The Richardson City Council held a work session July 17. There were several topics on the agenda for which the Council received lengthy presentations: National Parks Month, Park maintenance strategies, IT work plan, and Drainage utility strategies. There was one other item on the agenda that received little time. Less than six minutes, in fact. That topic was "Review and discuss the 2021-2022 Annual Comprehensive Financial Report (ACFR) Presentation." Because the Council's review and discussion was perfunctory, those six minutes are what I want to talk about.
Six minutes. That's a useful new unit of measurement, indicating how much interest the Council has in a topic. Call it an "audit unit" or "au" for short. For example, use it to measure the interest the Council showed June 12 in one lone businesswoman's application to open a massage establishment in Richardson. That one woman received 6 au's — 6 times the attention the Council thought an audit of the City's books was worth.
The ACFR is 136 pages long. Maybe one reason the Council didn't need to crack open the report for even cursory review is that it was already presented to the Council's Audit Committee ninety minutes ahead of the full Council meeting, in an upstairs conference room. I'll let Mayor Dubey explain what happened in that meeting:
It was a little different because we did not have a quorum for our meeting this afternoon. So we had to instead of go on with the back, the past chairman running the meeting. We had to go with a current quorum, which provided the new council members so this was the first time that they had an opportunity to do that. Curtis Dorian was the man of the hour, he stepped up and became the temporary chairman.Source: City of Richardson.
I've gotten criticism in the past for trying to unpack Mayor Dubey's words, but I feel the verbatim transcript is, well, let's charitably say it's not crystal clear to me. If it is to you, just jump over the next two paragraphs, to the discussion of the ACFR and audit itself.
The Audit Committee consists of three Council members: Joe Corcoran (Chair), Curtis Dorian, and Dan Barrios. Corcoran is in Europe, so that left only two available for Monday's meeting. I think Corcoran's absence is responsible for what Dubey called not having a quorum. I have no idea what a "current quorum" might be. Dubey says that Dorian served as temporary chairman. As temporary chairman, did Dorian run the meeting? You might think so, but I think the answer is no because Dubey says they went with "the past chairman running the meeting." The chairman from last term was Bob Dubey. I infer that Dubey himself attended the meeting and maybe even ran it, despite him not even being a member of the committee.
What could clear up all this would be to refer to the minutes of the Audit Committee meeting. Are such minutes kept? Dunno. Are they posted on the City's website? Dunno. Is there video? Dunno. Unless the answer to all these questions is "yes", I'm left with having to question the Council's commitment to transparency about this audit. Why do we even have an Audit Committee? Why isn't the receipt of the ACFR and audit reports done in an open meeting with the whole Council (and public) present? Am I the only person to question whether the fact that the committee meets upstairs, out of the public eye, away from cameras, once a year, to hear a possibly negative report from an independent auditor might, just might, contain a clue as to why this committee even exists?
Now, on to the ACFR and audit itself. There are two things about it that caught my eye, one good news, one not so good.
Net Position
In an earlier post ("Christmas in July"), I said there was one number I was most interested in seeing in the whole 136 page ACFR: the so-called Net Position (assets minus liabilities). Here is the pertinent paragraph from the new ACFR:
Net Position. Total assets of the City at September 30, 2022 were about $995.5M, deferred outflows of resources of $21.7M, total liabilities of $585.3M and deferred inflows of resources were approximately $63.3M resulting in a net position balance of about $368.7M a 23.1% increase over the previous year (see Table 1).Source: City of Richardson.
Good news: the value of assets jumped 11%, liabilities decreased 1.5%, and net position jumped 23.1%. If there are any dead bodies buried in this report, they are just that, buried too deep for me to find. The headline numbers sound great.
Weakness in Internal Control
But. There's always a but. Even though the "Net Position" looks good this year, the auditor included a separate "Report on Internal Control Over Financial Reporting". It contains two instances of "material weakness" in the City's "internal control over financial reporting."
The first instance is "Timely Preparation of Bank Reconciliations and Cash Reviews."
1. Bank reconciliations were not prepared and reviewed timely or on a regular basis to identify discrepancies and ensure the integrity of financial information. The bank reconciliations were prepared as much as six months late, then not reviewed until a month later in some cases.
2. Daily cash reports lacked documented review. On a daily basis the cash reports are used to reconcile the total cash receipts across all departments to a certain bank deposit type such as physical deposit slip, ACH or credit card payment.Source: Crowe LLP.
The second finding of "material weakness" was in the City's conversion to new accounting software.
On July 1, 2022, the City went live on the first phase of a system conversion of the ERP system from the Sungard HTE AS400 system to Tyler Munis. Key aspects such as conversion methodologies, data mapping, validation procedures, and reconciliation processes were either inadequately documented or entirely absent until recreated during the audit. An absence of adequate measures to ensure the accuracy, completeness, and reliability of financial data during the transition was noted. The testing and validation of the converted financial data were not performed comprehensively or systematically. A formal conversion plan was not followed and management did not maintain comprehensive documentation regarding the conversion process.Source: Crowe LLP.
The Audit Committee saw this report. Did the full Council? All the auditor told the Council (and the public) in his oral remarks was this:
As it relates to internal control, we did note two items that had been communicated to management, as well as the Finance and Audit Committee and had robust discussion related to those findings as well as, just as importantly, management's response and action plan.Source: Kevin Smith, Crowe LLP.
I'm glad to hear the Audit Committee had a "robust discussion." The public heard none of it. Why was that? See my comments on the very existence of the Audit Committee above. The only discussion in open session by the whole Council was this judgment by Mayor Dubey:
Where we fell a little bit short was not an error or a failure to do things properly. And I think that's really important and all of the numbers match, all of the numbers add up, which is the critical piece. So a few of the procedure things have been addressed. And we already are on top of that. Because we now have a full accounting staff hired and we should be ready to move forward. So I think overall, it's great news.Source: City of Richardson.
Mayor Dubey's explanation is false. The weaknesses cited by the auditor were indeed a "failure to do things properly." In football terms, you either make the tackle or you don't. The City didn't. The City tried to explain away the finding of weaknesses in control by saying they were due to things like vacancies and turnover in accounting. But even now, eight months into the current fiscal year, despite now having a "full accounting staff," the City still says "staff is five months behind in the bank reconciliations." I worked long enough in the private sector to know that a board of directors has little patience with management using "turnover" as an excuse for missing targets. In business, turnover is a given. A well-run company plans for turnover. The City says, "due to the last minute nature of the data conversion, much of the approval process was handled informally and documentation of the testing was not retained for the project files or audit purposes." Some part of data conversion is always going to be "last minute." That is a predictable part of any such project. It's not an acceptable excuse for using an informal approval process. It's not an acceptable excuse for not retaining documentation. In short, it's sloppy work.
Mayor Dubey is happy to report that "all of the numbers add up, which is the critical piece." First, sorry, but it's all critical. And second, it's ironic for Dubey to be the one to say this, given that the numbers in his own personal campaign finance report didn't add up. As I said after the election, "Dubey's campaign finance reports are sloppy for someone with his experience and with his desire to be promoted to mayor." And now, I guess I can add, for someone with his responsibility to watch the auditors. I had hoped that this City Council would behave more like watchdogs for the public interest than like cheerleaders for the City's reputation.
OK, that's it for what the Council did not discuss. For what the public did not hear. And even I didn't get into the details of the numbers in the 136 page ACFR. Think how many au's a proper "review and discussion" would take. Instead, the Council did spend 3 au's on National Parks Month.
"Audit's truth unfolds.
City's secrets now exposed,
Weakness in control."
—h/t ChatGPT
No comments:
Post a Comment