Who Does the Auditor Work for?

So much nonsense has been uttered about Oriental's audit, I thought I'd try to clear the air
for the benefit of those few who read my blog.

The auditor works for the Town Board of Commissioners. He does not work for the town manager. The audit is, in effect, a report to the Town Board on the town's financial health and the effectiveness of its procedures. It needs to be thorough, for the benefit of the town.

During the last town board I pressed to replace our former auditor. The board voted unanimously to make the change.

I can't speak for the others, but here are my reasons:

1. Other elected officials in Eastern North Carolina advised that it is good practice to replace the auditor every three to five years;
2. Our former auditor had not noticed that our occupancy tax should be categorized as a restricted fund like Powell Bill funds, to be used only for specific purposes and therefore not to be counted as part of the town's unrestricted reserve fund;
3. Our auditor did not notice that the administrative fee the town charged the water fund had not been recalculated since 2001 and therefore the taxpayers were subsidizing water rate payers about $35,000 per year;
4. Our auditor did not noticed that the tourism board expenditures of occupancy tax funds were not being accounted for in our accounting software, but kept on a separate sheet of paper;
5. Our auditor didn't notice that the tourism board was "rolling over" funds from one budget year to the next;
6. Our auditor either did not notice or did not object to having a large "miscellaneous" line item in each department's budget, contibuting to sloppy bookkeeping and lack of budget discipline;
7. For the fiscal year ending June 30, 2008, the auditor provided the town on February 17, 2009 a list of 8 "Adjusting Journal Entries" for the Water Fund including 21 line items, totaling $241,330.44 with a net income effect of $81,273.36. Among the adjustments was one that increased net income by 3,503.48, labeled "Adjust cash to reconcile balance;"
8. On the same date the auditor provided 15 Adjusting Journal Entries for the Oriental General Fund consisting of 55 line items totaling $258,470.77, with a net income effect of $42,107.43;
9. The town received two complaints from the Local Government Commission about the lateness of the 2008 audit.

An audit should have addressed all of these problems.

When the auditor finally made his report of the 2008 audit to the Town Board in August 2009, more than a year after the end of the fiscal year that it covered, he made no mention of the Adjusting Journal Entries nor did he offer an explanation. Neither did he mention or explain the letter he received from the Local Government Commission directing him to make two changes before they would approve his final invoice and ordering three other less urgent corrections to the town's procedures.

I am not an accountant and can't say whether the AJE's complied with Generally Accepted Accounting Practices, but they looked a lot like gun decking to me. (See earlier post).

In late summer of 2008, our town manager at the time assured the Town Board that he had looked, and concluded that our existing firm of Seiler, Zachman & Associates offered the best deal available, even though they had just increased their fee by $3,000. He recommended we continue with them, and the Board approved his recommendation.

There seemed no reason at the time to question that judgment. By the summer of 2009, however, I was convinced that changing auditors was a matter of urgency.

I asked the new town manager to investigate whether it would be possible to retain a new auditor in time for him to audit our books for 2008 - 2009. He consulted a number of experienced people for recommendations, including a CPA who formerly resided in Oriental and served on the Town Board. He contacted three or four recommended firms and found that Pittard, Perry & Crone would agree to do the job in a timely fashion at a lower price than Seiler, Zachman & Associates (now Seiler, Singleton) had been charging. One of the attractive features of the service provided is that the Pittard, Perry & Crone auditor, Chris Burton, planned to come to Oriental to perform the audit, rather than perform it remotely as Seiler, Singleton did. The procedure for previous audits was that then town manager Wyatt Cutler personally delivered the town's documents to Mr. Singleton's office in Little Washington. A few years ago one of the town commissioners asked Mr. Cutler "you mean the auditor doesn't come here?" Mr. Cutler replied that wasn't necessary.

When I learned that we would be able to change auditors, Candy Bohmert and I called a special meeting. The town manager briefed the board, and Commissioner Styron moved that we hire Pittard, Perry & Crone. I think that unanimous decision was the right one.