Estancia’s accounting practices are so poor that the town is at risk for “fraud, waste or abuse,” said State Auditor Tim Keller in a letter to the town, adding in an accompanying report that some $1.6 million are at risk.
A special audit of Estancia’s finances “focus[ed] on the problematic lack of clear policies and procedures and internal controls” for the town’s daily operations, which leave the town vulnerable. That’s according to a letter from Keller to Estancia’s board of trustees, and a special audit report accompanying the letter.
The report concluded that Estancia lacks policies for everything from procurement to use of fuel cards to use of money bequeathed to the town for its library several years ago. For example, the town has no login and password unique to each employee, instead allowing administrator-level access to its entire accounting and utility billing system with a universal login and password.
That means “weaknesses can go undetected and also provide the opportunity for individuals to commit fraudulent activity without detection,” the report says, noting that with administrator-level access, transactions can be deleted or changed by any employee accessing the computers that way.
The response from the town says that the board of trustees “were unaware that these policies and procedures were not in place” and said the board recently adopted a procurement process and is working on policy manuals for other areas as recommended by by the state auditor’s office.
Keller’s office found “shortcomings” in 18 different areas, says the special audit report.
Issues uncovered leave the town susceptible to fraud, the report says, “and relate to approximately $1,600,000 in funds managed by the Town.”
The report came out of interviews, observation and review of selected documents, it says. “Based on the samples tested and the limited procedures performed, the OSA was not able to determine if the findings and issues of noncompliance were the result of intentional wrongdoing,” the report says.
The 18 findings are described this way in the report: lack of town policies and procedures; lack of internal controls and improper access controls; mismanagement of pooled cash; bank reconciliations; wasteful spending of taxpayer dollars; timeliness of due to and due from reversals; interfund transfers that do not balance; state law compliance with governmental gross receipts tax; state law compliance with anti-donation clause; improper use of procurement cards; comingling of joint utility funds and the general fund; noncompliance with town ordinances; account miscoding; state fuel cards; unrecorded transactions; unsubstantiated transactions; record retention; and budgetary compliance.
The town has no cash handling policies, and does not keep adequate track of use of fuel cards and procurement cards by town employees. The report also says the town is likely in violation of the state’s anti-donation clause, which prohibits a public body from financially benefitting a person or private group, and its own ordinances.
Keller’s office recommended that the town develop policy manuals and establish internal controls. It also recommended creation of separate login and passwords for each employee and restricting access “to limit the Town’s exposure to misappropriation of funds, fraud, or errors.”
The state auditor also recommended review of all utility accounts to make sure they are being properly metered and charged, and that the correct gross receipts tax is being charged.
Estancia uses a “pooled cash system” that has not been reconciled by fund, “creating many year over year variances between audited cash and cash reported” to the state, the report says, with the largest variances appearing in the joint utility fund. The board of trustees “approved and certified inaccurate information,” the report says, adding, “The Town may or may not have the cash and revenues needed to provide the basic government mandated services required for the health and safety of its residents.”
According to the report, the town is using the utility fund to make payroll, with general fund monies mixed up with joint utility funds.
The report also found that the board of trustees “has been given inaccurate information for a number of years.”
The joint utility fund is an enterprise fund, which by definition means separate accounting, the auditor’s report says. The effect is that “joint utility fund expenditures appear overstated, governmental fund expenditures appear understated, and the financial statements in general are misleading and inaccurate. Loan terms and conditions appear to have been violated which exposes the Town to potential legal ramifications.”
The town has bank accounts which have never been reconciled, the report says. The state auditor also dinged the town for wasteful spending of taxpayer dollars, for example, paying “the minimum water bill” for a metered bathroom at town hall “where water was shut off years ago.”
Estancia used procurement cards to pay for food for town meetings without supporting documentation, and purchased gift cards without supporting documentation, potentially putting Estancia at odds with the anti-donation clause.
The town has not recorded all of its financial transactions, the report says, with examples including fees the town paid but which were not recorded; “deposits for numerous loan disbursements” that could not be located in the general ledger; a check for nearly $7,000 written to an employee the same day the town got a check from a credit card processor for an equal amount; cash transfers that were not recorded and more.
The effect “prevent[s] the financial statements from presenting an accurate picture of the financial condition of the town for the governing body, taxpayers or other concerned entities.”
In addition, the town has unsubstantiated transactions, with examples given by the auditor’s office including the town’s inability to reconcile meter deposits to individual customers; sale of bulk water without receipts; numerous billing and meter re-read adjustments that did not reconcile to prior amounts and without documentation; numerous budget resolutions without documentation and numerous utility billing cash transactions missing cash payment vouchers.
Internal controls are lacking, the report says. “Adequate controls are not in place to prevent or detect misstatements of accounting information.”
Another finding says the town should stop spending money bequeathed to Estancia by the Williams family, a total of $2 million, because the town does not have documentation pertaining to those donations.
Lastly, the state auditor’s review said that Estancia is making an annual adjustment to its numbers to cause the budgeted numbers and actual numbers to match. According to the report, the town clerk said the practice was required by the state’s Department of Finance Administration, or DFA.
Keller’s office examined records from July 1, 2012 to June 30, 2015.