City finances need more council oversight, state auditors say

The city’s first tarnished state audit in five years could lead to stronger financial oversight from the City Council.

In a presentation to the city officials on Monday morning, auditors noted the city’s 2007 budget operations revealed a “major weakness” in the methods city staff used to transfer and document funds.

“Your internal controls need to be fixed,” said regional audit manager George Amburn.

The 2007 draft audit found that the city had failed to gain council approval for a loan transfer of about $530,000 from the city’s general fund to its Storm and Surface Water Management fund. The transfer was made to offset an unforeseen decline in revenues, according to city finance staff.

Auditors also took issue with the city listing a parks-related $420,000 grant in financial reports without having documentation proving the funding had been received. The city had, auditors found, erroneously reported ‘expected’ funds as ‘received’ funds.

The city has taken satisfactory steps to correct both errors, auditors said.

The 2007 SSWM fund relisted with a $530,000 deficit, and the city announced plans to fill the gap with future revenues. The city also satisfied auditors by submitting documentation proving the parks grant was received last month.

Auditors stressed that the city had not misused funds or committed anything illegal.

“We don’t see evidence of misuse as much as an operations issue,” Amburn said.

“The city has done a good job overall – otherwise we’d see a long list of errors,” said Chuck Pfeil, the director of state and local government audits, who rarely attends meetings to discuss city draft audits. “We’ve seen a lot that’s positive in how the city manages the operations of things.”

The 2007 audit was the first to contain negative findings since 2002, when the city was found to have inadequate procedures for accurate and timely financial reporting.

Auditors on Monday advised the council to increase its oversight of city finances to avoid future errors.

“We recommend the council closely follow the city’s internal financial operations,” Amburn said.

Council members said they’re already overwhelmed by the amount of financial information that “seems to spew forth on a daily basis” from the administration, Councilwoman Debbie Vancil said. “That doesn’t make things more clear, it often makes it more confusing.”

A confused or misinformed council makes for bad policies, she added.

“For the council, incorrect reporting is huge,” Vancil said. “We could be making decisions we shouldn’t be making.”

Auditors suggested the council review the successful financial communication practices of other cities.

Councilman Kjell Stoknes said the council might need additional help.

“We’re part-time. We’re not financial people,” he said. “We haven’t been bean counters because I don’t believe we’re intended to be bean counters.”

Re-counting the city’s budgetary beans could fall to a city auditor that answers to the council, Stoknes suggested.

“I’m not saying we need an internal auditor, but if other things don’t work, that may be something we’ll do,” he said.

The council may also request that future state audits look deeper into such matters as utilities funding and other high-cost elements of the city budget.

Monday’s meeting on the draft audit was initially scheduled as a closed-door discussion between city staff and auditors. The meeting was made public when four council members announced they’d also attend. A gathering of four or more of the city’s seven council members constitutes a quorum, making their discussion a matter of public record.

Six council members and 40 residents attended the over two-hour meeting.

Despite warnings from city staff that state auditors would not answer questions, three representatives from the auditor’s office took questions from the council and the public.

Pfeil explained that junior auditor’s office staff may have misinformed the city about its public meeting rules.