By MELINDA J. OVERSTREET
for Glasgow News 1
The accounting firm that performed an audit on the City of Glasgow’s financial statements for the fiscal year ending June 30, 2024, found that they present fairly the financial position of the city’s funds, according to the audit report provided last week.
There were matters of some concern that were discussed separately, however, with regard to internal control procedures.
Jeff Carter, one of the principals of Taylor, Polson & Company, fairly quickly summarized for members of the Glasgow Common Council Finance Committee the long-awaited, 128-page document at a special-called meeting late last week. One document that was provided to the city officials, a letter to the city council members, was not provided along with the rest of the audit report to the sole member of the news media who attended and was requested and later obtained by Glasgow News 1 through an open records request.
Only two of the four voting members –- Councilmen Terry Bunnell and James “Happy” Neal –- were technically considered present for this Thursday evening gathering that was, ultimately, unofficial. A third, Councilwoman Chasity Lowery, listened in and asked an occasional question via a telephone on speaker mode. To be considered present, she would have needed to be able to visibly see and be seen by the other members. Councilman Freddie Norris was absent. Bunnell, who chairs the group, acknowledged that they would be unable to take any action without a quorum present, but no action was sought, as it is unnecessary for the committee or even the full council to approve the report. It simply is presented to them.
More specifically on the finding, the firm’s opinion was that the financial statements for that fiscal year fairly present, “in all material respects, the respective financial position of the governmental activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information [for the city as of the end of that fiscal year] and the respective changes in financial position for the year then ended in accordance with accounting principles generally accepted in the [USA].”
“So, what the opinion means is, on the financial statements, that they are presented fairly, that they are exactly as they should be, and that, if there was any adjustments, those adjustments have been posted to those, so they’re not materially misrepresentative. They actually represent what the city has done for the year,” Carter said.
The financial statements of the municipally owned Glasgow Electric Plant Board and Glasgow Water Co., two of those “component units” referred to, were audited separately by other firms and those reports provided to Taylor, Polson & Co. for it to use in forming its overall opinions.
Among the financial highlights from the report noted by Carter was that the total net position decreased by roughly $1.92 million for its governmental activities from the prior year’s net position, with total revenues of $29,493,614 and total expenses of $31,413,229.
Total assets decreased from $72 million to $64 million from the 2022-23 fiscal year to the 2023-24 fiscal year (FY ’24), the one being audited. At the close of FY ’24, though, the city’s assets exceeded its liabilities by nearly $33.7 million for its governmental type activities.
He reviewed the amounts required to be set aside for pension funds and other postemployment benefits, referred to as OPEB and meaning health insurance in this case, which had increased from nearly $7.7 million to nearly $12.3 million.
Carter walked the group, which also included Mayor Henry Royse, City Treasurer Victoria Simmons and Councilman Randy Wilkinson, who is not a member of this committee, through several of the pages that contained more details that led to the overall totals previously noted and included notes about the differences in the cash-basis accounting versus the accepted government accounting basis, the latter of which includes things like physical assets, depreciation and debts, and how those different types of accounting are reconciled. He also reviewed a comparison of originally budgeted figures versus the figures after budget amendments versus actual ones for a few key amounts.
“The actual did a lot better than what you budgeted, yes,” Carter said in response to a question from Bunnell. “You actually took in more revenues, you actually spent less and you have a very favorable budget …, which goes to your carryovers for the next year.”
“These two pages are excellent,” Bunnell said, referring to that summary of the General Fund.
Carter, going to the next page, pointed out that the Sanitation and Landfill Fund went somewhat in the opposite direction, with it not doing as well as budgeted, but still coming out positively.
As he concluded the financial portion of the report and asked for any questions, Bunnell restated the opinion somewhat and noted that the city had good financial footing going into the following year, with which Carter agreed.
“So, usually we would say it’s a clean audit,” Bunnell said.
“On the financial statements,” Carter said. “It is a clean opinion on the financial statements – or unmodified opinion or unqualified opinion, whichever terminology you want to use. The ’70s was ‘clean,’ and then we moved into the ’80s. They said ‘unqualified’ for 20 years, and then they realized ‘unqualified’ don’t sound right, so then they changed it to ‘unmodified.’ So that’s where we are now. So, today, that would be an unmodified opinion, meaning there’s nothing has to be added or taken away from these financial statements.”
Internal control measures
The auditors, in planning and performing the audit, consider the internal controls the city has in place “as a basis for designing audit procedures that are appropriate for the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the [city’s] internal control,” the report states. “Our consideration of internal control was for the limited purpose described … and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore [some] may exist that were not identified. However, as described in the accompanying schedule of findings and responses, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies.”
