Auditors critique town's oversight

The Washington State Auditor’s Office has released its 2013 audit reports for the Town of Cathlamet, and the auditors have recommended changes in oversight for certain procedures.

Overall, the state auditors said "town operations complied with applicable requirements and provided adequate safeguarding of public resources. The town also complied with state laws and

regulations and its own policies and procedures."

"However," the report said, "we noted certain matters that we communicated to the town management in a letter dated September 17, 2014, related to cash receipting. We appreciate the town’s commitment to resolving those matters."

Town officials have said they will address the concerns by changing procedures and increasing staff training.

The findings included:

1. The Town’s internal controls over accounting and financial statement preparation are inadequate to ensure accurate reporting.

"It is the responsibility of the Town to design and follow internal controls that provide reasonable assurance regarding the reliability of financial reporting," the report said. "The prior audit identified weaknesses in the financial statement preparation process that were reported as a significant deficiency. For the current audit, we continued to identify deficiencies in internal controls that adversely affected the town’s ability to produce reliable financial statements."

The auditors said the town did not research how to record appropriately non-routine transactions and that staff lacked the technical knowledge to ensure transactions were recorded accurately in the accounting system. Specifically, the Town did not record a bond refunding and did not use guidance from the Budget, Accounting and Reporting System (BARS) manual to ensure financial reporting was accurate.

The clerk/treasurer prepares journal entries and reconciles bank statements. There is no oversight or review of the journal entries or bank reconciliation by a person independent and knowledgeable to ensure accuracy and completeness, the auditors said.

There is also no independent review process in place to ensure financial statements were complete and accurate.

"The town has not dedicated sufficient resources, including training for staff and oversight, to ensure accurate and complete financial reporting of town operations," the report said. "The town’s financial information contained significant misstatements that were not detected by management.

2. The auditors identified the errors in the financial statements received for audit. These included:

The Town issued a $4.986 million revenue bond to pay off an existing note which was not recorded in their accounting system.

The Town’s financial information provided for audit was incomplete and contained mathematical errors.

The Town erroneously recorded a $67,000 expenditure in their accounting system at year end. This transaction was a bank error and should not have been recorded.

The Town is not accurately accounting for the amount of change funds being used in Town operations.

The Town did not record all compensated leave balances, nor did they include the associated employer costs when calculating their compensated absence liability, resulting in an understatement of $4,630.

The ending balance for the 2009 Water Revenue Bond was overstated by $212,493.

The auditors recommend the Town establish internal controls procedures and dedicate the resources to make sure financial reports are complete and accurate. The auditors said the town should ensure:

Staff responsible for preparing and reviewing the financial statements is knowledgeable of reporting requirements and follow BARS manual guidance or seek technical guidance when recording non-routine transactions.

Bank statements and journal entries are reviewed by a knowledgeable person for accuracy and completeness.

Someone knowledgeable of the BARS manual perform a thorough and independent review of the financial statements.

In making their response, town officials acknowledged "the confusion that can accompany non-routine transactions associated with major projects. The town will seek guidance in the recording of future transactions of this type."

Bank statements and financial statements will be reviewed monthly by a designee of the Mayor of the Town of Cathlamet and a report of this activity will be provided to council at its regularly scheduled meeting, town officials said.

Finally, town officials said that change funds for the library, swimming pool and the town hall have been formally established with prescribed balances and procedures have been adopted for daily reconciliations. Independent verification of these processes will be provided by Town hall staff.

"We appreciate the town’s commitment to resolve this finding and thank the town for its cooperation and assistance during the audit," the auditors said. "We will review the corrective action taken during our next regular audit."