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Spokane Valley pays police fees

State auditor says any billing overlap would be slight

Spokane Valley’s dispute over the cost of sheriff’s service may illustrate the wisdom of being careful what you ask for because you might get it.

City officials got what they wanted, a contract that binds the county to a short list of administrative and other indirect costs.

Still, they’ve been unhappy since senior analyst Morgan Koudelka concluded in 2007 that some of those costs may have been duplicated in the city’s separate contract for jail service.

Whether there is any overlap remains in dispute, but the Spokane Valley City Council voted unanimously last week to pay Spokane County more than $1.1 million the city had withheld and to resume paying the city’s full bill for police service.

The decision came two days after the state auditor’s office said the city’s overbilling allegations were based on false premises and were wildly exaggerated at best.

City officials paid a Portland accounting firm, Financial Forensics, $24,345 for a report that concluded more than $1.4 million worth of indirect costs was duplicated in calculations of the jail and police contract charges. The city was entitled to a $609,634 refund, the report said.

County commissioners asked the state auditor’s office to investigate, and assistant audit manager Guy Cavendar reported last week that the most the city could possibly have been overcharged was $18,154. He said the Financial Forensics analysis was based on seriously flawed assumptions and faulty data.

Financial Forensics didn’t respond to a request for comment.

Council members said they hoped to pursue their claim through negotiations and, if necessary, mediation.

The city’s case boils down to an assertion that it’s not proper for the county to charge the full amounts specified in the police contract if some of the services were paid by jail users.

County officials and the state auditor’s office conceded there may be some overlap in the contracts. But they said any double-billing would have been slight, and it would result from contract terms the city approved.

Also, county commissioners said the contract doesn’t allow city officials to reduce their payments because they think they’ve been overcharged. The contract calls for estimated monthly payments and a year-end settlement based on actual costs. Mediation is prescribed if the parties can’t agree on the final bill.

City Manager Dave Mercier contended in an interview that the reference to actual costs isn’t limited to the “settle-and-adjust” clauses in which it appears. It also means any overhead billed to jail users isn’t an “actual” cost under the police contract, Mercier said.

As for authority to withhold part of the payment, Mercier cited a clause that says an interest penalty may be imposed on late payments “at the sole option of the county.” He said the city paid interest on the money it held back.

Thus, the dispute could become a question of contract law instead of complicated accounting.

Meanwhile, city and county officials have agreed to renegotiate a police contract that county Auditor Vicky Dalton described as “very flawed.”

“In the initial calculation of these costs, the bean counters weren’t as involved as we would have liked,” Dalton said.

Mercier said he thinks both sides recognize the contract “was not fully explicit on every item.”

Over the years, the city and county staffs have made numerous changes in the contract without formally ratifying any of them, Cavendar said.

Mercier noted the contract allows the city to change its “level of service,” but Cavendar pointed to a section that says the parties agree “there are no other understandings, oral or otherwise” and that changes not ratified in writing are invalid. Cavendar said the state auditor’s office wants the contract clarified so everyone can see what’s intended.

Although a new jail contract was signed in 2006, the contract for police service from the county Sheriff’s Office hasn’t been changed since it was hastily approved in 2003 when the city was formed.

None of the people who signed the police contract is still on the job – not former City Manager Stan McNutt, not former Sheriff Mark Sterk, and not former County Commissioners John Roskelley, Phil Harris or Kate McCaslin.

While city officials complain about overlapping charges, county officials are unhappy that the police contract fails to collect anything for several categories of service, such as K-9 dog teams. Commissioners and Sheriff Ozzie Knezovich want to start using a comprehensive cost allocation plan a county contractor has prepared for the police contract.

Currently, the police contract uses a limited list of indirect costs: administration, forensic unit, garage, training and dispatching.

The city’s jail contract, on the other hand, uses the same comprehensive plan that is used to allocate indirect costs to other cities that use the jail. Because of that and other discrepancies, comparing the police and jail contracts is difficult.

Under the police contract, Spokane Valley’s share of the listed overhead generally is based on the percentage of the sheriff’s staff that the city uses – about 42 percent in 2006.

Koudelka said Financial Forensics determined that the percentage was applied to the full cost of the overhead items without subtracting any amounts assigned to jail operations. He gave a couple of examples – garage services and training – that seem to support that contention.

However, Cavendar said the amounts Koudelka cited were “very bare, very reduced” under the city’s contract for police services. For example, he said the garage overhead included only salaries and benefits.

“The county never collected 100 percent of anything that we could find, and we looked,” he said.

Further, Cavendar said, Financial Forensic’s calculations were based on 2006 budget estimates, not year-end audited costs.

Anyway, he said, the police contract left the county with 58 percent of the overhead costs, and the county was free to assign some of those to the jail.

To check the city’s worst-case scenario, Cavendar said state auditors subtracted all indirect costs from jail charges and found the city’s bill would have been reduced only $18,154. That’s because the city’s jail use was only 3 percent of the total, he said.

The “vast majority” of jail costs were borne by the county, Cavendar said.

Kelly Rueff, a certified public accountant and a financial analyst in the county auditor’s office, said she conducted her own study last year and reached to the same conclusions as Cavendar.

Bottom line, Cavendar said, “The law enforcement contract is the one with the solid numbers in it.”

In other words, the city got what it bargained for.