Audit...And Forget It?

So...Once again, the State of Washington has audited the City of Port Angeles. And once again, they have found that everything is not necessarily in order. Big surprise, huh?

Below you'll find some text taken directly from the findings (those are bad things) from the Washington State Auditor's Office...

Schedule of Federal Audit Findings and Questioned Costs

1. The City does not have adequate internal controls to ensure compliance with federal suspension and debarment requirements.

Background

The City spent $633,008 in federal grant funds during 2013 on various City projects to improve lighting for the port area of Port Angeles.

Federal requirements prohibit grant recipients from contracting with or making subawards to vendors who have been suspended or debarred from doing business with the federal government. The City is required to verify that all vendors receiving $25,000 or more in federal funds have not been suspended or debarred. The City can obtain a written certification from the vendor or insert a clause into the contract where the vendor states it is not suspended or debarred. Alternatively, the City may review the federal Excluded Parties List (EPLS) issued by the U.S. General Services Administration. This requirement must be met prior to entering into a contract with the vendor.

Description of Condition

We reviewed the City’s internal controls and compliance with regulations over its Port Security Grant Program. The City did not have internal controls to ensure compliance with the suspension and debarment requirements.

Cause of Condition

Typically, contracts are awarded through the public works department, where systems are in place to check for suspension and debarment; however, this contract went through the community development department where there is no process in place to ensure compliance.

Effect of Condition and Questioned Costs

 

The City paid one vendor $261,501 for lighting fixtures and poles and did not verify whether the vendor was suspended or debarred. This material weakness in internal controls increases the risk the City will enter into contracts with vendors who are suspended or debarred from receiving federal funds. Payments on contracts to suspended or debarred vendors would be unallowable and cause the City to repay the funding to the grantor.

2. The City’s internal controls over financial statement preparation are inadequate to ensure accurate and complete reporting.

Background  

City Council members, state and federal agencies, and the public rely on the information included in the financial statements and reports to make decisions. It is the responsibility of the City to design and follow internal controls that provide reasonable assurance regarding the reliability of financial reporting. Our audit identified deficiencies in internal controls that adversely affect the City’s ability to produce reliable financial statements.

Description of Condition
 

We identified the following deficiencies in internal controls that when taken together, represent a material weakness:
 
 • City staff did not adequately research how to appropriately record nonroutine transactions on the financial statements.

• The current review process over those responsible for preparing the financial statements was not effective in ensuring the financial statements are accurate and complete.

Cause of Condition  

The City had processes in place to prepare financial reports; however, the City did not have adequate internal controls or appropriate supervision of staff work to ensure accurate financial statement preparation. In addition, the City did not allow sufficient time to review the financial statements.

Effect of Condition

The City’s financial statements contained significant misstatements that were not detected by City management prior to submitting their completed statements. We identified the following misstatements in the original financial statements we received for audit:
• The Wastewater Utility Fund long-term debt was understated and nonoperating revenues were overstated by $10 million. This resulted from the City recording proceeds from a debt issuance as nonoperating revenue rather than long-term debt.

• The General Fund liabilities were understated and the Capital Improvements Fund receivables were overstated by $974,828 due to an incomplete adjusting journal entry.

• The Solid Waste Collection Utility Fund nonoperating revenue was understated by $522,239 due to a posting error.

These errors were subsequently corrected by the City. In addition, we identified less significant errors and misstatements in the financial statements of which most were subsequently corrected.

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Hmmm...Overstating revenue (by millions!)...Understating long-term debt...Running grant money through departments that aren't set up to handle it...All of which also amounts to misleading the City Council and the public...

Hmmm...Sound like a solid state of affairs to you? Sound like a well-run ship?

Are you reading this, Yvonne Ziomkowski? PDN? KONP? Anyone care? Anyone worried?