ORANGE COVE – The city of Orange Cove has a lot of work to do to improve accounting practices and ensure it is thoroughly tracking its finances, according to the latest independent auditor’s report conducted for the city.
Ryan Jolley, a CPA with the auditing firm Bryant L. Jolley Certified Public Accounts, presented the results of the fiscal year 2021-22 financial audit to the Orange Cove City Council on July 9. Identified within the audit were four findings that showed problem areas related to the city’s internal controls. Considering these issues, Jolley said the most important thing Orange Cove needs to do is catch up on its audits.
“You can see with some of the corrections we’ve had to make, I don’t know how accurate the information you’re even getting reported on is right now,” Jolley told the council. “I’d say getting the books closed out, getting current, that gives you much better information to operate off of.”
Jolley added that knowing the financial position of the city is essential for the council when it is budgeting for next fiscal year. Given that Orange Cove is multiple years behind on its audits, errors found in the city’s accounting could mean that the council’s picture of the city’s current financial position is inaccurate.
Audit findings
The findings of deficiencies in the audit included material weaknesses in both the year-end closing process and bank reconciliations, and significant deficiencies in employee/board medical reimbursements and credit card authorization and documentation.
As noted in the audit report, a material weakness is a deficiency in internal controls that creates the “reasonable possibility” that a misstatement of the city’s financial statements will not be prevented or detected and corrected. A significant deficiency is less severe than a material weakness but “important enough to merit attention.”
Jolley explained that the year-end closing process is a key component to getting an audit done in a timely manner. A good process looks like closing out the city’s book accurately, reconciling different accounts and being ready for the audit. According to the report, this weakness was caused by a variety of factors, including limited staff resources, accounting errors made in previous years and continued disruptions from the COVID-19 pandemic.
Problems with the bank reconciliation process arose as the city’s cash balance was not reconciled to the general ledger on a monthly basis, according to the report. When this does not occur, errors or other problems may not be recognized on a timely basis.
“This is where you’ll catch, potentially, any improprieties that are happening, any kind of fraud,” Jolley said. “It’s becoming more and more common for people to copy checks or write fraudulent checks and try to run through bank accounts, so reconciling the bank accounts on a monthly basis will catch a lot of that.”
Regarding the significant deficiencies that were found, the report discovered that the city was not in line with its medical reimbursement policy. For seven medical reimbursements that the auditors selected for testing, two reimbursements had no supporting documents, one had no signature from the individual claiming a reimbursement, one reimbursement was approved using previously submitted documentation for another reimbursement and the city did not maintain a log for any of the claims.
Credit card transactions were also missing receipts and approval documentation, according to the report. In two months selected for testing, the audit found five transactions that did not have supporting documentation.
Jolley said the audit also contains a management report to the city council, which is the firm’s communication to council members, letting them know how the audit went and if there were any difficulties in completing it.
“One of the things we’ve provided is all the journal entries that were identified, so you can see the different errors that were discovered and then corrected by us through our audit testing,” Jolley said.
The management report also identifies additional deficiencies in the city’s controls that did not qualify as official audit findings. This included problems with stale dated checks, the untimely submission of grant reimbursement requests, issues with accounts receivable reconciliations, an inadequate business license billing system and a lack of collection on old understanding loans owed to the city.
Next steps
Although any improvements made in the city’s accounting procedures won’t immediately show up on the next audits, the city is still tackling the identified findings. A corrective action plan prepared by Interim City Manager Dario Dominguez was included with the report, and Dominguez said there are items the city is starting to address.
This includes implementing a year-end closing checklist that will be refined through the fiscal year 2024-25 audit cycle, filling the finance director role, updating the process for bank reconciliations, improving reimbursement oversight and reinforcing the city’s credit card policy among staff members.
In addition to ensuring financial accountability, annual audits are also important because they are required by the state and federal government, and cities that are not current with their audits may not be eligible for grant funding.
A period of staff turnover significantly delayed the city’s audits, Jolley said. The last audit, for fiscal year 2020-21, was received by the council in December 2022. Following the now-completed 2021-22 audit, Orange Cove needs to finish audits for fiscal years 2022-23, 2023-24 and 2024-25.
Orange Cove should be on track to catch up with all three audits in the next year, especially with the work the city has done to bring on a consultant and fill the finance director position, Jolley said.
“The key is having continued staff and not having as much turnover,” Jolley said. “Every time there’s turnover, that creates a big delay in getting some of this work done, because there’s a huge learning curve coming into a new city and coming up to speed on their accounting software and their procedures.”
