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SLAMMED: CITY AUDIT REVEALS MAJOR DEFICIENCIES AND NONCOMPLIANCE

By   /   January 31, 2011  /   Comments

By Kevin Hogencamp

The annual report of the City of Albany’s finances by an independent auditor revealed a significant material weakness – a major infraction — and other internal control snafus labeled by the auditor as “serious deficiencies.”

Although the city acknowledged accounting firm Mauldin and Jenkins’ findings in writing in its annual comprehensive financial report, Finance Director Kris Newton said Tuesday she didn’t realize the independent analysis was so severe until a reporter brought it to her attention.

Indeed, before the “material weakness” finding was revealed to her, Newton declared that no material weaknesses were identified in the report.

“I have to admit I’m confused by that since the audit was unqualified,” Newton said in response to the “material weakness” finding being pointed out to her. “I put a call in to our auditors for an explanation. I have always believed that it could not be unqualified and still have a material weakness.”

City Manager Alfred Lott – Newton’s boss — does not answer Journal inquiries.

Following (in italics) is verbiage from the audit that was critical of the city’s financial practices, details of which are at the bottom of this report:

Internal control over financial reporting:

As described in the accompanying schedule of findings and questioned costs, we identified a certain deficiency in internal control over financial reporting that we consider to be a material weakness and another deficiency that we consider to be a significant deficiency. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected on a timely basis. We consider the deficiency described in the accompanying schedule of findings and questioned cost as item 2010-1 to be a material weakness.

A significant deficiency is a deficiency or a combination of deficiencies in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiencies described in the accompanying schedule of findings and questioned costs as items 2010-2, 2010-3, and 2010-4 to be significant deficiencies.

Compliance and other matters

The results of our tests disclosed instances of noncompliance or other matters that are required to be reported under Government auditing Standards and which are described in the accompanying schedule of findings and questioned costs as items 2010-3 and 2010-4.

Compliance

In our opinion, the City of Albany, Georgia complied in all material respects with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2010. However, the results of our auditing procedures disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as items 2010-5 through 2010-8.

Internal control over compliance

We identified certain deficiencies in internal control over compliance that we consider to be significant deficiencies as described in the accompanying schedule of findings and questioned costs as items 2010-5 and 2010-6.

Previous year’s finding regarding management of accounts receivable accounts

Criteria: Generally accepted accounting principles require revenues to be recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. As a part of these processes, the City should review all revenue transactions to determine reporting in the proper period.

Condition: The City did not properly adjust amounts due from component units in the General Fund, amounts due from other governments and due from component units in the Public Employee Deposit Fund, or assessments receivable in the Sanitary Sewer Fund, as of June 30, 2008.

Status: This item was corrected for the fiscal year ending June 30, 2010 with respect to component unit receivables. However, an additional finding was noted in the current year related to other accounts receivable. See 2010-1 in the current year Schedule of Findings and Questioned Costs.

In response to the Journal’s inquiry, Newton said, before being corrected, that “the City’s annual audit was completed successfully and we received an unqualified audit report. This means the audit found no material weaknesses in our handling of financial reporting.”

Newton also provided this information and perspective: “There were only six findings for FY2010, which is remarkably few considering the large number of funds, accounts, and transactions involved in managing a budget of more than $100 million. While we might never have an audit with absolutely no findings, we strive each year to have fewer errors and to avoid repeating the ones from last year. As we steadily improve our procedures and become more proficient and knowledgeable, we hope to make the auditors work hard to look for smaller and smaller errors. That way we will continually refine the processes and get better each year.”

FINANCIAL STATEMENT FINDINGS AND RESPONSES

2010 – 1. Management of Accounts Receivable Accounts

Criteria: Generally accepted accounting principles require revenues to be recognized in the accounting period in which they become both measurable and available to finance expenditures of the current period. As a part of these processes, the City should review all revenue transactions to determine reporting in the proper period.

Condition: The City did not properly adjust accounts receivable in the Nonmajor Funds, as of June 30, 2010.

Effect: Adjustments to increase accounts receivable in the amount of $196,261, increase revenues in the amount $228,550, and increase expenditures in the amount $32,289 was required to be recorded in the Nonmajor Funds. Cause: The City did not review all revenue transactions after year-end to determine reporting in the proper period.

Recommendation: We recommend the City review all revenues after year end to determine all items are being properly recorded.

Views of Responsible Officials and Planned Corrective Action: We concur. We will work to properly record all receivable balances at the end of each financial reporting cycle.

2010 – 2. Recording Investment Activity

Criteria: Significant balances and transactions in any operation should be recorded, reconciled, reviewed and adjusted on a monthly basis. Specifically, investment transactions warrant this exercise monthly, inclusive of reviewing and reconciling the monthly statements, trial balances and other supporting documentation provided by external parties.Condition: We noted the City did not record interest activity in the General Fund or Nonmajor Funds during the fiscal year ended June 30, 2010.

Context: See above condition.

