The city had an agreement with the FAO US Corp of engineers to perform a Beach Renourishment project.

The FAO would provide approximately $6-7 M of Federal funding and the city had to provide approximately $4.8-5M. The State DNR agreed to provide the city money, $2,930,000, to help with the cost of the project. Chatham County agreed to give us $600,000 for the project as well. The city had to come up with the remaining share for the project. The city’s plan for funding its share of the project is shown below:
Description of Funding Source City of Tybee General Fund Balance 2003 SPLOST LNG Grant Chatham County 2009 Funding Chatham County Funding State Bonds from DNR Total Non-Federal Funding Available: Funding Source $ 550,000.00 $ 1,000,000.00 $ 35,000.00 $ 150,000.00 $ 450,000.00 $ 2,930,000.00 $ 5,115,000.00

City of Tybee Island Review of Audited Transactions March 12, 2013

Prior to initiating the RFP’s, etc. for the project the FAO required that the city give them access to all of the city’s share of the money by placing the money in an escrow checking account or sending the money directly to the them to hold. As the project proceeded the FAO would spend the money to pay for the cost of the project and notify the city of how much money was spent at which time the city would record expenditure for beach renourishment. As long as our money was sitting in an escrow checking account or being held by the FAO, the city had not incurred expenditure for the project; the city should have reported an accounts receivable from the FAO money deposited in the escrow checking account or money 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 of fiscal year 2008-2009 in December 22, 2008. The city’s total cost incurred for the project on directly

managed 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 FAO access to withdraw money from the account as needed once the funds were deposited into the checking account. 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 bearing checking account due to arbitrage laws. It appears that a decision was made to turn the money over to FAO 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 general fund pooled operating checking account. The money that the city received from the FAO was considered a grant to the city; the DNR gave the city the money in lump sum payment of $2,930,000. The accounting standards states that grant revenues can only been recognized (meaning be recorded as revenue) when earned i.e. when an expenditure has been incurred relating to the grant receipt. Since the FAO gave the money to the city upfront prior to money being spent; the city should have recorded the transaction by debiting the general fund pooled cash checking account and crediting the deferred revenue account, both balance sheet accounts.

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When the city received the money from the DNR, the city should have recorded as the money as a debit to cash in the general operating account and as a credit to deferred revenue. On May 15, 2008, the city issued check no. 307730 to the FAO to hold for the project at which time the the city should have debited an 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 nor recognize the revenue for the transaction. The money had to be reported as an accounts receivable amount because until the FAO spent the money and we could record expenditure for it; the FAO owned this money back to the city. Instead, what actually happen: 1. Prior to receiving the money, an entry was posted in the general fund to accounts receivable (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 and accounts 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 Corp to hold until the project got underway; for this transaction, the beach renourishment expense account in the general fund, 100-6125-54-1402 was debited and pooled cash credited. These entries zero-out the credit balance that had been recorded in the expense account. 4. On May 16, 2008, journal entry, # 5493 was made adding the $2,930,000 back to the expense account in the general fund, 100-6125-54-1402 as a debit and recorded a revenue 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. It appears that there was a lack of understand that the FAO was only holding the money and the money had not been expended for the beach renourishment project, yet. The schedules below summarize the how the transactions were actually recorded and how the transactions should have been recorded as of June 30, 2008:
General Fund FY2008 FY2008 FY2008 FAO US Corp FAO US Corp Olsen & Assoc. Inc General Ledger Reported Expenditures 2,930,000.00 (945,246.57) 233,610.01 2,218,363.4 100-6125-54-1402 Check issued to FAO 100-6125-54-1402 Journal entry moving a part of the expense to SPLOST 100-6125-54-1402 Total Beach Renourishment Expenses reported in FY2008

City of Tybee Island Review of Audited Transactions March 12, 2013

General Fund FY2008 FY2008 Olsen & Assoc. Inc

General Ledger Reported Expenditures 233,610.01 233,610.0 100-6125-54-1402 Total Beach Renourishment Expenses that should have reported in FY2008

