This is a complicated story, full of headache-inducing numbers, so if you'd prefer, here's the quick summary:
While Spokane's accounting department was understaffed, they made several significant spreadsheet errors. Fortunately, the state auditor's office caught it in time,
but chided the city for not having proper internal procedures to prevent mistakes. Now, the mistakes have been fixed, the accounting department has been fully staffed, and the city has reformed its system so it doesn't happen again.
Here's the longer version: At the very end of 2014, the city's director of accounting position became vacant, and the chief accountant, Kim Bustos, stepped into that role temporarily, leaving the chief accountant role vacant.
"We weren't able to backfill the chief accountant position,
until Kim was promoted permanently," says Tim Dunivant, the City of Spokane's budget director.
Not only that,
but because the city's typically in a mad scramble during the first months of the year to complete its finance statements by the end of May, it was a a bad
time to hire someone new.
By the time the city had a new chief accountant, Sally Stopher, it was the fall of 2015. But Stopher was soon promoted to fill the vacant director of grants management position, leaving the chief accountant role open yet again in January of 2016. Again
right in the middle of the busy season.
"We had a revolving door there for about two years," says Dunivant. "As people move from place to place, you can't backfill until the dust settles."
As anyone who's been in such a workplace knows, being understaffed with high turnover increases the chance of mistakes. Spokane was no different.
The recent report from the state auditor's office came to this conclusion:
The City has experienced employee turnover in key financial statement preparation positions and lacked the resources necessary to accurately prepare the financial statements. Although the City implemented new software that helps prepare its fund financial statements, the City continues to use complex spreadsheets to assist in the preparation of its government-wide financial statements. These spreadsheets contained table and other errors. The City’s established controls for financial statement review were not effective at identifying errors."
It's not the first time that the City of Spokane, under the Condon administration, has been chided by the state auditor. In 2012 and again in 2013, Spokane received a number of findings from the state auditor faulting
the community, housing
and human services department for inadequately tracking grant information. (The department improved since then, receiving a reward for excellence
by the state auditor in 2015.)
But this audit found that the city had understated its "Governmental Activity Net Position" by $1.1 million,
by making a several errors, including:
• miscalculating its service-charge revenue by up to $11.3 million
• overstating its expenses its general fund expenses by at least $16.7 million
• inaccurately reporting changes to its debts, understanding several types of spending by at least $14 million.
A lot of the errors, however, were merely miscategorizations, with figures placed under the wrong spots in the city's financial statement. For example, the city:
• understated its net investment in capital assets for unspent bond proceeds by more than $85 million
• understated its net investment in capital assets relating to interfund
loans by $23 million
• understated its net investment in capital assets concerning the Water/Sewer Fund by more than $197 million.
But because those figures were included elsewhere within the city's balance sheet, the errors mostly evened out.
Debbie Pennick, an audit manager for the state auditor's office, says it's not unusual to see these kinds of findings for a large decentralized organization like the city.
"This isn't anything related to fraud or non-compliance," Pennick says. "It's just the rules say you're supposed to calculate the numbers you present in a specific manner."
Still, the state auditor's office identified the city has having
a "significant deficiency"
in its internal controls. That's not as bad as a "material weakness," but Dunivant still considers it a serious finding.
"We need to make sure we have the right controls in place to minimize the risk of errors," Dunivant says.
He says he's glad the auditor caught the mistakes, allowing the city to fix them before the numbers were published or use to plan the city's budget.
"The state auditor filled the role we want them to fill," Dunivant says. "I'm not going to try to say that it's not a bad thing. [But] at the end of the day the system worked. We were able to find it and correct it
before we produced the financial statements for the end of the year."
Dunivant says the city has responded in several ways. First, it's implemented a new software system intended to reduce the number of errors. Second, it's fully staffed its accounting department. "I encouraged them to do whatever it takes to fill positions as soon as they become open," Dunivant says.
And finally, the accounting department is changing its workflow to accomplish as much as it can before the crush at the end of year
"We're trying to maximize our efforts so we're not scrambling during the year-end process," Dunivant says.
Read the full audit finding here:
Spokane Audit Finding by DanielWalters on Scribd