Kristen Dennis of accounting firm Walke and Associates provided an update on the Salida audit and financial fiasco that predates the current mayor and City Council during the council work session Monday, Nov. 19.
Dennis said she and City Administrator Drew Nelson spoke with auditor Dan Cudahy and worked out a timeline to avoid having to disclaim the 2017 audit as Cudahy suggested at the last City Council meeting.
“Our goal is to get everything to (the auditors) by Dec. 14,” Dennis said, allowing the auditors to begin their audit work the second week of January, which they anticipate completing in February.
She said the auditors had “a couple big concerns,” including “just getting the December 2017 cash balances reconciled with the bank statements. … That issue we have addressed and got it all cleared up.”
Dennis said the auditors’ next concern is being able to look at bank reconciliations through September 2018, that the accountants have done that through June and that there is “no reason we can’t meet those deadlines.”
Mayor Pro Tem Cheryl Brown-Kovacic said the auditors indicated that a couple of accounts had been hidden and not tracked and asked if all of those accounts had been located and reconciled.
“So far so good,” Dennis responded, noting that the accountants “had to make a couple of journal entries to get things back in line” and that it will take awhile “to get all the reconciliations together.”
Brown-Kovacic also asked about the implications for the city’s current federal and state loans, which require annual audits to be submitted.
Nelson responded that he has been in contact with the U.S. Department of Agriculture as well as the Colorado Water Resources and Power Development Authority, which “provided approximately a half million dollars in funding related to some water projects.”
As long as the city is working on the audit, “we’re not in jeopardy of that falling into any sort of default,” Nelson said. “I have just been in contact today with the USDA with regard to the wastewater (treatment plant) loans. … It’s my understanding that they were not provided with the 2016 audit or with the 2017 one.”
Nelson said he would follow up to make certain that the U.S. Department of Agriculture gets all the documentation needed to ensure that the city is compliant with the conditions of its USDA loans.
Given the city’s tardiness in completing its audit, Brown-Kovacic wanted to know how that will affect the city “in terms of applying for future grants and low-interest loans.”
Based on his precious experience, Nelson said, a current audit is typically not required to apply.
“Obviously, when you do apply for a low-interest loan or any other kind of funding, those financial investors will want to see what your books look like,” Nelson said. “So they will come in, they will review an audit, they will review budgets. …
“So it’s mission critical for us to get those done should you look to outside funding sources at any point in the future for any type of project.”
Brown-Kovacic then asked how the delay will affect the annual budget process.
“That does have a pretty profound impact,” Nelson said, especially in terms of having a year-end balance for 2018 and beginning balance for 2019, given the requirement that the city adopt a budget prior to the end of the year.
Nelson said he is working with city staff to develop strategies, including a possible plan to approve a budget similar to the 2018 budget and then adjust that budget moving forward to reflect council priorities.
Nelson added that one of the challenges facing city staff is that, toward the end of the process for developing the 2018 budget, some of the line items were cut or adjusted without the knowledge of the department heads.
“So now all of a sudden we’re bumping up against budget numbers … where they’re finding that they’ve gone over budget without really understanding why they’ve gone over budget” for things like fuel.
Dennis said a primary goal is to be back on track to complete the 2018 audit on time and thanked Nelson and the city accounting staff, saying they have all been “extremely helpful in answering questions and providing anything I needed.”