Arcadia Township officials at odds over forensic audit

The Arcadia Township Board of Trustees will meet at 7 p.m. on Thursday in the Arcadia Township Hall. (News Advocate File Photo)

The Arcadia Township Board of Trustees will meet at 7 p.m. on Thursday in the Arcadia Township Hall. (News Advocate File Photo)

ARCADIA TWP. — Several Arcadia Township officials have pointed to “red flags” that arose in the township’s annual audit for the reasoning behind a forensic audit that is now being conducted.

However, the township received a “clean” or unmodified opinion from Gabridge & Co., of Grand Rapids, for its 2017 audit, which is the highest level of opinion that can be provided. The township’s fiscal year runs from April 1 to March 31.

“What that means is financial statements present fairly in all material respects of financial condition of the township as of March 31, 2017,” said Joseph Verlin, managing principal and CPA at Gabridge & Co. “Reading an audit report and concluding that a forensic audit is needed is not typical, but certainly possible.”

Verlin said some things could be interpreted as red flags.

“Our job is to look at the financial statements provided to us by the township and make sure we can verify revenues, expenditures, assets and liabilities. In order for us to be able to do that, we’re not looking at every single transaction, so we need to assess internal control of our clients,” explained Verlin.

Internal controls are the checks and balances that a township uses to account for its finances.

“If, during that process, we feel one of the internal controls is not effectively designed or if the internal control is effectively designed but not being carried out effectively on a day to day basis, we put those types of items in writing and they’re considered significant deficiencies or material weaknesses and we include that in the report to the board in the back of the audit,” he said. “We’re not necessarily expressing an opinion on internal controls; these are just things that came up during the course of our audit that we felt needed to be brought to the attention of the board so they became aware of them.”

The Arcadia Township Board held a special meeting on Jan. 26 to go over the preliminary findings of a forensic audit. (News Advocate File photo)

The Arcadia Township Board held a special meeting on Jan. 26 to go over the preliminary findings of a forensic audit. (News Advocate File photo)

Verlin said it’s not atypical for townships to have findings, however, there were more findings than usual in Arcadia Township’s March 31, 2017, audit.

“(The audit) suggested that we had internal control issues, and there were quite a few of them, and that they needed to be resolved,” said Patti Wilson, Arcadia Township clerk. “We were looking into resolving those internal issues and that’s when the board decided that we needed to go forward with the forensic audit.”

Wilson supported the motion for a forensic audit, which was approved, 4-1, by the board on Sept. 14. At the next regular meeting, On Oct. 12, the Arcadia Township board approved 4-1 (with Eckhout voting no) a motion to hire Karl Haiser CPA to perform a forensic audit.

“We received a letter from the state treasury saying we were in deficit on our marina account, between that and the suggestion on the internal control issues, it was kind of clear that we didn’t have a handle on our financials the way we should, to me,” said Wilson, who was appointed clerk in mid-August after former clerk Patrice Wisner resigned.

Verlin explained that in the township’s audit report, the marina fund’s total net position was $311,404 positive, however, the marina fund had an unrestricted net position of a deficit of $2,309. According to the audit report, “the decrease in net position of the marina fund was the result of a cost of repairs and maintenance, materials and supplies expenses.”

“Treasury requires all elements of net position in all funds to maintain positive balances,” he said. “For that reason, the township needed to submit a deficit elimination plan to the Department of Treasury. This isn’t something that is privy just to the township board. Treasury will automatically send a letter to townships with any type of a deficit even if total net position is positive.”

Arcadia Township treasurer Debbra Eckhout said that this year auditors were required by the state to take an additional step in reporting if any fund balance was shown to be in a deficit.

“The state would send a municipality a letter asking them to send a report on how they’re going to correct it. My understanding is virtually every municipality in the state got that letter — from Detroit … right down to us little guys,” said Eckhout, who did not support the forensic audit.

She said that last summer she discussed with the township’s auditors some concerns.

“The clerk wants to help manage bank accounts; she does not have any banking rights. That’s the treasurer’s job,” Eckhout said. “Gabridge addressed that in their audit, in their letter in the end. They said there’s three things here the board needs to address, and we can do that internally — just make some policies and make sure we’re following the law. The board did not address those things.

“In Mr. Karl Haiser’s contract it says that those are the things that he is supposed to address. It isn’t believed that there is any fraud committed, just those three things I was concerned about — addressing these internal controls, banking authority and getting the clerk’s books reconciled.”

The clerk said the relationship with the treasurer is difficult.

“There are issues between the clerk’s position and the treasurer’s position being able to communicate. We have a difference in opinion as far as how the financials should be handled,” Wilson said.

Wilson said a full cost has not yet been determined for the forensic audit, however, Eckhout estimates that the bill is currently around $14,000.

“This is costing the township thousands and thousands of dollars and now the regular auditors have it back in their hands,” she said.

On Jan. 26, the township board held a special meeting during which Haiser presented a preliminary report on the forensic audit.

The final report is expected to be available at the next meeting of the township board, which will be at 7 p.m. on Thursday in the Arcadia Township Hall.

The township’s annual audit and the letter from the treasury can be found at https://treas-secure.state.mi.us/LAFDocSearch/.

 

 

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Posted by Michelle Graves

Michelle is the managing editor of the Manistee News Advocate. You can reach her at (231) 398-3106 or mgraves@pioneergroup.com.

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