Accountability Audit Report Town of Nespelem Okanogan County
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Accountability Audit Report Town of Nespelem Okanogan County

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Washington State Auditor’s Office Accountability Audit Report Town of Nespelem Okanogan County Report Date June 22, 2010 Report No. 1004784 Issue Date December 20, 2010 Washington State Auditor Brian Sonntag December 20, 2010 Mayor and Town Council Town of Nespelem Nespelem, Washington Report on Accountability We appreciate the opportunity to work in cooperation with your Town to promote accountability, integrity and openness in government. The State Auditor’s Office takes seriously our role to advocate for government accountability and transparency and to promote positive change. Please find attached our report on the Town of Nespelem’s accountability and compliance with state laws and regulations and its own policies and procedures. Thank you for working with us to ensure the efficient and effective use of public resources. Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Insurance Building, P.O. Box 40021  Olympia, Washington 98504-0021  (360) 902-0370  TDD Relay (800) 833-6388 FAX (360) 753-0646  http://www.sao.wa.gov Table of Contents Town of Nespelem Okanogan County June 22, 2010 Audit Summary .......................................................................................................................... 1 Description of the Town ............. 2 Schedule of Audit Findings and Responses .................... ...

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Washington State Auditor’s Office

Accountability Audit Report






Town of Nespelem
Okanogan County



Report Date
June 22, 2010


Report No. 1004784























Issue Date
December 20, 2010




Washington State Auditor
Brian Sonntag



December 20, 2010


Mayor and Town Council
Town of Nespelem
Nespelem, Washington


Report on Accountability

We appreciate the opportunity to work in cooperation with your Town to promote accountability,
integrity and openness in government. The State Auditor’s Office takes seriously our role to
advocate for government accountability and transparency and to promote positive change.

Please find attached our report on the Town of Nespelem’s accountability and compliance with
state laws and regulations and its own policies and procedures. Thank you for working with us
to ensure the efficient and effective use of public resources.

Sincerely,

BRIAN SONNTAG, CGFM
STATE AUDITOR

Insurance Building, P.O. Box 40021  Olympia, Washington 98504-0021  (360) 902-0370  TDD Relay (800) 833-6388
FAX (360) 753-0646  http://www.sao.wa.gov
Table of Contents

Town of Nespelem
Okanogan County
June 22, 2010


Audit Summary .......................................................................................................................... 1
Description of the Town ............. 2
Schedule of Audit Findings and Responses ............................................................................... 4

Audit Summary

Town of Nespelem
Okanogan County
June 22, 2010


ABOUT THE AUDIT

This report contains the results of our independent accountability audit of the Town of
Nespelem from January 1, 2006 through December 31, 2009.

We evaluated internal controls and performed audit procedures on the activities of the
Town. We also determined whether the Town complied with state laws and regulations
and its own policies and procedures.

In keeping with general auditing practices, we do not examine every transaction, activity
or area. Instead, the areas examined were those representing the highest risk of
noncompliance, misappropriation or misuse. The following areas were examined during
this audit period:

Open Public Meetings Act Disbursements
Payroll


RESULTS

In most areas, the Town complied with state laws and regulations and its own policies
and procedures.

However, we identified a condition significant enough to report as a finding:

The Town did not have adequate internal controls over payroll, disbursements,
cash receipting or billing adjustments to safeguard the public resources and
ensure compliance with laws and regulations.


Washington State Auditor’s Office
1 Description of the Town

Town of Nespelem
Okanogan County
June 22, 2010


ABOUT THE TOWN

The Town of Nespelem serves a population of 210 citizens in Okanogan County. The
Town provides fire protection, street lighting, snow removal, limited street improvements,
water services, and public safety. An elected, five-member Council and a separately
elected Mayor govern the Town. For the years under audit, the Town operated on
budgets of less than $100,000 with two permanent employees.


ELECTED OFFICIALS

These officials served during the audit period:

Mayor Colleen Leskinen (resigned January 2009)
Brian Nanamkin (appointed January 2009,
Council Member prior to appointment)
Town Council: Dennis Montes
Dolores Castillo
Jonnie Bray
Tim Schell (resigned September 2007)
Sue Hayes (December 2007-August
2008)
Jama Van Brunt (effective August 2008)

Note: Brian Nanamkin’s Council seat has been vacant since his appointment to Mayor.
Jonnie Bray resigned July 2010 and the seat is vacant.


