May 22, 2024

Delayed Stamford Audit Shows Significant and Wide-Ranging Failures in Financial Accounting

STAMFORD – A long-overdue auditor’s report spells out the city’s repeated failures at keeping its books.

The fiscal 2022 report, which was due to the state more than a year ago, is finally complete. It’s set, at last, to be presented to the Stamford Board of Finance for review next week.

The contracted independent auditor, RSM, details the problems in the city’s financial departments and, under the heading “Cause,” lists the reasons, case by case: 

  • “Lack of effective controls over financial reporting and improper review of general ledger accounts balances.”
  • “Internal controls requiring the reconciliation and review of financial statements failed to identify errors.”
  • “Grant management and reporting is not centralized … and are left to the individual departments. Management as well as department heads are unfamiliar with grant accounting.”
  • The purchasing department checks the backgrounds of vendors before contracting with them on federally funded projects, but it “does not maintain formal documentation that this procedure occurred.”
  • “The city did not have internal controls in place to ensure” reports on state and federal grants were filed.

Under the heading “Effects,” RSM auditors explain how deficient financial planning has hurt, or likely will hurt, the city:

  • “Management does not have accurate financial information upon which to base management decisions.”
  • “Lack of proper reporting” jeopardizes future state and federal grant awards.
  • Balances in government and capital projects accounts from 2021 had to be “restated.”
  • By not documenting background checks on vendors, the city could lose government grants.
  • Failure to submit progress reports on projects could mean state or federal agencies cancel grant funding or deny “reimbursement of grant expenditures.”

Connecticut requires all municipalities to have an independent auditor examine their books each year and file an audit, called the Annual Comprehensive Financial Report.

In Stamford’s report, RSM auditors wrote that, with good internal controls, accounts are reconciled regularly “to the underlying documentation, and thoroughly reviewed by a supervisory employee.”

But that has not been happening in Stamford.

During the audit, more than 125 adjustments, identified by RSM accountants, had to be made to reports prepared by city financial officials, the report states. Adjustments were made through last month, according to the report.

“The numerous and untimely adjusting entries caused significant audit delays and inefficiencies,” the report states. “Significant audit adjustments were required across multiple funds,” including property tax accounts, accounts receivable, loan receivables, accounts payable, unearned revenue accounts, intergovernmental revenue, expenditures, and more.

Weak financial controls allow inaccurate financial information which leads to poor management decisions, RSM auditors wrote.

Internal controls “should provide reasonable assurance regarding the reliability of the financial reporting process,” they wrote.

But they found sloppiness in Stamford, according to the report.

Among the adjustments the independent auditors had to make was a $15.7 million increase in liabilities related to mold remediation. 

In the fall of 2018, mold was discovered in school buildings after an unusually rainy, humid summer. City and school administrators scrambled to remove the mold, repair roofs, windows and walls where water was entering, replace Sheetrock and make other fixes, plus lease outside space for classrooms while the work was underway. 

Director of Administration Ben Barnes, who oversees the controller’s office and others that handle city finances, said the costs went far higher than officials thought.

“Our estimate of the total liabilities related to mold remediation was too low and we revised it up by $15.7 million,” said Barnes, who was not director during the mold mess.

One of the adjustments involved the misclassification of assets as “construction in progress” when in fact they were already-in-use buildings, improvements and equipment that are depreciating. It involved assets worth $18.5 million.

That adjustment affects the value of city assets but not the city budget, Barnes said.

“Several projects were not placed in service when they were completed a number of years ago, so we had not been accumulating depreciation against the value of the buildings on the day they were completed,” Barnes said.

Auditors also found that unearned revenue was overstated by $3.1 million. Unearned revenue describes grants and other payments the city receives before it delivers construction, renovations, programs or whatever else was funded.

“In this case it has to do with federal stimulus funds that were provided up front with a requirement that we report on those funds being spent for eligible activities,” Barnes said.  

By the end of the preceding fiscal year, “some funds had not yet been spent on eligible activities, so the revenue associated is considered ‘unearned,’” Barnes said. “Our initial financial statements did not correctly quantify the amount that was unearned.”

Stamford’s 2022 Annual Comprehensive Financial Report includes the city’s Corrective Action Plan for implementing better controls.

The four-page plan states that David Yanik, who has been city controller for 12 years, will retire March 1. 

The plan also states that Yanik or his successor will implement policies and ensure the assignment of employees to reconcile all significant accounts monthly or quarterly; clearly communicate staff assignments, deadlines and documentation standards; ensure that account reconciliations are reviewed by a supervisor; and other measures.

Meeting those goals “may require the reassignment or addition of accounting staff,” the plan states. “A review of staff levels and assignments will be concluded prior to submission of the mayor’s budget” to the Board of Finance and Board of Representatives in March, the plan states.

Barnes will present the newly completed 2022 audit report to the Board of Finance at 7 p.m. Thursday, Jan. 11. Watch the Zoom meeting here.

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