The good news for the Sunnyside Valley Irrigation District is that when it comes to accountability, SVID is perfect. The bad news, however, is that for the first time in 16 years SVID received a finding from the Washington State Auditor's Office in the area of financial statements.
When the auditors looked at SVID's accountability, areas such as open public meetings, cash receipts, disbursements, lending of credit, fraud and inventory of equipment and vehicles were looked into. The auditors evaluated internal controls and performed audit procedures on the activities of the District, as well as determining whether the District complied with state laws and regulations, as well as its own policies and procedures.
The time period inspected was from Jan. 1, 2008 to Dec. 31, 2010.
Auditors found that SVID's internal controls were adequate to safeguard public assets. SVID also complied with all state laws and regulations, as well as its own policies and procedures.
The problem came with SVID's controls over its financial statements preparation, which the auditors found were inadequate to ensure accurate accounting and financial reporting.
The problems were minor and even the auditors claimed that the errors never changed the net assets of SVID, but there was enough errors that auditors thought a finding was warranted.
"They are correct in their findings, but the mistakes didn't change our net revenues or assets," Jim Trull, SVID manager, said. "From our perspective, that's a good thing."
Auditors found that District employees were unaware of how to report transactions involving the District's relationship with the Sunnyside Division Board of Control, which included revenues, expenditures and disclosures within the notes of the financial statements.
Auditors also say the District Manager's review of the financial statements and notes was not sufficiently detailed to ensure errors were detected and corrected. The assistant manager of administration reconciles the bank statements and makes adjusting entries to the general ledger, however, no one independently reviews these activities, auditors say.
Auditors also say financial statements, notes and related schedules were prepared using an old version of the Budgeting, Accounting and Reporting System (BARS) manual. Trull said this last error didn't affect anything except notes on the retirement of employees. He assured the auditors that from now on SVID will only use the latest version of BARS.
Other errors were more bookkeeping than anything else.
Auditors say assessments paid to the Board of Control during 2008 and 2009 were not included in the District's financial statements, resulting in an understatement of revenues and expenses totaling $1,726,685 in 2008 and $1,807610 in 2009. This error did not change the net assets of the District.
Land purchased in 2009 on behalf of the Board of Control was not included in the District's financial statements, resulting in an understatement of revenues and expenses totaling $969,301. This error did not change the net assets of the District.
Trull said SVID purchased the land for the Sunnyside Board of Control because the board didn't have the funds. The next year SVID sold the land to the Board.
"From an accounting perspective it was a misstatement," Trull said. "It was a lesson learned. We will show all transactions in the proper year."
In SVID's response they recognized the mistakes but were surprised to see the items listed rise to the level of a finding. SVID's management and staff have many years of experience in the operation and finances of the District, they replied. SVID has participated in many prior audits without findings and felt the Auditor's Office has raised the bar for compliance.
The audit recommended that two people review the reconciliation of the bank statements. SVID claims four employees have access to reconciliations and journal ledger entries and the employees with check signing authority are not the same ones who process the accounts payable.
An SVID employee compares the statement for every payable to the appropriate invoice and assigns an account number for its expense. The person verifies that the product or service has been initialed as received. A different employee puts the payables in a voucher listing and prints the checks. The assistant manager then signs the checks for payables she has not processed. The Board of Directors and management then review the voucher list to identify all vendors or unusual amounts and the Board approves the payment of bills at its regular monthly board meetings. The SVID auditing officer makes a final review as to receipt of the payable by signing off on a third portion of the check, certifying the proper amount was paid and confirming that documents match with the appropriate vendor.
Trull said it is highly questionable that there is weakness of internal controls regarding this activity. He also pointed out that any lack of control has never been raised before in earlier audits.
However, Trull said SVID accepts the findings and will comply with the suggested changes.
"It is doubtful we'll make the same errors, but we will comply with the auditor's suggestions," Trull said. "We'll tighten up our approach and we'll be fine."
Trull said an outside consultant will be hired to review all financial statements in the future.