Christian Peterson
reporter.riverbendnews@gmail.com
A recent operational audit conducted in White Springs has uncovered a number of issues plaguing the town council. The Joint Legislative Auditing Committee (JLAC) was presented with the findings in Tallahassee on Monday, Dec. 11, and is currently deliberating on how best to address the situation. This article serves as a follow-up to last week's piece, which delved into Auditor General Sherrill Norman's first three discoveries in detail, as well as the JLAC's response.
Finding 4: Financial Statement Preparation
The Government Finance Officers Association (GFOA) recommends local governments prepare an annual external financial statement "in accordance with generally accepted accounting principals (GAAP) and fulfill their financial reporting responsibilities by hiring, training, developing and retaining accounting staff with the knowledge and capability to produce GAAP financial statements."
During the inspection of the town records and discussions with the staff, the inspector discovered that Town Clerk Audre' J. Ruise, who -- per town charter -- is responsible for accounting functions, "did not have the knowledge and capability required to prepare GAAP financial statements." As a result, the town had not been producing statements for the 2020-21, 2021-22 and 2022-23 fiscal years.
While White Springs had contracted with a certified public accounting (CPA) firm to prepare GAAP financial statements and a separate accounting firm to perform the accounting functions, the audit found significant errors in the town's accounting records. These errors "contributed to the delays in submitting the financial audit reports and [Agency Financial Reports (AFRs)] mentioned in Finding 3, and demonstrated that the level of services provided in the accountant contract may not be sufficient for the performance of all the town's accounting functions."
The finding concluded that, due to the "ineffective controls" over the accounting records, the town should contract for specific accounting services. Alternatively, they can "take appropriate actions to hire, train, develop and retain staff" capable of producing GAAP financial statements in a timely manner.
The town responded by acknowledging that its "prior contracted accounting firm did not perform sufficient and timely accounting services to maintain the town's accounting records up-to-date and in a timely manner." The town further stated the finding should be fully corrected with its recent retainer of a CPA consulting firm to perform comprehensive accounting services.
Finding 5: Accounting Records and Related Controls
During the investigation of the town's accounting records, significant errors were found in financial reports and records from October 2019 through March 2023. The errors include understating ad valorem tax revenues totaling $50,898, multiple deposits recorded twice, and unreconciled differences between the town's General Fund bank account and the General Fund cash balance in the accounting records.
The town's 2019-20 fiscal year audit report further showed that the town council had collected internet cafe permitting revenue of $96,000, which was deposited in the town's bank account but had not been recorded in the accounting records.
In addition, the audit revealed that the town's reported capital asset balances were off by $2.4 million and $2 million in the General Fund and Enterprise Fund, respectively. Town personnel claimed that the lack of updated capital asset records was due to "personnel turnover." However, the audit states that, "without accurate and complete accounting records and reports, the town cannot demonstrate proper accountability for activities or assure citizens and oversight agencies of the appropriate stewardship of town resources."
Auditor General Norman recommended that the town "establish and maintain a properly designed accounting system and related policies and procedures to ensure the accurate and timely recording of all financial activity in the town's accounting records."
White Springs' response simply said to refer to their answer to Finding 4.
Finding 6: Bank Reconciliations
As of March 31, 2023, the audit found White Springs had six different bank accounts, including the General and Enterprise Funds, with a total balance of $1.7 million. The General Fund account had $1.2 million, while the Enterprise Fund account had $72,959, and the other four accounts had a combined balance of $489,018.
Additionally, the audit report revealed that the General and Enterprise Fund accounts had not been reconciled for a long time, with several errors being found. For instance, the General Fund account had not been reconciled since September 2021, and the Enterprise Fund account had not been reconciled since September 2020. Three other accounts had not been reconciled since 2020, 2022 or since March 2023.
Auditor General Norman reviewed the General Fund bank account reconciliation that took place in September 2021 and found several errors. The town did not record a check for $18,245 as voided in the accounting records, which led to an overstatement of expenditures and an understatement of cash in the General Fund. Another error was a check for $5,000, dated March 16, 2021, which was listed as an outstanding check and posted twice in the accounting records, causing an overstatement of General Fund expenditures and an understatement of cash by $5,000.
Further errors were discovered during the audit—for example, the "reconciliation listed 89 items totaling $88,098 as deposits or credits in transit." However, the audit identified six deposits in transit totaling $66,917 that were posted twice in the accounting records, leading to uncorrected overstatements of General Fund cash and revenues. The audit also found that $50,773 in ad valorem tax collections deposited in the bank account from October 2020 through September 2021 had not been recorded in the accounting records as of June 2023, understating the General Fund cash and revenues.
