A report reviewing Millbrae’s financial performance offered a positive budget outlook while harshly rapping officials for poor accounting practices and inadequate oversight of public money.
The Millbrae City Council approved Tuesday, March 14, the comprehensive annual fiscal report which showed tax revenue is on the rise despite negligent behavior by those charged with watching city funds.
Constant staff turnover at City Hall, inadequate oversight, improper control procedures, lack of review leading to an instance of more than $100,000 in overpayment for services and ignoring best practices for securing cash boxes were among the issues raised in the report from accounting firm Badawi and Associates.
“We identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies,” according to the report examining the 2015-2016 fiscal year.
Not all was bleak in the report though, as the city’s general fund outperformed expectations to the tune of nearly $2 million, due to increased sales, hotel and property tax collections.
In a response to the findings of poor accounting, city staff claimed new administrators have been hired to assure the same mistakes are avoided in the future.
“The new finance director and new financial services manager have significant experience in financial reporting, policy implementation and staff development and look forward to continuing to build a strong team,” said new Finance Director DeAnna Hillbrants in an email. “Additional staff have been added to the Finance Department to assure adequate cross training and internal control.”
Councilman Wayne Lee indicated he believed the previous mistakes were the function of not paying competitive rates to hire top talent in the financial services department.
“If we go cheap, then we go cheap, but then we get these audit issues,” he said, according to video of the meeting.
Among the most glaring mistakes identified in the audit is officials going an entire year without properly monitoring city bank accounts, while openly sharing the cash box combination without resetting the code.
“We noticed that the monthly reconciliation of the city’s bank accounts were not performed for 12 consecutive months during the fiscal year. The city completed those reconciliations in August 2016,” according to the report. “We also noticed that the combination lock for the cash vault was known to all the employees in the Finance Department, including temporary employees. Though there has been many turnovers in the department, the combination lock was never changed.”
In another instance, an $108,841 overpayment was authorized due to poor oversight practices. The city later received a refund for the spending.
“The city’s policies and procedures were not followed and complied with. Per our inquiry, we were informed the city’s procurement policies were outdated. Due to turnover in the Finance Department, there was no proper review process for vendor setup and payment processing,” according to the auditor’s report.
Officials plan to install new financial reporting software which they expect will also help rectify the issues faced last year as well, according to the report.
Frequent staff turnover and poor training of new employees was identified in the report as a primary source of the myriad problematic practices.
“As the city experienced a significant turnover in the Finance Department, there was no adequate transition of information. The control procedures for reconciliation and review were not followed during the year,” according to the report. “There was no adequate cross training to ensure continuity of the accounting operations and financial reporting.”
With plans in place to avoid similar infractions, officials are also looking ahead to preserve some of the increased revenue for significant capital improvement projects such as rebuilding the Community Center as well as fixing an antiquated water and sewer system, according to a city press release.
“Even though we have had a good year in a financial sense, we will need to continue closely watching our spending and budgeting methods so that the city can address infrastructure needs while maintaining a healthy reserve balance,” Hillbrants said in a prepared statement. “The city has a number of long-term needs such as facility and streets maintenance that require attention to assure a sustainable city into the future.”
Under the implementation of new staff and monitoring tools, Hillbrants is also hopeful to avoid any similar accounting mistakes in the future.
“With these changes, the Finance Department is looking forward to continuous improvement and ongoing implementation of best practices,” she said in an email.
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