BY MARK J. CRAWFORD
Telegraph Editor
STARKE — Starke’s financial audit for the fiscal year ending Sept. 30, 2021, has been delivered, and several material weaknesses continue to be identified.
There were nine material weaknesses identified in internal controls, eight of which were previously revealed. Most of those weaknesses have now been identified three years in a row, which could invite state involvement.
According to Florida Statutes, the state’s auditor general shall notify the Legislative Auditing Committee of any audit report indicating that an audited entity has failed to take full corrective action in response to a recommendation that was included in the two preceding audit reports.
The committee could direct the city to provide a written statement about why corrections weren’t made and whether they will be. If the committee isn’t satisfied with the explanation, the mayor and other city officials could be required to appear at a committee hearing. If the committee finds there is no justifiable reason for not correcting the material weaknesses, there may be further investigation and possibly sanctions like revenue withholding.
CPA James Halleran with James Moore said these weaknesses could lead to a material misstatement in the city’s financial statements which might not be detected in a timely manner by the current processes and controls.
Among the eight 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 multiple failed attempts to log in.
Utility billing review was mentioned again 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.
Auditors again recommended that accounting policies and procedures be established and maintained after the loss of multiple experienced upper management positions.
Each of the above weaknesses has now been documented three times.
For the second time, auditors found 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 needs to 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 again 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.
The final material weakness was documented when auditors tested the city’s accrued annual leave and sick time policy. The policy does not define if the city should payout annual leave for employees who leave the city. The policy indicates that sick leave be paid out upon retirement, however, but does not define what qualifies as retirement. Auditors found the city is paying out all employees who leave, not just retired employees. They recommended the city review and update the policy.
The weaknesses above relate to internal controls, but the auditors have also made recommendations related to the city’s financial condition and management that have not been addressed. These include lacking a policy specifying what percentage unassigned and unrestricted funds should be within the general fund. There are also completely depreciated assets that have not been removed.
Checks are always written out of the utility fund instead of the fund the expenditure relates to. Activity in those other funds is recorded separately. Auditors have recommended a pooled cash system that allows payments to be made directly from the proper fund.
These are also repeat recommendations found in two prior audits.
Last, there was a comment on budgetary noncompliance. Auditors noticed the general fund had expenditures/transfers in excess of what was budgeted. Expenditures need to be tracked more closely and budget amendments made when necessary.
Within the city’s response, management agreed with each of the auditor’s findings and offered a brief response on how each is being addressed. This included regular review of general ledger account balances and manual journal entry transactions. As the city migrates to a new software system this year, management assured staff would be trained. Policies and procedures will be developed through the transition to assist with workflow and training. The personnel policy will be updated to deal with leave and sick time payouts. The city will also follow the recommendations to establish pooled cash funds and monitor spending more closely.
Among the financial highlights were reports on the city’s net position and fund balance.
Net position is all the city’s assets and deferred outflows minus its liabilities and deferred inflows. Starke’s net position increased almost 6% over last year to nearly $29.7 million. Nearly $4.87 million of that is unrestricted, while the remainder represents capital assets and assets restricted or assigned to a particular purpose. Capital assets (land, buildings, infrastructure, vehicles, equipment) account for 81% of all city assets.
The net position increase for 2021 was, however, nearly $2 million less than the net position increase reported in 2020. Auditors further explained that 2020’s net position had to be restated because it was based on incorrect figures related to accruals for accounts payable and construction in progress.
The more familiar fund balance increased slightly in 2021. The combined ending fund balance was nearly $3.6 million, up $122,040 from 2020. Of that amount, $722,542 was unassigned and available to spend.
Singling out the general fund, there was a slight drop from $1.36 to $1.15 million. Combining the assigned and unassigned funds withing the general fund shows the city could cover more than two months’ worth of expenditures with cash on hand. A minimum of two months is recommended.
The utility fund grew from nearly $22.8 million to almost $24.5 million. Around $21 million of that represents infrastructure, but $3.7 million is unrestricted and available to spend.
The city paid down outstanding loans and notes payable (including vehicle loans and loans from state and federal agencies) by $212,404 but incurred additional debt of $122,073. Overall, the decrease of $90,331 was a decrease of 5.5% of all debt.