Difference

(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

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General Fund Revenue

2,930,000.00

City of Tybee Island Review of Audited Transactions March 12, 2013

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 renourishment expenditure in the general fund instead an adjustment was made to reclassify a portion of that expenditure 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 renourishment was spent which was in error, the balance should have only been $54,534.30 (see items A and B. A. $42,603.43 check # 829 B. $12,150.00 check # 834 The city planned to contribute $1,000,000 of SPLOST funds to the beach renourishment project. Since the city appeared to have believed that the disbursement of the $2,930,000 to the FAO was an actual expense, during the audit process on October 28, 2008 upon reviewing the SPLOST Schedule of Expenditures prepared by the auditors in which they reported $54,534.30 of expenses for beach renourishment, someone thought that it should be $1,000,000. The city posted a journal entry (#5498) reclassifying $945,246.57 of non-existent expenses from the general fund’s beach renourishment account no. 100-6125-54-1402 to the SPLOST beach renourishment account no. 320-6125-54-1402. This adjustment created a payable to the general fund of $945,245.57 because the JE (#5498) made it appear that the general fund had paid for expenses that should have been for a SPLOST project. The auditors fixed the problem with the payable to the general fund with JE# 6144; yet this entry removed any trace of the 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 the SPLOST fund for $945,246.57 was not recorded. The first schedule below summarizes how the transactions for the beach renourishment expenses account were recorded and the second schedule shows how beach renourishment expense balance should have been recorded in the SPLOST fund:
SPLOST Fund FY2008 FY2008 FY2008 FAO US Corp FAO US Corp Olsen & Assoc. Inc General Ledger Reported Expenditures 42,603.43 945,246.57 12,150.00 1,000,000.0

Splost 320-6125-54-1402 Splost 320-6125-54-1402 JE actual portion of dnr grant Splost 320-6125-54-1402 Total Beach Renourishment Expenses reported in FY2008

SPLOST Fund FY2008 FY2008 FAO US Corp Olsen & Assoc. Inc

General Ledger Reported Expenditures 42,603.43 12,150.00 54,753.4

Splost 320-6125-54-1402 Splost 320-6125-54-1402 Total Beach Renourishment Expenses that should have reported in FY2008

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Difference

(945,246.57)

City of Tybee Island Review of Audited Transactions March 12, 2013

Amount of Beach Renourishment Expense Overstated in SPLOST Fund

The city had a money market checking account with First Chatham Bank (#6010748) in which SPLOST, general fund and water & sewer cash was deposited; the balance in the checking account was maintained on the general ledger in three separate general ledger accounts. The FAO required that the city have $4,219,045.85 available to spend on the beach renourishment project by June 16, 2008 and set aside in the city’s escrow checking account in given to the FAO to hold before the FAO could proceed with issuing a RFP for the project. The city had already given the FAO the $2,930,000 money from the DNR, the remaining balance needed was $1,289,045.85. On June 16, 2008, $1,289,045.85 was transferred from the city’s money market bank account, # 6010748, to the city’s general fund pooled operating checking account, # 28266, and then the city transferred the money to the escrow checking account # 2145324 to be spent by the FAO for the beach renourishment project. Based on the information taken from the June 30, 2008 bank statement and the general ledger the following transactions took place in June.

General Fund Total 3,840,126.28 May 31, 2008 Balance 100-00-11-1119 730,345.20

SPLOST 320-00-11-1119 2,987,599.74

Water & Sewer Fund 505-00-11-1119 122,181.34

June Activity:
(228,000.00) 5/30/2008 6/10/2008 6/10/2008 6/10/2008 6/16/2008 6/30/2008 Transfer to General Fund Pooled cash # 28266 (300,000.00) Transfer to General Fund Pooled cash # 28266 (300,000.00) Transfer to General Fund Pooled cash # 28266 (540,000.00) Transfer to SPLOST 03 cash # 28258 (1,289,045.85) Transfer to General Fund Pooled cash # 28266 4,685.93 Interest Income 891.21 3,645.63 149.09 (1,289,045.85) (300,000.00) (540,000.00) (300,000.00) (228,000.00) -

Total Money Market Account Cash Balance 6/30/08

1,187,766.36

131,236.41

934,199.52

122,330.43

The schedule discloses that the $1,289,045.85 transferred from the account was all SPLOST money. Only $1,000,000 should have come from SPLOST funds the remaining money should have come from the general fund monies. The schedule shows the bank balances as of May 31, 2008 and the activity in the account through June 30, 2008. There was not enough general fund money in the account to cover its share $289,045.85 for the project. The auditor said that the city wanted him to split the cash balance for the $1,289,045.85, transferred out of the money market account to the escrow account and the $1535 interest income earned on the account in June into two balances as follows: General fund 100-00-11-1130 Escrow Checking Account $ 368,268.53 SPLOST Fund 320-00-11-1110 Cash Pooled Account $922,314.49 Since all of the money came from the SPLOST portion of the funds in the money market account, a payable from the general fund to SPLOST should have been created for the $368,268.53; the payable to the SPLOST proceeds was posted to the pooled cash fund account, 320-00-11-1110. Also the city

