Auditors issue qualified opinion

At the July 21 meeting of the Saratoga Town Council, the governing body voted 3-0 to officially accept the audit of Fiscal Year 2019/2020 by new auditors Carver, Florek and James (CFJ). Councilmember Bob Keel was not in attendance.

As was previously reported (see “Audit accepted, questions remain” on page 1 of the July 29 Saratoga Sun), Councilmember Jon Nelson asked Councilmember Judy Welton and Mayor John Zeiger how they proposed to address some of the findings in the audit. Both Welton and Zeiger stated that they would prefer to wait until Keel was present to provide his input.

For the last several months, as third-party accountant James Childress has aided the Town of Saratoga in working with CFJ, it has been a point of speculation as to what kind of opinion the auditors would give to the governing body. The audit for Fiscal Year 2017/2018, which was performed by Anton Collins Mitchell, gave an unmodified opinion on the town’s presented financial statements.

In an unmodified opinion the auditors express an opinion that financial statements are presented, in all material respects, in accordance with the applicable financial reporting framework. An unmodified opinion is, essentially, a clean audit. This audit from Anton Collins Mitchell, however, included findings in regards to misstatement of cash, financial statement preparation, deficit fund balance.

The audit from CFJ, meanwhile, provided a qualified opinion. A qualified opinion states that the financial statements of the clients are fairly presented except for a specific issue. That issue often relates to a limitation on the scope of the audit so that the auditor was unable obtain sufficient evidence to verify various aspects of the transactions and receipts being audited.

Under “Basis for Qualified Opinion on Cash and Fund Balances” the auditors wrote, “Management has been unable to reconcile interfund transfers and borrowings, and therefore current cash and fund balances presented may be inaccurate at the fund level. The Town has chosen to present the financial statements in accordance with the cash basis of accounting and therefore no interfund receivables and liabilities have been recorded to reflect this activity.”

Near the end of the audit, under the “Schedule of Findings and Questioned Costs”, CFJ presented three findings. Those were misstatement of cash, segregation of duties and noncompliance and use of restricted funds.

Under misstatement of cash, the auditors wrote “The Town’s accounting records contained material errors that affected cash balances for the current and prior fiscal years. These errors were not corrected in a timely manner.”

The auditors, however, recognized that “the Town has made positive steps to remedy this condition by contracting with a qualified professional to assist the Town in correcting the cash balances as found in the Town’s accounting records.”

In the case of the segregation of duties, the auditors wrote “The concept is that one individual should not be able to handle or dominate transactions from initiation to posting having access to both assets and accounting records.” They added, “Certain personnel often handle the recording of transactions and the control of assets and results of those transactions. As it relates to the financial statements, this is a significant deficiency.” CJF recognized that review by the council was in place to mitigate this condition and wrote “the Town should be aware of and continue to evaluate the impact of this deficiency.”

The finding with, arguably, the most impact would be noncompliance and use of restricted funds. Under this finding, the auditors wrote “The Town’s management and accounting system did not recognize the Proprietary Fund balances as restricted funds, nor did they separate restricted funds from unrestricted funds. Restricted funds were used for purposes other than those for which they were specifically restricted, and this occurred for many years.”

That finding went on to read, “Additionally, management had been unable to determine the amount of restricted funds that were spent that were noncompliant with specific restrictions.” The auditors recommended “that those charged with governance continue to engage with contracted professionals to determine the amount of noncompliance and repay the restricted funds to the specific funds from which they were borrowed.”

It is unclear at the moment how the governing body will address the findings presented by CFJ. However, the meeting for the August 4 agenda did not have mention of the audit on it as of press time.