Fernandina Beach News Leader
County credit rating drops
By Michael Parnell and Benjamin Price, News-Leader
Nassau County's credit rating has been downgraded again as the fallout continues from the theft of hundreds of thousands of dollars by a former county employee.
Citing "serious internal control and budgetary weaknesses," Fitch Ratings Ltd. downgraded the bonds used to finance construction of the Nassau County Judicial Annex. Lower ratings make it more difficult for the county to raise funds in credit markets and could cause it to pay more interest on its loans.
The judicial annex bonds remain on "rating watch negative," where they were placed last Sept. 2 after Fitch first expressed concerns about the county's ability to manage its money.
County Attorney Mike Mullin said Monday he and Clerk of Court John Crawford have talked with representatives from Fitch, and the firm's basic concern is that county procedures did not prevent embezzlement by a county employee - possibly in excess of $1 million.
"They want to see a definitive document that shows them exactly what they've been told by the clerk and (County Administrator Mike Mahaney) - it's a far different picture than a year ago," Mullin said.
Mullin was referring to new internal controls and an emphasis on accountability within the clerk's office and county government since the discovery of the embezzlement in January.
"They are willing to change (the rating) when they see the audited reports indicating those numbers are reflective of a greater economic turn of events," Mullin said.
Fitch Ratings, headquartered in New York and London, last week downgraded from A to A- the underlying rating on approximately $33.9 million in outstanding public improvement revenue bonds used to finance construction of the judicial annex in Yulee.
According to information on the Fitch web site, "The downgrade reflects the absence of audited financial statements for fiscal 2004 that corroborate the county's representations about its financial position and continuing concerns related to internal controls as underscored by a recent investigation into malfeasance in the county Clerk of Court's office."
The audit for fiscal 2004, now being prepared by accountants Farmand, Farmand & Farmand, was delayed by the investigation into embezzlement of funds by former clerk of court's employee Julie Mixon. Mixon admitted stealing from the clerk's office before committing suicide May 1.
Fitch lowered the county bond rating from A+ to A and placed the county on negative credit watch last Sept. 2 "in response to the rapid deterioration of the county's financial position between fiscal years 2000 and 2003 and expected negative financial results in fiscal 2004," Fitch stated.
"Nassau County has released unaudited fiscal 2004 results that indicate a sound year-end cash position and a $2.1 million operating surplus," Fitch said. But the county drew approximately $2.4 million on a local line of credit, "evidencing cash flow difficulties that the unaudited figures do not show," Fitch concluded.
Mullin said Farmand has indicated the county's 2004 audit will be complete by the state deadline of Sept. 30, and the firm is fulfilling its contractual obligation to complete that audit.
Fitch was critical of the county's failure to prevent the theft by Mixon and its continued use of Farmand to conduct its audits.
"The downgrade also reflects serious internal control and budgetary weaknesses that led to the erosion of the county's reserve position and, most recently, to a failure to prevent or uncover an employee theft of about $875,000 from the Clerk of Court offices," Fitch stated.
"Additionally concerning is the county's continued use of the auditor that failed to identify the missing funds for the county's fiscal 2004 financial statements. While the county has implemented measures to improve controls, with further plans to employ a controller, Fitch believes that it will take time to assess the effectiveness of the measures."
Fitch said it would review its bond grade and negative credit watch designation once the fiscal 2004 audit is completed, the 2005 fiscal year has ended Oct. 1 and the fiscal 2006 budget is passed.
"The underlying message from Fitch: Get serious about increased reserve levels, adopt a strengthened budget policy and practice, accept the internal controls necessary to ensure fiscal certainty, adopt a capital improvement plan with a dedicated funding source," Crawford said in a prepared statement Monday.
These objectives were also outlined in a Citizens Budget Reform Policy Committee's recommendation to county commissioners in May. However, Crawford said the commission has not yet adopted the committee's recommendations.