Publisher’s Note: This article is a reprint from the March 28, 2020, MC Gazette. Earlier this week, The Golden Hammer ran an article about the Commissioners Court meeting on Tuesday, June 23, 2020, in which we discussed an issue pertaining to the secrecy the County Judge has imposed on Commissioners Court meetings and on the operations of the Commissioners Court. A County official, who requested anonymity, expressed further criticism of the County Judge and the manner in which the County Auditor provides internal audits. That official referred us to an excellent series of articles in the MC Gazette on accounting issues inside the Montgomery County government.
We’re happy to reprint this article with the permission of Ms. Shorten and the MC Gazette. Ms. Shorten has noted that the County Auditor has begun to bring his internal auditing reports into compliance with the Local Government Code ever since the publication of this article on March 28. Nevertheless, some of the issues remain and the article is still an important piece of work.
By Sherrie Shorten, Reprinted with Permission from the MC Gazette
CONROE – The Montgomery County Gazette has received information that identifies a continuing pattern of deficiencies in internal controls leading to the misstatement of cash balances on multiple reports submitted to Commissioners Court. All of these reports were accepted by the Court and used as the basis for decisions regarding voting on the business of Montgomery County, Texas.
Montgomery County Treasurer Melanie Bush submits a monthly Statement of Balances report to Commissioners Court during the last meeting of every month. On March 17, 2020, Treasurer Bush submitted two amended reports for December 2019 and January 2020.
The reports were amended for two items that affected both months:
- A $0.07 error in recording December interest in one bank account was corrected by including the $0.07 on the January report. Treasurer Bush caught the error and after moving the $0.07 to the proper reporting month, amended the Treasurer’s Statement of Balances Report.
- The totals on the Statement of Balances report did not contain the cash balance for the “Capital Project-Road Bonds 2018-Fund 40018,” causing an error in the report total of $1,709.18 for January 31, 2020, which was also corrected when the amended reports were filed.
Then, on March 24, 2020, Precinct 3 Commissioner James Noack asked for the Treasurer’s Monthly Statement of Balances report for February 2020 to be pulled from the Commissioners Court consent agenda and deferred. Commissioner Noack stated that he tasked the Auditor’s Office with tying the Treasurer’s report to the G/L report and based on the feedback he received, “I’m not going to approve it [Treasurer’s Report] in any way because it’s not correct; they don’t balance.”
It is important to note that on March 24, 2020, County Auditor Rakesh Pandey did not submit the monthly reports to Commissioners Court for February 2020 in compliance with Local Government Code Sections 114.023 and 114.025. Both of these reports contain references to cash and investments held by the County. Since he did not submit either February 2020 report, he was not seeking approval for those numbers yet, further indicating a problem exists in the General Ledger too.
Examples of Differences Between Treasurer’s Report and General Ledger
The Montgomery County Gazette obtained a copy of a 66-page attachment to an email containing the differences between the Treasurer’s Statement of Balances and the General Ledger. In the accompanying email, Auditor Pandey describes how the general ledger and financial reporting does not reconcile to the Treasurer’s investment reports.
County Auditor Pandey stated he is working on a plan to correct the problems identified in the 66-page report, but indicated the problem is determining “how we’re going to get around doing this with the current [computer] system that we have, and how to do this in the new [software] system.” Pandey’s comments refer to the internal processes used to capture, accumulate and record financial information for the County to improve the accuracy of the month-end financial reports.
The following four issues have been selected as representative of the problems identified in Auditor Pandey’s email: (1) one account not found on the general ledger, (2) accounts allegedly missing from the Treasurer’s Report, (3) accounts in Fund 787, and (4) MCTRA accounts.
Account Not Found on General Ledger
According to the Auditor’s findings, an investment account entitled “Records Management-VS-Dir-FFCB” has a balance of $2,652,155.56 on the Treasurer’s Statement of Balances report as of February 29, 2020 and cannot be located in the general ledger.
This issue is still being reviewed.
