Sources say Issaquah is “ toxically dysfunctional”

The city’s problems may not just be in its finance department.

Issaquah’s staffing problems continue as the city’s last senior accountant recently announced their resignation. Meanwhile, current and former employees say the city is suffering from poor work culture, a lack of internal controls and above average turnover.

The city of Issaquah has been unable to complete its last four state audits without garnering significant findings, with auditors pointing to a string of turnovers as a key issue. Interviews with current and former staff begin to paint the city as one where internal controls are not properly implemented, leading those contacted to worry about its stability. The Reporter offered the sources anonymity for the story because they fear retaliation.

“It just is toxically dysfunctional — it’s just the only way you can say it,” said one source.

A records request showed Issaquah had a citywide turnover rate of more than 14 percent in 2016 and 2017, a figure that dropped to 9.8 percent last year. Surrounding cities, including Bellevue, Renton and Redmond among others, had an average turnover rate of 9.4 percent in 2016 and 11 percent in 2017. However, both Redmond and Bellevue have successfully completed audits without significant findings in recent years.

Issaquah city manager Emily Moon said she was not concerned with turnover in the city, noting many people left for career advancement or retirement, or because of challenges like long commutes.

“I think there’s always a healthy amount of turnover in a year,” she said. “We’re doing all we can to retain great employees here.”

While the state auditors found no evidence of fraud in the city’s most recent 2017 audit, significant reporting errors can affect whether the city can issue bonds and at what rates. Issaquah uses a system known as the Generally Accepted Accounting Principles, which a spokesperson for the state auditor’s office previously described as complex.

In previous reporting, it was shown that between 2015 and 2019, at least nine people employed by the city’s finance department had left. That included several employees who had worked at the city for more than five years as well as many who left sooner.

Since 2015, the city has churned through several finance directors including Diane Marcotte, who was hired in 2012 and left in 2016. She was followed by Arnaz Bharucha, who served for half a year in 2016 before Jennifer Olson was brought in by year’s end. Olson made it two years before departing for a job in Stanwood. She was replaced by the current finance director Beth Goldberg. Additionally, the city’s deputy finance director Beth Anne Wroe left in 2018 after six years for a position with the city of Des Moines.

A financial operations manager left the city this February less than a year after they were hired. A payroll coordinator who was hired in October 2015 left after one year. The payroll position was not filled full time again until this January. Those were followed by last month’s departure of the city’s final senior accountant.

A former employee contacted for this story said that with the departure of the final senior accountant, there are no remaining internal controls in the department and remaining staff may not be able to accurately document expenses. Multiple sources said employees across several departments are actively looking for jobs elsewhere. Sources said that a lack of internal controls are endemic to many departments in the city.

“Things are going to start really going wrong,” one source told the Reporter.

Emails obtained by the Issaquah Reporter indicate there was an attempted fraud in February. There was another small but initially successful fraud in the parks department last year, which was confirmed by Moon. Moon said the attempted February frauds were foiled by the city’s bank, which alerted them of more than 90 attempts to fraudulently cash checks, none of which were successful, she said.

The attempted fraud last year was in the city’s parks department and came from an employee who was fudging cash receipts. However, Moon disagreed with negative characterizations of how the city is operating.

“We take our policies and procedures very seriously,” she said.

In the finance department, some people contacted for this story felt systemic problems — like a rough transition to a new accounting system that has been spearheaded by management in recent years — have led supervisors to blame staff for errors. That, they said, has created a hostile environment that drives employees from the city. At least one hoped the Washington State Auditor’s Office would get more involved.

The city did bring in a third-party finance consultation organization, the Government Finance Officers Association, to do an examination and report on the city’s operations and financial management system.

“We feel that after four years of these findings — and frankly, several attempts to address these challenges with internal resources — we feel we are at the point now where we can’t address these challenges internally,” finance director Beth Goldberg previously told the Reporter.

The Government Finance Officers Association did interviews with city employees in March that showed there were incomplete or inconsistent financial policies, poor training of employees on the city’s financial management system and a complicated payroll system.

Following the publication of a report on Issaquah’s audit problems, Moon announced on March 25 she would resign. She is planning on departing this August to travel with her family, according to a post on the city’s website.

“There’s no tragic story here about an ending — but instead one of opportunity and new beginnings,” Moon said in the post. “While I wish the timing was different — there are so many good things happening in Issaquah that I want to be a part of — I am ready to fulfill a promise made to my family years ago, and to learn and grow through this next adventure.”

Issaquah was unable to complete audits of its fiscal years 2014 through 2017 without significant findings of errors, including duplicate entries, overstating ending balances and other errors. In each of the reports, the Washington State Auditor’s Office noted the city’s “controls over its financial statement preparation were inadequate to ensure accurate and complete financial reporting.” Between 2000 and 2013, Issaquah had only two findings of its audits.

The audit findings noted there was turnover in key finance and accounting positions as well as extensive employee training and process changes stemming from the transition to a new accounting software, which contributed to the problem. While there was no evidence of fraud, millions of dollars were incorrectly filed, including one notable duplicate entry of $19 million in 2014.

Errors like these can affect whether a city can get bonds and the ratings of those bonds. Financial errors can also give a misleading picture of the city’s finances for both lenders and residents, leading to a lack of transparency.

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