The Cortez City Council was advised Tuesday that the city may owe the Cortez Sanitation District $414,699 after a two-year billing error.

Cortez City Manager Shane Hale said the number is the city’s best estimate at this point.

Hale called for a new software system to track finances more effectively and replace the 16-year-old software currently in place.

The good news, Hale said, is city staff have since taken a closer look at the fund and discovered depreciation was not factored into the fund balance and more money will be available in the fund than initially expected.

“I think the city can continue to operate as we thought we are going to,” he said.

The error — discovered after sanitation district officials approached the city Dec. 22 — sent revenues from multi-unit and commercial customer sewer bills to the city water fund instead of to the sanitation district, the proper recipient.

City officials say the misdirection of funds appears to have begun in October of 2009, when the sanitation district switched to a metered rate instead of a flat rate. The wrong code entered into a software program resulted in the misdirection of funds. The code was immediately corrected the next day they said, and has since been working properly.

City Finance Director Kathi Moss had previously acknowledged human error was responsible for the mistake, although she said the software should have notified staff of the error.

Water customers, sewer customers and local taxpayers will not be negatively impacted by the error, Hale had previously told the Journal, and no sewer customers were overbilled.

Hale and Moss approached the sanitation district board of directors Jan. 9 and told them about the error. A meeting with district staff was planned for Wednesday.

An independent auditor has been notified of the error and will review the matter, Moss said. The auditor contracted by the city also provides auditing services for the sanitation district.

Recently appointed Sanitation District board member John Stramel called for a second audit of the error Jan. 9, saying it is not good for business to leave billing up to an outside entity.

Although the Cortez Sanitation District is responsible for the maintenance and operation of the local sewer system, the district contracts the handling of sewer billing out to the city of Cortez.

City staff recommended the $414,699 be placed in holding in a separate account until both entities are fully satisfied with the amount.

Also at the Jan. 9 meeting, sanitation district board members and administration had expressed a desire for an overhaul of the contract between the two entities to prevent a mistake from happening again and to allow for more transparency.

The water fund likely has enough funds in it to take the hit, he said, but the city will have to be tight on capital projects this year on the water system as a result.

Reach Reid Wright at reidw@cortezjournal.com