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should have created a separate SPLOST escrow checking account general ledger number to record the SPLOST portion (320-00-11-1130); instead the SPLOST portion was posted against the claim on pooled cash general ledger number 320-00-11-1110 in error. JE # 6144 also ran the $922,314.49 amount through the general fund pooled account 999-11-1110 in error. Also, the SPLOST fund does not have an “active” claim on cash account that works as due/to account to track payables between the general fund and the SPLOST fund; therefore, any transactions posted into this account had to be made with a journal entry. As of June 30, 2008, the funds available for the beach renourishment project were as follows:

City of Tybee Island Review of Audited Transactions March 12, 2013

Money Made Available to FAO Corp of Engineers for Beach Project 2,930,000.00 5-15-08 Check Issued to FAO to Hold for the project 1,289,045.85 6-15-2008 SPLOST Money Transferred to Escrow Checking Account 4,219,045.85 June 30, 2008 Total Money Available to FAO
FY2008 General Fund Revenue: In the June 30, 2008 annual financial statement audit, the city reported that the city received $3,390,000 in grant revenue in the general fund’s beach renourishment revenue account 100-00-33-6105, in error. The balance for the $3,390,000 includes Feb 15, 2008 contribution from Chatham County for $450,000; the May 8, 2008 DNR Bond/Grant of $2,930,000; and a $10,000 amount from a journal entry posted by the Finance Director; all of these transactions were recorded by the city prior to the annual audit beginning. As aforementioned on page 1 of this report, the $450,000 from Chatham County was suppose to be used for the beach renourishment project and therefore should have been deposited into the city’s escrow checking account and recorded as deferred revenue on the general ledger. This money was deposited into the general fund pooled cash account and recognized as revenue in the beach renourishment revenue account. By recording the $450,000 in the pooled cash account and recognizing it as revenue immediately, the off-set the expenses that the city was paying to Olsen Associates, Inc. from the General Fund pooled cash account which were cost for beach renourishment that were in addition to the money that had to be provided to the FAO. In addition, the $2,930,000 money from the DNR should have been recorded as deferred revenue as well. In summary, no revenue should have been reported in the general fund as beach renourishment revenue as of June 30, 2008.

FY2009
The city changed from a calendar year to a fiscal year with its first fiscal year being January 1, 2008 to June 30, 2008. The city created a new financial system database to use for the new fiscal year reporting. However, all of the fiscal year 2008 is recorded in the “old database” financial system. The city continued to use the “old database for the first six months of fiscal year 2008-2009 and began using the new database on January 1, 2009. The city never posted the revenue and the expense transactions from the old database for the first 6 months of FY2009 (July 2008-Dec. 31, 2008) into the current database years ending June 30, 2009. In order to obtain financial information for FY2008-2009 reports must be run for both databases and compiled.

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The FAO requested an additional $622,000 be made available for the project. The City Council approved the additional $622,000 be taken from general fund money for the project. On August 1, 2008, an addition, $622,000 transfer of cash was placed into the escrow checking account; originally $662,000 was transferred from the money market checking account and placed in the general fund operating checking account. Then a check was cut from the general fund operating account made out to FAO USCOE $622,000 and expensed to general ledger account 100-6125-54-1402, beach renourishment. However, the check did not go directly to the FAO, the city deposited the check into the city’s FCB Escrow checking account #2145324. On August 1, 2008, the entry to record the $662,000 transfer from the money market account to the pooled cash account does not appear to be recorded’ JE#5079 posted to amount to the pooled cash account and then JE#5343 reversed it back out. Then 62,000 were recorded in the general fund pooled cash and the remaining $600,000 was recorded on the SPLOST claim cash (escrow) account. Since the money from the market account was used to be placed in the escrow checking account, the city used SPLOST money instead of general fund money to pay for the beach renourishment project because there was not enough general fund available in the money market checking account to cost the $622,000 costs; the majority of the money in the money market account as of August, 2008 was SPLOST. The schedule below discloses the account balances in the money market checking account from June 30, 2008 through September 30, 2008:
General Fund June Activity: 5/30/2008 6/10/2008 6/10/2008 6/10/2008 6/16/2008 6/30/2008 Transfer to General Fund Pooled cash # 28266 Transfer to General Fund Pooled cash # 28266 Transfer to General Fund Pooled cash # 28266 Transfer to SPLOST 03 cash # 28258 Transfer to General Fund Pooled cash # 28266 Interest Income Total Money Market Account Cash Balance 6/30/08 (228,000.00) (300,000.00) (300,000.00) (540,000.00) (1,289,045.85) 4,685.93 1,187,766.36 (300,000.00) (300,000.00) 891.21 131,236.41 (228,000.00) (540,000.00) (1,289,045.85) 3,645.63 934,199.52 SPLOST Water & Sewer Fund 149.09 122,330.43

