City Council Debates Annual Audit

The University City City Council went over the results of its last audit Monday with its auditor, Schowalter & Jabouri.

Schowalter & Jabouri was chosen to perform an , after University City cut ties with its previous auditor. Council members noted this was the first audit in 13 years requested by the city council and delivered to council members.

Previous auditing firms were hired by city managers and the report delivered to them, according to the council.

The audit looked at current city finance practices and recommended controls for internal control and operations.

"Thank you for doing a good job," Council member Lynn Ricci told the auditor. "I think having someone who sends the bill, takes the cash and records the ledger is a significant find. I'm not surprised at what you found and I'm happy you identified these practices."

Council member Stephen Kraft honed in on the 18 pages of journal entries attached to the audit. The journal entries are questions or concerns raised by Schowalter & Jabouri during the course of the audit and the corresponding responses or corrections from city staff.

"They weren't ready when you came in to do the audit," he said.

The audit, which covered the fiscal year ending June 30, 2011, is available on the city's website and is also attached to this story as a PDF file.

The audit was broken down into four categories:

• Deficiencies considered to be material weaknesses
• Deficiencies considered to be significant
• Current year matters
• Status of prior year deficiency considered to be significant.

Material Weaknesses

Bank reconciliation practices

There were three problems identified with bank reconciliations.

• Items need further investigation before reconciliation,
• Bank transfers are not timely and therefore remain as reconciling items for several months,
• Reconciliations are note reviewed and approved in a timely fashion. 

Internal control over financial reporting

• The city does not appear to have an effective year-end closing process. Numerous account balances were not reconciled at year's end.
• As in prior years, the city relied on independent external auditors to assist in the preparation of financial statements.

Significant Deficiencies

• Accounts receivable, segregation of duties — The accounts receivable clerk prepares sanatation bills, collects monies and posts payments to customer accounts. Allowing these duties to be performed by one person increases the risk of error and misappropriation.
• Allowance for doubtful accounts — The allowance for doubtful accounts is not being analyzed periodically. The city has a significant number of past-due accounts.
• Documentation of internal controls — Although the city has its daily accounting procedures documented, information about the five componants of internal control has not been documented in such a fashion to permit effective use.
• Risk assesment — There is no formal risk assessment in place.

Current Year Matters

• Payroll segregation of duties
• Computer controls
• Accounting system
• Interfund balance accounts
• Federal awards cash management
• Deposits
• Budgetary procedures
• General accounting considerations
• Checklist for accounting procedures
• Fund balance policy

Prior Year Deficiencies

The previous year’s auditors reported that material audit adjustments had to be made to correct the city’s year-end financial statements. The deficiency cause and effect were that the city did not adequately review the year-end financial records to ensure all material adjustments were made.

Mayor Shelley Welsch thanked the auditors for their hard work.

"This has been a long time in the making," she said. "I encourage everyone to support our city manager as he comes up with ways to rectify this problem."