An investigation into spending on Town of Seneca Falls credit cards revealed a lack of policy, according to a Forensic Accounting Consulting Report obtained by FingerLakes1.com.
The report was authored by Bonadio & Co., LLP at the request of Town Supervisor Greg Lazzaro, and the entire Town Board. The report is dated Nov. 3, 2017, and was voted on by the Town Board to allow Bonadio to conduct the review at a session last fall.
The report was conducted in October 2017, and included a forensic accounting analysis surrounding certain business operations and financial records of the Town of Seneca Falls. The Town Board engaged Bonadio to examine certain financial transactions, as well as the internal controls involving Town issued credit cards.
According to the report. Bonadio interviewed specific Town employees that have responsibilities with the accounting and finance operations related to the administration of Town provided credit cards, the payment of such credit card invoices, as well as the monitoring of activity processed on those cards. The report indicates that the investigation included obtaining credit card statements and related supporting documentation for the period of Jan. 1, 2014 through Sept. 30, 2017. The review aimed to determine the ‘appropriateness’ of the transactions, that the transactions were related to normal Town business, and that all credit card activity was properly captured and accounted for in recordkeeping.
The report indicates the the Town Supervisor and Town Board engaged Bonadio to address concerns that arose after the discovery of an inappropriate use of the Town’s credit card by an employee of the Town’s Recreation Department. Specifically, the background portion of the report indicates that a Town employee inappropriately used the Town-issued credit card to pay for personal expenses and failed to reimburse the Town for all of the personal charges.
Bonadio moved forward performing the analysis of all credit card transactions over the 45-month period. The comprehensive deep-dive into into charges on Town of Seneca Falls credit cards included examination of the following:
- That appropriate level of documentation was present to support the purchase listed;
- That the purchase was related to appropriate Town business, and in compliance with Town policies and procedures;
- That the receipt/voucher contained an adequate level of information or commentary to enable the review to confirm the purchase was related to legitimate Town business; and
- That the payment voucher was appropriately approved for payment and that the payment amount approved reconciled to supporting documentation.
In simple terms, the investigation evaluated the who, what, when, where, and why within associated spending on Town-issued credit cards. It also included meeting with appropriate Town employees to discuss any discrepancies or questionable credit card transactions.
Bonadio notes in the report that “The employees of the Town were very cooperative during the engagement, were forthcoming during their interviews and provided our consultants access to all documentation and recordkeeping requested during our analysis.”
The report includes four key recommendations for the Town of Seneca Falls to move forward with:
IMPLEMENTING A STRINGENT POLICY ON DOCUMENTATION
The report says, “Throughout our examination procedures, we noted a high volume of purchases made with Town credit cards, for which there was inadequate or no documentation at all in support of certain credit card transactions. In addition, we noted a high volume of receipts and invoices for which there was no description of what specific reason, Town location, or Town program for which the purchase was made.”
In light of those findings, Bonadio recommends that the Town develop, document and implement a formal policy requiring appropriate levels of documentation in support of all purchases made on Town-issued credit cards. It notes that the Town may also consider the use of formal purchase orders for all credit card purchases, and/or the utilization of a standardized form for documenting the ‘who’, ‘what’, ‘where’, ‘when’ and ‘why’.
It goes on to note that the employee responsible for approving the credit card statements for payment should return all ‘requests for payment’ and deny approval until the appropriate level of documentation is provided. Without proper documentation, it is difficult in later review to ascertain the business purpose of many transactions, especially those involving everyday items such as food, cleaning products and supplies, according to the report.
The report also notes that credit card statements should be inspected by a Town Board Member prior to payment each month. It suggests identifying a designee of the board to be assigned the monthly task.
GETTING REQUIRED SIGNATURES, AND ENSURING TAX EXEMPTIONS QUALIFY
The report says, “During our review of the Town’s credit card transactions and related documentation that the summary documents, or abstracts, requesting the credit card payment disbursements are often not signed or certified by either the Town employee preparing the form, or the Department Head reviewing the form. In addition, the required approval of the disbursement by a Town Board member was most often documented via a ‘stamp’, but not directly signed by a Town Board member signifying approval. The use of a ‘stamp’ for approval makes it extremely difficult to ascertain if a Board member actually approved the disbursement, or if the approval was simply a ‘stamp’ applied by a Town employee when it was received.”
