Town of Oriental Audit - Some Lessons Learned

I'm glad to note what seems a growing consensus among the Board of Commissioners that the audit of the Town's finances for fiscal year 2009 was competent and thorough.

I believe it likely that the town will continue to use the services of Pittard, Perry and Crone for the next audit. That's good news.

"Big Picture" Lessons from the 2009 audit report:

I think there are a number of lessons to be learned from the most recent audit, including:

1. When the auditor comes, it should be an "all hands on deck" event;

2. The auditor can be expected to investigate and report how things stand as of the day of the audit (June 30), and not what was corrected later;

3. The town gets a better and more thorough audit when the auditor comes to the town instead of doing the job remotely;

4. The purpose of listing deficiencies is to make the Board and the public aware of problems requiring attention - an audit does no good if it fails to spell out specific issues that fall short of good business and accounting practices;

5. The Board of Commissioners, and the Oriental taxpayers, need to be aware not only of the deficiencies reported in audit reports, but also of the auditors' recommended "fixes."

The Nitty-Gritty Details of the 2009 audit report:

I am working on a detailed analysis of the audit's reported Control and Material deficiencies, which I may share. Comments made at the January 5th Town Board meeting concerning the audit shed more heat than light on the subject.

Most of the listed deficiencies have already been corrected.

The major remaining deficiency is in the water system - the apparent discrepancy between the amount of water the town pumps from its wells and the amount billed to its customers.

Heidi Artley, who keeps careful track of water usage for individuals and alerts customers when she sees evidence of possible plumbing leaks, also checks each month to determine the difference between amount of water pumped from the wells and the amount billed. She informed me a few months ago that the percentage of wastage appeared to be increasing, beyond the expected loss from flushing the water system. She has some ideas as to what to look for. Fortunately, Commissioner Johnson has taken on the task of reactivating the town's Water Board, to make recommendations to the Town Board on water issues, including apparent wastage.

One Lesson from the 2008 audit - Look Beyond the Audit Report:

One additional lesson to be learned from the previous (FY 2008) audit is that the Board of Commissioners, and town citizens, need to be aware of and pay attention to communications from the auditor outside of the annual audit report.

For example, the 2008 auditor Seilor Singleton advised the town to make $500,000 in "adjusting journal entries" (AJEs) to the town books.

The auditor's recommended adjustments to the town's General Fund amounted to $250,000, or about one-third of the total amount of the General Fund budget. The adjustments to the Water Fund also amounted to $250,000, or about 125% of the amount of the Water Fund budget.

The auditor did not communicate these recommendations to the Board of Commissioners, and they were never brought to public attention. In the future, they should be.

While I am not an accountant, I do understand that "adjusting journal entries" do not necessarily indicate there have been any problems or accounting errors. AJEs are generally a part of normal accounting procedures. However, AJEs are sometimes used to correct accounting errors, and it appears that at least one of the 2008 AJE recommendations was made in order to reconcile a $3,500 shortfall in the town's cash-on-hand account.

Whether AJEs recommended by the town's outside auditor are made to correct accounting errors or as part of the normal allocation of income and expenditures, the auditor works for the Board of Commissioners and should report all findings and recommendations - including AJEs - directly to the Board.

The preliminary audit report for FY 2009 is not the last communication the town will receive - the town can expect at least one letter from the Local Government Commission approving the audit or directing actions to be taken. There may also be a communication from the auditor forwarding adjusting journal entries. The Board, and the public, should pay as much attention to any such communications as they have to the audit report itself.