Elmore City received high marks overall on a recent audit report for FY2020-2021, despite the audit being nearly eight months overdue.
According to state statutes, municipalities are required to complete annual financial audits within six months of the end of the fiscal year, which is usually June 30, making audit reports due by Dec. 31.
The completion of the FY2020-21 audit, brings Elmore City current in terms of annual financial audits required by the state – something city officials have been working to accomplish for the last year and a half.
“We were three years behind when I came in,” said Mayor Brandae Hucks, who was elected in April of 2021.
She said the city’s former accountant attributed the backlog to challenges arising from the COVID-19 pandemic. Earlier this year, the city changed accountants, hiring Crawford and Associates, P.C., to help with routine accounting and bookkeeping tasks.
Independent Auditor Kim Furrh of Furrh and Associates Certified Public Accountants in Lawton, who is contracted to conduct Elmore City’s annual audits, presented the FY2020-21 audit reports to the Elmore City Council during a special meeting July 21.
Furrh began her presentation with the Elmore City Public Works Authority audit. The PWA report reflected a full audit of the entity, which is required due to an existing loan with USDA Rural Development for previous water system improvements.
The PWA’s numbers for the audited year were good, earning it an unqualified opinion, which Furrh likened to a grade of an ‘A’ overall on the audit.
The report did note two significant deficiency findings, which Furrh explained are usually more minor procedural errors that need to be corrected.
The first was a failure for city officials to sign council meeting minutes once they are completed and approved by the council. Furrh said signing minutes ensures their integrity and reduces the risk unapproved changes can be added after minutes are approved by council.
The item was a repeat finding, which was also noted on the FY2019-20 audit report, Furrh presented to the council last October. Furrh noted current city officials have corrected the problem as of November 2021, the month after she first alerted them to it.
The second significant deficiency Furrh noted was a failure to document refunds that are made for meter deposits.
“We recommend that you create a procedure that allows documentation to be retained. You probably had documentation, but a year later we couldn’t find it. So, we just want you all to create some kind of policy for that,” Furrh said.
The report also noted two material weaknesses, more significant errors in day-to-day operations that need to be addressed.
The first was the need to provide a proper segregation of duties to allow checks and balances in financial record keeping. This would include adding procedures to ensure more than one person is involved in tasks like reviewing and reconciling bank statements.
“During FY2021 we felt you all did not have that. You had a lot going on, and we weren’t happy with it. We weren’t happy with the way things were being run in the office, and so we felt like that created the potential for fraud to occur,” Furrh said. “We recognize, here in my recommendation, the fact that you are a small town and having proper checks and balances like you’re supposed to is hard. But you, the board, can create an environment and encourage policies and procedures and volunteer in the office to help create segregation of duties.”
The second material weakness was a lack of written policy on how adjustments to utility bills are made and documented.
“This also is an area we felt was more than just an ‘Oops, you made a little mistake.’ You had an employee that had a very large utility adjustment, very large. And there was no documentation to substantiate why you gave this employee free utilities basically,” Furrh said.
She said had the circumstances for the adjustment been documented, the item could have been noted as a less serious infraction of significant deficiency.
“But you didn’t have documentation, you didn’t have rhyme or reason, there was nothing really to address why you did it. In fact, during this year, there could have been more utility adjustments than what we found, because we don’t look at every single account, we take a sampling. We felt like your procedures were inadequate to ensure adjustments weren’t done on more than one account. So, we labeled that as a material weakness,” Furrh said.
Despite the deficiencies and weaknesses noted in the audit report, Furrh reiterated the PWA’s numbers were sound for the year audited, earning it high marks overall.
From there, Furrh moved to the Town of Elmore City’s report, where she presented the council with recommendations for things she would like to see remedied before the next audit year, as well as an agreed-upon procedures report. The report does not reflect a full audit of the town, but rather a review of certain financial statements and procedures. An agreed-upon procedures report meets statutory audit requirements for smaller towns and is often chosen as a cost-saving measure because it is less expensive than a full audit
As part of the report, Furrh said the auditing firm created a summary of income, expenditures and changes in account balances, looking to see if any accounts had a deficit for the year, checked to make sure the town did not exceed budget, and checked to make sure any restricted accounts or designated funds were used appropriately. She said they found no problems in those areas.
They also looked to see if there were any outstanding checks that did not clear the bank in a timely manner, which can be an indicator of larger problems, including fraud. Furrh said Elmore City’s general fund had more than 10 outstanding checks in FY2021, some dating back to 2018.
She said the city clerk or city treasurer position “is supposed to check all the outstanding checks every six months and either void them or reissue them. Nobody was doing that. Your other accounting firm wasn’t doing that. Your other clerks weren’t doing that, but in March of 2021 you all finally did it. But during the year, you had outstanding checks for a really long time. It’s very significant.”
In her recommendations to the town, Furrh listed several procedural items the auditing firm found that they want improved before the next audit year, to prevent significant deficiency or material weakness findings in the future.
Those included creating and implementing clearly written policies defining expectations for employees who hold medical marijuana cards, how utility payment adjustments are handled, and outlining procedures for keeping employee files updated.
Furrh also recommended implementing a procedure to track how payroll is reimbursed between funds to ensure the appropriate amounts are being transferred.
In FY2021, she said the Public Works Authority was reimbursing the general fund not only for payroll, but also payroll deductions, such as payroll taxes, resulting in too much money being transferred from PWA to the general fund.
She explained payroll fund transfers between accounts are usually made to simplify the reporting of payroll taxes to the IRS, reducing the number of reports that need to be generated.
“You did good. You have some stuff to work on, but overall, you did well,” Furrh told council members.
Following Furrh’s presentation the Council voted to accept the FY2020-21 audit report and findings.
Mayor Hucks said Elmore City is already scheduled to begin the auditing process in September for the fiscal year that just ended June 30. That audit report is due to the State Auditor and Inspector’s office by Dec. 31.