By REID TUCKER
The big news coming out of the DeFuniak Springs City Council’s Feb. 8 meeting was a report on the findings of the city’s Fiscal Year 2014 audit. It turns out that – as predicted by different members of the Council at different times over the past year – a few problems did indeed come to light upon the audit’s completion.
Chuck Landers, a CPA with Pensacola accounting and consultation firm Saltmarsh, Cleaveland & Gund, presented a concise breakdown of the seven “significant deficiencies” found during the audit of FY2014, with three of the seven considered to be “material weaknesses.” The documentation presented to the Council by Saltmarsh defines a significant deficiency basically as a deficiency or combination of deficiencies with the type of compliance required by a federal program or state project that is important enough to merit attention by the responsible government officials. Material weaknesses, on the other hand, are a more severe degree of deficiency, such that there is a reasonable possibility that noncompliance will not be prevented, or detected and corrected, on a timely basis.
The first of the three material weaknesses outlined in the FY2014 audit was the finding that the city had not maintained water fund reserves in accordance with city ordinance no. 664, which requires establishing and keeping a minimum balance in reserve. Funds may be withdrawn from reserves to replace depreciated property and equipment and for making special purchases, but only if provisions are made for the immediate replacement of the funds. Though City Manager Sara Bowers’ response (as shown in the audit report) indicated that the city had implemented standard accounting procedures to ensure adequate reserves are maintained, Councilman Mac Carpenter and Councilwoman Janie Griffith pushed for the details of those procedures to be made known, and soon.
“I’d like to know specifically what we’re going to do since we’ve already said we’ve implemented stuff twice and we haven’t done it yet,” said Carpenter. “I think that’s how we got in this hole. I want to know how we’re getting out.”
Carpenter said the city had used reserves to cover “giveaways” on tap fees as a result of a moratorium on collections, a practice he decried as unsustainable. Talks on the subject eventually led to the city’s reinstatement of tap fees as well as the implementation of new water and sewer rates last fall.
The second material weakness covered in Landers’ presentation was a lack of segregation of duties occurring as a result of Bowers having to take over the duties usually handled by the head of the city finance department while the Council was searching for a new finance director. The audit reported that certain duties, including the reconciliation of bank statements, were performed without adequate supervision, though the hiring of Joe Brown to the finance director position should reestablish adequate separation of duties and allow for review to take place.
Finally, the audit report indicated the city has not developed a formal fraud prevention and detection program appropriate for an organization of the size and complexity of the city of DeFuniak Springs. By way of addressing this material weakness, the city is currently in the process of developing just such a prevention and detection program above and beyond the system of internal controls already in place.
Two of the four significant deficiencies chronicled in the audit report were of lesser severity, and dealt with such things as inactive accounts that had not been written off and unbilled receivables not properly accrued at the end of the year. These deficiencies required the auditors to make adjustments to reconcile the ending balances of the various accounts affected.
Another deficiency disclosed in the report included the aforementioned problems with water fund debts leading to the passage of new water rates to generate enough revenue to cover operating expenses. Yet another was a suggestion that the city should institute policies to ensure a clean “cut-off period” when dealing with the reconciliation and matching of federal and state grants, though the city has since FY2014 developed and instituted policies to that effect. Lastly, the audit revealed instances where reports required to be filed under those grant agreements were either not filed on time or not at all, though, again, the city has already implemented policies to avoid late filings.
Landers said the Saltmarsh team would be “more than happy” to assist the city in putting together an action plan aimed at resolving these issues and offering its opinion along the way, an offer the Council seemed quick to jump on.
“I don’t want this to leave in front of us until it’s resolved,” said Councilman Kermit Wright. “I want this to come before us at least once a month until its resolved, each line item of it, until its resolved. Then we can put it away. Until it’s resolved we can’t put it away.”