City audit shows control issues
As typically happens, an annual independent audit report on city finances, outlined this week at a City Council meeting, expressed concerns with lack of fiscal oversight – resulting mainly from lack of staff.
“Significant deficiencies in internal control, some of which were material weaknesses, were disclosed,” stated the Young Oakes & Brown report, presented by longtime city auditor Dan Bradley. “(However) our audit disclosed no noncompliance, which is material.”
The city operates under budget “constraints,” which have restricted the number of employees in the finance department, which “limits the capacity for fail safe internal controls,” the city stated in a response included in the report.
The deficiencies included failures to segregate duties, “so that no one individual performs all functions related to any financial transaction,” the report states.
That occurred in the planning department, with one individual initiating purchase orders, receiving vendor invoices, preparing checks, having access to those checks after they were signed, controlling the accounts receivable and maintaining all the journals, according to the report.
The planning department has only one employee responsible for accounting, states the city response.
Still, the city has moved to improve, according to the report.
Now, all purchase orders are approved by a department staffer, the department director, the finance director, the city controller and the city manager, the city stated.
In addition, invoices for goods and services, with supporting purchase orders, are approved by one or more nonfinance staffers who oversee the applicable program and by the department director.
Checks to pay invoices, accompanied by the invoices and the purchase orders, are signed by the finance director and controller.
For repayments to the city on loans, receipts are provided and a receipt statement prepared by someone other than the department accounting manager.
The audit also had a different kind of finding in the planning department, involving reclassification without proper documentation of funds spent in the federal blighted property program.
“The expenses for the Blighted Property Program were understated and administration costs were overstated,” the report said. “We recommend that the planning department base its expenses on actual cost for all programs, including administration.”
The difficulty began when the department tried to comply with a recommendation of the Act 47 program to spend as much money on administration as it could justify, said Department Director Lee Slusser.
That can benefit the city when the administrative person involved would otherwise be working on tasks that would be paid for by the city’s general fund, Slusser said – although that is generally not the case with the blighted property program.
At some point, the city received additional, unexpected income from the program, he said.
The department charged a share of that new funding to administration, without providing the supporting paperwork, however.
“A dumb mistake,” Slusser said. “We’ll do better next time.”
The audit finding is “legitimate,” and the department takes it seriously, he said.
But it’s not a “big deal” in the sense that it doesn’t represent a misuse of money, he said.