When asked about the situation, town personnel replied that the contracted accountant was responsible for preparing bank account reconciliations. However, the town did not have any policies or procedures to ensure that the bank account was reconciled in a timely manner and that they were prepared for review of the reconciliation.
Auditor General Norman recommended the town establish policies and procedures to ensure "timely and complete bank reconciliations, review and approval of reconciliations, and timely accounting record corrections for identified errors." Without such parameters, "there is an increased risk of fraud and errors" that may not be detected in a timely manner.
Once again, the Town of White Springs referred to its response to Finding 4.
Finding 7: Budgetary Process
Municipalities are obligated by state law to adopt an annual budget, which, although adjustable throughout the year and within 60 days of the fiscal year's close, must not be exceeded. The audit identified significant issues in the budgetary process, pointing out discrepancies in budget preparation, recording and reporting.
The first concern raised by the audit pertains to budget preparation. The audit team found that "contrary to state law, prior fiscal year-end balances" were not factored into the 2021-22 and 2022-23 fiscal year budgets. Town personnel attributed this omission to incomplete audits for the 2018-19 and 2019-20 fiscal years, resulting in them being unaware of balance details. Consequently, the balances were not incorporated into the subsequent budgets.
Furthermore, the audit discovered that the town charter and ordinances lacked a definition "of the legal level of budgetary control." The audit urged the town council to determine appropriations and adopt a budget at the necessary level of detail. The resolutions for the 2021-22 and 2022-23 fiscal years did not specify the level of budgetary control, creating uncertainty about adhering to council intent.
The second issue involved budget recording, highlighting a failure in accounting records. The approved expenditure amounts for the 2021-22 and 2022-23 fiscal years were not initially entered into the accounting records. Town personnel failed to explain this omission, raising concerns about unrecorded expenditures and an increased risk of exceeding approved amounts.
The third issue focused on budget reporting and monitoring, which is essential for accountability. From October 2021 to December 2022, the town did not comply with budgetary reporting and monitoring requirements per the town charter and GFOA recommendations. Monthly financial and budget progress reports, as well as quarterly budget meetings with department heads, were also absent.
The absence of budget amendments, as mandated by the town charter and recommended by GFOA, was also flagged. Discrepancies in the 2021-22 fiscal year budgeted and actual revenue and expenditure amounts were significant. The town exceeded budgeted expenses in the General Fund and the Enterprise Fund, with town personnel failing to explain why adjustments were not made to reflect the variations.
The cumulative impact of these issues poses a risk to the town's financial condition and transparency. The audit recommended several measures, including incorporating prior-year balances into budgets, defining the legal level of budgetary control, ensuring accurate recording of approved expenditures, holding quarterly meetings, and amending budgets to reflect actual figures.
In response, the town committed to improving financial records, seeking assistance from a CPA consulting firm for accurate budget preparation, utilizing Quickbooks for budget entry, and providing monthly budget-versus-actual reports to the town council. These measures aim to address the deficiencies identified in the audit and enhance the overall effectiveness of the town's budgetary process.
Finding 8: Utility Services Billing and Collection Processes
During an audit of White Springs' utility services billing and collection processes, it was found that the town provides water, sewer and solid waste services. The audit identified deficiencies in the billing process, including missing information on 25 accounts, confusion in the application process, and errors resulting in underbilling. Some accounts were not billed for water or sewer services, leading to an annual loss of $1,039.
The audit recommended the town establish written procedures for account setup, including transparent application processes and proper fee charging. In response, the town acknowledged the issues and devoted itself to creating written procedures, investigating accounts with no water consumption, and reconciling garbage contractor invoices monthly to ensure accurate billing.
In addition, the report highlighted the potential for a continuous loss of revenue and emphasized the importance of proper records and procedures to cover operational costs. The town's response indicates a commitment to addressing these issues and improving the utility billing system.
Finding 9: Separation of Duties
The audit report states that government organizations should separate duties in such a way that no single employee "has control over all phases of a transaction." For example, one employee should not have access to physical assets and recordkeeping responsibilities for those assets.
During an inspection of the town's records and interviews with personnel, it was discovered that there were issues related to Utility Clerk Cynethia Williams, one of the town's four administrative employees. Williams was responsible for preparing and sending invoices for water, sewer and garbage services, collecting cash and checks as payment, recording payments to customer accounts in the utility billing system, preparing bank deposits, and depositing the funds into the applicable bank account weekly. Even though deposits are recorded in accounting records, since the clerk has control over the billing and collection process, she can divert the collections without timely detection.
The inspector noted that there were "no compensating controls in place to mitigate the incompatible duties risk, and town personnel indicated that the town does not have funds to hire another employee to separate the incompatible duties." The incorrect delegation of duties, the audit warns, increases the risk of errors and fraud. The inspector recommended that the town "separate utility billing, collection and recordkeeping duties" to the greatest extent possible by "realigning position duties among available administrative staff and the contracted accountant."
