An audit of the Elmore City Public Works Authority for the year ending June 30, 2020, shows that while the PWA was financially sound, there were some procedural issues with the City’s accounting practices or recordkeeping that were cause for concern.
Independent auditor Kim Furrh of Furrh and Associates Certified Public Accountants in Lawton addressed the Elmore City Council during their regular meeting and the regular meeting of the Public Works Authority on Oct. 5 to explain the audit’s findings.
Furrh told the council while the audit did not find any significant financial issues, it did reveal four items of concern regarding accounting policies and procedures.
Of those four items, two were labeled as significant deficiencies. Furrh explained that significant deficiencies are generally considered less severe than material weaknesses but are significant enough to warrant the council’s attention. They often concern isolated errors in accounting or procedures.
The first finding under significant deficiencies was that the account for accepting credit card payments had not been reconciled for the two years prior to Oct. 9, 2019. The report indicates that as of Oct. 2019 that account was closed and then reconciled. The city’s current practice is “credit card receipts go directly to the appropriate funds and are reconciled monthly.”
The second significant deficiency was credit card charge slips not being attached to the Visa statement before payment was approved. Without receipts, there is no proof that charges were for legitimate expenses.
“It’s not a material weakness, it’s an isolated problem with paying the bills. And since this is a new council, I can say this, shame on the council for paying the bills without looking at the receipts. The council should have paid attention. When you sign a bill, you should look to see if the receipts are attached,” Furrh said.
The report indicates procedures have since been put in place to ensure receipts are attached to statements.
The audit report also showed two deficiencies designated as material weaknesses, which Furrh said are more serious deficiencies that could be red flags for more systemic problems.
The first had to do with the city’s $200 allowance for employee uniforms. The audit found during the year in question, employees were not required to turn in receipts to show the money had been used for uniforms. The report shows as of March 2, 2021, the city has instituted a policy requiring employees to provide receipts for uniforms before receiving reimbursement for the expense.
The second material weakness was that the minutes from council meetings were not signed after the council voted to approve them. Furrh said that while that might not seem like a big deal, it is because it opens the door for manipulation of the minutes, and by extension, manipulation of the council’s actions, particularly regarding spending.
The audit report indicates procedures are now in place to correct both material weaknesses found.
Elmore City’s council, which consists primarily of relatively new members, has been considering requesting a full audit of city finances to have a better understanding of what the current situation is as they make plans to move forward as a governing body. Furrh spoke to that consideration during her report.
“Based upon the findings that I did find, I highly recommend a full audit for your town. Whether you hire me or not, I don’t care. The material weaknesses that I found in here are so symptomatic of something bigger,” Furrh said.
She stressed she’s not saying there is a deeper problem, just that they won’t know whether there is or not without further investigation.
Furrh also walked council members through some of the financial aspects of the audit, explaining why the city needs to raise water rates. The PWA has an outstanding loan with USDA Rural Development for $1.6 million, which was used in conjunction with grant funding to make improvements to the existing water system in 2019.
“Your water rates have to increase, because of what I’m about to tell you,” Furrh said.
She went on to say the PWA is bringing in $467,881 in revenue, and is spending $391,736 in operating expenses, leaving a surplus of $76,145 per year. From that surplus, the PWA is spending $55,152 per year on principal payments and interest on the USDA loan, leaving just over $20,000 to handle any unexpected expenses that may come up, including repairs.
“That’s scary. That’s less than $2000 a month surplus. If you have a major repair, you are up a creek,” Furrh said.
The PWA’s income and operating expenses are separate from those of the City of Elmore City.
During the city’s portion of Monday’s meeting, Furrh answered a question from a citizen regarding the city’s overall financial health.
“As of now they are solvent, and they are making their bills just fine,” Furrh said.
Mayor Brandae Hucks added the city does have some reserve funds set back as a cushion.
“That’s what we’re working on now,” Council member Adam Venegas said. “We can’t get grants, because we have enough put away.”
Following Furrh’s presentation, the council voted to accept the audit report and its findings.