Effect: By not recording activity and performing reviews and reconciliations on a monthly basis, the City exposes itself to not being able to identify errors or irregularities in a timely manner. An adjustment to increase investments by $113,404 and increase interest revenue by the same amount was required to be recorded in the General Fund. An adjustment to decrease investments by $11,851, decrease interest expenditures by $493, and decrease interest revenue by $12,344 was required to be recorded in the Nonmajor Funds.

Cause: A lack of management oversight of the review and reconciliation process.

Recommendation: We recommend the City implement procedures whereby reconciliations of all investment accounts are reviewed on a regular basis to ensure all transactions are properly posted.

Views of Responsible Official and Planned Corrective Action: We concur. We will establish procedures to review all investment reconciliations to ensure all transactions are properly posted.

2010 – 3. Undercollateralization of City Deposits

Criteria: The Official Code of Georgia (OCGA) Section 45-8-12 (c) requires all depositories of public funds pledge securities of not less that 110% of the deposited public funds.

Condition: For the year ended June 30, 2010, the City’s deposits held at one financial institution were undercollateralized.

Context: See Criteria above.

Effect: City accounts were not adequately collateralized at one financial institution, allowing for the possibility of loss of assets if the financial institution were to become insolvent.

Cause: The financial institution has not appropriately collateralized all City deposits as of June 30, 2010.

Recommendation: We recommend the City periodically review a listing of all accounts opened under the City’s federal identification number to determine that all are properly coded as public deposits. Additionally, the City should request from the financial institutions holding City deposits, a monthly pledging report to determine that each financial institution has pledged securities of not less than 110% of the deposited funds as required by Georgia law.

Views of Responsible Officials and Planned Corrective Action: We concur. This collateralization issue will be resolved for FY 2011. We will begin monitoring the pledging of collateral on a regular basis.

2010 – 4. Special Revenue Fund Budgets

Criteria: House Bill 1364 of the 1998 session of the Georgia General Assembly requires an annual balanced budget for the general fund, each

special revenue fund, each debt service fund and requires a project length balanced budget for each capital projects fund.

Condition: For the fiscal year ending June 30, 2010, no annual budget was adopted for the Tax Allocation District Fund in accordance with the Official Code of Georgia (OCGA) Sections 36-81-2 through 36-81-6.

Context: See above condition.

Effect: By not adopting a budget for all of the required funds, the City is not in compliance with state law.

Cause: The City did not include the above fund in the budgeting process.

Recommendation: The City should adopt an annual balanced budget for each special revenue fund.

Views of Responsible Officials and Planned Corrective Action: We concur. A budget will be adopted for all required funds going forward.

2010 – 5. Failure to Comply with the Requirements of the Davis-Bacon Act

Federal Program Information: CFDA No. 81.042, U.S. Department of Energy – Weatherization Cluster FY 2010 CFDA No. 97.047, U.S. Department of Homeland Security – Legislative Pre-Disaster Mitigation Grant FY2010 CFDA No. 66.202, Environmental Protection Agency – EPA Congressional Mandated Projects FY2010

Criteria: OMB Circular A-133 and the Single Audit Act require that any contract with contractors and subcontractors must include, either in the body

of the contract or as a supplement or appendix to the contract, wording that indicates the contractor or subcontractor must comply with the requirements and regulations set forth in the Davis-Bacon Act. The Davis-Bacon Act stipulates that all contractors and subcontractors paid with Federal funds must (1) pay their employees no less than the prevailing wage rate (minimum wage) and (2) submit weekly certified payroll reports to the Grantee for review of compliance.

Condition: For the year ended June 30, 2010, construction contracts related to the above listed federal awards did not include, either in the body of the contract or as a supplement or appendix to the contract, wording that indicates the contractor or subcontractor must comply with the requirements and regulations set forth in the Davis-Bacon Act.

Context: See above condition.

Effect: Because the contracts with contractors and subcontractors do not adhere to the requirements of the Davis-Bacon Act, the City is not in compliance with the requirement.

Cause: The City did not include the requirement that contractors and subcontractors must comply with the Davis-Bacon Act as a part of its contracts with contractors and subcontractors.

Recommendation: We recommend the City include, either in the body of the contract or as a supplement or appendix to the contract, wording that indicates the contractor or subcontractor must adhere to the requirements of the Davis-Bacon Act.

Views of Responsible Officials and Planned Corrective Action: We concur. We will include the requirement, either in the body of the contract or as a supplement or appendix to the contract wording that indicates contractors and subcontractors must comply with the requirements of the Davis-Bacon Act.

2010 – 6. Failure to Comply with the American Recovery and Reinvestment Act’s Procurement Requirements

Federal Program Information: CFDA No. 81.042

Weatherization Cluster

U.S. Department of Energy

Fiscal Year 2010

Criteria: The American Recovery and Reinvestment Act (ARRA) requirement related to Procurement, and adopted by the Department of Energy, prohibits the use of ARRA funds for a project for the construction, alteration, maintenance, or repair of a public building or work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.

