Auditor slaps City's wrist over paperwork, other issues of reporting and record keeping

Arlen MacLaine
By Arlen MacLaine
August 22nd, 2013

The City has made public letters containing correspondence between Berg Lehman, the group that did the 2012 financial audit, and Rossland CAO Cecile Arnott.  Dated June 24, 2013, the letters were not made available to the public until Aug 12, when Council had a chance to discuss them during a public meeting.  Contained in the letter were suggestions for improving internal controls, as well as a responses to those suggestions from City Management.

There were 9 observations and recommendations in total.  The letter pointed out that the statement of financial position showed reserve funds of $4,258,478, while the operational deficit was similar in number.  This was due, in part, to the city borrowing funds from these reserves to help pay for the Columbia-Washington project.  It was noted that there was a plan in place to replenish those reserve funds (via the AAP asking to borrow 4 million over 30 years), and the recommendation was that, once replenished, separate bank and investment accounts be opened for the reserve funds to mitigate the risk of unauthorized use of reserve funds.  The response from city management was that it was their intention to do so.

Another topic that was addressed was the funding of the Columbia-Washington project.  The letter reads as follows:

“The City’s Financial Plan Bylaw was adopted April 10, 2012. However, as early as May 2 of 2012, it was apparent that the City intended to proceed with additional capital expenditures for the Columbia Washington Capital project in 2012 and to fund this project much differently than what was outlined in the Financial Plan.”  

Section 173 (4) of the Community Charter states that Council must establish procedures to authorize expenditures not outlined in the financial plan.  It also states that, if an outside expenditure is made, Council must amend the financial plan accordingly, and source the funding for the expenditure.  

The final paragraph of that section reads, “During the audit, we did not identify any amendments to the Financial Plan or whether council was provided with sufficient information to realize the extent of the departure from the Financial Plan bylaw.”

The response from management was that, due to a change in scope of the project, the actual amount of capital expenditure for the year 2012 ($5,360,656) came in well below the projected amount for the year 2012 in the 2012-2016 Financial Plan Bylaw ($8,265,000).  

“Since the total actual Capital Expenditure for the year is far below that of the plan and since Council was aware of the scope change, there is no need for a financial plan bylaw amendment,” management’s response read.

Another observation made by Berg Lehman was that the City is well behind on reconciling its bank accounts.  At the time of the Auditor’s first visit, it was discovered that the bank accounts hadn’t been reconciled in almost 12 months, and the audit was postponed until June, in order for the City to get the 2012 bank statements finalized.  

The message from Berg Lehman stated, “The reconciling of the bank accounts on a timely basis is a fundamental internal control procedure mitigating the risk of both fraud and error. Furthermore, without timely reconciliations, internal financial reports become unreliable for decision making purposes as they are subject to adjustment.”

In a similar vein, it was noted that Council had not been receiving regular financial reports throughout the year.  

“Without regular financial reports on operations and capital projects…” reads the letter, “…council does not have enough information to carry out its governance role.”  The recommendation was that these reports should be presented, at least quarterly, to Council for review.

The response from management, with regard to both the financial reports and bank account reconciliations, was that they concurred with the findings, and noted that this should not be considered the norm for the City of Rossland, as there were ‘extenuating circumstances’ in 2012 that were responsible for the current state of affairs.

It was also noted that the former and current CAOs had not been submitting timesheets with regard to vacation, banked, or sick time.  The letter states that proper documentation would eliminate unexplained differences, and posting errors. With regard to the former CAO, it was found that there were arrangements made to have statutory holidays and future time worked in December 2012, paid out as early as May 2012.  The recommendation was that the City adopt a policy which would require all staff, including upper management, to submit signed timesheets for actual time worked, for each payroll period.

Council discussion about the letter and recommendations was brief.  

“I thought the management letters from Berg Lehman had some good suggestions for improvements, and our management’s response was planning to do these things, which is great,” said Councillor Kathy Moore.  “I was just wondering if we could get the nine suggested improvements on an upcoming staff task list, just so we keep an eye on the progress we’re making towards those goals.

Mayor Greg Granstrom replied, “We’ll see what we can do, because we might need some staff input on that, and we don’t have time to get that that right now, but we’ll look at that for sure.”

“I appreciated reading the suggestions for improvement, and I also really appreciated our management for referring and clarifying some of the requests from the auditor, and I’m sure that those changes will occur,” said Councillor Jill Spearn.

Not every topic contained in the letter was discussed here.  The letter can be found and read in its entirety, on the City’s website in the August 12 Council meeting agenda package.

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