City of Milford 2020-21 audit approved by council

Terry Rogers Government, Headlines, Milford Headline Story

The FY2020 audit was recently approved by Milford City Council

At a recent meeting, City Council approved the audit report for the year ending June 30, 2021, compiled by Zelnekofske Axelrod LLC (ZA), a company that is a chartered global management accounting which indicates they have an understanding of practices beyond standard accounting. Kimberly Stank, CPA, CGMA, and Sandra Reguera, CPA, presented the report to members of council.

“The financial statements are fairly represented in all material respects in accordance with accounting principles generally accepted in the United States,” Stank said. “We reported material weaknesses in internal controls over financial reporting related to the accounting records and financial statement close process. And we expressed an unmodified opinion on compliance for major federal programs and internal controls over compliance.”

Based on the audit, the City of Milford’s net governmental activities position as of June 30, 2021, was $28 million which is a $1.8 million increase from FY2020. The business-type activities net position was $74 million which is a $6.2 million increase from the previous fiscal year end. The General Fund balance was $5.5 million, up by $541,000 from the previous year and the total governmental funds is $11.5 million, a $1.8 million increase.

Councilman Jason James, who has a background in finance, asked the auditors to explain that the weaknesses in internal controls were more adjustments based on new GASB standards. Reguera agreed, explaining that the weaknesses were not misstatements or problems with the financial reports.

“We went back and forth with the auditors on items that needed to be adjusted,” Lou Vitola, Finance Director, said. “But the vast majority of the adjustments were related to treatment and categorization and mapping. The one big standard on statement of cash flows where I had the change in receivables from an expected grant flowing through operating cash flow, but it needed to be in other financing sources. At the end of the day, while there were a lot of areas where ZA was saying you should plug that number here or that number doesn’t belong there and ‘let’s reconcile those numbers again,’ the impact on net position, the figures that are reported in the beginning of the presentation were not huge.”

Vitola explained that these issues were part of the reason the audit report was delayed as 2020 was his first audit as Finance Director and ZA was a new auditor for the city this year. He stated that the company wanted to “peel everything back.”

“Good is the enemy of great,” Vitola said. “ZA wanted to take apart every line and look at where every dollar was mapped, to diagnose things like mapping to spots that had a better place or adjustments that needed to be made. And now, thanks to that guidance and expertise, I do think we have a great financial position which has not changed materially from earlier on in the process.”

Councilman Dan Marabello asked if the auditors could explain the issue with internal controls.

“As Lou indicated, there were a lot of different times where we would say ‘you’ve given us support for accounts payables of this and this and this, however, your balance on your trial balance is this so what is the real accounts payable?’,” Reguera said. “Or a part of this needs to be pulled out because of this. So, adjustments were made as part of it as well as timing because, obviously, we’re at a year and a half later after your year end. So, the financial statement close process is another component of that. It’s considered a material weakness over financial reporting.”

Reguera explained that Vitola dealt with a difficult year during the audit period due to staffing issues and the fact that this was the first time dealing with city financial statements as it was his first year as Finance Director.

“Another thing different about your system is that you have a lot of funds, you have a lot of accounts, some you are using and some you are not,” Reguera said. “So, hopefully, you can consolidate a lot of these funds as well as the accounts with your new system because if you are using multiple funds to represent one fund the funnel is empty. Your financial statements, there is so much going back and forth between those funds, it creates an extra layer of complexity. If you go back to the KISS model, keep it simple, you can simplify it a little bit and I think it will be easier.”

Vitola agreed that the new technology implemented in the finance office would make it easier to consolidate some of the funds to make the system less complicated. He explained that the city currently uses 43 funds, and that the new system would collapse those into around 11. He is also looking at collapsing some of the internal service funds but was holding off until they worked more with the other funds.

“We don’t want to do too much too fast and shoot ourselves in the foot,” Vitola said. “So, we will have a much more streamlined Chart of Accounts. While we are on the topic of findings versus are they overcome, I would say we are moving in the right direction. We may have to wait until FY24 for the funding collapse, but we’re going to use those lessons in FY22.

Vitola explained that staffing challenges in his department had a significant impact on his department and the ability to complete the audit in a timely fashion.

“I cannot state the staffing challenges enough,” Vitola said. “Having ZA here for a nine month period was really like having an extra finance director. So, when Jeff retired and we lost our payroll person, it had the impact on the department of going from five to three. So staffing was a huge deal with this audit, but we are now fully staffed. To hedge against that, we’re also doing a lot more in finance and the city has grown. I am happy to announce we have engaged a CPA firm on a contract basis, so that when we do the budget, we have the form of another employee or another firm doing some of the work for us. Their first assignment was to break down some of the GASB pronouncements that are coming up and see how they will impact us.”

Councilman James commended ZA for the thorough report provided, explaining that he had reviewed a lot of audit reports and this one was “superior and much better presented.” Councilman James also reminded the other council members that the report indicated the city still held an A- bond rating.

The motion to approve the 2020-21 audit report was approved unanimously.

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