Letters from ADEM call out audit delays, ‘inadequate’ fiscal plan, say city can’t afford to spend water and sewer revenues on other expenses
Newly-obtained public records indicate that Marion came dangerously close to losing state funding for its planned water and sewer system repairs and upgrades due to missed deadlines and inadequate fiscal planning and controls.
Documents released following an open records request show state environmental officials warned in January that the city was in immediate danger of losing access to the millions of dollars it needs to rehabilitate its failing water and sewer system. Officials tied that risk directly to Marion’s long-overdue audits and the city’s inability to produce basic accounting records on time.
In a Jan. 6 letter to Mayor Dexter Hinton, Alabama Department of Environmental Management Director Edward Poolos set a firm deadline for Marion’s fiscal year 2023 audit and spelled out what would happen if the city missed it. Marion “should submit the FY23 financial audit to the Department no later than January 21, 2026,” Poolos wrote, adding that if the audit was not received by that “mutually agreed date,” he would instruct ADEM staff “to initiate the process of moving the remaining funds to another applicant who meets the SRF Program’s audit requirements.”
Hinton had requested the Jan. 21 date after the city failed to meet a December 2025 deadline. ADEM confirmed that Marion delivered the 2023 audit on the day of the requested later deadline. In ADEM’s written response to this newspaper’s open records request, the agency stated, “The 2023 audit was received on the deadline of January 21, 2026.”
The Jan. 21 deadline already reflected an extension after Marion failed to meet an earlier cutoff. Poolos wrote that ADEM had previously warned the city in a Nov. 19, 2025 letter that if audited financial statements were not received by Dec. 22, 2025, the department “would consider withdrawing the remaining funds designated for the Phase I Water Treatment Plant upgrades and reallocating those funds to another project within the state.”
Poolos’ January letter shows the state’s frustration was not simply about a late document. He wrote that an ADEM staff member spoke Dec. 23 with CPA Jim White of Banks, Finley, White & Company, the audit firm, and that White said the firm “had not been paid in full for the audits.”
Poolos wrote that White also reported he was unable to complete the FY23 audit because of “several delays caused by the City of Marion’s inability to provide all the accounting and related information necessary to complete the audit in accordance with generally accepted audit standards.”
That disclosure lands in direct conflict with the mayor’s public statements at the Jan. 5, 2026 Marion City Council meeting, as reported in The Times-Standard-Herald’s Jan. 8 edition. Asked whether the city’s audit bills were paid, Hinton replied, “Yes, it’s been paid for,” later telling Councilmember Stanley Kennie, “No sir. It’s paid,” when pressed on whether any balance remained on the 2023 audit.
Hinton said at that meeting that any balance the city owed to auditors was for the 2024 audit. He also told the council that audit work was underway and described the situation as stemming from extensions requested by the city’s auditors, saying they needed more time.
In the Jan. 6 letter, Poolos also undercut any suggestion that audit costs were the reason Marion could not keep up. “The financial audit funds were transferred to the City on March 17, 2025, and you confirmed receipt of the funds on March 21, 2025,” Poolos wrote.
The funds Poolos referred to were awarded from the state to Marion and were earmarked specifically for the completion of the audits in question, intended to bring the city into fiscal compliance and qualify it to receive state and federal money for its comprehensive water and sewer infrastructure repairs.
ADEM followed up with a second letter on Jan. 28, signed by Deputy Director Jeffery Kitchens, that reinforced the agency’s message and sharpened the warning: Marion cannot base the system’s future on one-time rescue money. “Funding strategies should not solely depend on the application for grants or loans offering principal forgiveness,” ADEM wrote, because those programs are “inherently competitive and not guaranteed.”
Those programs, the letter says, should not be treated as the main way to pay for “recurring infrastructure maintenance, rehabilitation, and replacement costs.”
ADEM pointed out what the agency considered a major underlying flaw in the city’s fiscal strategy by using Marion’s own statement from the draft plan, namely: “It should be noted that the water system is a source of revenue for other parts of the City, and not just for the water and wastewater system.”