APPOINTED OFFICIALS

Clerk-Treasurer Sandra Atchison

Note: Sandra Atchison resigned August 2010 and was replaced by Lynn Schilling.


TOWN CONTACT INFORMATION

Address: Town of Nespelem
P.O. Box 240
Nespelem, WA 99155

Phone: (509) 634-4691
Washington State Auditor’s Office
2 AUDIT HISTORY

In the past, the Town has received assessment audits. For 2010, we performed an
onsite audit of the Town due to difficulties in getting the required assessment audit. We
reported a finding during the current audit. We will perform an onsite audit in three
years.

Washington State Auditor’s Office
3 Schedule of Audit Findings and Responses

Town of Nespelem
Okanogan County
June 22, 2010


1. The Town does not have adequate internal controls over financial
operations.

Description of Condition

The Town of Nespelem operates on a budget between $120,000 and $170,000 each
year. During our audit, we noted the Town did not have adequate internal controls over
financial operations to safeguard public resources or to ensure compliance with state
laws and regulations.

Overall

The Town has one full-time public works employee and one part-time Clerk-Treasurer,
as well as a temporary employee who works as needed. We identified a lack of internal
controls, as follows:

The Clerk-Treasurer performs all financial accounting for the Town, which does
not allow for adequate segregation to prevent or detect misappropriation.

Town management did not sufficiently review, reconcile or monitor financial
activities.

Payroll

The Town spent approximately $65,000 annually for payroll during the audit period. We
noted:

The Council has not adopted policies to govern compensation, leave accrual, or
other personnel issues.

The Mayor verbally establishes the wage rates. State law (RCW 35.27.130)
requires town councils to set compensation by ordinance. Further, the Town
does not have approved salary schedules from the Mayor to support the hourly
rates paid.

The Town issues the payroll checks prior to Council approval without complying
with state law (RCW 42.24.180). The law allows the legislative body to authorize
issuance of checks without prior approval if the following conditions are met: the
auditing officer and signer of the checks must be bonded and the legislative body
must adopt check processing policies and must approve payments at the next
board meeting.

Washington State Auditor’s Office
4 The Town did not have adequate documentation to support payroll transactions,
and paid salaries prior to the services being rendered, specifically:

The Town pays its hourly employees on the 25th of the month for time
estimated to be worked through the end of the month. This practice
violates state law. In addition, employees did not record actual hours
worked or leave taken for the last five days of the month.

The Town does not track employees’ vacation leave earned or taken.

Employees track their time on calendars, which are not reviewed by a
supervisor for reasonableness or accuracy. The employees do not sign
the calendars to certify they worked the hours for which they claimed
payment. Furthermore, we found the hours were not adequately
supported by the calendars for any of the 21 payments we reviewed.

The Clerk-Treasurer does not record on a calendar when she works extra
time.

The Town pays overtime for time worked that exceeds 40 hours per week.
However, two employees were underpaid $569 worth of overtime.

The Town also gave two employees Christmas bonuses, which violates the
Washington State Constitution Article II, Section 25. The bonuses were issued
from the petty cash fund and totaled $300 in 2007 and $350 in 2008.
Utility Billings and Receipting

The Town receives utility revenue of approximately $85,000 a year. We noted the Town
does not have adequate segregation of duties over customer billings, adjustments, cash
receipting or bank deposits. Further, no one independently reviews these functions or
performs the bank reconciliations.

Disbursements

We reviewed $34,037 in payments from January 2006 through December 2009 and
noted the Town:

Has not adopted policies to govern credit card purchases, general purchasing,
contracting, meals with meetings, or employee reimbursements.

Does not have adequate controls in place over its petty cash to ensure
disbursements were appropriate and supported.

Does not have adequate controls in place over disbursements to ensure they are
adequately supported, approved, for an appropriate public purpose, that checks
were made out to the correct vendor, and that the goods or services were
actually received.

