City of DeKalb’s Comprehensive Annual Financial Report (CAFR) for the fiscal year ending June 30, 2016, contains a letter to management from the auditors that discusses a “significant deficiency” in DeKalb’s internal accounting controls.
The DeKalb city council is set to discuss the report during its Committee of the Whole meeting January 9 at 5 pm.
Here is how the auditor defines “significant deficiency” in the management letter (my emphasis):
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency or a combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
The description of the significant deficiency follows:
1. Capital Assets
During our testing of capital assets we identified a number of items within the capital asset detail records that required adjustments during the current year as well as a prior period adjustment to the City’s financial statements as of July 1, 2015. These items included:
Assets that were disposed of in the prior year, but the related accumulated deprecation was not removed.
Assets that had been previously disposed, or partially disposed, that were not removed from the records, but rather a negative asset component was added to the detail. This created instances in which the original asset was being depreciated but the negative component was not.
An asset that had remained in Construction in Progress for several years, but had been placed in service during that time.
We recommend that the capital asset details be reviewed during the year to ensure that these items are identified and corrected.
The audit had also found that seven of DeKalb’s funds went over budget, but the city avoided their being included in the letter as “excess expenditures” by amending the FY2016 budget retroactively last October.
While most local governments, including DeKalb, have routinely posted their CAFRs online for years, few municipalities posted the management letters until Illinois began requiring it in 2015. Before then, citizens had to submit Freedom of Information Act (FOIA) requests for the letters, which discuss findings and recommendations.
DeKalb signed a four-year contract with a new auditing firm last spring.