A number of “material weaknesses” were identified in the city’s financial reporting, according to an audit from Carr, Riggs & Ingram on Tuesday night.
“Basically, you’ve got four buckets that deficiencies can fall in, the most severe being material weaknesses,” said Bruce Averett, a certified public accountant with Carr, Riggs & Ingram. “I think we had six identified during our audit that we considered to be material weaknesses.”
Averett said there were also some “significant deficiencies” which are slightly less severe.
The weaknesses and deficiencies involved municipal court revenues, accrual accounting, disbursement approval, review of receipts, recording and allocating debt and timely and accurate financial reporting.
The report comes on the heels of the resignation of Stephanie Crowe, who began her duties as the city’s finance director on Dec. 26, 2018.
For each weakness or deficiency, Averett identified the problem and gave a recommendation from Carr, Riggs & Ingram. Some of the major findings included:
City accounting policies require all checks be reviewed and approved by either the assistant treasurer or city clerk prior to issuance.
“In 2018, the finance department consistently failed to document compliance with the policy regarding disbursement approval,” Averett said.
Carr, Riggs & Ingram tested 40 disbursements at random and documented an “approval failure rate” of 60%.
“Personnel could not locate the check run listing for 12 of those checks,” Averett said. “For the remaining 12, the listing was located but there was no documented approval authorizing the release of those checks.”
CPA Hilton Galloway said documents supporting transaction approval should never be destroyed.
“That’s typically one of the most critical functions of government, disbursing money,” said Galloway. “If someone is approving that disbursement, you need to know who approved it and if it wasn’t approved, you need to know why it wasn’t. One entire quarter couldn’t be located. The concern is, really quite honestly, the destruction of public documents. That’s pretty critical... or the loss of public documents.”
The quarter referenced was the first -- beginning in Oct. 2017 and ending Dec. 21, 2017.
Recommendation: the city should evaluate its internal control over disbursement approval to ensure all are properly approved and the listings document the approval and are retained.
Timely and accurate financial reporting
“This kind of encapsulates all the other deficiencies,” Averett said. “The lack of timely and accurate financial reporting impacts the city in numerous ways including making management and budgetary decisions on incomplete and inaccurate financial data. It’s critical that you have up-to-date, accurate financial information to base your decisions on and this has just not been occurring the last two years.”
Averett recommended the city “develop a logical order for closing procedures and assigning responsibility for closing procedures to specific personnel” and keeping those procedures documented in a thorough checklist.
Overall, Averett said the city needs to implement specific policies and procedures, hold individuals accountable and focus on timely and accurate reporting.
Galloway said those things were being reiterated several times during the report because of their importance.
“It’s essential that you have competent personnel in every position with the skills, expertise and knowledge to execute the financial process,” Galloway said. “That’s critical. That’s the most important thing. You’ve got to have specific procedures with specific dates of completion, and then you’ve got to hold them accountable.”
Galloway also said the city should focus on communication issues and consider cross training personnel.
“Any organization that’s having problems, typically it comes down to communication -- either you have incompetent people doing the work or the people don’t have an avenue to communicate,” Galloway said. “It will help also to do a lot of cross training. I know you had a resignation this week, which means we’re going to be back in a situation where we’re absent a finance director. She’s only been here a short period of time, but I don’t know if we’ve got someone trained that can step up and fill that void. Without proper cross training of your personnel, you’re going to run into this any time a key person is pulled out of the operation.”
The city has already started the process of finding a new finance director.
Some of other material weakness included:
Municipal Court Revenues
“Basically, revenue was not being recognized when earned from cash bonds that were applied to municipal court fines and fees,” Averett said. “These funds were also not being timely transferred to the general fund from the municipal court fund. The failure to record court fines and fees when earned caused judicial bonds payable to be overstated on the city’s financial statements by $132,785 and the current year municipal court revenue and general fund balance to be understated.”
Averett recommended the city “implement a process that ensures all municipal court fines applied to cash bonds are properly recorded and timely transferred” to the general fund.
“There were several accruals that had to be adjusted, I think to the tune of about $35,000,” Averett said. “There was also about $300,000 in receivable balances that had to be corrected (between two main entries).”
Averett said there “was a failure to record or reconcile accrued expenses and receivables in a timely manner,” and he recommended the city reconcile accounts monthly.