Charlevoix County’s annual financial audit reveals strong accounting overall with only minor technical deficiencies identified.
The audit, for the year ending Sept. 30, 2012, shoes Charlevoix County’s total net assets decreasing by $1,190,885 with a winter 2011 tax base of $2,032,206,208 and a summer 2012 tax base of $2,018,513,364.
“It went very smoothly. Financially we’re in very good shape, and we corrected the few issues that did come up and put processes in place so that they do not happen again,” said Charlevoix County Clerk and Fiscal Officer Cherie Browe.
Auditing firm Harris Group CPA outlined what it identified as various “deficiencies” in a March 12 letter to Charlevoix County.
“A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis,” Harris Group CPA stated in their auditing assessment. “A significant deficiency is a control deficiency, or a combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control.”
Harris Group detailed its findings in a “schedule of findings and questioned costs” for the year that ended Sept. 30, 2012.
In this document, Harris Group discussed both material weakness and significant deficiency in financial statements but no noncompliance material to financial statements.
No material or significant weaknesses were identified with federal awards.
Harris Group did identify Charlevoix County as a “low-risk” auditee.
The issue with financial statements stems from the county’s decision to outsource its financial statements to its external auditors.
“As is the case with many governmental units, the county has historically relied on its independent external auditors to assist in the preparation of the government-wide financial statements and footnotes as part of its external financial reporting process,” Harris Group stated. “Accordingly, the county’s ability to prepare financial statements in accordance with generally accepted accounting principles is based, in part, on its reliance on its external auditors, who cannot by definition be considered a part of the county’s internal controls.”
They added, “This condition was caused by the county’s decision that it is more cost-effective to outsource the preparation of its annual financial statements to the auditors than to incur the time and expense of obtaining necessary training and expertise required for the county to perform this task internally. As a result of this condition, the county lacks internal controls over the preparation of financial statements in accordance with governmentally accepted accounting principles and, instead, relies, in part, on its external auditors for assistance with this task.
According to Harris Group, the county has determined it is in the best interest of the county to outsource this task to external auditors and carefully review the draft financial statements and notes prior to approving them and accepting responsibility for their content and presentation.
Deficiencies included the following:
Revenue and receivables (follow-up)
The county’s system for recognizing receivables at year end is improving, according to Harris Group.
“The county needs to continue to refine the system of tracking and recording receivables,” Harris Group stated. “All departments need to inform the county treasurer of receipts received after year end that are applicable to previous year. Continued improvement in this function will provide more accurate interim financial statements and help with budgeting for future periods.”
According to Browe, receivables is one of the most difficult things to track because each department must account for all incoming funds—some of which do not arrive from state and federal sources until after the fiscal year has ended, even though they must be recorded within the fiscal year they had been awarded. This can sometimes appear to be a deficiency when it is merely a filing issue.
Schedule of federal awards and recognition of awards
According to Harris Group, the auditee—Charlevoix County—is responsible for completing the Schedule of Federal Awards (SEFA).
“Under Governmental Auditing Standards, completion of the SEFA by the accounting firm is a non-audit service that can impair the firm’s independence. The county should prepare its own SEFA each year prior to the audit to avoid any possible independence problems,” Harris Group stated. “We determined, during our audit, that the county relies on the receipting process to determine if receipts are a federal award. A proper award federal system needs to start with the grant application and focus on the expenditure of the federal award, not the receipting process.”
They further stated, “If a grant application is silent on whether the funds are from a federal source, this needs to be determined before the grant application is sent. We spent additional time insuring [sic] that all federal awards were recognized in the schedule of federal awards. The county’s process needs to be improved.”
Browe said governmental grants do not always self-identify when they are received and therefore she has obtained a list of all grant moneys so she can track them.
Deficit fund balance
The county has a deficit fund balance of $566,422 in the road millage fund.
“This deficit is caused by expenditures to repave Boyne City Road, this deficit will be removed in future periods when taxes are collected specific to this fund,” Harris Group stated.
Browe said this deficiency was identified by the State of Michigan who informed the county that all road millage moneys must be controlled by the Charlevoix County Road Commission instead of the county itself.
“Once we rolled all the money from the millage to the road commission where it should have been all along, it was corrected,” she said. “The state had never told us it was supposed to be that way before.”
Due to/due from accounts (follow-up)
The county utilizes due to/due from accounts when transferring funds between accounts, these accounts represent receivable/payable amounts between funds, according to Harris Group.
“These accounts need to be cleared out on a timely basis,” they stated. “The due to/due from accounts from 2009 year end have not been timely closed out. Those amounts should be cleared out monthly, but no less than quarterly.”