Crofton Journal

A report from the special Certified Public Accountant that was hired by the City of Crofton to review its financials was released Tuesday morning by Crofton Mayor Bob Evans.

Hayes & Associates LLC of Omaha and Council Bluffs were retained for that service.

As of the December City Council meeting, a bill for $14,000 for the service had been received, but it was mentioned that there would be more bills coming for the complete services rendered.

The report was five pages long, and, according to the “Independent Accountant’s Report” – was to “assist them in reviewing the cash receipts and disbursements of the City of Crofton as accounted for by the Mayor, Ms. Sharol Lawhead, as of September 30, 2022.”

The report was ordered by a special meeting of the City Council on October 31, 2022, as the result of a 3-0 vote by then Council members Bob Evans, Larry Peitz and Don Meink.

At that time, the motion from the Council was to:
“The authorization of the approval to hire a CPA to be given full access to all city financial records to conduct a full audit of  the city’s books and accounts and to work with the chief of police to investigate any citizens complaints or evidence of misappropriation and false statements concerning  saying of employees late. The police chief is hereby given authority to turn any evidence of malfeasance over to the Department of Justice and to the Nebraska Attorney General for further investigation if evidence of malfeasance is found.”

As of Tuesday, Jan. 10, 2023 – the City of Crofton’s Police Department reported that it had not yet seen or had time to review the report, and so no action could be taken until the report was received and reviewed.

Since former Mayor Lawhead has already relinquished her seat to new Mayor Bob Evans from the last election – most of the recommendations were reported by the accountant as “being worked on” by Lawhead, but didn’t include any verification if those things had been completed.

The accountant reviewed some major areas of the City’s bookkeeping system, primarily dealing with the major accounts and their reporting, mainly procedural items; previous audit recommendations for changes; and some recommendations for making the system better into the future.

In the end, the accountant recommended just two suggestions for the City to better its financial procedures, those recommendations, and the other review items are listed below:

Recommendations for Work
As a result of discussions with key personnel, and review of transactions and QuickBooks, we have the following recommendations that should assist in keeping operations running smooth for the city.

a. We recommend that the city examine its list of authorized users. If it is the policy of the city that all checks have two signatures, we would advise there be four available signatures to ensure there is adequate coverage so that all checks can be signed timely.
b. We recommend that the city council, the mayor, and the city clerk office work together on an understanding of the city’s financials line items and presentation. This will assist in a clearer understanding on the monthly reports and facilitate a monthly approval of the financials by the council at their regularly scheduled meetings.

Review of Procedures
During walkthroughs of significant revenue sources and expense categories the following items of note were observed:

i. An accounting entry was made into QuickBooks for the receipt of assessment funds, but not all of the appropriate accounts were included in the entry. Discussion with Mayor Lawhead resulted her mentioning that this is on her list of items to resolve before her term is concluded.

ii. There does not appear to be a formal approval of the monthly financials by the city council, however there is an approval of the month’s minutes which include the financials. We would recommend that during the council meetings a motion be made to approve the financials as presented or a reason for disapproval be noted in the minutes.

iii. Bank reconciliations for the city’s main operating account have not been completed since January 2022 due to the February reconciliation being out of balance. We would consider it a best practice to have reconciliations be completed with 30 days of receiving the appropriate bank statement, including any resolution of out-of-balance situations or other discrepancies.

iv. During the review of the process for billing citizens for utility services, it was noted that city employees have the ability to create and review a report of delinquent payers, but that is not currently part of the process. We would consider it a best practice to include a review of delinquent payers as part of the billing process.

v. During review of the payroll processes it was noted that on 1 person’s time sheet, there was an undetected clerical error which did not impact the employees pay, but rather could have had an impact on the allocation of employee hours to the appropriate expense category. 

vi. During review of the payroll process it was noted that on 1 person’s time sheet, there were hours allocated to an expense without accompanying time entries. This did not impact the employees pay, but rather could have had an impact on the allocation of employee hours to the appropriate expense category. 

vii. During review of the walkthrough procedures for revenues and expenses it was noted that there are no formal policies and procedures for most steps performed by the City Clerk/Treasurer. We would consider it a best practice to have job duties laid out for the positions that would include detailed instructions on how to perform different aspects of required tasks. Ideally these policies and procedures would be recorded and available for access by the appropriate staff. Discussion with Mayor Lawhead resulted in the creation of preliminary procedures for Paying Bills, Acceptance of Cash and Checks for Specific Sources of Revenue, and Authorizations to Charge or Create an Account.

viii. During review of the walkthrough procedures for revenues and expenses it was noted that there is limited segregation of duties performed by city staff. Primarily due to the limited number of staff in the office. Please see included Segregation of Duties – Best Practices pdf for examples of how to appropriately segregate duties with limited staff.

