Southold Town needs to improve controls over cash management, according to an audit report issued by New York State Comptroller Thomas P. DiNapoli on Wednesday.
And Southold Town Supervisor Scott Russell said the audit was helpful. “The state audits towns from time to time and generally focuses on specific departments. These are randomly selected and are not singled out as a point of interest for any special reason other than the state does not have resources to audit every department. We have a good relationship with the staff there and work cooperatively to see how we can improve out internal controls and procedures. We implement changes when we can and find these audits to be helpful as we move forward conducting to the business running the town.”
Russell said the town would submit a corrective action plan within 90 days to outline implementation of changes to address the findings.
The report, which spotlighted the town’s financial operations during the time period from January 1 to December 31, 2013, indicated that Southold “does not have effective policies and procedures to ensure that cash is properly safeguarded” in the offices of the town tax receiver, town clerk, and waste management departments.”
In addition, according to the audit, job duties in those departments were not “adequately segregated and proper bank reconciliations were not performed.”
A review of the tax receiver’s office “disclosed that accountability for recording collections was compromised because the receiver’s office used a generic username to access the cash receipt software application. Additionally, a running checkbook balance was not maintained in the accounting records, and check disbursements, adjustments and bank transfers were not accounted for in the checkbook.”
The audit found that bank reconciliations were “incomplete” because deposits in transit, adjustments, bank transfers and other electronic debits from the bank account were not included.”
As a result, “there is an increased risk that town money could be lost or misappropriated without detection and errors or irregularities could occur and remain undetected,” the report stated.
For the 2013 tax year, the receiver’s office collected more than $115 million in revenues, the report said. “Our review of procedures in place in the receiver’s office disclosed a failure to segregate duties or implement compensating controls and deficiencies in accounting records and bank reconciliations. As a result, there is an increased risk that the town may not be collecting all the tax revenue to which it is entitled.”
Also noted were “deficiencies” in the town clerk’s records and bank reconciliations, the timeliness of deposits, daily cash reports and accountability within the clerk’s financial system.
“We were unable to verify if more than $1 million received by the clerk’s office during our audit period was deposited intact and found that the clerk’s bank balance exceeded the cash receipt records by more than $7,000 as of December 31, 2013.”
In the waste management department, “deficiencies in securing transfer station money, timeliness of deposits and accounts receivable adjustments,” were uncovered by the audit. “Transfer station employees drop off daily receipts into a mail slot at the waste management department’s administrative office, where they are left unsecured until the next morning. Because the money was not properly secured, there is an increased risk that transfer station money could be lost or stolen.”
The audit also noted that the town did not develop and follow formal procedures for obtaining professional services.
“The board needs to improve controls over cash management to adequately safeguard cash collected in three town departments. The town does not have effective policies and procedures to ensure that departmental cash is properly protected by the receiver, the clerk and the waste management departments,” the report stated.
The town also needs to follow an “effective procurement process,” to help “obtain the right quality and quantity of services, materials, supplies and equipment at the best, competitive price, the report said. “Town officials paid more than $95,000 for external auditing services during the audit period without seeking competition.”
DiNapoli’s office suggested the town consider revising its procurement policy to require town officials to obtain professional services through a competitive process.
Also addressed were issues with payroll, with DiNapoli’s office suggesting the town should enforce and monitor timekeeping policies and ensure that all town employees are using the town’s timekeeping system to provide greater accuracy and consistency across departments.
The results of the audit and recommendations were discussed with town officials, who agreed to implement corrective action, DiNapoli’s office said.