Condition: For the year ended June 30, 2010, contracts with contractors and subcontractors did not include, either in the body of the contract or as a supplement or appendix to the contract, that the contractor or subcontractor must comply with the requirements and regulations set forth in the Procurement requirement for American Recovery and Reinvestment Act funds.

Context: See above condition.

Effect: Because the contracts with contractors and subcontractors do not contain the proper procurement requirement as set forth in the American Recovery and Reinvestment Act, the City is not in compliance with the requirement.

Cause: Contracts did not include the requirement of contractors and subcontractors to comply with the Procurement requirement related to American Recovery and Reinvestment Act funds.

Recommendation: We recommend the City include, either in the body of the contract or as a supplement or appendix to the contract, that the contractor or subcontractor adhere to the Procurement requirements of the American Recovery and Reinvestment Act.

Views of Responsible Officials and Planned Corrective Action: We concur. We will include the requirement, either in the body of the contract or as a supplement or appendix to the contract that our contractors and subcontractors comply with the Procurement requirements of the American Recovery and Reinvestment Act.

In response to the Journal’s inquiry, Newton provided the following additional response to the findings:

“Finding 2010-1 referred to several accruals that were missed by the accountants, but made by the auditors. Accruals look at activity that occurs after the year is over that related to activity during the year. Better monthly reviews should make this type of error less frequent in the coming year.

Finding 2010-2 refers to three entries the auditors believed should have been made to record changes in the investment accounts. We have many bank accounts and several investment accounts that are all reconciled and reviewed monthly by our accounting staff. These three entries were unusual items that the accountant noted but did not record until he could determine the correct procedure.

Finding 2010-3 refers to a single investment account, which was under-collateralized. We have a strict policy with all the banks who handle our bank accounts about following state law and maintaining pledged securities. This institution made an error and fell beneath the 110% limit, although the funds were and are still safe. We discussed this at once with the investment firm representatives, who have put new measures in place to avoid a recurrence.

Finding 2010-4 was written in reference to the new Tax Allocation District (TAD) Fund, which was created in June 2010. Although the TAD was created several years ago, it had no expenditures, and only a single account. Since it was not in existence throughout the year, a budget was not created for the fund. This situation will be remedied with the first budget amendment for FY11.

Finding 2010-5 relates to the Davis-Bacon Act that requires anyone who accepts federal grant funds to maintain copies of all their contractors’ and sub-contractors’ payrolls to ensure that their employees are paid at or above minimum wage. Although the contractors were found to have paid their employees correctly, they did not submit copies of the payroll lists for our records. Our compliance monitor at Community Development now checks this regularly and requires it to be part of every contract.

Finding 2010-6 refers to contracting rules for the new ARRA funding that require certain language to be in every contract that uses ARRA money. The contract must require that all materials used in the product are American made. The finding does not state that our contractors used foreign materials, but that the contract was missing the wording.”

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  • Published: 1391 days ago on January 31, 2011
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  • Last Modified: January 31, 2011 @ 10:33 pm
  • Filed Under: Government
 

Comments

  1. Truth B Known says:

    So,This tells us alot of what we alredy knew,but could not prove,because of all the Officals great Cover Ups.That goes to show you they have all been in there to long.they found ways to mess with the system,and did.And Got away with it.So Far.So does this mean there will be an internal investagation into the City of Albany,and the people who call there selfs Our Officals?I bet if they do get an internal investagtion,they will find out alot more that has gone wrong,by the hands of Our Officals.There have been so many papers shreaded,and so many people(Officals),that have lied,got other people to lie for them.All the cover ups star at the top and go all the way down.Al Lot,The Mayor,and our City and County Officals need to take note.The sun dont shine on the same dog all the time.If you do wrong,it does catch up with you.
    The very ones who put down Albany so much are the ones who its there Jobs that we pay them for,to put Albany where it is today.Its time for all the cover ups to be counted for.And people (Officals) be charged with things that they have done to Our Town.
    And not by a slap on the hand.We try to fight crime in Albany,but how can we fight the City Of Albany? Or The Mayor,or the Police Dept?I am not saying there is no crimes here in Albany.But when Our Officals comit them and get away with it,where does that leave us?What kind of message does it send?And when does it stop?
    I know what i am talking about.I had something happen to me and tried to do the right thing,go to the Police,and they done nothing,went to the Mayor next and he would not even talk to me he sent Alfred to talk to me.Now that a laugh.Then i just went down the line.Still all took up for each other.That is the Good ole Boy system.Our town is not the only one going through things like this.Alot are.And it is wrong.We do have rights.It is We The People.Not we the people in charge.You all took an Oath of Office.how many of you have held up to that Oath?I for one am not ashamed of Albany,just the people who RUN it.

About the author

Owner / Editor / Writer

Tom Knighton is the publisher of The Albany Journal. In November, 2011, he became the first blogger to take over a newspaper anywhere in the world. In August of 2012, he made the difficult decision to take the Journal out of print circulation and become an online news agency, a first for the Albany area.

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