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Auditor’s report contains cautions

By Staff | May 14, 2017

There are pros and cons to living in any small town.

And, when the city of Wells received their audit report last week, they found that having a fairly small City Hall staff can also have its benefits and drawbacks.

Layne Kockelman of Abdo, Eick & Meyers, a representative of the certified public accountants and consultants group, led a group discussion with the Wells City Council on findings from their 2016 financial audit.

Kockelman explained the Abdo, Eick & Meyers group found some “significant deficiencies” in internal controls of the Wells City Hall staff.

The financial audit reads, “A significant deficiency is a deficiency in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiencies described as significant deficiencies.”

Those deficiencies are described as segregation of duties, financial report preparation, and internal control over municipal liquor store operations.

Regarding segregation of duties, the audit report states the team reviewed internal control procedures over payroll, disbursements, and cash receipts and found the city of Wells to have “limited segregation of duties” in the areas they noted; which, according to the document, would increase the risk of fraud for the city.

Kockelman did note to council this issue comes up quite frequently with cities the same size or smaller than Wells.

But, Kockelman cited specific concerns about internal control over payroll, disbursements and over cash receipts and also informed the council that though the staff is small, they should continue to make progress to address these concerns.

In the notes from the previous year, the document stated the city has “already taken measures to attempt to comply even though the city is relatively small and the number of clerical/bookkeeping staff they can employ is limited. The council has addressed this circumstance by active participation in the city’s affairs and is continually monitoring financial information, which includes regular review of financial statements and budget comparisons,” but in this year’s notes, the document reads, “no progress has been made in addressing this finding in the current year,” meaning Wells still needs to address their short staffing issue.

Financial report preparation concerns mentioned in the 2016 audit also stemmed from the size of the city of Wells.

Abdo, Eick & Meyers’ report stated they were requested to draft the audited statements and related footnote disclosures as a part of their regular audit services as well as report them.

So, having Kockelman creating Wells’ financial statements and reporting them to the council could create a risk in accuracy, such as undetected errors in the financial report, of what was reported. Again, the official document states this has been a concern raised by the group before, but is fairly common in cities the size of Wells.

Lastly, the term “limited segregation”?came up again in regards to the city’s municipal liquor store.

“There are four general categories of duties,” states the document. “Authorization, custody, record keeping and reconciliation. In an ideal system, different employees perform each of these four major functions. In other words, no one person has control of two or more of these responsibilities.”

It stated when the liquor store manager is responsible for ordering, receiving and maintaining the inventory, that can, again, increase the risk of fraud. But, as Kockelman stated to the council before, it is not unheard of for cities similar to the size of Wells.

The council made a motion and approved the audit report from Abdo, Eick & Meyers.

The Wells City Council also held a public hearing regarding improvements on Third Street SE, however there was no public comment, so the resolution ordering improvement and preparation of plans for the project was given a motion for approval by John Herman, seconded by Brenda Weber and was then unanimously approved by the council.

On the subject of projects, the council heard from their city engineer Travis Winter who stated the Wells Business Park is in the last stages of being approved. Once that final approval is made, Winter informed the council, the process of authorizing bidding can begin soon afterwards.