BELEN—The city of Belen received an unmodified audit from Cordova CPAs LLC, meaning the municipality got a clean opinion on its annual audit report for fiscal year 2020.
A clean audit report means the auditing firm found the city followed accounting standards and the reports are free from material misstatements and errors.
While the city did receive the best audit it could have, the auditor, Robert Cordova, said there were some findings they did identify as both material weaknesses and internal control deficiencies with the city’s practices.
The first of seven findings the auditing firm pointed out was a repeat finding regarding the city’s financial statements. The auditors found the city had paid out legal fees, retirement benefits, health benefits and annual and sick leave benefits to four former employees, including a former police chief, a former city manager, a former human resources director and a former police officer in the amount of $94,395. The payments were paid without council approval.
The auditors also found the city incorrectly left out one receipt from its accounts receivable listing that totaled $344,191.
The city’s former human resources director was also able to take out a donated $900 from the City Employee Appreciation Fund while she was on administrative leave.
“The money was eventually recovered from the employee and returned to the city, however, there were no controls in place to prevent this from happening,” the audit reads.
According to the audit, which is available on the state auditor’s website, the auditing firm said the city has made some improvements in its procedures, but the city requires additional policies, procedures, internal controls and training.
The second finding was improper maintenance of capital asset listing. The auditors said the city has not properly maintained a detailed depreciation schedule, although the city is in the process of asset reconciliation to remove old assets.
“An inventory was done and certified by the governing body in June 2020,” the audit reads. “The city has also implemented a separate software system that tracks all city assets …”
The third finding there was a material weakness in the segregation of duties and payroll. The auditing firm said during the course of their testwork over cash, they noticed numerous weaknesses, including the HR director was performing both payroll and human resource duties, two employee did not have timesheets or leave forms to determine the amount they were owed for their annual leave final payouts, one employee was paying for certain benefits but had not enrolled for them, one employee was found not to have signed their timesheet and was paid overtime without approval.
The audit also found a former city manager did not have an enrollment form in her file for PERA or RHC and the city was paying the benefits on her behalf.
Cordova CPAs LLC said the city has been understaffed, which caused the errors. They recommend the city perform a complete risk assessment over the payroll process.
The fourth finding in the city of Belen’s audit was a weakness in its contract compliance with Keter Manufacturing. The city had created a contract with the company, which stated the company would hire a specific minimum of jobs in exchange for $500,000 in LEDA funding.
The auditing firm noted the city did not ensure benchmarks were met, that proper monitoring was being conducted, and did not post the $500,000 to either accounts receivable or a deferred outflow into the accounting system at year’s end.
“The city was unable to obtain an employment report from Keter for exact month/say dates set in the agreement. Keter then informed Belen and NM EDD of their intended closing and began negotiating the payback agreement,” the audit reads. “With this effort, there was no need to initiate the clawback efforts as the payback agreement would reach the same results. Keter’s present effort to make paybacks through the issuance of the Letter of Credit funds is the clawback.”
The fifth finding deals with internal control deficiencies and variances with subsidiary ledgers for utilities. The auditor found the utility receivables subledger did not agree to the trial balance in the amount of $208,138. Also, the water meter deposit liability subledger report did not agree to the amount on the trial balance, which had $49,316 more than what was on the deposit.
Cordova CPAs LLC recommends the city request on-site support from its accounting software provider to adjust for any errors.
The sixth finding was a lack of control over authorization of payroll changes and potential fraud. According to the audit, there were three pay periods in which the city paid out a total of $2,281.21 unknowingly to someone who posed through email as the mayor and fraudulently changed his direct deposit information to a fraudulent account. The required documentation of the fraudulent activity was not sent to the state auditor, which is required.
Cordova CPAs LLC reported the former HR director did not verify that the mayor was truly wanting to change his direct deposit information, which is a violation of policy.
The seventh, and final finding, deals with travel and per diem. The auditors discovered the city reimbursed an employee more than the $30 for in-state meal expenses. The city, Cordova CPAs LLC says, is required to comply with the Per Diem and Mileage Act, but there was an oversight in this instance.
After the council voted unanimously to accept the auditor’s findings, City Manager Andrew Salas read the council a statement from the administration regarding the audit findings.
“The city will establish a policy in regards to settlements, making sure they are fully disclosed to the governing body,” Salas said. “The finance department will work diligently to accurately record all receivables and payables for the fiscal year end.
“The finance director will work to ensure the end-of-year’s process is completed properly in order to record all adjustments. The city manager will place any employees payouts on the agenda for the governing body’s approval. The timeline for corrective action to be completed is June 30, 2021.”
Salas told the council it’s been in learning process when it comes to ordinances, and takes full responsibility for not having his staff fully prepared to provide an appropriate product.
“We’re going to have a 100 percent ordinance review,” Salas said. “We’re going to conduct this from now through August … If an ordinance is lacking, we’re going to ensure that all the departments that have any say so or responsibility will have a chance to look at the ordinance. If adjustments are needed, we’ll bring them to you for your approval.