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The city of Edinburg’s economic arm — and its finances — are still reeling from a year’s worth of upheaval in leadership and finance staff.
Despite that, the results of a long delayed fiscal audit show the Edinburg Economic Development Corporation, or EDC, to be in good fiscal shape heading into the future.
“Our job was to render an opinion on the financial statements … we have rendered an opinion which is considered an unmodified opinion. It’s a clean opinion,” Ricky Longoria, cofounder of financial advising firm Burton, McCumber and Longoria, told the EDC’s board of directors during a meeting at Edinburg City Hall on Monday evening.
But it took months of work, weekly Zoom meetings with the EDC and Edinburg city staff, and rectifying numerous errors from last year’s EDC audit report before the accountants at the financial firm could come to that official audit opinion, Longoria explained.
“It’s not a good practice to have a Sept. 30, 2022 audit report presented to you in August. You don’t have to be an accountant to know that,” Longoria said.
Like the city, the Edinburg EDC has gone through a period of extensive turnover not only in leadership, but in finance department staff.
The EDC’s executive director, Raudel Garza, took the helm in November 2022.
He inherited a development corporation in need of revitalization and one still struggling to rectify millions of dollars in debt gone bad when one of its biggest investments, Brazilian-based Santana Textiles, went bust and defaulted on $15 million worth of loans.
And just a few months before Garza came aboard, Dagoberto Soto Jr., Edinburg’s finance director, resigned, leaving a short-staffed finance department under interim leadership just as the new fiscal year began.
The EDC contracts with the city to handle all of its financial recordkeeping, including interfacing with auditors.
But, in the wake of Soto’s departure, as well as other vacancies in the city’s finance department, Edinburg fell well behind schedule in preparing for its own fiscal audit, much less the EDC’s.
During a March meeting of the Edinburg City Council, officials assured that the city’s audit could be completed by July — more than six months later than normal.
Instead, Longoria explained that the city handed over a “trial balance” of the EDC’s finances — a worksheet that lists debits and credits — in mid-April. But it wasn’t until last month that the financial firm received a preliminary audit from the city.
“The city is responsible for preparing the audit report itself. They sent us a draft — the first iteration of a draft — about four weeks ago,” Longoria said. “And admittedly, I think they would agree, it was not in good shape.”
Then there was the audit for the fiscal year that ended on Sept. 30, 2021.
That audit contained several gaping financial misstatements, Longoria said.
“In developing this (FY2022) statement, there’s approximately $18 million worth of corrections flowing through here” that stemmed from the previous year’s audit, Longoria said.
The 2021 audit failed to properly account for some outstanding debt from 2015 that the EDC has since refunded.
“Refunding, by definition, is you’ve gone and placed them in escrow. They’re kind of off your books, right? That debt still stayed on the books,” Longoria said.
That had the effect of making it seem like the EDC had less cashflow to work with than it does.
Another issue impacting the EDC is some $15 million in loans it made to the denim manufacturer, Santana Textiles.
The company has since ceased operations at its facility in Edinburg’s industrial park, defaulting on the loans, leaving the EDC on the hook for more than $13.6 million.
The EDC is currently in the process of negotiating with the defunct company to make good on at least some of that debt, but — as a secondary lienholder — the EDC is second in line for recovery.
Despite the difficulties in obtaining financial statements in a timely manner, properly entering transactions in the EDC’s ledgers and other hurdles, the EDC’s finances are in good shape, Longoria said.
That’s mainly due to the fact that, with a fund balance of just over $42 million, the corporation has nearly a year’s worth of cash reserves.
“If you look at financial health based upon that number, then you all are pretty solid. To me, that’s the important story as it relates to this statement,” Longoria said.
For the EDC’s board of directors, however, that “silver lining” as Longoria referred to it, did little to assuage their concerns over the issues that the corporation and its staff are still struggling to rectify.
That includes the EDC’s continued difficulties in obtaining its own financial statements from the city.
“To date, we still have not gotten a full accounting of the balance sheets and profit and loss statements,” Garza, the executive director, said.
Ultimately, the board voted to accept the audit presentation, but were noticeably nonplussed.
“Something like accounting and legal matters should never be a surprise to the board. This was a surprise for me today and, in the future, I would like no surprises,” Board Secretary Raul Resendez said.
“Understood,” Garza, the executive director, replied.
