New Orleans Finances
Broad failings found in audit of N.O. finances. Hiring accountants, consultants will help, city officials respond
Wednesday, January 23, 2008By Michelle Krupa
Staff writer A long-awaited audit of New Orleans’ 2006 finances reveals an overburdened, disorganized system of fiscal oversight at City Hall that is prone to bookkeeping delays and lacks a variety of internal controls, including barriers to prevent corruption of the public bidding process, according to the accounting firm that conducted the audit.
The report is striking in the breadth of its concerns. Beyond offering general criticism of how the city manages its accounts, auditors identify sloppy procedures for handling cash transactions, gaping holes in the protection of electronically stored information and deficiencies in the collection and recording of property, sales and franchise taxes. Referring generally to the ability of Mayor Ray Nagin’s administration to oversee municipal finances, the auditors with the firm KPMG state: “The city does not have adequate policies, procedures and related internal controls to prepare accurate and complete financial statements.” In response to nearly every problem uncovered, city officials attribute their shortcomings to a lack of capacity owing to significant layoffs that followed Hurricane Katrina. In the sections of the audit reserved for City Hall reaction, officials say they are working to rehire accounting staff and consultants to rectify the problems. “Our Finance Department recently began working with PFM, the financial consulting firm who assisted with the development of our budget, to put additional policies in place to further decrease or eliminate future findings,” Nagin spokesman James Ross said Tuesday. In some instances, city officials say they strayed from established accounting practices, such as keeping open their 2006 ledger far into 2007, because of the large number of invoices that remained unpaid for months following the storm. Deadline extended The audit was submitted to the state Dec. 18, nearly six months after its due date and minutes before a deadline set by the Legislative Audit Advisory Council, which oversees audits of public agencies. The panel, after extending the original June 30 deadline several times, had threatened to withhold millions of dollars in state money if the city failed again to submit its annual financial review. Legislative Auditor Steve Theriot released the audit Tuesday on his Web site, www.lla.state.la.us Although the city beat the submission deadline, the 184-page audit offers a dismal view of how well officials kept track of the billions of dollars in cash and assets under its control in 2006. For instance, KPMG states that the city failed to remit federal payroll taxes for the last four months of that year, a serious oversight that “resulted in a significant liability” to the Internal Revenue Service. Though the IRS waived all penalties and interest, the auditor recommended that the city institute a policy to make sure the money gets transferred monthly. The firm also notes problems in tracking the city’s capital assets. Lists of city buildings and other structures were maintained in 2006 in an Excel file that provided general building descriptions but lacked addresses, “which made it time-consuming to identify the location of certain assets.” KPMG attributes part of that problem to the city’s efforts in 2006 to convert its computerized ledger system to a new Microsoft Windows-based system. The process, the auditor states, has resulted in “multiple significant problems,” including difficulty accessing data by some city employees who were not taught how to use the new system. Lack of internal controls Auditors also took note of the kind of fissures in local law that allowed former City Councilman Oliver Thomas, who was named in the audit, to direct a public parking contract through a quasi-city agency to a businessman who had paid him a bribe. “The city does not have systems of internal controls in place to deter and detect improper influences related to awarding contracts for public works and purchases of material and supplies,” the report states. City officials responding to that point noted the creation last year of the Inspector General’s Office as a means to stave off fraud and corruption. While most problems detailed in the audit are connected directly to the city’s daily fiscal oversight processes, criticism is not limited to the Finance Department. KPMG states that the city attorney’s office failed to keep accurate records of how much money the city may have been on the hook to pay out in lawsuit settlements in 2006. The Office of Recovery and Development Administration, meanwhile, failed to track the status of federal loans that it administers for the U.S. Department of Housing and Urban Development, auditors state. The audit also singles out the Office of Information Technology for its flimsy control over who gets broad access to data stored on city computers. User privileges “are not appropriately controlled,” KPMG states. Perhaps most surprising was the lack of a plan for the city’s computer nerve center to rebound after another hurricane, the report states. “A documented disaster recovery plan did not exist for 2006,” it states. ‘Material weaknesses’ In all, KPMG finds nine significant deficiencies with the city’s internal fiscal controls, including five so-called “material weaknesses” that create a “more than a remote likelihood” that the city’s internal system of checks and balances will not catch a material error in a financial statement. Among auditors’ other observations in those areas: — Cash journal entries related to outstanding checks and deposits-in-transit did not show evidence of review and approval by someone other than the preparer. — The city did not perform timely review of construction projects so that projects can be properly designated as depreciable assets. — The city’s sales tax receivable was not complete and also included sales tax transactions from 2007. . . . . . . . Michelle Krupa can be reached at mkrupa@timespicayune.com or (504) 826-3312.
Tags: accountability, finances, transparency