Starkville’s financial auditor cited the city for non-compliance with state law, three instances of material weaknesses and seven minor deficiencies in its review of Fiscal Year 2015.
Most of the issues discovered by Watkins, Ward and Stafford PLLC occurred due to a lack of internal controls associated with the finances, and city officials said they’ve already taken steps to remedy the problems.
Mayor Parker Wiseman attributed most of the procedural issues to high turnover in the city clerk’s office.
“Ten findings are too many. (City Clerk Lesa Hardin) and I have been working over the past several weeks to make sure we have a plan in place for the future,” he said. “Since 2012, every position in that office has turned over. It’s a talented group, but like any group there’s a process of learning each other’s habits and working together as a team. I feel like that’s what they’re doing and they’re on the way to becoming a very dynamic city clerk’s office.”
Hardin, her staff, other department heads and auditors are expected to hold workshops this month to “define the controls that lead to the cleanest possible accounting processes and practices,” Wiseman said.
In August, Hardin is expected to deliver new accounting policies and procedures to the board of aldermen, the mayor said.
Violations and material weakness
The audit states Starkville violated Mississippi Code Ann. Section 17-17-348 after failing to publish an itemized report of all revenue, costs and expenses incurred with its sanitation department during FY 2014-15.
To comply with state law, the certified public accounting firm suggested Starkville publish itemized reports of all revenue, costs and expenses incurred by the city for each fiscal year.
Wiseman said the city reported the violation to the state.
Starkville was also cited for three material weaknesses specifically dealing with sloppy bookkeeping.
Watkins, Ward and Stafford’s review found the city did not have adequate internal controls in relation to the pooled cash accounts, its 2015 capital improvement bond account and with how the city entered certain revenues and expenditures against related accounts.
With the pooled cash accounts, auditors found numerous transactions were recorded incorrectly between funds, which caused balances to reflect deficits. “Numerous and significant” adjustments were needed to fix the issue, the report states.
The pooled cash fund is a combination of the city’s deposits, excluding the utilities fund, Wiseman said. While they’re in a joint account, he said separate books are kept for the various funds comprising the funding stream.
“That is a system of bookkeeping that we are no longer comfortable with,” Wiseman said. “That’s a process change that should lead to greater accounting efficiency.”
The city also failed to record the bank account designated for the 2015 capital improvements bond in its financials, which caused “cash and proceeds from (the) bond issuance” to be “materially understated.”
Watkins, Ward and Stafford also discovered “several instances of revenue transactions being improperly netted against a related expenditure account, and expenditure transactions being improperly netted against a revenue account,” which caused revenue and expenditure accounts to be understated.
The firm suggested city staff implement more-stringent controls and conduct more-frequent reviews of its financials.
The city’s response to the netting revenues and expenditures finding states “refunds and rebates were coded back against the expenses they were paid from at the request of department heads so they would see only net expenses. The staff understands now that this is not the proper way to handle these refunds and rebates and will set up revenue accounts” for those transactions.”
Other deficiencies
Other deficiencies identified in the report include: the accounts payable and payroll liabilities, as reported in the general ledger, did not reconcile to the city’s subsidiary ledgers; outstanding items were duplicated in the accounting system, causing bank account reconciliations to be incorrect; a failure to transfer Starkville Utilities funds for debt service created a $729,135.16 deficit to a city bond and interest account; several general ledger accounts showed incorrectly coded transactions and recurring entries that went unrecorded, and some entries lacked documentation; misclassifications of revenues; a lack of identifying federal awards; and the city retained a balance on a Community Development Block Grant longer than the three-day disbursement requirement.
“On the state and federal side, we are handling a lot of grant programs right now. This is an opportunity for us to instill a process which ensures that the department receiving certain funds, the clerk’s office and ultimately our auditor are on exactly the same page,” Wiseman said.
In FY 2015, Starkville received $76.94 million in revenue. Almost $50 million came from service charges, while property taxes ($4.6 million) and sales and use taxes ($7.3 million) made up the lion’s share of other revenues.
The city spent about $71.8 million in the fiscal year, with $45.31 million going toward utilities. Public safety’s combined $10.08 million line item was the only other expense that exceeded $10 million. General government ($4.12 million), roadway ($2.56 million), culture and recreation ($2.26 million) and sanitation ($3.07 million) expenses all exceeded the $1 million mark, while three other categories fell below it.
As of Sept. 30, 2015, the city had $54.57 million in outstanding long-term debt, which included general obligation bonds, other loans, obligations under capital leases and the unfunded pension liability. Approximately $3.03 million of the total was due within a year.
The audit forecast Starkville’s future growth as encouraging, citing the numerous residential and commercial developments under construction.
Carl Smith covers Starkville and Oktibbeha County for The Dispatch. Follow him on Twitter @StarkDispatch
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