State audit reviews city’s controls

OLYMPIA — The Washington State Auditor’s office submitted its annual report Jan. 22 on the city of Arlington’s accountability.

“In addition to the Report on Accountability, the state auditor also provided a special report on a misappropriation of public funds in the city’s finance department,” said State Auditor Brian Sonntag in a cover letter with the report.

State auditors concluded that the city had complied with state laws and its own policies and procedures and “Internal controls were adequate to safeguard public assets,” concludes the report.

But the Schedule of Audit Findings and Responses at the same time states, “The city of Arlington does not have adequate internal controls to ensure accurate financial reporting.”

Minor points under that headline specify shortcomings in the city’s knowledge of cash basis accounting principals or lack of understanding of the BARS (Budgeting, Accounting, and Reporting Standards) manual and the lack of a process to compare the classification of accounting transactions against the BARS manual.

The state audits annually and, in 2005, it issued the first federal audit finding in 10 years, with no mention of any disappearing funds. Both the state’s annual audits and the feds’ 10-year audit found only minor discrepancies not impacting the bottom line.

Even this recent audit report on the year 2007 did not discover any signs of the 10-year embezzlement scheme by a former employee of the city’s finance department which was discovered in July 2008, noted Mayor Margaret Larson in a letter about the audit to her staff.

“The implication that our lack of controls could have prevented the embezzlement is simply not true,” Larson wrote.

The state report examined specific areas that had potential for abuse and misuse of public resources using financial transactions dated from Jan. 1 - Dec. 31, 2007.

City officials noted that neither the recent audit and none before this year found any signs of disappearing funds in the embezzlement scheme that is estimated to have been executed over a 10-year period, approximately 1998 - 2008.

The city’s attorney, Steve Peiffle acknowledged that one might conclude that the specified “lack of internal controls” could have contributed to the embezzlement, but the specifics in that category of the audit report did not make that conclusion.

“Even the report itself says the state’s findings did not affect the bottom line,” Peiffle said.

“Yes, it is fair to say that it [the embezzlement] happened due to lack of sufficient internal controls, but the important thing is we did what we had to do when we discovered we had a problem,” Peiffle said, noting that none of the state’s annual audits reported signs of disappearing cash.

Mayor Margaret Larson defended her team.

“If you read the audit from cover to cover, it makes no mention whatsoever of the embezzlement,” she wrote.

“The city has corrected the coding issue and the audit states that the city correctly accounted for all revenues and expenditures.”

At the request of the city, the State Auditor is conducting a special audit on the embezzlement.

“It should be noted that the embezzlement was discovered by city staff and reported to the state auditor as required by state law,” Larson said.

“We are committed to earn and maintain the public’s trust,” Larson wrote.

“It’s important to ensure there was no misunderstanding about our dedication to protecting the public’s assets.”

The state audit concludes that all the minor technicalities caught in the current audit were corrected by the city.

“Our audit recommendations have been positively acknowledged by the city. We appreciate the city’s commitment to resolving the issues,” says the letter from the state auditor.

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