According to the Bonadio, the recommendation includes returning abstracts to proper individuals for signature when they are received and not signed. Approvals for disbursement should not be approved, sign or passed until the required signatures are present. They note that an ‘integral’ part of the approval process includes certifying all transactions and ensuring that sales tax has not been paid on any transactions included in the disbursement. The investigation by Bonadio found that “sales tax was frequently included on transactions.”
DEVELOP BETTER POLICY FOR HANDLING INTERNAL ACCOUNTING
The report also notes that, “The policies and procedures surrounding the administration of the Town-issued credit cards are not clearly communicated, documented, or understood by Town personnel utilizing the credit cards, or by the administrators managing the accounting of the finances.” It continues, “We noted through our procedures and interviews with Town employees that all of the credit card statements and transactions, including those of the Town Clerk and Police Department, were forwarded to the Recreation Department for reconciliation and eventual approval.”
Bonadio points out that their understanding of the process for reviewing credit card purchases throughout the town is as follows:
- The credit card statement for all Town-issued credit cards are received directly by the Clerk of the Recreation Department;
- The supporting documentation for the credit card transactions are forwarded to the Clerk of the Recreation Department by the applicable Town employees that made the purchases;
- The Clerk examines the receipts provided in support of the transactions, and notates the appropriate Town general ledger codes for each of the charges via notes on the credit card statements;
- The Director of the Recreation Department reviews and approves the work of the Recreation Department Clerk, and forwards the packet to the Town Clerk;
- The Town Clerk passess the packet to the Accounting Department, where the line items are input into the general ledger and the check is generated for payment; and
- The physical check and the packet of documentation is provided to a Board member for final review and approval.
Bonadio recommends that the Town Board develop, document and implement a formal comprehensive policy for the administration of all Town-issued credit cards that will help prevent and detect any potential misuse of Town accounts. They note that the individual departments utilizing credit cards should be assigned the responsibility of gathering the required supporting documentation — like receipts, invoices, and statements from personnel.
IDENTIFYING ‘PERSONAL’ AND ‘TOWN’ EXPENSES ON CREDIT CARD STATEMENTS
The report highlights credit card purchases that were “personal in nature,” according to Bonadio, who notes that better policy for identifying necessity of purchases. “It is difficult to confirm whether employees made full-reimbursement to the Town for the personal expenses, as there were no copies of the reimbursement checks available in the Town’s records,” it adds. It notes a number of transactions that may have been ‘somewhat personal in nature’ but were not as clear cut. “The Town credit card was used to pay for CostCo, BJs and Amazon Prime memberships, as well as at least two annual subscriptions for Microsoft Office Home edition.”
It continues, “Based on our analysis, the Amazon Prime membership seems to be solely for the use of the Town, however the CostCo and BJs memberships were taken out in the names of the authorized users of the credit card, which would theoretically allow these persons to use the memberships for their personal benefit as well.”
Addressing this concern, the report recommends a better policy for obtaining appropriate levels of supporting documentation when utilizing the credit cards. The Department Heads, Accounting Department, and Town Board should review any and all instances where the credit card balance due does not match the check requested amount for payment by the Town, or where interest and penalties are charged.
“The comprehensive Town credit card policy must strictly prohibit the use of the Town credit cards for personal expenses of any kind. The policy should include a provision that also prohibits Town employees from making Town related purchases with their own personal funds or credit cards, and then submitting for reimbursement from the Town,” the report adds.
All equipment or supplies related to Town business should be approved for purchases by the use of a Purchase Order or a voucher approved by the appropriate Supervisor or Department Head.
SENECA FALLS OFFICIALS REACT TO THE REPORT
Deputy Supervisor Lou Ferrara was disappointed in the findings, but said that he hopes this can lead to some positive policy change in the coming months. “My position is that the things inside the report should never have been allowed to happen,” Ferrara said. “The findings show that there are not, nor were there ever procedures or accountability in place. We need to look at everything. We need to install policies and procedures to make sure that this doesn’t happen again,” he continued.
He defended taxpayers, pointing out that “Every resident deserves more than what they have been receviing and unfortunately, I feel that when the New York Comptroller’s audit is complete we will get a much clearer picture of what needs to be done.”
FingerLakes1.com has reached out to the entire Town Board and will add to this story as more responses are received.