Wednesday, January 23, 2008

Business As Usual

From the front cover of the Times-Picayune:

A long-awaited audit of New Orleans' 2006 finances reveals an overburdened, disorganized system of fiscal oversight at City Hall that is prone to bookkeeping delays and lacks a variety of internal controls, including barriers to prevent corruption of the public bidding process, according to the accounting firm that conducted the audit.

The report is striking in the breadth of its concerns. Beyond offering general criticism of how the city manages its accounts, auditors identify sloppy procedures for handling cash transactions, gaping holes in the protection of electronically stored information and deficiencies in the collection and recording of property, sales and franchise taxes.

Referring generally to the ability of Mayor Ray Nagin's administration to oversee municipal finances, the auditors with the firm KPMG state: "The city does not have adequate policies, procedures and related internal controls to prepare accurate and complete financial statements."

Wow. No kidding. We needed an external audit to figure that out, huh?

Kind of puts the NORA snags I spoke about yesterday into context.

Here are some other tidbits from the article:

-KPMG states that the city failed to remit federal payroll taxes for the last four months of that year, a serious oversight that "resulted in a significant liability" to the Internal Revenue Service.

-The firm also notes problems in tracking the city's capital assets. Lists of city buildings and other structures were maintained in 2006 in an Excel file that provided general building descriptions but lacked addresses, "which made it time-consuming to identify the location of certain assets."

-"The city does not have systems of internal controls in place to deter and detect improper influences related to awarding contracts for public works and purchases of material and supplies," the report states.

-KPMG states that the city attorney's office failed to keep accurate records of how much money the city may have been on the hook to pay out in lawsuit settlements in 2006.

-The Office of Recovery and Development Administration, meanwhile, failed to track the status of federal loans that it administers for the U.S. Department of Housing and Urban Development, auditors state.

-The audit also singles out the Office of Information Technology for its flimsy control over who gets broad access to data stored on city computers. User privileges "are not appropriately controlled," KPMG states. Perhaps most surprising was the lack of a plan for the city's computer nerve center to rebound after another hurricane, the report states.

-The city did not perform timely review of construction projects so that projects can be properly designated as depreciable assets.

-Cash journal entries related to outstanding checks and deposits-in-transit did not show evidence of review and approval by someone other than the preparer.

I wish this was shocking stuff, I really do.

We have grown to expect nothing but the worst from our municipal government.

That is such a disappointment.

Interestingly enough, the same firm, KPMG audited the city in 2005. Here is an article I found from that bygone era:

The city issued a statement hailing its "clean bill of health." Deputy director of finance Derrick Muse said New Orleans ended 2005 with a balanced stable budget, in large part due to disaster loans that the federal government may or may not forgive.

But the audit found problems, including a lack of adequate policies and controls to prepare complete, accurate and timely financial statements and weaknesses in the city's computer systems. According to the audit, some mistakes in financial statements were found that hadn't been detected by the city.

So are things getting better or are they getting worse?

They say it's the tipping point this year. Read the TP article. It's an important one.

The audit itself is supposed to be available here. But I can't find it. Can you?


jeffrey said...

And yet the T-P opinion pages are still regularly pedaling the line that this "Business minded" "reform" mayor cleaned up and rationalized things at City Hall.

Civitch said...

It's on there, but you have to navigate to it. Click on "audit reports" then "reports by Certified Public Accountants" then "current week" and there it is, about 10 posts down, in pdf form.

oyster said...

Fun fact! Nagin's undergraduate degree was in... accounting.