Financial transfers were the biggest concern cited by Cloyd and Associates during the 2016-17 fiscal year audit on the city of Manchester.
The firm presented their findings Monday during the regular city council meeting.
Some council members questioned why the audit was just now being presented but associates with the firm quickly replied that the audit could not be completed because bank reconciliation of accounts had not been performed.
A ‘qualified opinion’ was issued by Cloyd and Associates on the audit with several concerns.
The firm is currently working on the 2017-18 fiscal year, but that too cannot be completed without account reconciliation.
The city has had this same issue (account reconciliation) for eight years, according to the auditors.
The firm cited ‘material weaknesses’ on internal control in their report.
The report states, “There was a general lack of functioning controls and failure of management and governing board oversight, including timely preparation and management review of monthly bank statements. The city did not have controls in place that would prevent, detect and correct potential material misstatement in the financial statement or the notes if one occurred.”
The annual audit contains comments and recommendations in an effort to help the city strengthen their internal controls and address issues or problems that are discovered during the audit.
Another area of concern was purchasing. The audit says a purchase order system was ‘not operating effectively or non-existent’. Documentation did not include purchase orders to indicate proper authorization prior to the purchase and the city clerk was unable to provide documentation for certain expenditures. The report did not specify the purchases but does say, ‘this appeared to be due to invoices and supporting documentation not being filed promptly.’
The report also cites an inadequate filing system and the response time was too long for audit requests for documentation. It also says copies of checks deposited to PNC bank were not kept.
Another major point of concern was the city did not file a uniform information report to be submitted yearly to the Department for Local Government. The report mentioned should have been filed by June 30, 2015 but was not and led to the suspension of the city from the state’s Municipal Road Aid fund until completed.
The city was also cited for failing to pay invoices in a timely manner. That was not a surprise to council members as they’ve been battling cash flow issues for the last several years.
Mayor James Ed Garrison has said that all vendors have been receiving payments now in a timely manner.
The audit states, “KRS 65.140 requires that invoices be paid within 30 days. If there is a problem with the invoice that is in dispute then the City is required to document the issue and notify the vendor in writing. The City Clerk failed to pay numerous invoices in a timely fashion, resulting in significant late charges and cut off of credit activity for nonpayment as well as threats of cutoff of utilities and other vital services. There was no documentation indicating an issue with the invoices and the problem was so wide-spread it appeared to be systemic. The City Clerk did not remain diligent in keeping a well-organized accounts payable system to make sure that invoices were paid in 30 days. She also just didn’t pay the bills on time and there appears to be a lack of motivation or intentional disregard of law. The City paid numerous amounts of late fees and penalties for invoices being paid after the due date. This does not use the City’s money efficiently. Invoices should be paid within 30 days, cancelled upon payment and maintained as supporting documentation. And the governing body should inquire to ensure that all bills are pay according to law.”
The city’s response to this issue in the report is: “Management states this was last year audit; there is now someone who receives all the mail, separates the bills, scans bills into the computer system, and then gives them to the City Clerk as they are due to be paid.”
The audit also cited an issue with how water bill payments are handled.
The audit states, “Duties should be segregated to provide reasonable assurance that transactions are properly handled and recorded and that internal controls are in place to prevent undetected errors and theft. There is a lack of segregation of duties in the areas of cash, accounts receivable, cash receipts, accounts payable, cash disbursements and reconciliation of cash. The same individual is responsible for billing, making adjustments to customer accounts, cash collections, and posting payments to customer accounts in the water company. The City Clerk is responsible for making bank deposits and reconciling bank accounts as well as posting the transactions to the general ledger. This creates a weakness in internal controls that could provide opportunity for misappropriation of funds that may go undetected. This created an opportunity for actual theft to occur in the water company, where an employee was discovered stealing cash receipts. The duties should be separated as much as possible and alternative controls should be used to compensate for lack of separation. The governing board should provide some of these controls.”
The city’s response to the auditors on this finding is: “Management doesn’t agree with this statement at all. Part of the content doesn’t apply in this audit. Supervisors, assistants, and everyone that handles money has received Fraud training.”
A lack of an annual inventory of all capital assets was another concern cited in the report.
The firm hopes to have the fiscal year 2017-18 completed in the coming months.