee at the Jan. 24 meeting seemed to be that the internal auditor should not report in an organizational sense to the audit committee. That is, the city council would not want to explore adding a third employee – in addition to the city attorney and the city administrator – to the two they already supervise. But committee members felt that the internal auditor should be able to communicate to the audit committee, if the internal auditor didn’t feel comfortable communicating a concern to the chief financial officer or the city administrator.

The audit committee as a group indicated a desire to be kept apprised of information that comes to light in the course of the year. For example, Crawford noted that the city has an anonymous fraud hotline, and when tips come in through the hotline, they’re investigated – but he pointed out that not many tips come in. The audit committee would be kept apprised of those tips and the outcome of the investigation.

The committee also indicated a desire to meet again, well before next fall, to review how the recommendations from this year’s audit are being implemented. Chuck Warpehoski (Ward 5) seemed to reflect a consensus, however, that the committee did not want to distract the financial services staff from their current preparations for the budget.

In the shorter term, the audit committee will be meeting again before the next regularly scheduled city council meeting on Feb. 4, 2013. No date or time for that committee meeting has been announced. Audit committee member Sally Petersen (Ward 2) was not able to attend the Jan. 24 meeting, and according to some other members of the committee, the next meeting will give Petersen an opportunity to make sure her concerns are addressed.

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  1. By Mark Koroi
    January 28, 2013 at 1:56 pm | permalink

    “Crawford noted that the city has an anonymous fraud hotline.”

    Good. Does someone have the number? I was not aware such a “hotline existed.”

    “The question the audit committee was disinclined to settle explicitly is whether or not Postema’s contract is an employment agreement that identifies payment of mileage reimbursement and car allowance as acceptable.”

    That’s the $64,000.00 question!

    Either its acceptable and he keeps the monies or Postema should disgorge the funds as an overpayment. Whoever is responsible for this controversy should be identified – even if it was the individual drawing up the contract or the draftsman of the city policy.

    This is a cloud hanging over city government. The public wants answers.

  2. By liberalnimby
    January 28, 2013 at 2:34 pm | permalink

    Thank you for this in-depth research.

    While I can think of much larger clouds hanging over the town, this small (as far as we know) incident makes me wonder if city council should be supervising legal staff in the first place. Do most other cities our size see fit to do this? Do the attorneys bring in their timesheets and reimbursement requests to council meetings? Does council benchmark and evaluate legal’s performance, or do they bring in outside support? Do we know if we have the right number of attorneys, and are they being deployed effectively? Would this discrepancy/non-violation/misunderstanding have happened had the department been under the administrator?

  3. January 28, 2013 at 3:47 pm | permalink

    Re: [2] “…makes me wonder if city council should be supervising legal staff in the first place.” While it’s certainly possible to contemplate changing the city charter (which would require a popular referendum), it’s the charter that provides that the city council has two direct reports – and those are the city administrator and the city attorney. So any change to that would be a significant undertaking.

  4. By Finance Man
    January 28, 2013 at 8:05 pm | permalink

    As someone who works in finance, I find lack of clarity in your article. I suggest that linking the applicable policies would be most useful for the following reasons.

    You have cited two separate contractual paragraphs of the City Attorney’s contract. One is for a car allowance and one is for travel expenses. This would mean that he is entitled to both. You cite from this contract that his travel expenses would be governed under City policies.

    The auditor admitted that having both is actually not a violation of City policies. This means that his review of the City policies reveals no language that excludes travel expenses (including mileage) for someone who has a car allowance. By linking to these policies, this should be easy to check. If it is not excluded, then it means that it would be included.

    This final analytical step is very easy. Usually a company policy has a mileage reimbursement policy, as you have cited City Policy 505 in your article, that specifically references the term business travel, here “authorized business travel.” Mileage is, and always has been, part of travel. This is common sense. Could you provide a link to other City policies that the auditor reviewed that refer to expenses for travel?

    Mr. Crawford’s analysis is generally correct. However, and importantly, if the City policies don’t exlude someone with a car allowance from taking a mileage reimbursement as a travel expense, then the policy actually is clear, and not ambiguous or confusing at all — it is allowed. The only issue is what is the language of the contract and the applicable policies. The best way to look at this is: Would a person without a car allowance be able to justify the questioned mileage reimbursements under the language of the current City policies as an authorized travel expense? If yes, then the City Attorney is also entitled to it under his contract. There is no other answer.

