CALIFORNIA CITY – City Council accepted the 2018-19 audit findings on Tuesday, but then debated the need to immediately reconcile the overspending from two years ago.
Bryant Jolley’s accounting firm presented most of the audit at the previous board meeting, but the findings – which detail areas where improvements are needed – were mistakenly omitted from the presentation planned for the order. of the day.
Accountant Ryan Jolley returned with the findings on Tuesday to finalize the presentation.
The long-delayed audit of the city’s books two years ago found the financial reports to be accurate, with auditors giving an “unqualified” or “clean” opinion on the city’s financial record keeping, Jolley said. .
There were three areas identified, however, where improvements are needed in terms of internal controls, Jolley said.
The first case is classified by the audit as a “significant deficiency” and concerns the City’s method of allocating overhead costs among departments. The audit found that the method was “too complex” and had not been updated to match current operations.
This problem is solved by establishing a methodology using a percentage of actual salary and recording it monthly in the books, said city accountant Kenny Cooper.
The finance ministry will also review this allocation methodology annually, he said.
The second finding, also categorized as “significant deficiency”, concerns the lack of control over all aspects of accounting. This includes cash management, recording year-end adjustments and developing internal controls, according to the audit report.
This problem is addressed by a timely monthly reconciliation of daily banking activity and the finance department is moving towards a quarterly reconciliation of all investments and accounts receivable and payable, Cooper said.
The issue was also addressed in part by bringing in an outside consulting firm to help ensure an accurate and timely recording, “so that when it is time to do an audit there will be no several journal entries and closing entries that need to be done in order to prepare the books for auditing, âJolley said.
The third issue involved meeting the terms of a loan that has since been paid off, making the issue moot at this time, Jolley said.
Cooper said these issues came at a time of significant personnel changes.
There was also a conclusion from the 2017-2018 audit regarding the year-end closing process, Jolley said. This issue was addressed by hiring an outside consulting firm to prepare the City’s books for audit.
Although the council unanimously accepted the full audit, Mayor Pro Tem Nick Lessenevitch called for an action plan at the next council meeting to address the deficits of the general fund at the end of the 2018 fiscal year. -2019 identified by the audit. He said this needs to be rectified before the City can honestly review the budget for the 2021-2022 fiscal year, which began on July 1.
âWe have to figure out what we’re going to do with this red ink,â he said. âDuring the 2018-2019 fiscal year, the City spent more money than it collected. We have to fix that before we can authorize more money in the future, I think.
The audit shows that the city’s general fund, which supports most of the city’s services except public security, declined by $ 900,000, but had a balance of $ 4.9 million in the year. June 30, 2019, Jolley said in his initial presentation.
Of that balance, $ 4.4 million was classified as unallocated, meaning there were no defined requirements as to how it could be spent.
Lessenevitch, however, noted that this figure includes some $ 3.4 million owed to the General Fund from other funds, with no guarantee of when or even if they will be repaid.
The audit showed that public security departments spent $ 831,000 in that year, which had to be subsidized from the General Fund.
Without audits of the two successive years, it is not known if that ranking has improved or if the city is more in the red, Jolley said on Tuesday.
City Manager Anne Ambrose agreed that there are two years of data that has not been verified, but staff are working on estimates in order to get a realistic picture of the City’s financial situation when developing. from the budget.
âIt’s hard to say where we are when we don’t have the data for you for previous years,â she said. “We’re trying to get a picture of it.”
Mayor Jeanie O’Laughlin pointed out that the deficit was already posted to the final balance, drawing on reserve funds.
âThis is reflected in the General Fund balance,â Jolley agreed. “These losses have been recognized in the current year’s audit.”
âWe have to correct the red ink in front of us. We have to book it and say it’s there, âLessenevitch said. âThe data is in our hands and we need to correct it. “
The only two solutions for the Council are to approve the transfer of money from the reserves or to withdraw the money from the next budget, he said.
Because the issue was not on the meeting’s agenda, Council decided to move the issue to a special meeting in the future, in which that is the only topic.