Auditors Finds Issues with City Financial Statements

The Washington State Auditor’s Office has found issues with the City of Shelton’s finances after completing audits of the City for 2016 and 2017. The State Auditor has issued findings for both years, saying in each report: “The City’s internal controls over accounting and financial statement preparation were inadequate to ensure accurate reporting.”

Each audit cites turnover in key city staff as reasons for the findings stating: “The City had six finance directors between January 2016 and the time the financial statements were prepared in 2018. These changes occurred without transitions to transfer critical knowledge and procedures.

“In addition, a new City Administrator was hired in June 2016, resigned in January 2018 and was followed by a series of interim administrators.”

In the audit for January 1, 2016 through December 31, 2016, auditors say the turnover of finance directors led to interfund allocations not being eliminated from the general fund, resulting in a $2,016,149 overstatement of revenues and expenditures. Also, cash was understated by $968,739 because of a cash conversion journal entry made in error.

Also, the lack of familiarity with tranactions led to the Shelton Metropolitan Park District being reported as a debt service fund rather than a fiduciary fund.

And in an additional note, the 2016 financial statements were submitted a year late.

Auditors say the conditions continued in 2017 with interfund allocations not being eliminated from the general fund, resulting in a $1,898,807 overstatement of revenues and expenditures. And cash was understated $616,133 due to the cash conversion journal entry made in error in 2016 offset by other journal entry errors made in 2017.

Each audit report does indicate that the City has corrected these errors.

In the City’s response to the findings, officials explain they hired Mike Bailey from MRSC to conduct a high-level assessment of the Finance Department and make recommendations for internal controls, financial policies, procurement processes and team performance reviews for a successful transition to a new Finance Director.

Other steps taken by the City included hiring TDJ, Inc., a CPA firm, to create and submit the 2016 and 2017 annual reports; hiring a part-time Budget Analyst to help review 2018 revenues and expenditures; and hiring an Interim Assistant City Manager to help with the transition from a three-member commission to a seve-person council and help Finance department with the 2018 budget adjustments.

The City of Shelton is also in the process of hiring key managerial positions such as City Manager (who will begin Jan. 14, 2019), City Clerk and Human Resources Manager.