RICHMOND, Va. -- Over the past few months, Richmond business owners have come forward to share concerns about dramatic meals tax late fees, inaccurate advice they received from finance employees, incorrect tax accounts, and a lack of transparency from City Hall.
The issues have left business owners and some city leaders wondering how the finance department got into this position in the first place, where the problems stem from, and when officials knew about them.
“It just seems like an overwhelming amount of arrogance, ignorance, and dysfunction," said Matt Mullett. He manages Richbrau Brewing and was one of many business owners to express frustration over the city's handling of the meals tax.
According to documentation he showed CBS 6, years ago, a finance employee told him not to collect the meals tax on draft beer, so he didn't.
But the city later told him that he actually did need to be collecting the meals tax and billed him for it along with penalties and interest.
“We were told for four years that we were the problem, and there was kind of a denial of any wrongdoing on the city’s part," Mullett said.
Since CBS 6 first reported on Mullett's situation, he's been meeting with city officials including Chief Administrative Officer Lincoln Saunders and his council representative Cynthia Newbille in an effort to come to a resolution.
“We have kind of agreed on the corrected numbers that are owed versus the payments that were made, so I think we made some progress there," Mullett said, adding that negotiations are still underway. "But we’re still incredibly far apart on what we need in order to resolve this matter.”
After the meals tax issues were made public, the mayor's administration and the city council said they took action to address process improvements and research the root problems impacting the finance department.
Councilwoman Stephanie Lynch said she believed they boiled down to a combination of issues in leadership, culture, and systems.
"I think all of us were asking ourselves those questions. Like, how did this happen? I think it is both a combination of years' worth of neglect. I think oftentimes people get distracted with shiny objects and forget to focus in on the core basic functioning of City Hall," Lynch said. "All of us are guilty of that."
Lynch said she didn't realize how concerning the working conditions inside the finance department were until she took a tour of it a couple of weeks ago.
“They are running that entire department with paper as the system of record, so if you can imagine seeing boxes and boxes of paper forms and receipts and file cabinets. It was like taking a tour back in time," Lynch said. "The folks in the Department of Finance have been doing the very best that they can, given what they're working with. Now that we know better, we're going to do better."
However, the city administration has known the finance department's systems were outdated for many years.
In 2018, the Richmond City Auditor's Office completed an audit of the finance department that showed its delinquent collection system was "not conducive for management to evaluate the City’s performance in collecting delinquent accounts."
The audit noted the system did not allow tax collectors to be "effective and efficient in performing their jobs."
"Past Due Notices, Payment Plan Default Letters, and other collection methods require manual intervention by employees instead of the system automatically generating them after designated delinquent timeframes," the audit said.
In response to the audit, the city said it would replace its system by 2020. But that didn't happen.
“It is just a big failure of the collective to recognize some of the systems improvements that needed to happen," Lynch said.
The city is in the process of rolling out a new online system called RVAPay that city leaders are looking to as a long-term solution. The first phases of the program have been implemented, and it should be fully operational by the end of the year.
While Lynch said the new program will be a "great solution" and "bring more transparency," she noted that the finance department is still grappling with a shortage of staff members.
According to numbers the city provided to CBS 6 in February, the finance department had 34 staff vacancies out of 125 total positions.
"I'm always concerned that with the limited staff capacity that we do have that it's a really big challenge to implement wide sweeping IT changes," Lynch said.
We've also learned that Richmond's Inspector General James Osuna recommended disciplinary action against Finance Director Sheila White in the past, as a result of an investigation his office completed in 2022 in response to allegations that the finance department was falsifying cash accounts.
The investigation report showed the department failed to reconcile the city's fund balance each month, causing a $12 million overstatement. The error began in 2015, due to a "lack of personnel," and wasn't caught until 2021.
"It is unfortunate that these issues did not rise to materiality thresholds until the fall of 2021 shortly after Shelia White was named finance director," said city spokesperson Petula Burks. "The department was working with a reduction in staff due to COVID, most staff was working from home, there were two system upgrades, and there was a new director working to get up to speed on operations, systems, and internal processes."
The investigation report noted that failure to reconcile accounts may have caused "financial information provided to those charged with governance" to "not be accurate, time, or relevant."
However, Burks said there was no loss of city funds at the time and pointed to remarks from the audit committee in a recent meeting commending the finance department for improving the reconciliation process.
Burks did not answer whether White was ever disciplined, per Osuna's recommendation.
Moving forward, Lynch said she was focused on solutions.
Monday night, the city council passed new legislation that requires regular audits of business accounts and notifications to taxpayers of debts and/or credits.
“I think now that we are going to put some of these new processes in place, we can build some confidence back up in local government," Lynch said. "Folks need to know that this is a government that's going to be responsive. It's going to be transparent, full stop, and we're going to work on fixing it every day."
City councilmembers, with support and input from the administration, also passed local laws to change the city code to amend how the finance department applies for tax payments, reduce penalties on personal property tax bills, and allow for more of a heads-up before citizens have to pay their personal property taxes.
Mullett said he applauded the steps city leaders have taken in recent weeks to address finance concerns.
“City council has been great at reacting and really becoming involved in trying to move resolution and the current matters forward," Mullett said.
He added, “The people want a well-run government, and they want to be able to trust the government.”
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