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Tybee Transfers Review

Tybee Transfers Review

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Published by savannahnow.com
A 17-page report by Tybee Island’s finance director, Angela Hudson, outlines a series of accounting errors going back to 2008.
A 17-page report by Tybee Island’s finance director, Angela Hudson, outlines a series of accounting errors going back to 2008.

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Published by: savannahnow.com on Mar 14, 2013
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08/01/2013

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City of Tybee IslandReview of Audited TransactionsMarch 12, 2013
 
The city had an agreement with the FAO US Corp of engineers to perform a Beach Renourishmentproject. The FAO would provide approximately $6-7 M of Federal funding and the city had to provideapproximately $4.8-5M. The State DNR agreed to provide the city money, $2,930,000, to help with thecost of the project. Chatham County agreed to give us $600,000 for the project as well. The city had tocome up with the remaining share for the project. The city’s plan for funding its share of the project isshown below:
Description of Funding Source Funding Source
City of Tybee General Fund Balance $ 550,000.002003 SPLOST $ 1,000,000.00LNG Grant $ 35,000.00Chatham County 2009 Funding $ 150,000.00Chatham County Funding $ 450,000.00State Bonds from DNR $ 2,930,000.00
Total Non-Federal Funding Available: $ 5,115,000.00
Prior to initiating the RFP’s, etc. for the project the FAO required that the city give them access to all ofthe city’s share of the money by placing the money in an escrow checking account or sending the moneydirectly to the them to hold. As the project proceeded the FAO would spend the money to pay for the costof the project and notify the city of how much money was spent at which time the city would recordexpenditure for beach renourishment. As long as our money was sitting in an escrow checking accountor being held by the FAO, the city had not incurred expenditure for the project; the city should havereported an accounts receivable from the FAO money deposited in the escrow checking account ormoney held by the FAO until the money was expended.The construction phase of the project managed by the FAO began an ending within the first 6 months offiscal year 2008-2009 in December 22, 2008.
The city’s total cost incurred for the project on directlymanaged by the FAO US Corp of Engineers was $3,940,629.75.
FY2008
The city opened an Escrow Checking account # 2145324 with the First Chatham Bank to give the FAOaccess to withdraw money from the account as needed once the funds were deposited into the checkingaccount. The DNR took out bonds in order to generate the $2,930,000 to give to the city for the project.Since the money originated as bond money, that money could not be placed in an interest bearingchecking account due to arbitrage laws. It appears that a decision was made to turn the money over toFAO US Corp to hold instead of the city placing the money into the escrow checking account.
FY2008 General Fund Expenditures
The City received $2,930,000 from the DNR on May 8, 2008 and deposited the money into the generalfund pooled operating checking account. The money that the city received from the FAO was considereda grant to the city; the DNR gave the city the money in lump sum payment of $2,930,000. The accountingstandards states that grant revenues can only been recognized (meaning be recorded as revenue) whenearned i.e. when an expenditure has been incurred relating to the grant receipt. Since the FAO gave themoney to the city upfront prior to money being spent; the city should have recorded the transaction bydebiting the general fund pooled cash checking account and crediting the deferred revenue account, bothbalance sheet accounts.
City of Tybee IslandReview of Audited Financial TransactionsMarch 12, 2013 Page 1
 
