By Harry Gatjens
The City of Edmonds received its exit interview for the 2010 Audit on Wednesday with some “findings,” but no evidence of major misstatement of the City’s financial position. The audit was conducted in summer 2011 and covered the 2010 fiscal year.
The exact points and matters covered are summarized here in notes compiled by Edmonds resident Ken Reidy, a frequent observer of city government, that were sent to My Edmonds News. (For those not familiar with audit reports, “findings” are the second-most serious type of problem that the state can point out during an audit.)
One finding on the Financial Statements Audit Report:
The City’s controls over financial statement preparation are inadequate to ensure accurate accounting and financial reporting.
One finding on the Accountability Audit Report:
The City does not have adequate oversight of financial operations to safeguard public resources.
– Three specific areas were mentioned, cash-receipting, payroll and change orders
Two Management Letter items, related to improper use of restricted revenues for flower baskets, etc. and payment of unearned pay. (This is related to former Mayor Mike Cooper’ negotiated leave payment with his former assistant Kim Cole, which not allowed under City or state law. Although that leave payment occurred in 2011, the auditors included it as part of the 2010 report because an anonymous citizen asked them to investigate it while they were conducting their 2010 audit.)
Twelve Exit Conference items:
-Open Public Meetings Act (10 executive Sessions entered into before City Council meeting was called to order)
-Contract Payment Support (City cannot ensure Fire District 1 is paying Edmonds the correct amounts due)
-Court – Manual Receipts
-Court – monthly audit report review
-Court – Bail payments
-Meals with Meetings
-Minutes documentation (relates to not following code when hiring department directors)
-Donations policy (Ordinance 3466 passed in 2003 does not comply with RCW 35.21.100)
-Transportation benefit district (creation of this District not in compliance with RCW 35.21.225)
-Bid law compliance
-Parks Department – cash receipting
-Utility Adjustments – (a former finance director exempted a citizen from paying storm water charges)
The most significant point was that the Finance Department had a lack of a internal controls in the area of cash receipt and treasury function. Also, there was a lack of separation of duties and authorization of payroll processing. These two deficiencies allow the possibility for misappropriation of funds, although no evidence of such was found.
The Finance Department has added two employees this year so that duties could be reassigned to alleviate these issues. However, since the change was not accomplished until 2012, expect the same finding for 2011.
It was also noted that some easements were recorded on the City’s books as “land,” but new regulations require they should be classified as “intangible assets.” Again, this issue was attributed the fact that reduced staff had insufficient time to be trained on the new regulations.
There was also a “timing” issue, where a December 2009 item wasn’t included until 2010.
In addition, the auditors found that the City’s procedure for change orders (translation: Haines Wharf Park) was not clear, but noted the City Council had resolved this issue last September.
The auditors also pointed out that certain items (flower baskets and other beautification projects) were paid out of REET (Real Estate Excise Tax) funds that are supposed to be used for Capital projects, and these did not fit under that category.
The city also needs to do a better job of documenting its meetings and actions and following previously established policies, the auditors said.
Just one point to note: the former Finance Director who gave the relief on the storm water charges did this more than five years ago. The amount not collected over the period was $592.75.
There were four items from previous audits that the City has not yet resolved. They included separation of duties and receipting in the Municpal Court, lack of a clear procedure for reallocating donations outside of the donor’s intent, using REET funds for non-REET items and improper allocation of certain costs.
Overall, while there were shortcomings noted about the City’s financial controls, the majority of the errors were small and didn’t involve a significant amount of money. That being said, the potential is there for significant problems if the controls are not fixed. The City had responses indicating that the “system” errors had been remedied or were in the process of being remedied.
Harry Gatjens is an accountant who writes about City government and budget issues for My Edmonds News.