State auditor again finds weakness in city’s internal controls, but notes process improvements


The Washington State Auditors Office has released the findings of its most recent audit of City of Mountlake Terrace finances, and — similar to last year — auditors found a material weakness in the city’s internal controls related to personnel turnover.

Washington law requires the State Auditor to audit all levels of local government on a regular basis. The Mountlake Terrace audit issued March 29 covered the time period from Jan. 1-Dec. 31, 2016.

State law requires the city to submit its annual report to auditor’s office within 150 days of fiscal year’s end. The annual report includes financial statements, supporting schedules and notes to the financial statements.

Auditors noted that their last report — issued in mid-2017 –– had identified material weaknesses in the city’s internal controls over financial reporting that hindered its ability to produce accurate financial statements.

While the city has improved its financial reporting process, “it has been unable to correct all deficiencies,” the latest report said.

As they did in their last report, state auditors attributed the audit finding to turnover in the city’s finance director position. “Because of the transition’s timing and limited accounting staff, the City was unable to dedicate the necessary time, resources and training to ensure the financial statements were free from material errors,” the report said.

The issues were mostly due to clerical errors, and no funds were identified as missing, auditors said.

During an exit conference with the city council March 19 prior to release of the final report, auditors said they recognize that the city has made improvements in its process since the last report.

Among the items identified in the report was that the city overstated rental revenue in the capital improvement fund by $45,941 and the beginning unrestricted fund balance by the same amount. This was related to funds the city failed to collect from Snohomish County PUD, starting in 2011, for a rental agreement involving a cellular tower.

“We need to have internal controls in place to review our contracts to make sure we are invoicing other governments or entities in a timely manner,” agreed Finance Director Crystil Wooldridge. A city staff member actually caught the error and the PUD was billed, but too late to be included in the audit report, she added.

Auditors recommended that the city ensure staff responsible for preparing financial statements “have the necessary time and resources to prepare accurate and complete financial statements in accordance with reporting standards.” The city also needs to conduct “an effective, independent financial statement review that ensures the statements and footnotes comply with reporting standards,” the report said, as well as “continue to establish and follow effective internal controls over financial
statement reporting.”

In its official response to the audit findings, the city acknowledged that “it did not have sufficient internal controls in place to ensure that the financial statements were free of error.” However, the city “has improved its financial reporting process and corrected all significant errors identified during the audit,” the response noted.
“Finance staff has made strides towards cleaning up past reporting errors and improving internal controls over the financial statement reporting,” the response continued. “The City will ensure that there is necessary time and resources provided to prepare accurate and complete financial statements and continue to establish and follow effective internal controls.”
— By Teresa Wippel


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