Childress reports to town

At the Nov. 5 town council meeting, Cheyenne-based accountant and 13-year experienced auditor James Childress presented a five page report that focused on the audit for the 2017/2018 fiscal year. Since the release of the audit, and its acceptance by the governing body, it has been a continued point of discussion among ancillary boards, namely the Saratoga Airport Advisory Board and the Upper Platte River Solid Waste Disposal District (UPRSWDD). In the audit, a deficit of over $200,000 was reported in the airport fund and a surplus of over $100,000 was reported in the landfill fund.

As was previously reported (see “Town of Saratoga to engage outside accounting firm” on the Saratoga Sun website), the Saratoga Town Council held a special meeting on Sept. 18 in which they unanimously voted to engage with Childress. Two motions were made at that meeting, one in which the governing body engaged with the accounting firm and another to allow Childress access to Caselle, the government accounting program used by the Town of Saratoga.

While addressing the council, Childress informed them of the complex nature of government accounting, telling them that it was different than business or private accounting. According to Childress, government accounting can be confusing to those not familiar with the practices.

“It’s complex and it’s different for a very specific reason. It’s meant to enforce accountability upon the government for the funds the government is a custodian of,” said Childress.

In the most recent audit, Anton Collins Mitchell (ACM) reported that the Town of Saratoga’s accounting personnel and the town council “lack the skills to prepare the external financial statements and related footnotes in accordance with the cash basis of accounting.” 

“This is one of the findings that was in the prior year audit. I’m going to just elaborate on this; this is a finding I’ve seen with many governments I’ve worked with. This is a finding I’ve had to issue as an auditor. This is very, very common for small organizations to have this type of finding,” Childress said.

He added that much of the issue could be traced back to the Government Accounting Standards Board (GASB) and the changes that have been made to the accounting standards for governments that make the financial statements complex.

“When it comes to providing a financial statement set that actually meets these standards, it doesn’t just pop out of the accounting system,” said Childress. “It requires additional research, additional work, to put together all the schedules, notes and tables and disclosures that would satisfy what the auditors are looking for to not have to issue this type of financial statement finding.”

Childress stated that there were approximately 10 entities he was working with that involved that type of financial preparation. He added that the alternative was for the auditors to prepare the financial statements and then audit them.

“That’s why it’s such a big deal for the auditors to have to issue that finding. If they don’t, they’re basically not acknowledging an independence conflict where they did additional work for a client that most other entities can’t do, but they did it for that client, and if they don’t acknowledge the independence threat, that creates an issue,” Childress said.

He further informed the council that he believed it was important for the Town of Saratoga to hire someone to do the financial statement preparation on an annual basis. While, eventually, a member of the staff could take on that responsibility, he stressed the importance of having a Certified Public Accountant do the initial work.

Under the misstatement of cash, Childress stressed the wording used by ACM in its initial report that a material journal entry was made in error during fiscal year 2017. He stated that an external accountant could help the Town of Saratoga post the journal entries provided by the auditor followed by reconciling the error against the entry. 

With the deficit fund balance, Childress explained that, in governmental accounting, it was common for government entities to use a process called pooled cash. In that process, cash was pooled in a bank account and then assigned to the various funds that needed it. Due to that process, governmental accounting required a reconciliation step that was not found in either business or private accounting.

“It’s peculiar to governmental accounting and that’s why this happens where we can have deficit fund balances. It’s just that specific nature of the way that works and how easy it is for one fund to be relying on the allocated cash of another fund. That creates a deficit fund balance. What’s missing is recording a transfer,” said Childress.

Referring to pages six and seven of the audit, Childress pointed out a line item labeled “transfers in (out).” He stated that the line item would be found on all financial statements because of the frequency of transfers.

“There are some funds that can’t transfer out, there’s some funds that can’t transfer in, there’s some funds that are transferring out all the time. Like the general fund. The general fund is funding activities throughout the entire government,” Childress said. “All the auditors are basically saying is we’ve had that step not taking place. It’s an analysis that needs to take place on a monthly basis and we just have to true things up, make sure the money’s allocated where it needs to be allocated. Not too difficult, but it’s difficult when it hasn’t been done.”

Childress again stressed to the Saratoga Town Council that it was important for the governing body to engage with an outside accountant to assist with preparation of their financial statements. Councilmember Jon Nelson made the motion for the Town of Saratoga to continue engaging with Childress to follow through on his recommendations and address his comments as they prepared for the audit of the 2018/2019 fiscal year.

The motion passed unanimously.

The next meeting of the Saratoga Town Council will be at 6 p.m. on Nov. 19 at Saratoga Town Hall.