Questions for the auditor

Since receiving the audit on March 5, and accepting it on April 2, the Saratoga Town Council has expressed a desire to speak with Dennis Tschacher of ACM, the company that performed the audit for Fiscal Year (FY) 2017/2018. As was reported previously (see “On the plus side” on page 3 of the May 8 Saratoga Sun), Tschacher was expected to be in attendance during the April 29 budget workshop, but was unable to attend due to scheduling conflicts.

Despite the audit reporting several significant deficiencies in internal control, Tschacher assured the council that the audit was clean. He informed the council that the audit was performed on a cash basis of accounting—an accounting procedure that recognizes revenue when cash comes in and expenses when they are paid—versus accrual basis accounting, which records revenues and expenses when they are earned.

Included in the schedule of findings, found in the final pages of the document, is a cash overstatement of $108,677 made in 2017 that was not discovered until the audit performed by ACM in 2018.

“Your cash was overstated by $108,000 and your system of internal controls did not catch that. Your auditors caught that,” said Tschacher.

Under recommendations, the audit reads “In our judgement, management and those charged with governance need to understand the importance of internal controls and establish procedures to prevent, or detect and correct, a material misstatement in the financial statement.”

The second entry in the schedule of findings states “the Town’s accounting personnel and those charged with governance, in the course of their assigned duties, lack the skills to prepare the external financial statements and related footnotes in accordance with cash basis of accounting.”

“If you look at any smaller municipality in the state of Wyoming, you’re going to see the same comment. The only governmental entities that do not have this finding are those large organizations that actually have CPAs on staff and they’re actually drafting the financial statements,” Tschacher said. “We are not suggesting you go out and hire accountants that have the ability to prepare your financial statements in accordance with the cash basis of accounting.”

Indeed, a look at audit reports from ACM for the year ending June 30, 2016 show both the City of Rawlins and Carbon County getting similar reports.

Even though Tschacher had told the council that the audit was done on the cash basis of accounting, the accrual basis entered the discussion when it came to the subject of several enterprise accounts that saw a negative balance, the third finding in the audit. The largest deficit was with the airport fund which, at the time of the audit, was $221,679 in the red.

“There’s a couple funds, the airport’s the biggest one, that had deficit balances and, again, this is one day in time on June 30, 2018,” Tschacher said. “The next day you could have had a couple hundred thousand dollars come in and would have eliminated that. I would suspect, by now, that it’s probably positive.”

When asked by former airport board member Ellie Dana how the airport fund could have had a negative balance, when it is required to have a positive balance by both Wyoming state law and the Federal Aviation Administration, both Tschacher and Saratoga Town Clerk Suzie Cox offered an explanation accrual basis accounting. Both Tschacher and Cox told Dana that the reason for the deficit account was likely due to the issuance of a check while waiting for a request for reimbursement from a grant, though no note was made in the audit report.

The fourth finding showed that, in the process of the audit, six out of 40 test sampled checks with an amount over $1,000 were sent out without a signature from the mayor. While Tschacher stated that this wasn’t a state statute, he said that it was the policy for the Town of Saratoga that checks over the amount of $1,000 are required to have a signature from the mayor or a council member.

“We’re just saying, if you have that policy, you should follow that policy,” said Tschacher.

After Tschacher went through the schedule of findings with the council, he informed them that the Town of Saratoga could work with a contract accountant that could review the work done by Cox and Saratoga Town Treasurer Sammy Flohr.

“When there’s a comment that the town should evaluate the cost benefit of doing something like that, I think for an auditor to put that in writing and report is a pretty clear recommendation to seriously consider having somebody like that come in,” said Councilmember Jon Nelson.