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Snohomish credit card charges identified in audit all were reversed

SNOHOMISH — Credit card fraud on City of Snohomish credit cards was rectified when U.S. Bank reversed all fraudulent charges according to a June 4 email from finance director Debbie Burton.
The fraudulent charges occurred in August and September of 2017, in addition to a May 2017 instance detailed in the Tribune’s May 23, 2018 issue. Another instance occurred in April 2018.
No city employees were implicated in the frauds.
In the August and September 2017 instances, and the April 2018 instance, an unknown person or persons obtained credit card information and committed fraud: In those three episodes, the physical cards were not lost or stolen, Burton said in emails.
The same card number was involved in the August and September fraudulent charges before it was canceled.
The city subsequently altered its policy to immediately cancel cards when fraudulent charges appear.
The fraudulent charges were for $1,762.90, $1,996.80 and $560 respectively, according to Burton.
The 2017 instances of fraud were noted in a report from the State Auditor’s Office.
Mayor John Kartak and city administrator Steve Schuller characterized the audit
results as positive in comments made during the June 5 City Council meeting.
“The state has found no alarms here,” Kartak said.
Schuller concurred.
“State auditors spend a month at the city,” Schuller said, “at least a month,” and “those that sat at the exit interview can repeat all that positive accolades that came from our regulators that sat over us.”
The state auditor’s process is not comparable to the well-known IRS audit people may fear at tax time. The city’s audit was part of a standard review process undertaken by many governmental, commercial and nonprofit agencies.
The City of Snohomish had no findings during the 2016 audit. Findings are commonly understood to be markers of a significant problem, said Kathleen Cooper, a spokeswoman with the State Auditor’s Office.
Other problems may exist that do not get classified as findings, including policy violations, large financial errors and lax processes, Cooper said.
The city has not had any findings since one in September 2015.
Nearby cities have also had findings, including one 2017 and one 2018 finding in Mountlake Terrace, a 2017 finding in Monroe, and three 2015 findings in Arlington.
In Snohomish’s 2015 finding, auditors discovered the city was reimbursed $125,923 too much because it over-claimed reimbursement for construction costs. The city was engaged in construction on a 15th Street and Avenue D Roundabout and 2nd Street overlay projects for which it received grant money.
That finding formally was that “The City does not have adequate internal controls in place to ensure compliance with federal cost principles and reporting requirements,” the auditor’s office wrote.
According to audit documents, the city did not concur with the finding: “The City did not exceed the overall authorized amounts for either the State or Federal Grant,” according to a response from the city published in the schedule of federal audit findings document.
The auditor’s office reviewed the city’s response and stated: “We have concluded this practice is not in agreement with federal grant requirements pertaining to allowable costs and reporting principles.”
Audit documents are available at http://portal.sao.wa.gov/ReportSearch using “City of Snohomish” as the search phrase.


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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