ADEM’s response was unusually blunt. “It is recommended that this practice should cease immediately,” the department wrote. “As is clearly shown in the 2022 and 2023 audits, the City of Marion cannot afford to support other city functions using drinking water revenues.”
ADEM instead tied the plan to rate increases and enforcement. It told the city to implement a rate structure “sufficient to meet the water system needs,” cited an Alabama Rural Water Association rate study recommending 3–5 percent annual increases, and said the department “concurs” and advises the city to follow those guidelines during 2026.
ADEM further recommended the city “consider discontinuing service after the second consecutive unpaid bill” and said Marion should “prepare and maintain financial records in accordance with good bookkeeping practices in order to facilitate timely and proper audits.”
The newly produced 2023 audit helps explain why ADEM took such a hard line. Banks, Finley, White issued qualified opinions on multiple parts of the city’s financial statements, including the water utility fund.
The auditing firm reported it could not confirm customer accounts receivable “from water, sewer and garbage sales” totaling $1,759,952, and could not obtain sufficient evidence by other procedures.
It also reported that “because of the inadequacy of accounting records for the years prior to 2023,” the firm could not obtain sufficient audit evidence supporting the city’s capital asset and depreciation reporting.
In the audit’s findings section, the auditors went further, describing what they called a continuing problem. “We were unable to express an opinion…because of a lack of sufficient financial and accounting documentation,” the report states, citing capital assets, customer receivables, and accounts payable, and noting: “(This finding was made in the prior year).”
The same findings state that water-and-sewer customer receivable balances totaling $1,759,952 “are not recorded in the general ledger,” that more than 80 percent of customer balances were more than 90 days past due, and that the lack of recording and reconciliation undermines the city’s ability to monitor and control collections.
The auditors also reported that the city does not maintain an accounts payable subsidiary ledger and that, as of Sept. 30, 2023, the city had unrecorded accounts payable of $909,659.
The water utility fund’s own financial statements in the audit show how tight the margins are. The fund reported $979,258 in operating revenues and $1,227,014 in operating expenses for the year, an operating loss of $247,756.
But audits were only part of what ADEM put on the table in January. Poolos wrote that the city’s Fiscal Sustainability Plan for its drinking water and wastewater systems had been “reviewed and determined to be deficient for SRF Program purposes,” and he ordered Marion to revise and resubmit it.
Poolos demanded that the plan address basic operational questions regulators, as well as Marion residents, have been raising for years, including “how payments are collected, how delinquent payments are tracked and addressed, and if service is disconnected for non-payments.”
He also required “dated milestones” explaining how the city would keep audits current going forward, specifically calling out FY24 and FY25 because those audits “will be required for SRF funding decisions for the City’s ongoing projects.”
The city’s own draft sustainability plan shows why ADEM pressed so hard on timing. The plan states that Marion is “not equipped to measure the amounts of water pumped from the wells, treated at the Water Treatment Plant (WTP), pumped to the distribution system, or sold to individual customers,” and it says the city obtained an EPA grant to replace distribution-system meters.
The plan says the city was “scheduled to advertise for bids for the meter replacement project in January 2026,” and that the meters were expected to be “installed and operational before March 2027.”
The city’s contracted engineering firm, Utility Engineering Consultants, has placed public notice of an invitation for bids on water meter removal and replacement in this week’s (Feb. 12, 2026) edition of the Times-Standard-Herald.
The March 2027 timeline is significant because city officials have pointed to meter replacement as a future fix for water revenue problems. ADEM’s January letters, however, make clear the state expects immediate changes in collections, enforcement, bookkeeping, and rate-setting rather than waiting on a multi-year capital project.
A teleconference between ADEM and Marion’s mayor and city council was held Thursday, Jan. 29. The city has not publicly discussed the contents of the January letters or ADEM’s stated willingness to redirect remaining funds to another applicant.
What the documents show is that, behind the scenes, ADEM was drawing hard lines for the city to continue to receive state and federal funding. The agency set final deadlines, rejected the city’s sustainability plan as inadequate, and put Marion on notice that the state expects immediate changes in bookkeeping, collections, rates, and the use of water revenues.
