WELLFLEET — While the town’s June 30, 2020 financial statements somehow passed muster, receiving what is known as an unqualified opinion in the independent auditor’s report from Powers & Sullivan LLC, the auditors found that a key internal control — monthly reconciling of the town’s general ledger cash account to the treasurer’s cash book — was not completed, allowing discrepancies between the two accounts to go undetected by the town.
The auditors concluded that such discrepancies constituted a “material weakness” in the town’s cash management. A material weakness is the most serious finding possible in an audit.
The town’s auditors from Powers & Sullivan were supposed to discuss their findings with the select board on Tuesday this week. But 20 minutes before the meeting was to start, the audit team said they were not available. No explanation for their absence was immediately available.
The treasurer’s cash book (where all cash receipts and payments are recorded) and the general ledger (the responsibility of the town accountant) are maintained separately. The treasurer’s office is expected to reconcile the cash book to bank balances and the cash book is then reconciled to the general ledger to make sure all cash transactions have been independently recorded in both systems.
The auditors found a $2 million payment for a land purchase (presumably, the HDYLTA Trust shellfish flats) recorded in the treasurer’s cash book that was not posted to the town’s general ledger; they also discovered a $2.3 million variance that was posted to the wrong account when beginning balances were entered in the new general ledger software, and a variance of $821,000, of which $56,000 was related to outstanding checks, leaving a $765,000 “unknown variance.”
Interim Town Administrator Charles Sumner said Tuesday that he did not know whether the cause of the $765,000 variance had been determined by the auditors.
“Collectively, these instances constitute a material weakness in the Town’s internal controls over cash,” the auditors’ management letter stated. Material weaknesses must be reported in writing to management — in this case, the select board.
According to a Powers & Sullivan presentation given to the 2019 Association of Town Finance Committees annual meeting, a material weakness is the most serious finding that can be reported in a management letter and indicates there is a reasonable possibility that the associated financial statements are inaccurate.
In addition to the material weakness comment, the management letter contained 14 other comments, including that the town was not properly maintaining vendor records, increasing the risk that 1099 forms would not be filed as required, and that other balances in the general ledger were not properly documented.