Review of “Significant Revenues and Expenses”
During the review of significant revenues and expenses, the following items of note were
observed. 

i. During review of Governmental Income, city employees were unable to locate the appropriate documentation to support revenues. We would recommend that a standard be implemented for the proper filing and retention of documents. This standard would ideally be recorded and available for access by the appropriate staff.

ii. During review of Intergovernmental Income it was noted that the deposit for Nebraska Equalization was incorrectly entered into the Highway Allocation account.

iii. During the review of Water Revenues it was noted that one citizen had an initial deposit recorded into the incorrect account. Discussion with Mayor Lawhead resulted in her writing this down to move to the correct account at a later time. 

iv. During review of Miscellaneous Revenues, city employees were unable to locate any supporting documentation for any revenue received from pool admits, concessions, or swimming lessons. City employees were also unable to locate supporting documentation for two selected auditorium rental/reservation transactions. We would recommend that the storage of pool documents be standardized and clearly labeled.

v. During review of significant expenses, it was noted that an expense was posted to an incorrect account. Discussion with Mayor Lawhead resulted in her writing this down to move to the correct account at a later time.
vi. During review of significant expenses, it was noted that the credit card bill for May was not paid timely and was included with June’s bill that was paid in July. Discussion with mayor Lawhead said this occurred due to not having an available second signature for the checks. We would recommend reviewing the current check signer policy to ensure that there will always be at minimum of two available signers for checks.

vii. During review of significant expenses, it was noted that there was a bill for a service contract that should have been paid by November 2021, that was not paid until July 2022.

viii. During review of significant expenses, it was noted that that was an expense for which city employees were unable to find the proper supporting documentation.

ix. During review of significant expenses, it was noted that there were three instances of transactions that should have been voided/deleted due to being duplicated. Discussion with Mayor Lawhead resulted in her acknowledgement of these transactions as being part of a list of items that the city needs the assistance of QuickBooks support to void/delete. We would recommend that any issues with QuickBooks entries be resolved as soon as possible in order to avoid instances where the financials may reflect incorrect balances.

x. During review of significant expenses, it was noted that there were four instances of expenses having check dates prior to council approval. Discussion with Mayor Lawhead resulted in her mention of the practice of prewriting checks and entering them into QuickBooks before council approval, but not sending the checks out until approval is granted. We would consider a best practice to wait until council approval before writing checks and entering them into QuickBooks in order to maintain a proper audit trail.

Recommendations in Previous Audits
There were 14 identified recommendations (listed below) made by the state auditors in the prior years audited financials. During discussions and review, none of these recommendations have been addressed or adjusted.

i. There is a lack of segregation of duties.
ii. There is no inventory listing or schedule.
iii. There is no written purchasing card policy.
iv. There is no written capitalization policy.
v. Employee withholdings for the cash-in-lieu option does not have the appropriate taxation occurring.
vi. There is no final review of payroll.
vii. There are no procedures to verify that pool ticket sales are accounted for, deposited and recorded.
viii. There are no procedures to ensure the city is billing all of its utility customers.
ix. There are no procedures for tracking municipal utility customer accounts receivable to ensure their financial presentation.
x. There are no procedures to ensure the accurate monthly reconciliations are performed, recorded, and that variances are researched/resolved.
xi. There are no procedures to prevent duplicate payments and recouping them after occurrence.
xii. There are no procedures to ensure all claims are approved by the council prior to payment.
xiii. There are no procedures to ensure proper documentation is maintained for all disbursements.
xiv. There are no procedures to track ad valorem taxes received and paid to Cmart LLC, compared to bond payments.