BY MARK J. CRAWFORD
Telegraph Editor
STARKE — While late in coming, Starke’s 2020 audit revealed the city’s relative financial health, even given several accounting issues that had not been resolved.
Brendan McKitrick with James Moore CPAs presented the results Oct. 5.
The internal control and compliance report included 10 material weaknesses, including seven from the prior year that had not been corrected. McKitrick said staffing issues contributed to that as well as the lateness of the audit. Annual local government audits are due to the state by the end of June.
Material weaknesses are a deficiency or a combination of deficiencies in internal controls that could lead to material misstatements in the financial statements and prevent them from being detected and corrected in a timely manner.
Among the seven previously identified weaknesses was the reconciliation of account balances. Several accounts required adjustments, and capital asset and long-term debt had not been recorded. These balances need to be reviewed monthly.
The city also needs a process to perform and document a review of manual journal entries to guard against unauthorized entries.
The city needs to review user account access as well to ensure access is restricted to authorized employees. The system needs to enforce password complexity and lock out access after failed attempts to log in. There were similar concerns about payroll access.
Utility billing review was mentioned because of the utility clerk’s ability to enter rates and complete write-offs without a formal process. A review was also recommended when it was discovered that a couple of older accounts were not paying the current rates.
Overall, it was recommended that accounting policies and procedures be established and maintained after the loss of multiple experienced upper management positions.
The three new material weaknesses identified included inaccuracies in the city’s schedule of expenditures for federal awards related to money received for sewer rehabilitation. Auditors found some grant amounts had been improperly excluded and recommended staff familiarize themselves with the process. The city should also review the documents before submitting them to auditors. State and federal awards above $750,000 require a separate audit, the scope of which is determined by the documentation provided by the city.
Auditors found the city was not fully following the documentation requirements of its cash disbursement policy, including obtaining an approved materials requisition and purchase order for purchases under $1,000.
Finally, auditors found the yearend physical inventory count did not agree with the balance on the general ledger. Personnel changes were blamed.
There were six additional recommendations, five repeated from the prior year. These included the need for a fund balance policy specifying what the unassigned and unrestricted fund balances should be as a percentage of each fund’s expenditures.
The city also has capital assets that have completely depreciated and need to be removed, and it needs to fully follow (and perhaps amend) its capitalization policy.
Auditors noted all checks are written out of the utility fund rather than the fund that the expenditure relates to. The activity to the other funds is then recorded separately. They recommended a pooled cash system that allows payments to be made directly from the proper fund.
They also noted the minimal activity of the community redevelopment agency fund and questioned its usefulness.
Finally, auditors recommended updating the city’s bonding requirements policy for city officials, which was established in 1960.
The city has taken some actions, per its response to the audit, including adopting recommended financial policies. The city clerk will work with staff on implementing the changes. The CRA fund has also been closed out.
General fund, net position up
The three-year trend in the general fund balance shows a more than $200,000 increase in assigned and restricted funds. There was also a nearly $1 million increase in unassigned funds during the last two years. This is due to grant activity as well as increases in fine and forfeiture collections. The total general fund balance at the end of 2020 was $1.36 million.
Even with nearly $84,000 of that being restricted or nonspendable, the city still had more than three months of its general fund spending in reserve, which is better than the recommended two month minimum.
The transportation trust fund was up from nearly $1.76 million to more than $2.1 million in 2020, thanks to additional grant and ad valorem revenue. These funds are restricted to street-related projects.
Finally, the utility fund reserves have grown from nearly $19.5 to nearly $22.8 million over the past three years. That is related to growth in capital investments, such as utility projects related to the overpass construction and sewer rehabilitation, which was also accomplished with state and federal support. Unrestricted money in the fund was down from more than $4 million in 2019 to $3.4 million in 2020.
At the end of 2020, the city’s assets exceeded liabilities by more than $27 million, an increase of 11.8% over the prior year. The $2.7 million increase in net position was again attributed largely to capital grants.
Overall debt decreased by more than $216,000, after the city paid down more than $378,000 and borrowed and additional $152,000 to purchase and refinance police vehicles.
The city’s pension liability is more than 78% funded for general employees, 82% funded for firefighters and 92% funded for police officers.
With the 2020 audit complete, auditors could begin work on auditing the recently completed 2021 fiscal year, but commissioners have decided to advertise a request for qualifications from interested firms. A committee will review those qualifications and make a recommendation to the commission.
