Detroit Loses $1 Million Check

There are many factors that contributed to the financial mess that led to Detroit filing for Chapter 9 bankruptcy protection, and I’m sure there are plenty of stories of inefficiency and incompetence like this involved:

In late February, cash-strapped Detroit received a $1 million check from the local school system that wasn’t deposited. The routine payment wound up in a city hall desk drawer, where it was found a month later.

This is the way Detroit did business as it slid toward its bankruptcy filing, which it entered July 18. The move exposed $18 billion of long-term obligations in a city plagued by unreliable buses, broken street lights and long waits for police and ambulances. Underlying poor service is a government that lacks modern technology and can’t perform such basic functions as bill collecting, according to Kevyn Orr, Detroit’s emergency manager.

“Nobody sends million-dollar checks anymore — they wire the money,” said Orr spokesman Bill Nowling. Except in Detroit.

“We have financial systems that are three, four, five decades in the past,” Nowling said. “If we can fix those issues, then we’ll be able to provide services better, faster, more efficiently and cheaper.”

Detroit doesn’t have a central municipal computer system, and each department bought its own machinery — much of which never worked properly, according to Orr, 55, who took over in March. The last such acquisition, 15 years ago, was of a system based on Oracle Corp. technology that wasn’t fully put to work.

The city is buying new software to improve income-tax collection, especially from suburban commuters who work in Detroit, said James Bonsall, the chief financial officer hired by Orr. The dysfunction extends beyond machinery, Nowling said.

Union rules have “bumped” workers into positions they aren’t qualified for as departments make cuts, he said. The city has no training programs and doesn’t evaluate employees in 2,500 job classifications.

“It has nothing to do with bad employees,” Nowling said. “These employees in some instances are still following work rules that were created 40 years ago.”

Detroit’s operational flaws are pronounced, according to a June 14 report from Orr.

It costs the city $62 to process each paycheck, every pay period, for its 9,560 employees, compared with an average of $18 for U.S. public employers, Orr said in the report. The main reason for the high cost is that almost 150 full-time workers produce Detroit’s payroll, including 51 uniformed officers.

The city’s income-tax receipts are processed by hand, among the 70 percent of accounting entries done manually, according to Orr. He said in his report that the U.S. Internal Revenue Service described Detroit’s tax-collection system as “catastrophic” in a July 2012 audit.

Detroit’s antiquated accounting processes have meant some bills go uncollected for as long as six years, according to Orr, cutting funds that could buy new squad cars, emergency vehicles or computers. Victims of heart attacks in Detroit are likely to die because of slow responses to emergency calls since so few ambulances are running, Orr said in an interview.

This, it seems, is what happens when an American city dies.

FILED UNDER: Economics and Business, Quick Takes,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook

Comments

  1. JKB says:

    Oh, come on, let’s not avoid reality here. This isn’t what happens when an American city dies. It is what happens to an American city under 50 years of Democrat rule.

    Wonder why their accounting processes seem like they are from the 1960s?
    Everyone of those jobs that now hand process paychecks and income tax are patronage and provide a kickback to the Democrats either through dependence or direct payments for the job.

    And let’s look at government bureaucracy. No one gets ahead in the bureaucracy for having a small efficient department. No, they need more people, more equipment, bigger free-standing buildings and ever increasing budgets.

    No incentives, either on the political crony or bureaucrat side to make things better, only larger. And it works right up until they tip the taxpayer into the “had enough” category. Then like water, the taxpayers with their tax dollars, their enterprise and innovation, start to flow out, ever faster, eroding the psychological dam increasing the volume.

  2. beth says:

    I was appalled when I read about what was going on in Benton Harbor, Michigan before it was taken over by an emergency manager, IIRC, the city was paying thousands of dollars in fees because many city officials would write checks without recording them, bank statements hadn’t been reconciled in years and way too many people had access to city funds with no restrictions or controls in place. Maybe instead of pre-calculus and trig, we should require all high school students to take a basic accounting class.

    Cities and local goverments have probably resisted updating their accouting systems due to the cost involved and not wanting to put people out of their jobs. Someone here posted a good question once – what do we do when machines and computers can do our jobs more effectively and cheaper? It’s a problem no one seems to be discussing.

  3. beth says:

    @JKB: I live in one of the reddest of red states and they still do things by hand that a computer could easily do. Cronyism is as rampant here as it is in Detroit. If you think this is a Democratic/Republican issue, you are terribly mistaken. .

  4. al-Ameda says:

    @JKB:

    Oh, come on, let’s not avoid reality here. This isn’t what happens when an American city dies. It is what happens to an American city under 50 years of Democrat rule.

    Yeah, and the Enron implosion is exactly what we’ve come to expect when Republican CEOs, COOs, and Boards of Directors run a corporation. There, see how easy and fun it is to make inferences that fit a narrative and talking points?

