Friday, March 24, 2006

March 24, 2006 The 2004 Audit: Moving from the 2003 break-out audit to the 2004 audit

The 2003 audit was the break-out audit. I fulfilled my campaign promise to bring in state auditors with their experience in governmental auditing to replace the local private auditors. As a result, Hamblen County was finally put on notice that its financial house was not in order and had not been in order for years.

A very few people probably knew of the problems, but no one would do anything until someone official came in and said "the emperor has no clothes." That someone official was the state audit group, and what they said, in essence, was that Hamblen County was in a financial mess. What kind of mess?

The state auditors reported that the garbage fund was broke at the end of 2003, ending the year with a deficit of $205,000. How did this happen? One reason was the old commission was given a wrong number for beginning fund balance during the 2003 budget process. They were told that the garbage fund had money that really wasn't there.

Just a few months after the old commission passed the 2003 garbage budget (based on the wrong beginning fund balance that the Mayor's Finance Dept. had provided), the Mayor came to the new commission and reported that the garbage fund was in trouble.

To take care of the garbage problem, the 2003 audit states that the Finance Department kept bringing county commission amendments that kept "appropriating" more money for the garbage fund and saying that the source of the additional appropriations was "beginning fund balance."

In reality, the beginning fund balance for the garbage fund was long gone, and the real source of the money was to be a huge tax increase in 2004 and money used from other funds. Like many financial problems, it goes back to proper accounting, proper budgeting, and at least getting close when you are estimating beginning fund balance (the amount of money you have to start the year with).

In addition, the general fund at the end of FY 2003 was unofficially broke. It would have ended the year with an official deficit of over $100,000 except that the auditors moved money from other funds into the general government fund to restate the fund balance. To erase the $100,000 projected general fund deficit, the county moved about $400,000 from other funds into the general fund, giving it a positive balance of just over $300,000---the lowest county fund balance in recent history. Click here for the 2003 audit findings.

When the 2004 audit came back, it was definitely an improvement from 2003 when Hamblen County had had more audit findings than any other county in the state of Tennessee. The improvement in the 2004 audit was a little like two steps forward and one step back. Some type of corrective action had been taken on most of the 29 findings from 2003 (two steps forward). However, nine of the 29 findings from 2003 had not yet been corrected (one step back).

The 2004 audit listed 15 separate findings, and many of those had "findings within a finding." Five findings contained multiple deficiencies. For example, one FINDING (04.05) has five budgeting deficiencies listed as A, B, C, D, and E. To see Hamblen County's 2004 findings at the State Comptroller's website, click here for 2004 findings.

Some of the "new" problems that the auditors reported in 2004 were actually deficiencies that had existed in 2003 as well as long before. So why were some of the problems that existed in 2003 not reported until 2004? As I've mentioned before, a yearly financial audit doesn't look at everything. It does a spot check in a few areas. Evidently, in 2003 some areas that had deficiencies were not looked at, so these deficiencies were not found and reported until later (2004 audit) when these areas happened to be checked during the next audit process.

More detail on the 2004 findings next time...

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