Filling in some details missed in the outcry about Philly’s ‘missing’ millions

This story originally appeared on PlanPhilly.

—

Much has been made of the mysterious “missing” millions in City Hall. Much less has been made of the treasure hunt to find it. A blame game continues to play out over who is culpable for Philadelphia’s unaccounted-for funds, at first estimated to be $33 million, now closer to $26 million. Columnists are going after Mayor Jim Kenney’s finance director. The mayor is pointing a finger at previous administrations. City Controller Rebecca Rhynhart shined a light on just how wretched Philly’s bookkeeping has been in recent years.

One man at the center of this storm is Councilman Allan Domb, whose incredulous questioning of city officials during budget hearings — “I’m flabbergasted,” he said —  rocketed the issue of unreconciled cash accounts, the so-called “missing” money, to the forefront of public attention.

Domb, a real estate magnate and member of City Council’s finance committee, wants every aspect of the reconciliation process scrutinized: not only clearing up how the city found itself with an eight-figure hole in its bank accounts, but also who is being chosen to lead the recovery process. He has raised serious questions about the credibility of the local firm chosen by the city, via a Request for Proposal, to spearhead the reconciliation work. Instead, Domb has called for hiring one of the “Big Four” national accounting behemoths — Deloitte, PricewaterhouseCoopers, Ernst & Young, or KPMG — to track down the discrepancies in the city’s consolidated cash account, which hasn’t been balanced since at least 2014.

Now, another man swept into the city-funds controversy, the principal of the local accounting firm caught in Domb’s crosshairs, is firing back. “At the end of the day, if [Councilman Domb] knew who I was, he wouldn’t have made those comments,” said Michael Horsey, of Horsey, Buckner & Heffler, which won the contract, issued through the City Treasurer’s Office.

The firm’s track record, like the “missing” millions themselves, is more nuanced than Domb’s comments made it appear. HBH is not a mom-and-pop operation. Prior to founding the firm in 2017, Horsey was the longstanding managing partner of the Philadelphia office of Mitchell & Titus, which for much of that time was part of the global network of Ernst & Young. Kia Buckner, the managing partner of HBH, spent more than a decade at Mitchell & Titus, considered the largest minority-owned accounting firm in the country, and before that more than five years at PricewaterhouseCoopers.

“We are products of the Big Four,” Horsey said. “That’s where we come from.”

During his time as head of Mitchell & Titus’s local office, Horsey said, it was “the leading firm that was providing accounting services to governmental and quasi-governmental organizations in the city of Philadelphia.” Horsey oversaw a diverse array of public-sector auditing, including working on the books of the Redevelopment Authority and Community Behavioral Health.

After retiring from Mitchell & Titus last year, said Horsey, 61, he decided to spin off his expertise into a new entity. “The methodologies around those experiences are why we created this,” he said, referring to HBH.

It came as a surprise to Horsey when Domb issued a personal call-out during testimony by City Treasurer Rasheia Johnson in May. “I just looked on the Internet, which you can do today, and I noticed that one of the principals had their accounting license suspended from ’02 to ’11,” Domb said, referring to Horsey. “From what I’m told, it’s pretty tough to get your accounting license suspended.”

In 2002, Horsey consented to an order that prevented him from appearing before federal regulators with the Securities and Exchange Commission for two years. That order was the result of a fraud case brought against one of Mitchell & Titus’s clients, MERL Holdings, a New Jersey company. While Mitchell & Titus was exonerated, Horsey said, individual accountants accepted the reprimands without an admission of wrongdoing. “The federal government spends three years looking at you, they have to get something out of it,” he said. “We ultimately agreed that all Philadelphia partners would not be involved with SEC work.”

Horsey’s CPA license was not suspended — an action that would have been taken by Pennsylvania regulators, not federal officials. As Horsey tells it, he didn’t immediately reapply for standing with the SEC because the Philadelphia office was not involved in the kind of public-offering accounting work that would have required him to appear before the SEC. He did eventually reapply and was reinstated in 2011.

The hiccup hardly affected Horsey’s career or damaged the reputation of Mitchell & Titus. Through fiscal years 2009 to 2017, the Philadelphia office of Mitchell & Titus, under Horsey’s leadership, served as the “peer review” auditor of the City Controller’s Office, meaning they were expected to be the independent auditor of the city’s official auditor.

“I did not know that,” Domb said in a recent phone interview when asked about Horsey’s past ties to the City Controller’s Office. “I don’t know if the firm is good or bad. I certainly don’t have any issue with the firm. But in doing my due diligence, I Googled the firm, and the violation came up. My concern is that we have the best possible eyes watching over taxpayer dollars.”

While reserving judgment on the firm’s bona fides vis-a-vis a Big Four accounting firm, Domb acknowledged that the ballyhoo over the “missing” millions needs to be recentered.

“I think that the goal now for everyone is to stop being negative. Let’s be positive and figure out the solutions,” Domb said. “First, to restore consumer confidence in our financial management of taxpayers’ dollars. Second, to restore confidence with the outside world. And third, for the bond-rating companies. If a bond-rating servicer is looking at our finances, I’d think they would expect our accounts to be balanced.”

Horsey couldn’t agree more. “In all fairness to Mr. Domb, I believe he was able to get his message across, which I also perceive to be important: no new taxes until we’ve reconciled the money that the city’s already brought in. Overall, we share his concerns about the fiduciary piece of the city.”

Horsey expects to have reconciled the city’s primary account by the end of December. As part of the contract stemming from the RFP, which carries a maximum value of $500,000, HBH will be regularly reporting not only to the Treasurer’s Office, but also the Office of the Inspector General and City Council’s Finance Committee, on which Domb sits. The councilman and Horsey will be seeing more of each other in the coming months.