ECB Publishing, Inc.
Some eight months after the county received its belated financial audit report for Fiscal Year (FY) 2016/17, the FY 2017/18 audit should soon be getting underway, presenting an opportune time to revisit last year's findings and use them as a baseline for expected improvements in the coming report.
Findings – typically found toward the end of audit reports and divided into material weaknesses and significant deficiencies – underscore potential problems in an organization's internal accounting controls.
Material weaknesses are more serious. They indicate, in layman's terms, the possibility of material misstatements occurring in an organization's financial statements if the cited weaknesses go unaddressed.
And material misstatements, if sufficiently incorrect, may cause those who rely on the information to make unsound financial decisions or commit errors and misjudgments.
Less severe but still noteworthy are significant deficiencies, which also speak to internal control problems that warrant correcting.
In last year's audit report, the auditors listed 11 material weaknesses and six significant deficiencies, several of them longstanding and most reportedly addressed since. It will thus be interesting, when the new audit report is released, to see how many of the cited weaknesses and deficiencies have actually been corrected.
Following is an abbreviated account of the 11 material weaknesses in last year's report, pertaining to both the Board of County Commissioners and Clerk of Court.
Zika Mosquito Control Payments, Board 2017-001: The audit found that certain monthly reports and supporting documentation for the costs associated with the operation of the mosquito control program were unavailable to the auditors. The county, per its agreement with the state, is required to maintain and submit documentation of all costs associated with the program's operation to justify its payment for the Zika Mosquito Control.
Because certain paperwork was missing, the audit found that the county could possibly be found in noncompliance with its agreement and be obligated to repay $30,000 in state funding. The mishap reportedly resulted from lost paperwork on the part of a person who was not identified in the report.
The auditors recommended that henceforth, management closely monitor all grants and similar agreements for documentation and compliance.
Capital Outlay Classification and Recording, Board 2017-002: The audit found that county staff did not carefully distinguish between capital outlay and repairs when recording transactions, incorrectly recording capital asset expenditures as maintenance-type expenditures. Consequently, the transactions were not included as capital asset additions on the initial depreciation schedule, rendering the capital asset inventory inaccurate.
The auditors recommended that special attention be given to distinguishing between capital outlay and maintenance type expenditures and that the former “be recorded in the fixed asset records for accountability and reconciled to the general ledger on a timely basis.”
“We further recommend the county seek assistance from an accounting professional to work with existing staff and provide accounting guidance and oversight,” the report stated, an overarching recommendation repeated throughout relative to other findings. The Clerk's office has since reportedly hired such outside assistance.
Lease-Purchase of Equipment, Board 2016-001: The audit found that equipment purchased via lease-purchase financing arrangements were not properly recorded and payments on the debt were not properly charged to principal and interest.
The cause, according to the audit, was county staff's unfamiliarity with the requirements related to lease-purchase transactions, having the effect that “capital outlay and related liabilities were understated and payments were not properly recorded to principal and interest.”
The auditors' recommendation: Staff should properly record all lease-purchase debt and related capital outlay and charge payments to principal and interest. The auditors noted that this condition persisted from 2016, citing multiple transactions related to lease purchases that were not properly recorded in 2017.
Classification of Revenues, Board 2016-002: Accounting staff recorded receipts that were not part of the normal, recurring operations – such as debt proceeds, grants or other revenue sources – as miscellaneous revenues. The effect, per the auditors, was that miscellaneous revenues were overstated and the accounting reports did not properly reflect the specific revenues received.
The auditor's recommendation to staff: Properly record and classify transactions in accounts that clearly reflect the source of the funds.
“This condition continues to exist,” the report noted in February. “There were multiple transactions recorded in miscellaneous revenues that were not recorded properly in 2017, including debt proceeds and grants.”
Segregation of Duties, Board and Clerk 2008-001 (counts as two findings): The audit found that the proper separation of duties and responsibilities over accounting functions was not being followed because of the county's limited number of accounting personnel. This has been a recurring weakness since about 2008.
The report noted that the lack of segregation of duties could lead to unintentional or intentional errors or irregularities and not be promptly detected. It further noted that internal control was strengthened when incompatible duties were separated and review procedures were established and adhered to. The auditors recommended that the county continue to strengthen its internal control through the segregation of duties.
Bank Reconciliations, Clerk 2017-002: More than $56,000 in transactions were posted to bank accounts in September 2017 that did not occur until October or November.
“These transactions subsequent to year end should have been recorded as receivables or payables instead of posting them to the bank accounts,” the report stated. “As a result, significant adjustments were necessary to properly record bank balances and related accrual accounts at year end.”
The auditors recommended that account balances be reviewed for proper cutoff and compared to supporting documentation to ensure accuracy.
Unapproved board transfer, Clerk 2017-003: Three separate transfers totaling $70,049.84 were made from the Board of County Commissioners to the Clerk's accounts to cover shortfalls in funding without prior authorization from the board. The transferred amounts were not budgeted nor approved by the board, hence the county was non-compliant with Florida law.
The auditors' recommendation: Management must review expenditure for proper documentation and compliance with applicable laws, grants and regulations before approval of payment.
Contractual Consulting Services, Clerk 2017-005: The Clerk's contract for financial consulting services was revised numerous times during the fiscal year ending Sept. 30, 2017, but none of the documents were signed by the Clerk nor were they in compliance with the board's procurement policy.
“Subsequent to year end, an hourly payment agreement was implemented to begin Jan. 1, 2018,” the report states. “It was noted that there is no approval process for the hours submitted under this agreement, a request for payment was submitted and paid for December 2017 prior to the agreed upon date, and one extra monthly payment has been issued during the year ended Sept. 30, 2018.”
The effect was that the Clerk's office expenditure for contractual services was not properly managed and controlled because the accounting staff lacked adequate management and oversight, the audit found.
The auditors' recommendation: Management should provide adequate oversight of expenditures and accounting operations.
Accrual Accounting, Clerk 2015-001: Accounting staff recorded transactions on a cash basis instead of the accrual basis of accounting, causing certain receivables, deferrals and payables not to be recorded on a timely basis and resulting in adjustments having to be made to properly match revenues with expenditures.
The auditors' recommendation: Accrual basis accounting must be followed to accurately record grant revenues and expenditures in the proper period. Too, account balances must be reviewed for proper cutoff and correct period of recognition, including grant receivables, accounts payable and deferred income. Professional accounting assistance should be sought, the report recommended.
Deficiency over Financial Reporting, Clerk 2008-002: The county's internal control system over financing lacked a control over the prevention, detection and correction of misstatements in the audited financial statements, hence its reliance on an external auditor to assist the process.
The county, the report noted, lacked a staffer with the accounting education and experience to properly record the more complex accounting transactions and prepare financial statements, resulting “in a material weakness under professional standards.”
The report recommended that the county continue to seek outside assistance for the more complex financial tasks.
The audit additionally found six significant deficiencies, three of them pertaining to the Board of County Commissioners, one to the Sheriff's Office and two to the Supervisor of Elections Office.