In response, the town stated it would follow Auditor General Norman's recommendation by separating utility billing, collection and recordkeeping duties by "realigning position duties among available administrative staff and the contracted CPA consulting firm."
Finding 10: Procurement of Goods and Services
The 10th finding in the audit report raises concerns about the town's procurement practices, emphasizing the need for controls to ensure effective and consistent acquisition of goods and services. The audit revealed shortcomings in adhering to competitive procurement procedures and highlighted instances where purchases lacked proper documentation and competitive selection processes.
The inspector discovered that town records for vendors with payments over $2,500 did not consistently show compliance with competitive procurement procedures. Payments totaling $158,975 to two vendors exceeding $25,000 lacked evidence of a competitive sealed bid or request for proposal process. Additionally, payments of $74,145 from five vendors exceeding $5,000 lacked supporting quotes or proposals.
Several payments lacked documentation, with purchase orders or contracts not supporting significant purchases and payments exceeding contract prices. Furthermore, payments totaling $18,500 lacked sufficient detail to verify services provided according to contract terms. The audit found a lack of written procedures requiring documented receipt of goods or services before payment.
The inspector recommended that the town strictly adhere to established purchasing procedures and make concerted efforts to acquire quotes, sealed bids, and proposals. In response, the town pledged to strictly follow established procedures, develop written procedures for proper documentation before invoice payment, and implement internal processes to ensure consistent adherence to these procedures. This commitment reflects the town's acknowledgment of the deficiencies and its proactive steps toward improving procurement practices.
Finding 11: Auditor Selection
Finding 11 centers on the town's auditor selection process, mandated by state law for annual financial audits performed by independent CPAs. The town must establish an auditor selection committee to evaluate and recommend auditors, adhering to specific procedures. The inspector found discrepancies in the town's selection for the 2018-19 through 2020-21 fiscal years. Although the council advertised for audit services and had a legal selection committee, there was a lack of evidence in town records regarding the selection process details, including responses to the RFP, committee rankings, and the contract with the chosen firm.
The town council's dissatisfaction with the 2018-19 auditor led them to select another firm for subsequent audits without following proper procedures. The town cited the urgency for audits as a reason for bypassing the required selection processes, contrary to state law. The inspector concluded that the town's records did not demonstrate compliance with state law in procuring audit services.
In response, the town claimed to have initially selected the 2018-19 auditor through a proper RFP process but encountered issues with late delivery and lack of responsiveness. Considering this an emergency and with JLAC awareness, the town approached the second-ranked firm to fulfill the contract. The town recently selected this firm for subsequent audits under the prescribed RFP process in Florida statutes. The town's response acknowledges past issues and outlines steps to align with state law in future auditor selections.
Finding 12: Personnel Policies and Procedures
Finding 12 uncovered issues with the town's personnel policies and procedures. The audit suggested adopting effective personnel controls, such as verifying an applicant's history and specifying minimum education and experience requirements. The town's charter requires that the council establish personnel policies and procedures.
The audit found that as of August 2023, the town was not following its manual and establishing a classification and pay plan. It was also observed that position descriptions were not available for some positions, while others were. In addition, it was found the town clerk position required the maintenance of the town's financial records, but this service was contracted out to an accounting service. Furthermore, the town manual requires that minimum education and experience requirements are established and only qualified applicants are hired. However, there was no record of this being done for current employees. Additionally, there was a lack of personnel action forms (PAF), which could cause issues in resolving employment disputes should they arise.
In response, the audit recommends that the town should "provide for efficient and effective personnel administration."
"The town manager will conduct a study into the town's personnel policies and procedures," the town responded. "The council may establish a classification and pay plan to establish minimum and maximum salary ranges for all authorized town positions, establish detailed position descriptions for all town positions, and use personnel action forms to document all personnel actions."
Finding 13: Time and Attendance Records for Salaried Employees
The 13th finding in the audit emphasizes the importance of maintaining accurate time and attendance records for all employees, even those on salary. Adequate payroll controls, according to the audit, should include time records or alternative options like employee-prepared activity reports to ensure transparency to the public.
The audit scrutinizes the town manager's role, citing her duties outlined in the contract signed in November 2020. While the contract fixes her salary at $60,000 and allows for leave accumulation, it lacks specifics on work hours and job duties. The inspector raised concerns as the town manager did not maintain regular work hours or records of time worked and leave taken. The town argued that the agreement mandated completion of duties regardless of hours, but the audit found discrepancies, noting failures to provide monthly financial reports and record and reconcile finances.