    The City can certainly change the policy, and that is easy to do. The travel policies could say: “Anyone with a car allowance, is not entitled to mileage reimbursement for authorized business travel” or “Anyone with a car allowance, is only entitled to mileage reimbursement if the authorized business travel is more than ____ miles from City Hall.” There are all sorts of things that could be put in the policies. But none of these restrictions are in the current policies. In fact, the suggestion that there should be other language now added to provide a limitation, highlights that the current language allows both for the City Attorney without limitation.

    It would be plainly wrong then to criticize the City Attorney in any manner for following his contract and the currently applicable city policies. The City Council was certainly aware of the contract language and the City policies when they authorized the contract.

    Finally, the auditor has to correct an incorrect statement in an audit report. It is not professional to have such a statement remain. So it is not surprising that he is doing so.

  5. January 28, 2013 at 9:41 pm | permalink

    Re: [2] “As someone who works in finance, I find lack of clarity in your article. I suggest that linking the applicable policies …”

    The article contains a link to [.pdf of Crawford's written response] which actually includes the policies in their entirety.

    While the attorney’s contract allows for “travel,” I understand Kailasapathy’s point to be that there’s a legitimate distinction to be made between “travel” and “mileage” reimbursements. In context, the contractual language is reminiscent of the IRS code, which for “travel” includes distances ordinarily associated with an overnight stay or require you to be away from home for substantially longer than an ordinary day’s work.

    Re: “The best way to look at this is: Would a person without a car allowance be able to justify the questioned mileage reimbursements under the language of the current City policies as an authorized travel expense?” And that is, I think, exactly where Finance Man and Kailasapathy might disagree, particularly on the 65-mile trip to Lansing. In the city administrator’s view, as reported in the previously published article, the key is that the trip went outside the “immediate vicinity” and that it crossed county lines, and was thus an appropriate reimbursement. So the city administrator, like Crawford, didn’t find the threshold of an overnight stay to be a deciding factor.

  6. January 29, 2013 at 10:51 am | permalink

    I am dismayed by the need to debate the issue of car allowances and millage reimbursement. This seems so very much like the expense issue County Board of Commission Member Conan Smith became entangled in. This, too, is about a rather insubstantial amount of money but a rather clear question of propriety. When will public officials learn that they can disagree, but simply reimburse the challenged amount so as to end the conflict. It is the petty, self-righteous conduct that does the lasting harm to public trust, not whether you are right or wrong.

    I would be interested in how much the City reimbursed the City Attorney per mile for his travel. The IRS allows an employer to reimburse an employee at the rate of $0.565 per mile for business related travel. A car that gets 30 miles per gallon does not require $16.95 (30 miles times $0.565) just for gas. That reimbursement rate provides for more than just the cost of fuel. It is meant to address the depreciation, maintenance and other costs of owning a vehicle.

    A City employee’s car allowance likely is provided to offset part of the employee’s cost of owning a car that he or she may use in the performance of the job. The employee’s use of his or her car impacts its depreciation and maintenance costs.

    If the employee’s vehicle allowance is meant to offset depreciation and maintenance costs, among other things, then it is inappropriate for the employee to also seek the full IRS rate of mileage reimbursement. The employee would be collecting twice for the built-in costs of having a car.

    It is pretty clear that the City’s policies also draw a distinction between travel expenses and mileage reimbursement. For example, the City Attorney did not file a travel cost reimbursement form, he submitted a computerized mileage request. On the travel form, he could have requested just the cost of fuel. Through the mileage request he received the broader reimbursement of total cost of operation of the vehicle.

    It is my understanding that prior audits have identified similar problems with employee reimbursements and that staff previously promised to address the problems. More troubling, the fiscal year ended June 30, 2012. Likely, this issue came to light in July or August. The City Attorney was offered a contract without a vehicle allowance and Council was not informed of this issue when it was asked to approve that contract.

    I understand the desire to focus on the application of policies in the future rather than dwelling on past actions. I fear that simply accepting this behavior will send a signal to City employees that there will be no accountability. I applaud Council Member Kailasapathy for insisting on higher standards than “business as usual”.

