During the City Council meeting held on April 13 the City Auditors from Armstrong, Vaughan and Associates P.C. presented the findings of the Fiscal Year Ending 2016 audit. During the spoken presentation, the Auditors reported the City in good financial health.
Although the City of Helotes has some long-standing debt now with Certificates of Obligation and judgments against the City, the City is maintaining a 4-month operating balance in reserve. Cities are expected to carry at least a 3 month to 6-month cash operating balance in reserves.
It is important to note a couple of important observations. First, the Mayor continues to maintain the City has the almost $900,000 collected in inspection fees in an ear marked account. This account was not identified by the audit or auditor. He continues to either ignore the open records request asking for the account number, or it simply does not exist.
There is an important reason why the almost $500,000 collected from the sale of the property was not used to pay down the judgements against the City. If the City has applied all the money collected from the sale, then the $500,000 would have brought them with in the 3-month cushion expected by cities or under the 3-month cushion.
If the City of Helotes falls below the 3 month expected reserves, then it raises a red flag in the audit and can affect the credit rating of the City of Helotes.
I have been with the newspaper since 2009, and covering the budget process since 2010. I remember in the early years, we had an 8-month reserve for the city. So, a decrease from 8 to 4 has surprised me.
The second fact to note, City Council members were not given the complete communication from the Auditor. Missing from the Council packet this year was the Letter of Material Weakness in Internal Controls.
We consider the following deficiency in the City’s internal control to be a material weakness in internal control:
- Investments and Bank Transfers
During the year ended September 30, 2016, the City began using a third party investment firm that recommended a bank that was completely electronic. Therefore, on the City sweep account they did not receive “transfer advices” on the transactions nor did they receive a bank statement monthly. It was noted that the City can review the bank balance online daily. The City did recorded “transfers” of cash within the sweep account by showing transfers in and out on the financial statements. As there was no paper trail of the electronic only account, insured cash sweeps were understated on the Balance Sheet by $651,710. Management relayed prior to audit commencement that they had detected an issue as they could not reconcile the transfers, but were unable to determine what account had not been recorded based on bank’s documents. This also resulted in an overstatement of transfers out. Prior to the auditors leaving, management was able to determine which account had not been recorded upon reviewing email correspondence compared to statements provided from their financial advisor.
Suggestion: As each transfer is made by investment officers, there should be a copy of the “transfer advice” printed and sent to the Finance/Accounting department. Investment officers should immediately record the transaction and send an initialed copy back to the Finance/Accounting department. As an additional procedure at month end a Balance Sheet, bank statement, and corresponding bank reconciliation should be reviewed by management and the Finance/Accounting department.
As of the date of this report, management reconciles the account by reviewing online balances. In addition, management immediately strengthened their internal controls by improving methods of communication of all journal entries and changes in investments by tracking all such transactions in writing in a journal.
The purpose of this communication, which is an integral part of our audit, is to describe for management, and those charged with governance as the scope of our testing of internal control and the results of that testing.
Accordingly, this communication is not intended to be and should not be used for any other purpose.
I am in no way implying there are financial impropriety happening inside the City of Helotes. However, once again the Mayor and Rich Schroder decided to leave this information out of the Council packet before the visit by the auditor, so if Council had any questions about what this meant or how to ensure it not happening again, they could not do so.
Transparency is a word being tossed left, right, over, and under during this election, but it was not employed when the experts were on site to discuss their findings. After all the letter was addressed To the Council City of Helotes, it should have been placed in their packets.