In his 30 years as an auditor of government entities, Jeff Stroder issued his first adverse opinion.
Stroder, CPA and partner of Beussink, Hey, Roe & Stroder, LLC, presented the annual financial report for the fiscal year ended December 31, 2020 to the Massac County Commission at its February 8 meeting.
Unlike the 2019 audit, when the firm’s opinion was that the financial statements were presented fairly, Stroder noted – for the second year – that the audit process was complicated and concluded with the opinion that the statements financial statements are not presented fairly.
“This year we had an adverse opinion – it indicates that the financial statements are not presented fairly in all material respects in accordance with the modified cash basis of accounting. We had some issues,” Stroder told the commission, which was joined by Massac County Treasurer Jody Haverkamp and Nicole Giltner, chief assistant in the office of the treasurer, for the presentation.
The audit report sets out the basis for the adverse opinion on the financial statements as a whole.
The report states: “As we applied our audit process, we found numerous pervasive errors in the financial statements. The most significant errors were related to misclassification of transactions, such as interfund payments which often resulted in double counting of expenses in multiple funds and double counting of income as reimbursements in multiple funds. … In our opinion, due to the importance of (this) matter, the financial statements referred to do not present fairly the amended cash financial position of Massac County as of December 31, 2020.”
Stroder further explained that despite the difficulties of the 2019 audit, his “errors were found and corrected before the audit report was released. For the 2020 audit, the errors were so widespread and impacted so many funds different that they have not all been identified and corrected”, hence the unfavorable opinion.
Stroder explained that, also for the second year, the company had to publish separate reports on the county’s financial statements.
The first was on compliance with federal funding.
“Your federal expenses were over $750,000, which brings in a whole other layer of auditing beyond what you’re used to having,” Stroder said. “We are required to verify at least 40% of your federal dollars as a major program.”
For these two programs — the COVID/Coronavirus Relief Fund Money and the Highway Planning & Construction Program, which was federally funded and overseen by IDOT on behalf of the county — the company found no instances of non-compliance with the neither of these requirements nor weaknesses of these controls.
The second report dealt with the county’s financial statements, where the adverse opinion was found.
“The second part of our audit that is required is a report on the county’s internal controls – how do we accumulate information to prepare financial statements. The second part of this report complies with the various laws, regulations and grant agreements. It was in those areas that it led to the conclusions and recommendations that we had,” Stroder said.
Following complications from the 2019 audit, the firm sent two CPAs in April 2021 just before starting work on the 2020 audit to review “bank reconciliations to see if everything seemed to be working,” Stroder said. This peek, he said, showed that “the errors were so significant that the audit could not be performed until the accounts were properly reconciled”, which forced the office of the treasurer to consult an external accountant to help with bank reconciliations.
This additional work caused a delay in the audit report, which is normally published at the end of the year.
The audit findings revealed three areas of significant weakness — internal controls over bank reconciliations; large audit adjustment journal entries; and uncorrected errors — and a finding of compliance related to budgeted expenditures.
• Internal controls of bank reconciliations: Stroder explained that some 2020 bank statements had not been reconciled accurately in the general ledger, leaving errors so significant that the treasurer consulted an outside accountant to help with bank reconciliations, identifying and correcting them before the audit cannot resume.
“There were four bank accounts – the pool money, the current tax fund, the Illinois Municipal Retirement Fund (IMRF) and the government tax fund – that we were having trouble with ‘and those errors made’ harder to isolate the fund the error is in” and reconcile them, Stroder explained. “At the time the cash balance is in these financial statements, the cumulative difference was about $9,000.”
Stroder said previous years’ corrections to bank reconciliations had apparently been put on paper, but not the financial software used by the Treasurer’s Office.
“We had a reconciliation and had some confidence that those numbers were correct in previous years. These fixes were never incorporated into the Tyler Tech system; therefore, it was still as bad as the year before,” Stroder said.
