The annual audit of the financial practices of the City of Los Alamitos reveals there is some work to do on financial accounting, though the auditing firm that did the audit suggests improvements are being made.
At its June 24 meeting, city officials again engaged in a prickly debate over its internal financial controls, as two members of the Council repeatedly asked provocative questions that it appeared not everyone was happy to discuss in public.
In its cover letter to city officials, the firm of Rogers, Anderson, Malody and Scott, LLP, a San Bernardino accounting firm said
“During the audit procedures, and specifically in our review of client-prepared journal entries, we noted various instances where the journal entries had no documentation of when they were prepared and approved,” the firm said.
“Without proper documentation of when journal entries are prepared and approved, transactions may be inaccurately recorded in the general ledger and not be detected in a timely manner,” they continued.
Nevertheless, at the same time, the firm noted they found no material weaknesses in the city’s system.
“We did not identify any deficiencies in internal control that we consider to be material weaknesses. However, as discussed below, we identified certain matters involving the internal control and other operational matters that are presented for your consideration.”
When the matter came before the Council as a “Consent Calendar” item, a section of all local government agencies that allow Councils to sidestep debate by passing “routine” matters without explanation.
Council member Trisha Murphy pulled the annual financial report from the Consent Calendar, which made it available for public debate.
Murphy and fellow Council member Emily Hibard have quietly raised the ire of fellow Council members in the past by asking so many questions about financial accounting over the past year.
Once pulled from the Calendar, Murphy asked about the auditor’s lack of internal controls cited in the audit.
“I’d like to have the finance staff present the council with a list of the cash disbursements that the auditor stated have no supporting documentation and cannot be obtained,” said Murphy.
“Aren’t we getting a little too far into the weeds,” asked Mayor Pro-tem Shelley Hassebrink?
“Is that something you can produce,” Mayor Jordan Nefulda asked the finance staff.
“The batch that supports that check was not obtainable,” said Finance Director Craig Koehler, claiming that any number of things could havr happened, including spoiling, placing it in the archives or filing it in a previous year.
City manager Chet Simmons said “we can start from that check and then we can try to find out exactly what the attachment was and provide that information to you.”
Murphy also pointed out a section of the audit that she said indicated the city had “ineffective monitoring procedures and closing procedures that caused errors throughout the year that we’re not correcting in the year-end closing process.”
While the city claims these errors were caused by “significant turnover” and “vacancies” in staff, “I believe our community deserves a higher standard.”
Murphy moved, and Hibard seconded a motion that passed to have the finance department send to the council “a closing checklist for your procedures in the closing process that was implemented to show the reconciliation of balance sheet accounts.”
Murphy also requested the finance department address comments in the annual audit that implied that bank statement reconciliation was not being done in a timely manner “because unauthorized transactions can go through the bank without detection for an extended period of time.”
Simmons said the staff has noted all of the recommendations in the audit and suggested they are or will be addressed.
“I think the best part about an audit is that it is supposed to point out places where you can get better. The idea is to identify places where you tried to basically formulate a practice in which you can actually defend going forward,” said Simmons.
Council member Emily Hibard asked about why there were no check numbers on warrants and said the audit required corrections on about $6 million in transactions on a budget just over $20 million.
“So it is really high and I’m trying to get a feel for why. Can you talk about why this many adjustments were needed, are we doing things wrong,” asked Hibard?
Evelyn Morentin-Barceno, a manager at the Auditing firm of Rogers, Anderson, Malody and Scott, LLP, suggested much of the adjusted revenue was based on grants and other revenue for which the guidance was not available when the city received them, but later had to make adjustments when they did.
“With some of these, you know, like when you’re looking at your equipment, improvements and construction in progress, some of these things were asking a lot of questions as far as the projects, if there’s any projects that are no longer viable, and just kind of like going into more detail,” she added.
“From that perspective, sometimes some of our adjustments, it’s more of us helping from an operational standpoint,” said Morentin-Barceno.
Regarding the audit in general, the representative from the auditing firm who was attending the meeting acknowledged Los Al has been short-staffed.
“One of the things that is not just a problem here at your city, but in a lot of cities across the state right now is that there’s not enough accountants,” she told the Council.
And while there are questions about the “timeliness” of some of the things done made in the audit, the city of Los Alamitos was still more timely than 30 percent of the cities across California.
And for the “big picture,” Morentin-Barceno said, this will likely remain until staffing shortages statewide can be fixed.
“We’re talking about thousands and thousands of transactions,” she said, trying to put the city’s audit findings in perspective, noting that problematic transactions were the minor exception, not the rule,” she added.
And, she said, it was clear that the city was addressing the problem.
“We can see that management is trying to make improvements,” the audit spokesperson
said.