DeFUNIAK SPRINGS — The stigma of financial mismanagement continues to hang over the city, as the Florida Department of Transportation has rejected an appeal for federal transportation funds.

A letter dated Feb. 23 and signed by FDOT District 3 Secretary Phillip Gainer rejected DeFuniak Springs' request for Local Agency Program certification. The certification would have given the city funding in fiscal 2019 for 1.8 miles of sidewalk construction between 20th Street and Walton Road.

“As you may be aware, all recipients of federal funds are required to comply with the Code of Federal Regulations. ... This Code of Federal Regulations states that any recipient of federal funds must demonstrate adequate accounting controls and efficient project delivery procedures,” Gainer said in the letter.

“Based on the city’s recent audit findings and the released grand jury report, we will be unable to move forward with LAP certification,” it said.

The accounting firm of Carr Riggs and Ingram informed the city in June 2017 that its finances were in disarray and it would require at least a couple months to straighten things out.

City Attorney Clayton Adkinson informed the City Council the same month that DeFuniak Springs had lost nearly $221,000 over a three-year period by failing to file audits and annual financial reports with the state in a timely fashion.

It was also learned that the city had spent $368,000 that had come in as a one-time legal settlement with British Petroleum as a result of the Deepwater Horizon Oil Spill. The funds had been deposited in the city’s general fund and spent without the City Council being notified of the dispersal.

The State Attorney’s Office investigated the city’s finances late last year and convened a grand jury to present its findings. Grand jurors found no evidence of criminal or intentional wrongdoing, but did determine “that a systemic problem exists.”

Their report offered a host of recommendations to solve a multitude of problems in the city's government.

Mayor Bob Campbell said after the grand jury's report was released that DeFuniak Springs could benefit if its leaders would “pay attention” to the findings and “pursue remedies” to the problems.

Campbell said Friday he is confident the city has taken positive steps since then, and efforts to clean up the financial mess seem to have instilled optimism in at least one City Council member.

“There is a beautiful sun on the other side of the clouds,” Councilman Kermit Wright said Friday.

While Carr Riggs and Ingram continues to assist with internal auditing, another local accounting firm — Saltmarsh, Cleaveland and Gunn — has been conducting external auditing work.

Allyson Oury, a CPA and senior manager at Saltmarsh, Cleaveland and Gunn, said a DeFuniak Springs audit report for 2016 was completed and sent to the state in mid-February. That should eliminate the possibility of the city losing money this year for failing to report in a timely fashion.

Oury said Carr Riggs and Ingram is working to provide the information necessary for Saltmarsh to complete a 2017 audit report so it can be turned in on time in June.

Campbell estimated the funds lost this year due to FDOT's decision not to certify the city sidewalk project at $200,000.

But according to the letter signed by Gainer, DeFuniak Springs officials will be able to reapply for the LAP funding as soon as they can provide evidence “that proper accounting controls have been implemented and the city has complied with the grand jury’s recommendations.”

"We may be in the penalty box, but we're not going to be there forever" Campbell said.