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Audits identified need for tighter controls on city credit cards

SNOHOMISH — Audits of the City of Snohomish by the State Auditor’s Office (SAO) returned mostly positive results but revealed policy failures and errors in some of the city’s financial management processes.
The 2016 Financial Statements Audit and Accountability Audit,  and supplemental 2017 investigations, discovered risk factors in the city’s management of charge cards, procurement processes and a $117,387 cost allocation error.

Charge cards
Auditors noted the city maintained 74 charge accounts at the time of the audits: 11 credit cards, 19 Home Depot cards and 44 gas cards. The city spent $73,611 on goods using its credit cards in 2016 according to audit records.
Lax processes contributed to loss risks.
“The city has experienced three separate instances of fraudulent charges on the City’s credit cards” in the public works department, according to an SAO report.
In the one case, auditors noted fraudulent charges totaling $1,032.38 were reversed and the city did not suffer a loss, emphasized Mayor John Kartak, city administrator Steve Schuller and finance director Debbie Burton in a meeting last week with this paper.
City officials did not confirm by press time if the other two charges were reversed.
Card holders were required to sign card use agreements, but supervisors lent credit cards to employees who did not sign agreements. Supervisors did not always know where the credit cards were or why they were checked out according to a 2017 investigation.
It was not an approved policy for managers to lend cards to employees to use, but it did occur, Burton said.
The city has since worked to educate staff members and the practice of cards being lent or shared has stopped, Burton said. She detailed a seven-step process the city conducts to ensure all card charges are legitimate.
Cards are also issued with $2,500 limits to minimize risks.
Gas card oversight also created risks: The city service manager authorized the use of fuel cards when that job should have been left to the finance director according to city policy. The service manager authorizing the cards also had access to all employees’ PIN numbers needed to use the cards, auditors wrote.
Burton said she and the city’s senior accountant are the only individuals who authorize the fuel cards.
Cost allocation 
A 2016 error on a spreadsheet resulted in the city’s utilities fund being overcharged by $117,387, auditors found. The monies were misallocated administrative services costs.
Burton said she accidentally used an incorrect formula for allocating costs and after auditors notified her, she made a corrective entry. Because auditors identified the excess charge and Burton corrected it, there was no material impact.
Auditors noted several areas of risk in the city’s procurement processes.
Auditors noted the city’s policies governing purchases were less restrictive than the state’s. Burton said the city often followed state policy even when its own policies were less stringent, and that she is currently updating city codes to align with state rules.
In one instance, the city’s prior finance director, Jennifer Olson, purchased a $65,000 software system called Questica, without undergoing any competitive bidding or negotiation process according to auditors and Burton. Burton said she asked Olson about the purchase and did not receive a reply. Two calls and an email by the Tribune to Olson for comment were not returned.
While there is a risk the city did not get the best value in its choice of software, the city did benefit in error by procuring $212,000 in goods though the Washington Department of Enterprise Services (DES). The city benefitted from the state agency’s buying power although its contract with DES had lapsed. Burton said the contract has since been renewed.
The SAO did not present any “findings” to the city, the highest level of alarm the agency can raise. 
The SAO also investigated other issues raised by citizens contacting its hotline that were determined to be unfounded.
Those included concerns that the city entered into a contract with Republic Services for solid waste disposal without undergoing a competitive bidding process. The SAO determined there was no requirement for a bidding process for solid waste disposal contracts.

Direct links to relevant audit documents:

* 2016 financial audit report, which discusses credit cards

* 2016 accounting audit report

* 2017 audit exit items from 2016 audit (PDF opens in new window)

* 2016 audit procedure report regarding credit cards (PDF opens in new window) detailing credit card items discussed in May 23 Tribune article

* 2017 results of 2016 Credit Card Transactions Testing (Excel file)

* SAO notes for future audits from the State Auditor's Office (PDF opens in new window)

* 2015 finding regarding Avenue D roundabout and Second Street federal funding


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