Haverkamp told the commissioners that as his office “made corrections, we discovered more issues with Tyler Tech that weren’t there to begin with, and we were trying to fix them along the way. We’ve spoken to Tyler Tech on several occasions about issues trying to ensure accounts are compiled as auditors have requested. We chatted to make sure the stream is set up the way it’s supposed to be. Hopefully we’ve got it all figured out at this point, but there might be something odd we still haven’t figured out.
Stroder told the commissioners that the reconciliation between the paper account and the software as of December 31, 2020, “wasn’t exactly to the dime, but it was pretty close to where we are at the end of next year. , we would be able to give a clearer opinion on this.We felt that there was a starting point.
In the treasurer’s written response, which is part of the audit report, Haverkamp said his office agrees with the auditors’ recommendation and will spend time updating the county’s financial and training policy. , with particular emphasis on bank reconciliation policy and procedure.
• Important audit adjustment log entries: Stroder explained that there were 16 accounts that had no activity recorded on the county’s books, which is not unusual since almost all of them were accounts that could be under the control of an office holder and that it falls upon them by statute to have custody of. While activity in these 16 accounts is generally quite minimal, the problem arises, he said, with interfund loan repayments, which are frequently recorded as expenses in both funds and income when the loan is repaid.
In the Treasurer’s response, Haverkamp said his office agrees with the auditors’ recommendation and will record all transactions in their proper journal/ledger and correct funds to strengthen internal controls.
• Uncorrected errors: Stroder said that’s where it came out that these interfund loan repayments “were not recorded correctly. We don’t know the magnitude or dollar amounts. If we knew them, we could have recommended adjustments and we could have obtained the financial statements on which we could have expressed an opinion, but we were not able to find them all. On the financial statements we had to audit, there were accounts payable balances totaling $187,788 in one fund. Our recommendation was that they shouldn’t go to accounts payable, but if they do, they should be reclassified where they really belong.
In the treasurer’s response, Haverkamp said his office will ensure that all transactions are recorded, recorded in the correct fiscal year, for the correct amounts and in the correct funds.
• Budgeted expenses: Stroder explained that these were actual expenditures in excess of the General Fund budget limits. In addition, no budget has been adopted for the IMRF or the Emergency Preparedness Grant Fund.
“We’ve talked about it in different years as well,” said Stroder, who has served as Massac County’s auditor since 2010.
“I think the biggest thing that lends to this is that a lot of funds don’t have budgets. And a lot of those funds become departments when they’re put on the financial statements. They’re easier to track internally as separate funds but they will be consolidated into the general fund Many of them have actual expenditures but when there is no enacted budget it means there is more spending than what we had in the budget and that is a violation of the law.
The auditors recommended that the county commission legally adopt the budget for all funds and monitor the budget more closely. Commission Vice Chairman Jayson Farmer informed Stroder that the county’s ESDA director added the Emergency Preparedness Grant Fund to his 2022 budget. The IMRF is overseen by the office of the treasurer with the treasurer as administrator.
Massac County has been using Beussink, Hey, Roe & Stroder for its annual audit for several years. Stroder explained that based on these audits, the original cost for this audit was $32,200. But, due to the additional workload for the company, the actual cost was over $70,000.
For the second year, Stroder told commissioners that due to the county being a long-time customer, the company had agreed to reduce the cost to $51,500.
“We really hope to see things improve,” Stroder told the stewards after the 40-minute presentation.
With the Office of the Treasurer’s corrective action plan put in place after the audit was received, “After hearing from the auditor, it appears Jody and the Office of the Treasurer have a lot of areas for improvement,” Farmer said. “I hope the treasurer’s office can get things done quickly; otherwise, we could have major problems.
After the presentation, commission secretary Jeff Brugger expressed the commissioners’ displeasure with the findings.
“It’s been like this for two years in a row. It’s his office, he said. “And we had a negative opinion. It’s not something to be proud of. It’s awful.”