City of Tybee IslandReview of Audited TransactionsMarch 12, 2013
 
When the city received the money from the DNR, the city should have recorded as the money as a debitto cash in the general operating account and as a credit to deferred revenue. On May 15, 2008, the cityissued check no. 307730 to the FAO to hold for the project at which time the the city should have debitedan accounts receivable account and credited pooled cash. Because the city had not incurred an expense(no money had actually been spent for the project), the city could not record either an expense norrecognize the revenue for the transaction. The money had to be reported as an accounts receivableamount because until the FAO spent the money and we could record expenditure for it; the FAO ownedthis money back to the city.Instead, what actually happen:1. Prior to receiving the money, an entry was posted in the general fund to accountsreceivable (debit)and beach renourishment expense account , 100-6125-54-1402,for $2,930,000 was (credit); 2. When the city received the money, the pooled cash accounts was debited andaccounts receivable was credited for $2,930,000; 3. On May 15, 2008, a check, #307730 for $2,930,000 was issued to the FAO US Corpto hold until the project got underway; for this transaction,the beach renourishmentexpense account in the general fund, 100-6125-54-1402was debited and pooledcash credited. These entries zero-out the credit balance that had been recorded inthe expense account.4. On May 16, 2008, journal entry, # 5493 was made adding the $2,930,000 back to theexpense account in the general fund, 100-6125-54-1402 as a debit and recorded arevenue balance for the amount (credit) in the general fund, 100-00-33-6015.In summary, the revenue and expense were reported in the general fund in error for $2,930,000. Itappears that there was a lack of understand that the FAO was only holding the money and the moneyhad not been expended for the beach renourishment project, yet. The schedules below summarize thehow the transactions were actually recorded and how the transactions should have been recorded as ofJune 30, 2008:
General FundGeneral Ledger ReportedExpenditures
FY2008 FAO US Corp 2,930,000.00 100-6125-54-1402 Check issued to FAOFY2008 FAO US Corp (945,246.57) 100-6125-54-1402 Journal entry moving a part of the expense to SPLOSTFY2008 Olsen & Assoc. Inc 233,610.01 100-6125-54-1402
2,218,363.4 Total Beach Renourishment Expenses reported in FY2008General FundGeneral Ledger ReportedExpenditures
FY2008 -FY2008 Olsen & Assoc. Inc 233,610.01 100-6125-54-1402
233,610.0 Total Beach Renourishment Expenses that should have reported in FY2008Difference (1,984,753.43) Amount of Beach Renourishment Expense Overstated in General Fund
SPLOST & General Fund
(2,930,000.00) Grand Total Amount of Over-stated Beach Expenses For FY2008
City of Tybee IslandReview of Audited Financial TransactionsMarch 12, 2013 Page 2
 
City of Tybee IslandReview of Audited TransactionsMarch 12, 2013
 
General Fund Revenue 2,930,000.00 Beach Renourishment Revenue Overstated by DNR Grant
FY2008 SPLOST Expenditures:
The city’s auditors did not identify the error with the overstatement of the beach renourishmentexpenditure in the general fund instead an adjustment was made to reclassify a portion of thatexpenditure to SPLOST. The SPLOST 2008 general ledger balances agrees to the audit report;however, the balances are not correct as they are reporting that $1,000,000 in the beach renourishmentwas spent which was in error, the balance should have only been $54,534.30 (see items A and B.A. $42,603.43 check # 829B. $12,150.00 check # 834The city planned to contribute $1,000,000 of SPLOST funds to t
 
he beach renourishment project. Sincethe city appeared to have believed that the disbursement of the $2,930,000 to the FAO was an actualexpense, during the audit process on October 28, 2008 upon reviewing the SPLOST Schedule ofExpenditures prepared by the auditors in which they reported $54,534.30 of expenses for beachrenourishment, someone thought that it should be $1,000,000. The city posted a journal entry (#5498) re-classifying $945,246.57 of non-existent expenses from the general fund’s beach renourishment accountno. 100-6125-54-1402 to the SPLOST beach renourishment account no. 320-6125-54-1402. Thisadjustment created a payable to the general fund of $945,245.57 because the JE (#5498) made it appearthat the general fund had paid for expenses that should have been for a SPLOST project.The auditorsfixed the problem with the payable to the general fund with JE# 6144; yet this entry removed any trace ofthe payable back to the general fund. The auditor ran the payable through the claim on cash account.In summary, a payable to the general fund from the SPLOST fund for $945,246.57 was recorded in error;the expense for SPLOST was overstated by $945,246.57. A payable to the general fund from theSPLOST fund for $945,246.57 was not recorded.The first schedule below summarizes how the transactions for the beach renourishment expensesaccount were recorded and the second schedule shows how beach renourishment expense balanceshould have been recorded in the SPLOST fund:
SPLOST Fund General LedgerReportedExpenditures
FY2008 FAO US Corp 42,603.43 Splost 320-6125-54-1402FY2008 FAO US Corp 945,246.57 Splost 320-6125-54-1402 JE actual portion of dnr grantFY2008 Olsen & Assoc. Inc 12,150.00 Splost 320-6125-54-1402
1,000,000.0 Total Beach Renourishment Expenses reported in FY2008SPLOST Fund General LedgerReportedExpenditures
FY2008 FAO US Corp 42,603.43 Splost 320-6125-54-1402FY2008 Olsen & Assoc. Inc 12,150.00 Splost 320-6125-54-1402
54,753.4 Total Beach Renourishment Expenses that should have reported in FY2008
City of Tybee IslandReview of Audited Financial TransactionsMarch 12, 2013 Page 3

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