City of Tybee Island Review of Audited Transactions March 12, 2013

General Fund July Activity: 7/31/2008 Interest Income Total Money Market Account Cash Balance 7/31/08 2,494.24 1,190,260.60 275.59 131,512.00

SPLOST 1,961.76 936,161.28 Water & Sewer Fund 256.89 122,587.32

General Fund 8/1/2008 8/13/2008 8/14/2008 8/31/2008 August Activity: Transfer to General Fund Pooled cash # 28266 Transfer to SPLOST 03 cash # 28258 Transfer to General Fund Pooled cash # 28266 Interest Income Total Money Market Account Cash Balance 8/31/08 (662,000.00) (8,000.00) (280,000.00) 554.78 240,815.38 (13,838.72) 61.30 117,734.58

SPLOST (662,000.00) (8,000.00) (266,161.28) 436.34 436.34 Water & Sewer Fund -

57.14 122,644.46

General Fund Sept Activity: 9/11/2008 9/30/2008 Transfer from Parking Checking Acct cash # 2137198 Interest Income 100,000.00 571.26 341,386.64 100,000.00 165.04 217,899.62

SPLOST Water & Sewer Fund 115.28 551.62 290.94 122,935.40

Total Money Market Account Cash Balance 9/30/08

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On August 4, 2008, the FAO made and wire transfer and removed the money$1,912,583.02 from the escrow checking account leaving a balance of $3,646.83. The city’s general ledger did not timely record the transaction in the escrow account.

City of Tybee Island Review of Audited Transactions March 12, 2013

The FAO reported that the project was completed on December 22, 2012. FY2009 SPLOST Cash Balance and Expenditures: The city continued to make entries into the escrow checking account as is the account was a “real claim on cash account” that distorted the balance. Also, on August 14, 2008, a wire transfer was made moving $280,000 of SPLOST money from the First Chatham Bank into the general fund pooled cash account. A journal entry was posted debiting the “pooled cash account “ # 320-00-11-1110 and crediting the money market account # 320-00-11-1119 and debiting pooled cash 999-0-11-1110 and crediting due to other funds in error. The following entry should have been done: debit - due from general fund # 320-00-111500; credit money market account # 320-00-11-1119; debit pooled cash account 999-00-1110; and credit due to SPLOST # 100-00-12-1903. The escrow account\claim on cash account balance finally came to $1,797,441 as of June 30, 2009. After the audit began, the auditors initially gave an adjustment to post the $1,797,441 as debiting the beach renourishment expense # 320-6125-54-1402 and by crediting the escrow\claim on cash account 320-00-11-1110 in order to record the beach renourishment expenses. The city posted the entry. The auditors issued the trail balances for the June 30, 2009 audit on October 1, 2009. By October 22, 2009, upon the city realizing the that the beach renourishment expense account was overstated beyond the $1,000,000 that the city was authorize to spend on the beach renourishment project. The auditor changed the cash balances, expense balances in the general fund and SPLOST fund as reflected in the trail balances re-issued by the auditors dated December 5, 2009 for the purposed as the auditor November 2009 email to the Finance Director stated that he figured out how to get the beach renourishment off of the SPLOST general ledger.

The auditors ended up making off the book entries to the audited financial statements reversing the previous entry instead removing the beach renourishment expense from the SPLOST fund by making up the following entry: General Fund Debit 100-6125-54-1402 Beach Renourishment Expense $1,797,441.00 Credit 100-00-39-XXXX Transfer in from SPLOST (426,319.00) Credit 100-00-11-1116 Georgia Fund 1 Cash Account (1,371,122.00) SPLOST Fund Debit Georgia Fund I Cash 320-00-11-1116 1,371,122.00 Debit Transfer to General Fund 320-7520-6110 426,319.00 Credit Escrow/Claim on Cash 320-00-11-1110 (1,797,441.00) The auditor’s entries made it appear that the Georgia Fund One cash account had SPLOST money and removed the beach renourishment expense from the SPLOST fund eliminating any trace that the escrow money from SPLOST were spent by the FAO Corp of Engineers for beach renourishment and eliminating any record of the money being owed back to the general fund for an share of the expense. The transfer for $426,319 from SPLOST to the General Fund needs to be reversed and a payable to the SPLOST funds from the General Fund should be recorded for the 1,797,441 money expensed in the general fund as beach renourishment.

