Audit: ‘Financial managers lacking’
SCHUYLER COUNTY—Schuyler County’s financial managers lack the “knowledge and ability” to prepare financial statements that balance, and they will need more training or additional staff—probably both—to carry out their legally-mandated roles, according to a critical independent audit report released Aug. 28.
As recently as April 2013, the county treasurer was unable to reconcile the general fund checking account to the general ledger, the Ithaca accounting firm Ciaschi, Dietershagen, Little, Mickelson & Co. reported.
Faced with glaring discrepancies in year-end 2012 accounts that had to be balanced, county officials asked the audit firm to step in and reconcile them. Ciaschi, Dietershagen complied, but the process was laborious and costly to the county.
While shortcomings in the performance of the county treasurer’s office over several years have led to chronic weaknesses in Schuyler’s internal financial controls, they have not seriously eroded the county’s overall financial condition, the auditor found.
In fact, the auditor issued an unqualified opinion that the financial statements—as amended—fairly represent the county’s actual financial condition as of Dec. 31, 2012. And those statements don’t indicate serious financial deterioration.
“From an administrative perspective, they’ve been able to maintain their financial position despite the (deficiencies in financial) controls,” Jerry Mickelson, head of the audit team, said in an interview.
Even so, the problems identified by the auditors have prompted county officials to plan a change in the way the county picks its treasurer.
Currently, the Schuyler treasurer is elected. In November, voters will be asked to give up their right to elect a treasurer and allow county officials to appoint an official to the position.
Dennis Fagan, chairman of the Schuyler County Legislature and Tim O’Hearn, the county administrator, and Gary Whyman, the county treasurer, all support the effort.
Elected treasurers still outnumber appointed treasurers in municipalities across the Southern Tier, but the trend appears to be favoring the appointment process. Like Schuyler, Steuben County is expected to ask its voters in November to switch from election to appointment of its treasurer.
“It can work either way,” said Mickelson of Ciaschi, Dietershagen. “We work with (both). Both are accepted practices. It boils down to the learned competency of the office and the proper utilization of software.”
If Schuyler County voters approve the change, a county treasurer could be appointed as soon as the first half of 2014, O’Hearn said.
Fagan said the appointment process would most likely be started with a recommendation by O’Hearn to the Schuyler’s legislature, which would then need to approve the choice.
Whyman, whose elected term expires in 2015, said he expected to be in the running. “I would presume I’d be the first person up for the appointment,” he said.
O’Hearn and Fagan declined to say whether Whyman would have the inside track for the appointment, should voters agree to switch from election to appointment.
Schuyler County’s failure to provide balanced accounts dates back several years and was a major issue in the hotly contested November 2011 election for county treasurer.
In that race, Whyman unseated eight-year incumbent Margaret E. Starbuck, who ran on the Conservative line after losing the Republican primary to Whyman in September 2011. Starbuck had worked in the treasurer’s office since 1995 and first won election as county treasurer in 2003.
Whyman was a political newcomer with 30 years of experience as a financial analyst for Dresser Rand in Painted Post. During the 2011 campaign he acknowledged that if elected he would need training in municipal accounting.
The recent audit report underscored the challenge Whyman has faced in switching from corporate to municipal accounting.
“It is our opinion that management has not demonstrated the knowledge and ability to prepare such financial statements,” the Ciaschi, Dietershagen report stated. “We recommend the county consider providing training in municipal accounting and internal controls for all treasurer office personnel or consider hiring an accounting consultant to prepare the county’s financial statements.”
Asked in an interview if he considered the auditor’s assessment to be fair, Whyman said: “Sort of. I will never deny that continued education is always a valuable asset. The better you can learn, the better you are going to be. The statements provided by financial software are only as good as what’s entered. Garbage in, garbage out.”
Whyman said he and his staff had recently completed several days of useful training from KVS Information Systems, the county’s financial software contractor.
But in Whyman’s view, training alone won’t solve the problem of weak internal financial controls. The root issue, he said, has long been inadequate staffing. Whyman said he was looking forward to adding another accountant at the level of his deputy treasurer, Lisa Snyder.
County legislators and county officials are now assessing the needs of the treasurer’s office with an eye toward hiring new talent, Fagan said in an interview. “We’re thrashing this out internally right now,” he added.
Fagan had been a vocal supporter of Whyman in his 2011 election campaign against Starbuck. But he acknowledged that he’d expected faster solutions to the internal control problems experienced during Starbuck’s last years in office.
“If you compare what’s going on in 2012 to the previous two or three years, I don’t think you’ll see a marked difference in the auditor’s findings,” Fagan said. “I’m a little frustrated it’s taken so long to fix. These deficiencies continue on an ongoing basis.”
O’Hearn voiced similar frustration. “Financially, we did OK and are stable,” he said. “But the (internal controls) issue is not very flattering of our treasurer’s office. Internal controls continue to be deficient with many of the same issues as the last few years.”
O’Hearn said the county recently took steps to shift responsibility for county payroll from the treasurer’s office to the human resources department in order to allow the treasurer more time to focus on making sure accounts are correctly managed and balanced.
County officials haven’t yet written a formal response to the Aug. 28 audit report. Whyman said it was probably his responsibility.
Mickelson said he had recommended during the county’s budget finance meeting last week that Whyman’s office provide a formal corrective action plan. Such a formal plan may also be required by the state Comptroller’s Office, which has also been reviewing Schuyler County’s internal financial controls in recent months.
Details of the “material weaknesses” found in Schuyler’s internal financial controls are spelled out in Ciaschi, Dietershagen’s report, which includes 82 pages of text and charts.
Those problems cited by the auditor include:
• General ledger balance sheet accounts were not reviewed and reconciled on a periodic basis, resulting in large negative balances in receivable and payable accounts during the year.
• The county’s budget, as entered into the financial accounting software system, did not balance at yearend 2012, in part due to confusion over how to properly account for grant funds.
• Numerous posting errors occurred and needed to be corrected by auditors. Those adjustments included a $127,067 decrease in the balance of the general fund, a $643,346 decrease in the balance of the county road fund, a $127,751 increase in the road machinery fund, a $204,578 increase in the capital projects fund, a $348 decrease in the self-insurance fund, and a $285,571 increase in the special grant fund.
• The county’s bank statements were not reconciled to the general ledger system on a monthly basis. As of April 2013, the Treasurer was unable to reconcile the general fund checking and welfare checking accounts to the general ledger.
• An “excessive number of vendors” were not processed through the accounts payable cycle but were instead paid with hand-drawn checks. Of the 15 hand-drawn checks examined for the 2012 audit, all had proper documentation. During the previous year—when Starbuck was county treasurer—the auditor also examined 15 hand-drawn checks and found that five lacked proper documentation and that several were made out for incorrect amounts.
• An examination of 25 cash receipts from 2012 found that one lacked adequate documentation and another was posted to an incorrect account. The previous audit year, an examination of 24 cash receipts found proper documentation for only nine.