Carl Cimino of Manakin-Sabot submitted these comments on the county's CAFR. They are well worth the time to read
My comments re the recent audit report.
The audit of the County’s finances for FY 2009 was completed by KPGM and submitted to the Board of Supervisors.
There are no surprises in it. Anyone in the county that has been around for any length of time surmised that much was left to be desired in the way some county agencies operated.
More pointedly the competence of county administration was often questioned, which questions were regularly ignored or perhaps, in hindsight, stonewalled for reasons only known to the one/s doing the stonewalling.
The essence of the KPMG report is found in the last paragraph on page 1 of the Financial Report letter of the audit.
As discussed in note 17 to the basic financial statements, the net assets of the governmental activities, the business-type activities, School Board component unit, Economic Development Authority component unit, James River Sanitary Distgrict funds, Utilities fund, and Tuckahoe Creek Sanitary District fund and the fund balance of the General fund as of July 1, 2008 have been restated to correct misstatements from the County previously issued financial statements, which were audited by other auditors.
Also as discussed in note 17, the fund balances of the General Fund, Capital Projects fund and the other non-major governmental Revenues fund as of July 1, 2008 have been restated from the County’s previously issued financial statements to reflect a change in fund reporting presentation. As discussed in note 14 to the financial statements the County adopted the provisions of the GASB Statement No. 45, Accounting and Financial Reporting for Postemployment Benefits other that Pensions, effective July 1, 2008.
The substance of the KPMG report is found at Note 17 - Notes to Financial Statements, Restatement of Beginning Fund Balances and Net Assets (See Page 66). KPMG had to execute thirty-four (34) restatements. The first one is, “In prior years, the County did not record real estate and property taxes in accordance with GAAP” (generally accepted accounting practices).
Since references to GAAP are made throughout the report a quick description of what GAAP is may be in order.
“Financial accounting is information that must be assembled and reported objectively. Third-parties who must rely on such information have a right to be assured that the data are free from bias and inconsistency, whether deliberate or not. For this reason, financial accounting relies on certain standards or guides that are called "Generally Accepted Accounting Principles" (GAAP).”
From another Web site , Buzzle. com –
Generally Accepted Accounting Principles (GAAP) is defined as the standard guidelines of accounting rules for financial accounting and to prepare financial statements for private companies and the companies trading publicly in United States. It chalks down the standards, conventions, and rules for accountants to pursue in recording and summarizing transactions, and in the preparation of financial statements. In United States these rules are decided by the Governmental Accounting Standards Board (GASB) which applies to local and state governments. (Underline added)
Found at Suite101: GAAP and Accounting Standards: An Explanation of Generally Accepted Accounting Principles (GAAP) :
Generally accepted accounting principles (GAAP) are varied but based on a few basic principles that must be upheld by all GAAP rules. These principles include consistency, relevance, reliability, and comparability.
And, finally back to Buzzle.com
Again, it has to be remembered that GAAP are not a rigid set of rules. These are flexible guidelines only. Over the years, these groups of conventions and standards have evolved in the specific need of standard common platform for the preparation and presentation of financial statements In United States, the American Institute of Certified Public Accountants (AICPA), The Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) offer guidance and assistance about standard acceptable practices of accounting.
Probably for professional reasons, KPMG in restating prior audits did not mention the name of the prior auditor, who, no secret to anyone, was and has been for many years, Robinson, Farmer, Cox Associates (RBCA). According to the Goochland Gazette, RBCA took issue with the KPMG restatements, “ …and believe such fund balance reflect a change in reporting preference or accounting policy…rather than a correction error.”
Twenty “vehicles owned by the county that were duplicate listings, vehicles transferred to enterprise funds,.. or vehicles which had previously been disposed.” Item F pg. 67
“Deprecation expense on a FY 2006 renovation of the former Goochland High School which had not been recorded…” (Underline added) Item K pg. 68
Costs incurred in 2007 for widening and paving the private road to the Fire Training center “…which had not been recorded.” Item L pg.68
“Neither the contractual liabilities of the County…nor the assets that were received …and accumulated depreciation…were recorded”. Item M pg.68
What accounting policy/reporting preference allows double counting and not recording?
The causes of the errors as stated by KPMG is that the county did not have policies and procedures providing the controls that would prevent the deficiencies found. It further stated the county does not have sufficient personnel to perform required accounting functions; the personnel it does have are not trained to perform the functions needed, and there was inadequate supervision by upper administrative levels.
Much of this is consistent with findings of the recent forensic audit performed when unreasonable accounting lapses were found in the Department of Utilities.
What the KPMG audit did not state, though it is quite apparent when one reads its report, is that there were two long term serious lapses in the administration of the county’s financial affairs.
The first and probably the most egregious is the failure of the prior, and long time, auditor to report the lack of policies and procedures designed to provide the proper controls governing the county’s financial reporting. One of the first steps in any audit is to have the organization being audited produce its written policies and procedures. If there are no written policies and procedures this becomes a finding in the report. There is nothing demonstrating that the prior auditor seemed concerned over the absence of this documentation.
The second is the lapse of leadership and oversight by the Board of Supervisors. As one reads the KPMG report it leaps out that the problems in the County’s financial system were errors and omissions in applying basic principles of Management 101. The Board of Supervisors did not use due diligence in carrying out their duties as stewards of tax payer’s funds. In the final analysis the buck stops at the Board of Supervisors - responsibility can be delegated; accountability cannot. Over the years the Board delegated management responsibility to the County Administrator, which is acceptable, but did not exert oversight, which is not. The Board accepted statements from him, and the auditors he selected, that the County’s financial affairs were in order. It appears the Administrator’s choice of the same auditor for at least a decade was never questioned. This, in itself, should have raised red flags. There is nothing to indicate the Board ever inquired or ever expressed any interest in whether county agencies had policies or procedures of any type in place. This is another matter the Board is accountable for. Add to that the fact that the auditor was also used to advice on other financial issues.
Recently a Board member made a statement that he was excited over the changes that are occurring. However that member has never expressed any regrets for being complicit in why the changes became necessary. Another member merely stonewalls the whole issue. Added to that is the fact that some members of the Board seem to feel that those who questioned the performance of the County Administrator should be punished as was exhibited at the first meeting of the Board in 2010. .
There has been and will be much speculation about what the individual and collective motivation of the Board was. It will run the gamut of reasons. The only ones who know the truth are the members themselves. Little can be gained by revisiting the issue. What is to be done is to make sure there is never a repeat. The way for that to happen is for the citizenry to remain involved. The problem is there was a flurry of interest when the problem first surfaced but that has waned and, in all probability, has just about disappeared, with the exception of those who for many years suspected and tried to warn that all was not what it seemed.
In closing it might be appropriate to note that while the audit issue has been identified and is being addressed there is a more dire problem: the issuance of the revenue bonds to finance the water-sewer system and other finance arrangement attached to that undertakingt. Once again the due diligence required of the Board seems to have been missing. It defies comprehension as to what the Board was thinking when it let that matter be foisted on the county. The bond principle and interest is in the magnitude of $168,000,000 in a county with a population of 21,000 and growth rate of 2.3% due in 2036. Some may say that this is not of great concern since it is spread over thirty years. That might “kick the can down the road” but by anyone can do simple arithmetic calculations and get an idea of what the added tax debt load per household or per individual will be, yearly or in the aggregate. It is even worse if you are in the impacted area and have to pay both fees and taxes based on that population.