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On December 8, 2008, the city received a reimbursement check from the FAO Corp of Engineers for $353,250.00. The FAO returned $353,250 to the city via check because FAO did not need the all of the additional $622,000 that they requested in August. The city deposited the money into the general fund pooled operating checking account with First Chatham Bank, acct# 28266. The city recorded the reimbursement in beach renourishment revenue, acct. 100-00-33-6015 in error. The cash receipt should have been posted against the expense account to off-set the $622,000 disbursement expensed and given to FAO on August 1, 2008. The money should have been deposited into the SPLOST 2003 checking account. The city received a payment from Chatham County on August 4, 2008 for $150,000 for its share of the project costs. This cash receipt payment was recorded in the general fund pooled operating checking account with FCB acct#, 28266 and posted to the beach revenue account, 100-00-33-6015. Thus, the total beach revenue account balance at 6-30-09 was $503,250.00. The balance also included a refund payment from the FAO US Corp of Engineers for $353,250.00. The Reznick Group auditors reclassified the entire $503,250.00 from the revenue account to the Beach renourishment expense account in the general fund acct. # 100-6125-54-1402. The $150,000 contribution from Chatham County should have been recorded as revenue. On October 27, 2009, the city received an addition check, # 8736-01538691 from the FAO for $548,703.27 returning more money from the project. The money was recorded in the general fund pooled cash checking account # 28266 on Oct. 28, 2009. The city recorded this cash receipt in error as miscellaneous revenue in the general fund in account number 100-00-38-9003. This money should have been re-deposited into the SPLOST 2003 checking account.
General Fund FY2009 FY2009 FY2009 FY2009 FAO US Corp Advertisement + postage adjustment Olsen & Assoc. Inc General Ledger Reported Expenditures 622,000.00 66.25 368,268.53 106,544.00 100-6125-54-1402 Check written to FAO but deposited in city Escrow account. This money originally came from the SPLOST portion of the money market account. 100-6125-54-1402 100-6125-54-1402 JE#6405 to reclassify cash from escrow account as beach expenses. This originally money came from Splost funds in the money market account. 100-6125-54-1402 Erroneous adjustment made by Reznick Group in which they reclassified the $150,000 contribution from Chatham County against the expense instead of recording it as revenue Adjustment made by Reznick Group to record the refund from FAO against the expense; this should have gone to the Splost fund. Auditors booked this adjustment reclassifying the expense from SPLOST to the general fund in the face of the financial statements Total Beach Renourishment Expenses reported in FY2009

City of Tybee Island Review of Audited Transactions March 12, 2013

FY2009 FY2009 FY2009

Reznick Group/Auditors AJE Reznick Group/Auditors AJE Reznick Group/Auditors AJE

(150,000.00) (353,250.00) 1,797,441.00 2,391,069.80

The city’s general ledger does not reflect the changes made with the auditor’s final adjustment. The city’s general ledger as of June 30, 2009 still reported the $1,797,411 as beach renourishment expenses in the SPLOST fund. It reports that the Georgia Fund One checking account balance is 2,592,661.33 before the erroneous adjustments were made.

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City of Tybee Island Review of Audited Transactions March 12, 2013

FY2010

The $145,424 transfer into the SPLOST fund from the General Fund appears to be an error. The city had cut a check from the general fund pooled checking account to the SPLOST 2003 fund checking account for $145,000; the check appears have been to repay interest earned. Instead of posting the transaction by debiting pooled cash and crediting the due to SPLOST account in the general fund and debiting SPLOST 2003 cash account and crediting the interest income account in the SPLOST fund, the city debited pooled cash and credited the transfers out in the general fund; and then debited SPLOST 2003 cash account and credited the transfers in revenue account in the SPLOST fund. The entry transfer needs to be reversed and an entry recorded to reflect the disbursement from the general fund pooled cash account and the interest income revenue in the SPLOST fund.

FY2011
For the $175,701.72 transfer from the SPLOST fund to the General Fund, it appears to be a plug by the auditors in an attempt to balance the funds in an attempt to fix the fund balance in the SPLOST fund which was zero at the time that began the audit. They made entries to try to fix the transfers in account and transfers out which had transactions in them at the time the audit began for FY2011. This transfers needs to be reversed.

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