The report, as a standard matter of practice, defines those terms as applied to this context. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis.
A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. The report identifies three items the auditors considered to be material weaknesses.
A significant deficiency is one, or a combination more than one, that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. The report identified six items considered to be significant deficiencies.
Each of the total of nine items – or findings – contains a description of the condition, criteria, cause, effect, recommendation and the city’s response, and Carter summarized each finding.
The first finding, 2024-01, was that the amount remitted by the city to the 457-retirement plan administrator exceeded what was withheld from employees’ paychecks, and the city does not make matching contributions. The 457-retirement is a secondary/voluntary retirement plan, Carter said. “On both occasions, one of the affected employees was the individual in charge of maintaining this plan,” the report states. Internal control guidelines require segregation of duties to detect errors and/or prevent fraud. In this case, according to the report, the cause was that the city’s human resources employee maintains the outside payroll processor’s database and is the person responsible for the input of data. The same employee is responsible for his personal employee requests for the city’s 457-retirement plan, entering the requests in the payroll system, approving the payments and processing payments. “The fact that the vendor, Nationwide, requires employees to call them to amend the percentage for voluntary withholding also complicated the process and helped allow these errors to occur,” the report states.
The effect was that the process allowed unauthorized transactions or undetected errors. It first happened in September 2024 and was detected during the routine payroll liability account reconciliations in November 2024. A second instance occurred in July 2025 after the payment of the retirement plan was moved to the Finance Department and was discovered the same week, according to the report. The auditors agreed with separating the duties by moving the payment to Finance but also recommended that more of a separation between the human resources and payroll functions be made by hiring a payroll clerk, according to the report. Carter said the recommendation was that this person be relieved of that responsibility or, at a bare minimum, that someone should monitor that. The city’s response was that the new city treasurer has experience with the payroll processing application ADP and is drafting new internal controls concerning payroll, and the need for a payroll clerk position was being evaluated. “In addition, all amounts were immediately paid back upon discovery.”
Finding 2024-02 noted that the city’s employee withholdings for its benefit plan deductions were not updated to reflect current costs, and the invoices were not matched with the withholding reports on a timely basis. Carter said some withholdings were higher than they should be and some were lower. The cause was stated as, again, the city’s human resources employee maintains the outside payroll processor’s database and is the person responsible for the input of data as it relates to changes in the healthcare plan, and the same employee is responsible for receiving the employees’ requests for the benefits “cafeteria” plan and entering those into the payroll system. “Part of the process for invoice approval is matching of the actual withholdings to the invoice. The matching process did not occur during the enrollment period,” according to the audit report.
The effect of this was that the city paid a greater share of these benefits than the plan allowed. It happened during the 2023-24 fiscal year and continued into the current year. “At this time, only the updated employee withholdings have been corrected. It is our understanding that the Human Resources Department and the employees are working on additional withholdings for the amounts that are owed to the city. The recommendation, again, was to hire a payroll clerk to closely monitor payroll activities and perform a timely matching process as part of the invoice approval process, which would also allow the duty to be segregated and help detect and prevent errors in a timely fashion. The city’s response confirmed that conversations with employees and collections had begun regarding repayment of any amounts owed to the city, and the need for creation of a payroll clerk position was being evaluated.
Finding 2024-03, the third and final material weakness identified, was that “grant management was not proactively monitored and unrequested expenses were identified during the audit process.”
“Grant management is critical to avoid missing deadlines for requesting funding, especially when the grant is reimbursement based. Delayed or late requests can negatively affect the cash flow of the City,” the report states. “The Grant Manager appears to have relied solely on the federal or state governments to track available funds for the grant. Questions by the auditor prompted the review of details and determined that more funding should have been requested on a timelier basis. … The same finding has been reported in prior audits; therefore, the Grant Manager appears to continue not to focus on the completeness of timeliness of grant requests. Available funds could be missed if grant management is not focused and timely.”
The auditors recommended that another person begin reviewing the work of the grant manager on a regular basis, which would help allow the city to know the availability of funds on a timely basis and improve the cash flow for grant-funded projects. “In addition, all records needed or requested by the Grant Manager should be made available timely,” the report states. The city’s response was that it would implement the suggested changes.
Carter said that, even though the dollar amounts were relatively small, the quantitative effect across the board make these more of a material weakness.
The six significant deficiencies were:
– Finding 2024-04: “Pay rates were increased for most of the salaried positions beginning on July 1, 2023. During this process, raises to an elected official were greater than the cost-of-living (COLA) allowed increases. Upon discovery of this fact, all excess amounts were repaid to the City.” The excess increase was “unintentionally applied when reviewing salary levels for the entire City.” The auditors recommended the city treasurer and city attorney review the applicable statutes and incorporate any requirements, which the city said it would do with the city attorney.
