Losing Track: Accounting Problems Dog Arkansas Cities, Agencies

by Kate Knable  on Monday, Jun. 11, 2012 12:00 am  

Bruce Engstrom, a state lottery commissioner and partner in accounting firm EGP PLLC of North Little Rock, says accounting errors by cities and state agencies are caused by a breakdown of oversight and controls. (Photo by Hannah Pfeiffer)

“You can’t rely on the audit to come in and tell you what’s wrong,” he said.

The 377 federal programs valued at less than $2.6 million each almost never get audited, even though they involved a combined total of $144 million last year.

Forestry’s federal program fell within the middle category, receiving more than $2.6 million but less than $26.1 million.

Forestry’s misuse of federal funds, which, according to Moore, likely began in 2007, inspired the Division of Legislative Audit to look more closely at the small federal programs. Division staffers realized that financial actions based on misinterpretations of laws could grow into significant misuse of money if unchecked for years, Moore said.

Starting this year, legislative auditors will annually dip into their division’s special-projects funds to pay to audit about five randomly chosen federally funded programs from both the middle and smallest categories.

The small programs individually don’t pose much of a threat to state finances, but taken together the risk “can be very significant, especially if we’re aware that there might be a problem statewide,” Moore said.
Cities and Towns
For cities and towns, a shortage of manpower in both numbers and skills can result in significant accounting problems, even if they are audited every year or two.

“The smaller the governmental entities become, the smaller the salaries being paid to the people. Typically, the smaller the salaries, you attract less qualified people,” EGP’s Engstrom said. “It takes commitment from a governmental entity to fully staff positions. It’s hard to do in a small city or small county or small school district.”

In January 2011 when Johnny McMahan became mayor of Bauxite (Saline County), population 487, he discovered that the former mayor and clerk treasurer hadn’t been paying the town’s payroll taxes consistently.

Only the IRS seemed to know the extent of the problem. The feds suddenly withdrew $13,000 from Bauxite’s general fund, leaving McMahan scrambling to find out what happened.

He and his new staff uncovered months’ worth of unopened IRS letters that had been tucked in drawers and boxes around the city’s offices. “Whether they did it on purpose or not, I don’t know,” McMahan said of the prior administration.

Bauxite owed the IRS more than $36,000 in payroll taxes and penalties, or nearly 4 percent of the city’s annual budget of less than $1 million. 

McMahan, who is a part-time employee, laid off three full-time officers, dropping the police department’s full-time staff to one and cutting into the salaries and payroll taxes the city couldn’t afford.



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