  5. Tyrell says:

    @beth: Cronyism is common in town and city governments. If any party is in charge for 40-50 years you will get a disaster, such as Detroit. It matters not which party. Which city is next? Washington?
    I agree totally with your comments about education. I graduated from high school and did not know how to keep a checking account balanced. Students today are the same. They learn stuff like decimeters and stem-whisker plots, but have no idea what an interest rate is or how stock investing works. From what I have seen of this “Common Core” math, it will really get worse. Teachers can’t even understand it.
    Car dealers are going to love it.

  6. JKB says:

    @beth:

    Oh, no doubt. Most local government works as I remember a pundit described Chicago’s “Combine”. The parties switch up who has nominal control but in reality they both work to ensure the members of the “Combine” get their cash and prizes regardless of party.

    But one difference is, Republicans have a hostile press to hound them on every little thing. On the other hand, the press actively works to edit or cover up for Democrats (Obama, Filner, etc.)

    But in the end it is for the populace to constantly push for smaller government this at a minimum forces upgrades to modern technology so the politicos don’t look completely foolish.

  7. JKB says:

    @beth:

    As I said in my comment, those jobs of doing accounting by hand were votes and patronage for the politicians.

    At the national level at the Department of Commerce, they had an antiquated system that required employee government credit card statement to be reconciled by hand. It’s true, I couldn’t even get them to print the data to a file or even provide the credit card contractor’s statements in digital form so I could write a program to match transactions.

    But good news, they spent 5 years or so and a billion dollars for a new financial accounting system for Commerce. End result, you couldn’t get the transaction level data for credit cards out of the system to reconcile with the paper statements. All they would provide was a monthly total charged against the card. So hand reconciling problem solved by making it impossible. Of course, detecting fraud, erroneous charges, missing charges (yes vendors would delay processing charges) became impossible. Much less verify the transactions were charged to the proper accounting codes.

  8. anjin-san says:

    @ JKB

    Democrats have been running San Francisco for 49 years, I was just there the other day and it did not resemble Detroit in the least. Shockingly, your thinking seems to be deeply flawed.

    The last Republican mayor was George Christopher, his signature accomplishment was Candlestick Park – which was built in such a terrible location, and so poorly that it became a national joke. It just so happened that the land at Candlestick point was owned by Christopher’s buddy Charles Harney, who had paid $2100 an acre for the land in 1953. In 1955, the city, under its GOP mayor, paid Harney $65,853 and acre for the land. Nice return on a two year investment. Harney was also awarded a no bid contract to build the stadium, which was an albatross from day one. Surprise, surprise, the stadium ended up costing three times as much to build as Christopher said it would.

    This legacy of GOP government will finally be demolished next year.

  9. Tyrell says:

    @anjin-san: I watched a lot of baseball games on tv from the ‘Stick in the ’60’s and ’70’s. Things could get quite interesting: fog, high winds, changing winds, winds that would almost stop a ball in mid air when it was blowing in. Still, the memories of Mays, McCovey, Marichal, Cepeda, Will Clark, and many others will remain with me; we hung on to every Dodger-Giant game. Nothing like it.
    Hoyt ( “Sarge”) Wilhelm (NY Giants, but still a Giant) and the incomparable Gaylord Perry: two of the most fascinating pitchers ever. Hitters dreaded going up against them. I was in Atlanta and saw Wilhelm strike out Joe Torre with men in scoring position, top of the ninth to win the game. No one could hit that knuckle ball !!

  10. Maus says:

    @al-Ameda:

    Republican? Ken Lay and Jeff Skilling were whatever they needed to be, politically-speaking. In fact, when Democratic Congressman, Craig Washington, took over Barbara Jordan’s old seat, which includes downtown Houston, he was anything but friendly to business. So, to get rid of Mr. Washington, these two fellows went and found themselves a local tool, a candidate they could groom for office. Enter a former councilwoman, who was running for any office she could, with zero luck. Well, with Skilling as her shadow campaign manager and banker, she beat Washington in the primary and sailed to victory in the overwhelmingly African-American district.

    That was none other than the brilliant, delightful, humble Sheila Jackson Lee!!! Who was strangely and uncharacteristically subdued when Enron went under.

  11. Tyrell says:

    A written check for a million dollars? Makes one wonder what else the school system there is still doing: using chalkboards and slide projectors?
    Points up one of the problems there: way behind in technology.

  12. An Interested Party says:

    But one difference is, Republicans have a hostile press to hound them on every little thing. On the other hand, the press actively works to edit or cover up for Democrats (Obama, Filner, etc.)

    The Conservative Victimhood Tour continues…it’s amazing that Republicans can get elected to anything considering all the hostile forces arrayed against them…

  13. William Wilgus says:

    @JKB: The root cause of Detroit’s problems is the loss of jobs. Your rant against Democrats is pure Republican Blather.

  14. William Wilgus says:

    @JKB: Ah, another ‘Tea Party will fix everything’ post?