City will hire a consultant to make changes to shared costs documentation process
For the first time in more than 30 years, the Washington State Auditor has issued a finding following an audit of city of Camas financial records.
A report released to the public yesterday states that a recent accountability audit of records from Jan. 1 to Dec. 31, 2011, found that the city “does not have adequate support for its allocation of shared costs, resulting in a shift of general government costs to restricted funds,” and that the city “is unable to show documentation that it complied with state laws that prohibit shifting restricted resources to other funds.”
According to City Finance Director Joan Durgin, when work is done by one department for the benefit of another department the costs associated with that work is charged from one fund to another — or “shared.”
The report specifically points out that in 2011 “the city allocated $863,334 in general administration costs to its utility funds without documenting that amount was fair and equitable. Increased costs to city utilities may result in higher utility rates.”
Durgin said the city has processes in place for indirect cost allocation, but in the state auditor’s opinion it did not go far enough.
“They didn’t mind the methodology, but they had an issue with the lack of [documentation] support,” she said.
Mayor Scott Higgins described having the situation classified as a “finding” by the State Auditor’s office as “maddening.”
“It’s not a big deal,” he said. “It’s something we perceive as relatively minor, but we get put in the same category as fraud or very serious situations like that.”
In the city’s official written response to the finding, which is included in the report, it said: “We believe that the methods which have been used to allocate cost have a fair and rational basis. A key foundation has been the assessment by department managers of the assignments of departmental staff whose work benefits more than one fund. A reliance on the department managers in this matter is, we believe, supportable and proper.”
Durgin said a consultant will be hired within the next month to help the city improve and enhance its current indirect cost allocation plan. An exact cost for this service has not been identified.
“Time, energy and money that we don’t have is going to have to be spent,” Higgins said. “But the bottom line is we are going to do what they want. This problem will not happen again — period.”
The state auditor’s report dated June 22, 2012, mentions that similar concerns were communicated in prior audits.
“While we have communicated concerns in the past, the city has not prioritized nor dedicated the necessary resources to ensure charges for shared costs were appropriately allocated and supported.”
After a management letter was issued by the State Auditor to the city in June 2010, Durgin said some “tweaks” were made to the allocation of shared costs process, but it was not addressed further. She said her attentions were directed to other issues, a situation that was aggravated when an accountant position vacated due to retirement was not filled in the wake of budget cuts.
“We’ve been doing good work with less resources, and sometimes a miss like this might happen,” Higgins explained.
Durgin and Higgins both mentioned the State Auditor is targeting this specific issue this year during its audits of cities across the state, as more and more municipalities look to re-allocate expenses during challenging economic times.
According to the State Auditor’s Report: “We have focused audit efforts around the state to ensure allocations are properly supported.”
“I don’t know why they decided this was going to be the thing they are focusing on, but it’s irritating,” Higgins said. “In our case, it implies that there is not supporting documentation, but there is. They just want it to be done differently.”
The State Auditor will review the corrective action taken by the city during its next regular audit in 2013.