State finds irregularities in city’s annual audit

An annual state audit of Spokane city finances turned up irregularities in management of utility accounts as well as federal grant programs.

City officials said the two findings for 2004 showed problems in documentation of charges against the funds, not any indication of overcharging or misuse of money.

“There is no question the city can do a better job of documentation,” said Gavin Cooley, the city’s chief financial officer, during a recent closing conference with the state auditor’s staff.

Allina M. Holmquist, audit manager for the state, also submitted a “management letter” to the city in which less serious problems were documented, including two instances where employees shared their secret passwords for making electronic funds bank transfers with the city treasurer.

“We recommend the city improve internal controls by restricting access and properly segregating duties in this area,” Holmquist wrote in the letter dated Nov. 9.

In addition, the city had not reconciled an updated list of authorized signers with some 12 different financial institutions holding $232 million in cash and investments.

The audit findings and management letter were made public this week.

Outgoing Councilwoman Cherie Rodgers said the sharing of passwords could have led to an irretrievable loss of large sums of money. Rodgers also pointed out that the city was nearly five months late in submitting its annual financial report for 2004.

According to Holmquist’s letter, the annual city report was due by May 31, but was not received until Oct. 13. “We realize the city had staff turnover and extenuating circumstances,” Holmquist wrote. “We recommend the city complete its annual report by the deadline established in state law.”

The two findings in the 2004 audit compare with one finding in the 2003 audit and two findings in the 2002 audit.

For 2004, the auditor said the city lacked supporting documentation for $6 million in inter-fund transactions between the city’s three publicly operated utilities and other city services.

“The city did not demonstrate that it had a reasonable basis for charges to the utility funds,” the audit said.

City officials responded by saying that they believed they had established a basis for the charges, but the auditor said the city lacked sufficiently detailed documentation.

In instances cited by the auditor, the city transferred $847,000 from its solid waste utility to a junk and nuisance abatement program; $304,000 to a geographic information system; and $523,000 from the sewer fund to the street fund to pay for street sweeping.

“We recommend the city establish and follow policies and procedures to ensure all inter-fund transactions are legal, supported and property approved,” the audit said.

In its federal grants programs, the city was found to have failed to maintain adequate payroll records to ensure that charges against the federal grants accurately reflected the amount of work done to manage the programs.

The charges involved $867,000 against a $7.1 million community development block grant and $24,000 against a $2.5 million HOME investment partnership program.

Similar documentation problems were uncovered in the city’s general tax fund, and were cited in the management letter.

In addition, the city failed to certify that private parties receiving federal grant funds had not been suspended or debarred from federal participation, according to the audit.

Among other problems identified by auditors:

•The city in its risk management fund had failed to reconcile claims for damages that were paid out through a third-party administrator.

•In a separate $256,000 sewer pipe contract, the city agreed to a change order of $168,000 rather than seeking a separate bid on the change.

•The city failed to bill some sponsors of special events for garbage services at a cost of $15,000, which the auditor said was a violation of city law.