  7. By Mark Koroi
    January 29, 2013 at 4:11 pm | permalink

    @Jack Eaton:

    Very good points.

    Patricia Lesko on her blog has an interesting in-depth article on the Stephen Postema mileage controversy and posted some recent developments as a supplement in response to my observations. She has been critical of Postema regarding these matters.

    I was rather disappointed at the Ryan Stanton article in which seemed to be one-sided in trying to exonerate Postema.

  8. By Finance Man
    January 29, 2013 at 9:09 pm | permalink

    Mr. Askins, thank you for pointing out where the actual policies are, as I missed the location within the quote. Perhaps a direct link might help others not make my mistake.

    Mr. Eaton, you are right that there is really nothing left to debate on the issue of the reimbursement and car allowance issue. They are clearly both provided for by City Council in his contract.

    Mr. Askins claims that someone might try to distinguish mileage from travel. However, the City policies do not. APR 505, for example, refers to mileage reimbursement for “authorized business travel.” Mileage reimbursement is to pay for one of the expenses of travel. Moreover, now having read the entire one page APR 505, it is clear that this APR has no such limitation as a required “overnight stay.” If that is what was wanted, the policy for mileage reimbursement for authorized business travel would had had this language in it: “Mileage reimbursement under this policy will not be provided unless the travel is done in connection with an overnight stay.” And of course, mileage reimbursement would be at the IRS rate. This is the proper way to do it under the City policies.

    Wishing the contract and policies were different do not make them different than they currently are. Therefore, under the circumstances, it seems appropriate to apply some perspective here, particularly given the additional facts that are set forth in the article (and comments) that Mr. Koroi references (and thanks for directing us to this article.): First, that the car allowance is part of a total compensation package, but that the car allowance likely is not included in any pension calculation. So it made sense from the beginning for the City to provide. Second, that one of the court cases actually involved the defense in an out of state court of a 30 million claim against the City. (The above comment only mentions a Lansing case, perhaps because no overnight stay was involved.) Third, that the City Attorney (according to Mr. Crawford’s report) may not have even requested all of the travel expenses he was entitled to related to these travels.

  9. January 29, 2013 at 11:44 pm | permalink

    “Mr. Askins claims that someone might try to distinguish mileage from travel.”

    This is was not a “claim” but rather a description of the simple fact that someone (an elected official) actually did draw this distinction and voiced it during a public meeting – based presumably on her experience and training as a certified public accountant, review of the facts, and discussions with the city’s auditor.

    Based on my conversations with accounting professionals on this issue, the distinction between mileage and travel is apparently so commonly made in the field of accounting that it’s taken as axiomatic. That’s consistent with the observation of the auditor, who characterized the idea of allowing employees with vehicle allowances to be reimbursed for mileage as “illogical” – either with or without a written policy. If we granted hypothetically that Postema’s contract justified simultaneous payment of vehicle allowance and mileage reimbursement, I think we would still be left with the conclusion that the contract ensconced an illogical state of affairs. But I suppose it wouldn’t be unprecedented that a legal contract ensconced an illogical state of affairs.

    Note that the fact that Postema’s vehicle allowance was a part of his compensation package does not deepen our understanding of the contractual question: Was the vehicle allowance: (1) an arbitrary label as part of a compensation package, unrelated to the need of a person in that position to operate a personal vehicle on city business, or (2) a part of the compensation package that was intended to cover the additional gas and wear and tear on a personal vehicle that necessarily comes with the duties of the city attorney, which include defending the city in lawsuits in courts of relevant jurisdiction throughout the region?

    Simply stating that the vehicle allowance was a part of the compensation package is not an argument for (1). In the public sector, the most natural interpretation of Postema’s compensation package was that he received a vehicle allowance to cover increased gas costs and depreciation to his personal vehicle associated with his duties as city attorney, and that he was entitled to other “travel” expenses in the event he actually “traveled” in the sense of the IRS standard of needing to be away for more than an ordinary working day. For example, if he needed to fly or take a train to Chicago to argue a court case, then the “travel” clause in his contract would cover that.