This past summer, a majority of the council approved an ordinance that sets forth rules for when and how adjustments to city elected officials’ salaries can take place.
– Finding 2024-05: At the Glasgow Municipal Airport, a single individual is responsible for issuing checks, making purchases using the entity’s credit card, paying the credit card statements and reconciling the bank statements, and that person is also an authorized check signer. Internal control guidelines require a segregation of duties to detect errors and/or prevent fraud, but the fact that there is limited staff at the airport creates the need for one person to do most of the accounting-related functions, resulting in little to no segregation of duties. The auditors recommend that this staff member be removed from the authorized check signers and the chair or treasurer of the board of directors be added instead, and that officer should review the bank reconciliation and document that review with initials and a date. Detailed financial records should be presented each month to the board as well. The city planned to implement these recommendations.
– Finding 2024-06: The police bank account requires only one authorized check signature, and all other city accounts require two, so having two signers was recommended, the city plans to implement this recommendation.
– Finding 2024-07: The required hearing for the use of Municipal Road Aid funds was not properly advertised and took place in the midst of a regular council meeting, creating some confusion as to whether it met the statutory requirements. The best practice is to have a separate advertisement and separate time for the hearing. The city response was to concur with the finding, with a notation that it has already advertised a separate hearing for the fiscal year that ended June 30, 2025.
– Findings 2024-08 and 2024-09: Requests for payment for Entertain Glasgow, which had been an independent entity and eventually became a city “committee,” though the audit report referred to it as a department, were unofficial invoices in the form of emails that listed the number of drinks and the total amount, so it was recommended that payment requests not be processed if supporting documentation with an appropriate invoice was not provided. The city’s response was that it would use more caution in this regard and noted that formal invoices from the vendor were “eventually received” so the payments could be made.
Also, a payment request was made for goods received before Entertain Glasgow became a city committee, with emails referring to cash collected and available for those purchases that was never deposited into a city account. The recommendation was that a training be conducted to all who are authorizing and submitting requests for vendor payments understand what is allowed, and the disbursement should wait until proof is received that the funds were deposited into a city account. The city responded that it concurred and would not process that account.
Bunnell commended city management for going forward with the auditors’ recommendations to get things cleaned up and provide for better monitoring.
“It’s good to learn,” Royse said. “This is a big operation. It’s good to learn. I think it’s an excellent audit, because we were able to see where we needed to do better, and we figured out how we need to do better, and, you know, it’s already – like audits are – we’re already past the time where we’ve done the things requested. So it’s a win-win-win.”
Referring to the letter to the council received by GN1 after the fact, Carter said, it was mostly about the audit practices, but it states they did not have any significant difficulties dealing with management while conducting the audit and no disagreements with management. It notes that all misstatements were corrected and the totals of what was overstated or understated were provided in the letter.
He said the one other issue addressed in the letter, which had to do with internal control policies and procedures, was in the process of being addressed. Carter said the last he knew, the city attorney, Rich Alexander, had the document to review, and he and the mayor had seen it.
Royse said Alexander has provided a final draft that he just needed to distribute to all those who need to see it, so they can start with any new hires showing them all the internal controls that need to take place all in one place.
The letter to the council had suggested that all internal control practices be placed in one comprehensive document.
Carter said he hated that the audit report had been delayed as long as it had, “but also I think we had to have ample time for them to respond, and we’ve had changes and – not only at the city, with us and everything else – so we needed to have ample time instead of rushing and saying this or this or this, I wanted to make sure, because I honestly – and the mayor knows this – I did not work up here during this audit. I was writing this audit and coming across the findings that they had noted, and I had to make sure, and go back and forth with the mayor and make sure – yes, this is what happened, this is what went on. … It was a necessary function that we needed to get through on all sides and all parts.”
“The result was, we got a document that’s very useful,” Royse said. “This is a prescription toward being a better entity, which is why we’re up here every day anyway.”
“Yes. The good thing is,” Carter said, “the financial numbers report what they’re supposed to do, OK, and what they are. The bad thing is is there’s some tweaking with internal control to prevent …. Many of these things, dollarwise, are not large, OK, that are reported on here, but if you don’t get your arms around them, they could become large in a hurry without realizing it.”
Bunnell said it was a good opinion on the financial statements and there were solutions to the findings that had been or were being made, and they’re all solvable. He said he appreciated the work everyone contributed to the audit, including staff members who are no longer with the city.
Carter is also expected to be at the full council’s special-called meeting at 6 p.m. Sept. 15, replacing the one that normally would have been tonight, to provide an overview of the report.
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