Concerns were also raised about the Fire Chief hired in June 2022, whose contract lacked specifics on job duties, work hours, and documentation requirements. The audit expressed worry about the reasonableness of the chief's compensation, given the absence of clear expectations and documentation.
The audit concluded that while hourly employees are required to prepare timesheets, salaried employees are not, posing a risk of inconsistent services. The recommendation urged the town to establish payroll documentation requirements for salaried positions.
In response, the town committed to having the town manager provide monthly financial statements and reports aligning with council expectations, addressing the issues alongside Finding 12. The town's response indicates a willingness to rectify the deficiencies identified in the audit, ensuring better transparency and compliance with established standards.
Finding 14: Sunshine Law – Public Records Requests
In Florida, two laws govern public records: the Public Records Act, which requires government bodies to maintain public records, and Sunshine Law, which grants the public access to governmental proceedings and records upon request. The custodian of public records "must acknowledge requests to inspect or copy records and respond to such requests in good faith and in a timely manner." Failure to comply with these laws can result in litigation against the town. While the Sunshine Manual does not set any specific time frame for when public records requests must be responded to, it states that an "unjustified delay in producing public records constitutes an unlawful refusal to provide access to public records."
As of August 2023, the town did not have written policies or procedures in place to ensure that public records requests were being handled properly. Additionally, there was no log of public records requests, although Town Clerk Williams maintained physical file folders to document requests received.
During the audit, the inspector requested public records requests from January 2022 through April 2023. "The town clerk provided 18 individual file folders that contained various records, including notes, copies of emails and other correspondences, related to the 18 public records requests received during that period," the report states. However, the audit discovered that these requests were not being promptly fulfilled as required by state law. The town could not provide evidence of acknowledgment for 16 of the 18 requests. For five of the 18 requests, there was no documentation that the requested records were provided, and for another two requests, only partial completion was documented. Finally, the audit found that "records for 11 requests were provided to the requester 43 to 92 days later, an average of 53 days after the request."
To conclude the finding, the audit recommended the town "establish written policies and procedures to ensure that public records requests are completed in compliance with Sunshine Law and Public Records Act." This includes logging requests and promptly acknowledging and responding to them.
In response, the town stated that it will follow through with Auditor General Norman's recommendations. "Such policies and procedures will establish a log documenting the date and time each public records request [is] received, acknowledged, the time frame it took to fulfill the request, and who made and received the requested information," the town's reply states.
Finding 15: Records Retention – Town Ordinances and Resolutions
State law mandates the permanent recording of passed ordinances or resolutions, with failure resulting in penalties. The White Springs charter requires the town clerk to keep records and codify ordinances every 10 years. The audit found an outdated record, an index from 2018-19, and binders covering ordinances from 2014 to May 2023. A codification last updated in October 2013 was discovered later.
The town attributed the lapse to personnel turnover, claiming ignorance of the periodic codification need. This failure hampers compliance with the charter, impeding public access to local laws and council actions. The audit recommended maintaining updated records and adhering to the charter's 10-year codification mandate.
"The town is making concerted efforts to find all the ordinances and resolutions of the town prior to this current administration," the town responded. "With the records that the town does possess, the town will maintain an up-to-date and organized repository of ordinances and resolutions adopted by the town council as required by state law and town charter."
Finding 16: Anti-Fraud Policies and Procedures
The final finding of the audit report revealed that the town lacks anti-fraud policies and procedures. These policies are essential to detect, prevent and mitigate fraudulent activities. Unfortunately, the "review of town policies and discussions with town personnel disclosed that, as of June 2023, the town had not established any anti-fraud policies or procedures due to personnel turnover." This creates a high risk of fraud that may go unnoticed. The audit recommends that the town establish anti-fraud policies and procedures to prevent fraud.
In response to the audit findings, the town stated that it will "develop and implement anti-fraud policies and procedures to aid in the mitigation, detection and prevention of fraud."
JLAC's Response:
On Monday, Dec. 11, JLAC received the operational audit of White Springs, presented by auditor Derek Noonan. Only Town Manager Vanessa George made an appearance. Due to time constraints, only a brief overview and headlines were shared during the meeting.
Following the overview of the 16 findings, Representative Mike Caruso labeled the audit as "a scathing report." George stood to address the committee, and acknowledged the audit's value in pinpointing areas for improvement.
White Springs residents Scott Gay and Teri Seibert also made the trip to Tallahassee, and took the opportunity to address the committee with their concerns. Gay urged JLAC to involve the auditor general, while Seibert highlighted the town's recurrent issues with asbestos-lined pipes.
However, no action was taken during the meeting.
Riverbend News will continue to follow the investigation into White Springs' government operations.