City audit pinpoints reporting problems.

Byline: Nick Kotsopoulos

WORCESTER - An outside auditor hired by the city has identified "significant deficiencies" in the internal controls governing financial reporting for various municipal operations.

The management letter from the audit, prepared last October by Sullivan, Rogers & Co. LLC of Burlington and covering the fiscal year that ended June 30, cited problems in 11 areas, including off-street parking, Green Hill Municipal Golf Course, parking tickets and the Code Enforcement Division.

In most instances, the audit said no formal financial policies and procedures manual was in place for those activities, and in several areas the deposit of receipts was not posted in a timely manner.

The management letter said a "control deficiency" exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

A "significant deficiency," meanwhile, is a control deficiency, or combination of control deficiencies, that adversely affects the city's ability to initiate, authorize, record, process or report financial data reliably.

"We identified certain deficiencies in internal control that we consider to be significant deficiencies," the management letter stated. "There is more than a remote likelihood that a misstatement of (the city's) financial statements that is more than inconsequential will not be prevented or detected by (the city's) internal control."

City Manager Michael V. O'Brien said the auditor's comments and recommendations are "straightforward" and most enhancements are already completed or under way and all are set to be completed by June 30.

"Solid internal controls for both revenues and expenditures are the backbone of any business," Mr. O'Brien said last night. "The city as a $500 million municipal corporation is obviously no exception. The city's independent auditors have detected operational areas where we must improve internal controls and rest assured we will address these. Internal controls are an ever evolving process that must be enhanced and modified to reflect changes in technology, staff levels and other factors."

One area cited for several deficiencies was the city's off-street parking operations.

In the testing of cash receipts from off-street parking activities, the audit found the following deficiencies:

Nine of the 17 garage receipt transmittal forms were not approved by the Department of Public Works and forwarded to the treasurer's office in a timely basis. Of the nine forms deemed untimely, the lag time from the preparation of the transmittal form to the time that the form was received by the treasurer's office ranged from 22 days to 118 days.

All three of the parking meter receipts tested had untimely submissions of transmittal forms to the treasurer's office. The three receipts tested covered 86, 152 and 152 days worth of deposits.

The last receipts posted for both the Pearl-Elm and Federal Plaza municipal garages to the general ledger were for those through May 13, 2007. All garage receipts after May 14 through June 30 were not posted to the fiscal 2007 general ledger. The amount of garage deposits not properly posted was about $178,000.

The last parking meter receipts, for both on-street and off-street meters, were for deposits made through Jan. 30, 2007. Parking meter receipts from Feb. 1 through June 30 were not posted to the fiscal 2007 general ledger. The amount of money not properly posted during that time was about $253,000.

"In general, the preparation of garage receipt transmittal forms was found to be haphazard and sporadic," the management letter stated. "Some of the forms covered as few as nine days of deposits, while other forms covered as many as 31 days of deposits. This lack of consistency negatively impacts interim financial reporting of garage receipts."

Mr. O'Brien said his administration is clearly focused on the auditor's comments regarding the internal controls for off-street parking operations

"The fact that these revenue systems remain mostly manual results in unnecessary and unacceptable delays in revenue reporting," he said. "As was the case with enhancements in other departments, the immediate steps will include the implementation of the city's centralized, computer-based cash module at the Department of Public Works to record these receipts upon collection.

At the Green Hill Municipal Golf Course, the audit report pointed out that cash registers in the clubhouse are used by multiple employees during the day. As a result, any variances identified in the cash amount at the end of the day cannot be traced to a single employee. It also noted that documentation is not maintained at Green Hill that shows proof of the daily reconciliation of the cash register and the employees who prepared and reviewed the reconciliation.

Nine of the 25 deposits tested as part of the study were found to be made in an untimely manner. While the auditor said such deposits should be made within 24 to 48 hours of collection, the lag time in the nine deposits identified as being "untimely" ranged from three to 18 days.

"The lack of timely deposits is a weakness in safeguarding assets and increases the risk of asset misappropriation," according to the report.