FY2016 Audit: Bay receives ‘qualified’ opinion due to ongoing FBI investigation
By Cassandra Favre
Sep 9, 2017, 00:42
The Bay St. Louis City Council on Tuesday heard from Robert Culumber with Culumber, Harvey and Associates, P.A. about the FY 2016 – which ended Sept. 30, 2016 – audit report.
Culumber said the city received a "qualified" opinion, due to the fact that the city is under an "ongoing investigation by the Federal Bureau of Investigation for the potential collusion and nepotism in payroll fraud and other matters pertaining to the police department."
On Sept. 7, 2016 former Police Chief Mike De Nardo committed suicide outside the Bay St. Louis Police Department and was being investigated for alleged payroll fraud and the illegal sale of at least one weapon owned by the city.
Culumber said how that would affect financial statements could not be determined, since "we were unable to obtain sufficient appropriate audit evidence about the ongoing FBI investigation for the year then ended because information on the investigation has not been released to the city," and are "unable to determine whether any adjustments are needed to the financial statements on matters pertaining to the FBI investigation of the police department."
Culumber said the city's total overall net financial position is $113 million.
"Overall, I think the city is financially healthy," Culumber said.
He said there was a favorable variance of $521,000 of the general fund's budget. Culumber said that while the city was short on revenue, it made up for it with the cutting of expenditures.
Other findings included five prior-year findings.
According to the audit, the first is that council minutes were not signed by the mayor or a majority of the council within 30 days; incomplete attachments to official minutes; and the city clerk did not present all monthly revenue and expenditure reports.
The second finding was that the municipal compliance questionnaire had several inconsistencies.
The third finding is that the city's ordinance book does not contain all required information as outlined in MS Code 21-13-13. According to the audit, the city's response is that it has begun implementing re-codification of the city's ordinances.
The fourth finding is that the "Municipal Fire Funding Compliance Form must be completed by the city clerk, financial officer, or CPA of the municipality and returned to the County Fire Coordinator by Dec. 31 of each year."
The final prior-year finding is that vendor invoices were paid more than 45 days after receipt and not in the order received or listed on the claims docket, which is approved by the council. The city's response is that it now uses a stamp to document the invoice's date of receipt and also to note department and council approval, check number, amount, account and claim numbering system, the audit states.
The final finding is "possible payroll fraud."
According to the audit, payroll checks were "possibly distributed to an employee who is no longer an employee of the city. A department head was submitting employee time cards for former employee to the payroll department." The matter is still being investigated by the FBI and the audit states that how this would affect the financial statement is "unknown."
The financial statement findings list one of the city's material weaknesses as "employee termination or resignation controls."
Significant deficiencies include building permits; court fines and related assessments; utility fund and harbor fund; payroll record keeping and reporting; fixed assets management and journal. These were all prior year findings, the audit states.
Another significant deficiency is pooled cash reconciliations, a current year finding, Culumber said.
Councilman Gary Knoblock asked Bay St. Louis city clerk Sissy Gonzales what steps have been taken ensure that the alleged payroll fraud does not happen again.
"There's no way to completely thwart someone who's going to try and abuse the system," Gonzales said. "However, we have implemented new guidelines which includes the signature of the employee on the time card and also the signature of the manager on the time card. As we know, in the prior case, those were possibly done by one person instead of both people. So if there is collusion or fraud, I don't know how we would prevent that. I can't walk around and watch every single person sign every single time sheet and their manager. Certain things have been delegated to management, to the manager of that employee."
Gonzales said the time sheets are completed either online or manually.
Culumber said there's been an a "tremendous" improvement overall since Gonzales "came on."
The council approved a motion to accept the audit report.
A copy of the full audit is available for viewing on the city's website at www.baystlouis-ms.gov under the tab "Financial Transparency."