    If you wanted to make an argument for (1) – that the contractual vehicle allowance truly was meant to provide an outright perk as Kunselman described it (that could just as well have been labeled “boat allowance”) – then here’s one way to approach it: Look at the specific geography of Ann Arbor and relevant courts. First, if the contractual vehicle allowance was intended to cover the increased wear and tear and the gas expenses on a personal vehicle for Ann Arbor’s city attorney, then it’s fair to ask how much extra gas and wear and tear there’d plausibly be for Ann Arbor’s city attorney. Well, the two main courts are one block away from city hall, where the city attorney has his office (15th District Court and 22nd Circuit Court). So that’s a zero impact. On Election Day this particular city attorney visits most of the polling stations in the city (as a member of the election commission) – so for maybe two days a year, there’s extra driving within the city. But overall, so the argument would go, there’s no way Ann Arbor’s city attorney would need a vehicle allowance as high as $330/month to anticipate that minimal additional wear and tear and gas. If it didn’t need to be anywhere near that high to cover actual additional costs, so the argument would go, the vehicle allowance was not actually for those additional costs. That means the vehicle allowance must have been included in the contract as an arbitrary label, unconnected to any actual driving need, and could in fact be used simply to acquire a somewhat nicer vehicle than the city attorney could otherwise afford, and would not disqualify mileage claims.

    A counter to that argument would be that while the location of the local courts results in no additional driving by the city attorney, there are courts of relevant jurisdiction in Lansing and Detroit where Ann Arbor’s city attorney would reasonably be expected to appear at least a few times a year, so the vehicle allowance could reasonably have been included in the contract at that level to accommodate some unpredictable number of trips to those locations – with the idea that those additional expenses would be covered by the contractual vehicle allowance – to relieve the city attorney from a need to submit mileage reimbursement claims for essentially trivial amounts of money compared to his overall compensation.

    There’s a sense in which Postema can assign his own interpretation to “vehicle allowance” in his former contract, and if the council as a group were to disagree, then the contract language would not reflect a true “meeting of the minds” on that issue, which would have legal implications for the status of the contract.

    The fact that Postema no longer has a vehicle allowance in his contract eliminates this question of inappropriate mileage claims in the future. And as far as rummaging around in the bowels of the former contract, the elected officials of the audit committee, except perhaps for Kailasapathy, demonstrated no interest in doing that.

    Finance Man, if you’re not content that the audit committee has asserted with sufficient clarity its collective view on the contractual issue, or if you feel that the council as a body should make explicit through a resolution what is already implicit in the rewording of the auditor’s letter – that Postema’s mileage claims were not inappropriate – then I’d recommend you weigh in with your elected representatives to convince them to do that.

  10. January 30, 2013 at 11:01 am | permalink

    Re: (8). “Mr. Askins claims that someone might try to distinguish mileage from travel.”

    Actually, the City’s practices and the conduct of the City Attorney distinguish mileage reimbursement from travel expense reimbursement.

    Travel expense reimbursement it acquired through submission of the travel expense form. Mileage reimbursement is obtained by simply using a computerized request. Separate methods for different kinds of reimbursement.

    When the City Attorney submitted his reimbursement request through the computerized request system, he was identifying that kind of reimbursement, rather than a travel expense. He could have used the travel expense form to seek reimbursement for just the cost of his fuel, but instead sought the higher level of reimbursement represented by the mileage claim.

  11. By Alan Goldsmith
    January 30, 2013 at 11:21 am | permalink

    “I was rather disappointed at the Ryan Stanton article in which seemed to be one-sided in trying to exonerate Postema.”

    Quite the understatement concerning this reporter’s journalism. It’s what he does for anyone in power. The Mayor, the City Attorney, SPARK officials, and pretty much anyone in power gets a free pass or a passionate defense. Not sure what motivates him but obviously creating investigative reporting isn’t it. Good lord, he was ‘explaining/defending’ local Democrats who contributed to Rick Snyder’s campaign for Governor and their motives in a response to my post on

  12. February 4, 2013 at 5:55 pm | permalink

    Dave Askins, could you please post a link to the auditor’s revised opinion? I have seen a reference to it in other media, but not the entire document.

    Of course, I could have missed this link in all the l-o-n-g comments….

  13. February 4, 2013 at 6:59 pm | permalink
  14. February 5, 2013 at 9:19 am | permalink

    Thanks! I see it is also in yesterday’s Civic News Ticker.