After an audit of the 2017-2018 fiscal year, Pender County was marked “high risk” for internal control issues in its accounting procedures, including budget violations, understated assets for water plants totaling $38.3 million, and missing documentation for personnel files.
BURGAW — Last month, an independent audit landed Pender County on a Local Government Commission (LGC) Unit Assistance List after receiving the highest risk assessment possible for “internal control issues” in its accounting procedures.
According to Department of the State Treasurer spokesman Frank Lester, these issues included budget violations on purchases made by department heads, delayed year-end closeout procedures, incorrect recordings of certain capital assets — including three water and wastewater plants totaling more than $38.3 million — and inadequately maintained personnel files that didn’t correspond to payroll status.
Lester said the county’s new finance director, Meg Blue, and finance staff have taken necessary steps to soon be removed from the list. Blue, a former government auditor, was hired in March to replace Katherine Brafford, who was listed on the audit for the fiscal year ending June 30, 2018.
“We have since visited with the county’s new finance officer and learned more about what the county has done to address these issues,” Lester said. “When the UAL is updated again in the coming weeks, Pender County will be removed from the list.”
The audit, performed by global accounting firm RSM, found multiple cases of “material weakness in internal control” and cases of “significant deficiency” and “material noncompliance.” The first involved weakness in the county’s year-end closeout procedures.
“In performing our audit, it was noted that Pender County finance department experienced significant delays in the year-end accounting and reporting process, including providing over 120 journal entries, some of which were received five months after the reporting date,” RSM wrote in the audit report’s financial statement findings.
The cause, it noted, was insufficient time and task management and supervisory review controls during the year-end closeout. According to Lester, Blue has “divided these tasks across the staff and made sure each has been trained in what is required.”
“We have planned and held training to reinforce our policies and procedures, we have made some changes to our procedures, and we have developed a delegated strategy to preparing for our 2019 audit – which we are working very hard on this time of year,” Blue wrote in an email. “We have also made some clarifications with the LGC on our Utilities Funds financing.”
The audit found budget violations from “moneys were spent that had not been appropriated.” It stated actual expenditures exceeded budgeted expenditures for the Water and Water Treatment Plant Fund, Workers Compensation Fund, Maple Hill Water Operating Fund, 911 Emergency Telephone Fund, and School Special Revenue Fund.
“[The finance department] has revised the procurement procedure to hold department heads more accountable for their purchases,” Lester said, adding that it is developing training programs for all department heads and their staff on procurement and budget enforcement.
The audit also found that three water and wastewater plants totaling more than $38.3 million were completed and placed into service during the fiscal year but had not been properly transferred out of “construction in progress” and appropriately depreciated.
What is the Local Government Commission?
In 1931, the N.C. General Assembly established the LGC to help address problems in local government finance caused by the Great Depression. It is staffed by the Department of State Treasurer and approves the issuance of debt for all local government bodies while assisting with fiscal management. This includes the regulation of annual financial reporting.
North Carolina State Treasurer Dale Folwell said, generally speaking, the government bodies and organizations his office has oversight over want to know “when they’re doing something wrong.”
“These people are our customers,” Folwell said. “We don’t treat them as — ‘You’re coming into the principal’s office.’”
He said that allowing sunlight on finance issues early, before they become larger problems, was important for governments to not only “survive but prosper.”
He also said that larger bodies like county governments, with growing populations and increasing property values and tax bases, can more easily overcome accounting issues because of the large size of their treasuries.
The Unit Assistance List, created on July 12, rated local governments’ financial risk levels across three categories: internal control issues, financial issues from general funds, and financial issues from water and sewer funds. It included 14 counties and 92 municipalities.
Pender’s rating for internal control issues dropped from a level-two rating in 2016 and 2017 to a level-one “high risk” rating in 2018. Meanwhile, its general fund was rated level-three “low risk” and its water-sewer fund level-two, “moderate risk.”
Understating assets and missing documents
Lester said the improper recording of one $3.1-million asset, which understated assets and overstated expenses, “resulted from a miscommunication between the county and their external auditor that has since been clarified.” He said Blue’s staff has since reconciled records to the previous year-end balance and recorded all additions and retirements of assets for 2019.
Out of the five findings listed in the audit report, the issue of inadequate personnel file maintenance was the only deemed a “significant deficiency.”
“Files were missing sufficient documentation to serve as evidence of authorization for benefits or the most recent authorization was not in the personnel record,” the report stated, citing insufficient evidence, documentation maintenance policies, and review of employee files.
According to Lester, the new Human Resources Director, Denise Mulhollen, is “working with staff to keep the files as up-to-date as possible.” He also said IT staff have recently developed a quick and accurate way to produce cost-of-living adjustment payroll changes to update employee files, and now the finance department reviews all changes for each payroll.
“A new deductions platform [is] in the works that improves the audit trail from employee changes to the personnel files,” Lester said. “The County is also working on getting a new timekeeping system.”
Mark Darrough can be reached at Mark@Localvoicemedia.com or (970) 413-3815