State audit finds deficiencies in City of Tenino's internal controls

A sweeping state audit of the City of Tenino found it did not have adequate internal controls in place to ensure accurate reporting of its financial activities for several years.

The Financial Statements Audit Report from the Office of the Washington State Auditor, which was published on Thursday, Dec. 26, examined financial records for the period of Jan. 1, 2019, through Dec. 31, 2022.

The audit identified the following deficiencies in the city’s internal controls over financial reporting that, when taken together, represented a material weakness (a deficiency, or a combination of deficiencies).

• The financial statement preparation process did not ensure that the financial reports were accurate and prepared in accordance with the BARS (Budgeting, Accounting and Reporting System) Manual.
• The city did not perform an effective review to ensure amounts reported in the financial statements, notes to the financial statements and supplementary schedules were consistent with the underlying accounting records.
• The city did not complete monthly and year-end cash reconciliations to ensure that accounting records, including revenues, expenditures, and cash amounts, were reconciled to the bank statements.

The audit noted the city “experienced significant turnover in key positions responsible for preparing the financial statements and related schedules, and did not provide adequate training and oversight for new staff who took over these duties.”

As a result, the city’s financial information contained errors that were not detected by management. The audit identified the following material and significant misstatements for each year under audit:

• The city understated the beginning and ending balance of the Schedule of Liabilities for the following years: $613,135 (beginning) and $520,964 (ending) in 2022; $630,352 (beginning) and $672,071 (ending) in 2021; $5,792,867 (beginning) and $5,361,379 (ending) in 2020; and $446,486 (beginning) and $0 (ending) in 2019. 
• The city had unknown differences between the cash balance in the bank and the cash recorded in the general ledger totaling $79,430 in 2022, $31,320 in 2021, $9,081 in 2020 and $2,254 in 2019.
• The city overstated 2020 revenues and other decreases in fund resources by $518,567 and $490,732, respectively.
• The city overstated the 2022 Schedule of Expenditures of Federal Awards (SEFA) by $528,509.
• The city did not consistently report the street fund as its own fund and instead combined this activity into the general fund for 2021 and 2022.
• The city did not submit all required schedules and supplementary information as part of the 2020 annual financial report, including notes to the financial statements, Summary of Bank Reconciliation and the SEFA, and did not submit the 2019 notes to the financial statements.

“We also identified less significant errors in the City’s financial statements, schedules and notes that it provided for audit, including errors in the City’s ending cash,” the audit report stated.

“The City subsequently corrected all the significant and material misstatements on the 2022, 2021, 2020 and 2019 financial statements, schedules and notes.”

The findings led to the following recommendations for the City of Tenino.

• Strengthen internal controls and dedicate the resources necessary to ensure all staff responsible for preparing financial statements have the necessary resources and training to prepare accurate and complete financial statements in accordance with reporting standards.
• Conduct an effective, independent financial statement review that ensures amounts reported agree with underlying accounting records.
• Ensure it completes monthly and year-end cash reconciliations and that accounting records, including revenues, expenditures and cash amounts reconciled to the bank statements.

The 68-page audit report also contained a response from the City of Tenino.

“In response to the Financial Audit of the City of Tenino from January 1, 2019-December 31, 2022. We appreciate the thoroughness and professionalism with which the audit was conducted, and we acknowledge receipt of the audit findings,” the response stated.

“The City of Tenino is committed to ensuring compliance, transparency, and adherence to best practices in all aspects of our operations. Your audit report has been instrumental in identifying areas where improvements can be made, and we are dedicated to implementing these improvements promptly.

“Additionally, we would like to thank your audit team for providing valuable insights and recommendations throughout the audit process. We believe that their expertise and guidance will contribute significantly to the City of (Tenino’s) ongoing growth and success.”

The auditor responded to the city’s remarks about the process.

“We appreciate the steps the City is taking to resolve this issue,” the auditor stated. “We will review the corrective action taken during our next audit.”

It was not clear when the next audit of the city’s financial activities would take place.