State Auditor issues draft 2015 findings; identifies areas where city can improve

The Lynnwood City Council on Dec. 12 heard from representatives of the Washington State Auditor’s Office, who came to the council chambers to present draft conclusions from their recently completed audit of the city’s 2015 financial statements.

The report included results from three areas of the city for 2015: an accountability audit, a financial statement audit and a federal grant compliance audit.

The accountability audit focused on “ensuring compliance and adequate safeguarding of public resources from fraud, loss or abuse,” the reported noted, including the design, implementation and maintenance of internal controls. The following areas were examined: safeguarding of assets; system reviews of payroll, cash receipting and the police department; self insurance; emergency medical services billings; and information services — disaster recovery.

The auditor’s office issued a management letter regarding the 2015 accountability audit that pointed to weaknesses in how the city guards its “small and attractive assets” — defined by the state Office of Financial Management as “those falling below the state’s capitalization level of $5,000 that are particularly vulnerable to loss.” Examples cited during Tuesday night’s presentation included items such as cell phones and computer tablets.

Auditors presenting to the council stressed the importance of the city having processes in place for handling such assets that match the policies and procedures approved by city department heads and the city council. The auditors noted that the city has taken steps to address the issue by implementing a new small and attractive asset policy that went into effect Aug. 1, 2016.

In the accountability audit, auditors surveyed how the city handles these assets in the information technology and public works departments. Included in those findings were what the auditors described as “continued weaknesses in internal controls”:

  • City policy doesn’t require segregation of duties between employees who purchases assets, perform an inventory and reconcile the asset filing. As a result, directors and supervisors who manage inventories are also able to purchase items.
  • The city doesn’t maintain adequate documentation to support disposal of assets valued at less than $1,000.
  • City policy requires departments to complete a “loss of asset” form upon identifying missing assets, but that form isn’t always used.
  • The city doesn’t have an adequate review process to ensure that all assets defined as small and attractive are added to the inventory list.
  • The city doesn’t effectively communicate how departments should communicate “known or suspected” losses of such assets to the ensure that the State Auditor’s Office is notified as required by state law.

As an example of this issue, the management letter noted that of 28 items on the “small and attractive” list for testing, the city was unable to locate seven items and 23 of the items did not have an asset tag or other identifying number for tracking purposes.

“We continue to recommend that the city strengthen its controls over safeguarding of public assets by following established policies and procedures and ensuring all items considered theft sensitive and valuable, be monitored and tracked,” the management letter said. “Further, the city should investigate and report missing items on the asset inventory list of the State Auditor’s Office as required by state law.”

Under the financial statement audit, which examines whether the city’s financial statements are fairly stated and correct, state auditors identified “significant deficiencies” in the design or operation of internal control over financial reporting.

“The city’s internal controls over accounting and financial reporting continue to be inadequate to ensure financial statements are accurate and complete,” the audit report said.

According to State Auditor’s Office Audit Lead Tina Hjorten, this finding is related to staff turnover, with Lynnwood’s finance director and accounting manager both leaving the city in 2015. “With the financial statement preparation issues that we’ve reported in the past, it’s been really hard for the city to implement those changes when people keep coming and going,” Hjorten told the council. She praised the efforts of the city’s current Finance Director Sonja Springer and Accounting Manager Jeannie Brown for their efforts to address the audit findings.

“They are really doing a good job of implementing the fixes,” Hjorten said.

The auditor’s office report recommended that city management “take action to establish ongoing, consistent internal controls over its financial accounting and reporting,” including performing a full inventory of capital assets, establishing thorough review procedures of the schedule of expenditures for federal awards (SEFA), providing necessary training resources for staff and filing reports with the State Auditor’s Office in a timely manner.

In its official response to the auditor’s finding, the city said it is “working diligently and continuously to implement each recommendation” from the State Auditor’s Office. The city converted to a new capital asset system in 2015, and also hired a capital asset accountant in January 2016 who worked to correct prior audit errors and establish new procedures, the city said.

The third audit performed was the federal grant compliance audit, which is required whenever the city spends over $750,000 in federal funds in any one calendar year. The goal of the review is to ensure that funds are spent in accordance with grant requirements. State auditors concluded that the city complied with requirements related to its federal grant funds.

You can review the draft reports, which were part of the Dec. 12 meeting agenda packet, here.

— By Teresa Wippel

 

 

 

 

 

 

 

 

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