Washington State Auditor’s Office
5 Cause of Condition

The Town Council is responsible for creating policies to govern the financial operations
of the Town. The Mayor is responsible for ensuring the policies are followed by Town
employees. Council Members have not established appropriate policies and related
procedures to adequately govern financial operations.

Effect of Condition

These conditions place the Town at a high risk for misappropriation or error. Should an
error occur, it would be difficult if not impossible to determine who was responsible. An
extraordinary effort was necessary to complete the audit and the Town incurred
additional audit costs as a result of the weaknesses identified above.

Collectively, the issues identified in this audit may affect the Town’s ability to secure
funding in the future. Granting agencies, financial institutions and citizens may lose
confidence in the Town’s ability to manage public resources.

Recommendation

We recommend the Town establish and follow internal control policies and procedures
over expenditures, utility billings, cash receipts and payroll to ensure assets are properly
safeguarded.

Town’s Response

The Town of Nespelem has been working on correcting the problems that were found
with the 2010 Exit Audit. We concur with the auditor’s finding and the associated
recommendations. The Mayor is writing policies for approval by the board in the
following:

1. Cost Allocation w/supporting plan
2. Payroll-leave earned, used, compensation and holiday pay
3. Salary schedules for hourly rates paid
4. Policy for inventory, small and attractive assets
5. Overtime Policies are being written for approval
6. Petty cash Policy is being written
7. Policy for credit card purchases, general purchasing, contracting, meals with
meetings and employee reimbursements

The Council is setting Ordinances for wage rates and cemetery charges. Salary
schedules are being written by the Mayor for approval by the Council. Mayor is working
th on Bonds for the Clerk/Treasurer and himself. The Town pays wages on the 15 and
the last day of the month.

There is a time clock for employees to check in and out daily. Vouchers all have
receipts and are approved at the Council meetings. The Mayor and Clerk/Treasurer are
working with BIAS software to increase internal control. No bonuses will be given to
employees. Petty Cash Fund will have receipts. The Mayor is renewing service
agreements with appropriate parties.

We appreciate the help and recommendations given by the auditors.
Washington State Auditor’s Office
6 Auditor’s Remarks

We appreciate the Town’s attention to our recommendations.

Applicable Laws and Regulations

Article II, Section 25, Constitution of the State of Washington, states in part:

The legislature shall never grant any extra compensation to any public
officer, agent, employee, servant, or contractor, after services shall have
been rendered . . . .

RCW 43.09.200, Local government accounting--Uniform system of accounting, states:

The state auditor shall formulate, prescribe, and install a system of
accounting and reporting for all local governments, which shall be uniform
for every public institution, and every public office, and every public
account of the same class.

The system shall exhibit true accounts and detailed statements of funds
collected, received, and expended for account of the public for any
purpose whatever, and by all public officers, employees, or other persons.

The accounts shall show the receipt, use, and disposition of all public
property, and the income, if any, derived there from; all sources of public
income, and the amounts due and received from each source; all
receipts, vouchers, and other documents kept, or required to be kept,
necessary to isolate and prove the validity of every transaction; all
statements and reports made or required to be made, for the internal
administration of the office to which they pertain; and all reports published
or required to be published, for the information of the people regarding
any and all details of the financial administration of public affairs.

RCW 42.24.180, Taxing district – Issuance of warrants or checks before approval by
legislative body – Conditions, states in part:

In order to expedite the payment of claims, the legislative body of any
*taxing district . . . may authorize the issuance of warrants or checks in
payment of claims after the provisions of this chapter have been met and
after the officer designated by statute, or . . . an appropriate charter
provision, ordinance, or resolution . . . has signed the checks or warrants,
but before the legislative body has acted to approve the claims. The
legislative body may stipulate that certain kinds or amounts of claims shall
not be paid before the board has reviewed the supporting documentation
and approved the issue of checks or warrants in payment of those claims.
However, all of the following conditions shall be met before the payment:

(1) The auditing officer and the officer designated to sign the
checks or warrants shall each be required to furnish an official
bond for the faithful discharge of his or her duties;

Washington State Auditor’s Office
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