Accounts Allegedly Missing from the Treasurer’s Report
The Auditor’s report of discrepancies indicates the following eight accounts are not listed on the Treasurer’s Statement of Balances Report:
- Elections Services Cash Account
- Fund 211 for Attorney Administration
- Fund 212 for Forfeitures
- Fund 217 for Sheriff’s Commissary
- Fund 254 for Elections Service Contracts
- SIT Escrow
- CA Discretionary
- DA State
According to Treasurer Bush, “The accounts referenced as ‘missing’ from the Treasurer’s Statement of Balances are all accounts in which I have no signing authority. Each of the Elected Officials or Elections Administrator are in control of those accounts, administer and reconcile each of those accounts, and send the information on those accounts directly to the Auditor’s Office.”
Therefore, the eight listed accounts should not be reported on the Treasurer’s Statement of Balances under the current policies and procedures. The accuracy of the general ledger balance for these eight accounts needs to be verified with each Elected Official or Elections Administrator.
According to Auditor Pandey, there needs to be “a plan because the problem involves several departments.” When the G/L is printed before all the adjustments have been received from the various departments, Pandey indicated there could be timing issues causing differences between the G/L and the Treasurer’s report.
The following summary shows the differences in the accounts in Fund 787 as of February 29, 2020 according to the 66-page attachment of Auditor discrepancies as found on page 4 of https://emcgazette.com/clients/emcgazette/AuditorTreasurer.pdf):
|Account Description||Per Treasurer||Per G/L||Difference|
On the surface, this is an alarming discovery. It means the actual bank balances are different than the bank balance recorded in the County’s financial statements. However, the explanation is quite clear.
The Montgomery County Gazette has been closely following the County’s finances since the start of the new fiscal year on October 1, 2019. Tracing back to the last time the Treasurer’s monthly Statement of Balances matched the General Ledger figures presented in the Auditor’s email, the balances listed under the G/L column in the above chart match the Treasurer’s ending balance on the September 30, 2019 Statement of Balances report. (http://destinyhosted.com/montgdocs/2019/CCREG/20191022_1269/14531_Monthly_Statement_of_Balances_ending_09-30-19.pdf)
Therefore, there have been NO transactions entered in the General Ledger for these five accounts since September 30, 2019. The differences in these accounts are NOT timing differences, the G/L balance has not been updated in these accounts during FY 2020.
More MCTRA Accounting Issues
During the external audit of the Montgomery County Toll Road Authority’s (MCTRA) financials for FY 2019, Montgomery County’s external auditor, Weaver and Tidwell, LLP, found significant deficiencies in the internal controls used to perform the task of investment reconciliations. According to Weaver and Tidwell’s report, “The investments were not fully reconciled to year-end investment statements,” causing MCTRA’s financial statements to be misstated by $1.6 million in investments. (https://emcgazette.com/before-covid-mctra-audit-identifies-significant-deficiency-in-internal-p3798-174.htm)
The MCTRA financials were corrected before the external audit was finalized, making the reports accurate through September 30, 2019.
However, as of February 29, 2020, the Auditor’s list of discrepancies states the Treasurer’s Statement of Balances report and the MCTRA general ledger account does not agree. There is a difference between the two reports of $157,741.91. Therefore, the problem identified by the external auditor has not been corrected in the new fiscal year.
As previously reported on March 23, 2020, Auditor Pandey explained, “We have hired a dedicated MCTRA Financial Analyst who will prepare monthly reconciliation and reports, and at the very least queue up a quarterly presentation to the board for flux analysis and provide more visibility around the balance changes. Due to increasing workload with 249 Tollway going operational, we felt it was necessary to hire a dedicated analyst to be hands on with Toll Road activities.”
The new Financial Analyst will need to review and adjust MCTRA’s transactions from October 1, 2019 to the present before the general ledger will agree with the Treasurer’s Statement of Balances.
During the last Commissioners Court meeting of each month, the County Auditor submits the General Ledger reports in compliance with Local Government Code Section 114.023 and 114.025. These reports contain cash balances, investments at fair market value, and other financial information.
Each month, the Auditor’s reports and the Treasurer’s Statement of Balances are unanimously approved on the consent agenda by the Commissioners.
Three of the Commissioners have Operations Directors as follows:
|Commissioner||Operations Director/Manager||Salary of Operations Director|
|Pct. 2 Commissioner Charlie Riley||Bruce Berger||$124,999.94|
|Pct. 3 Commissioner James Noack||Evan Besong||$111,833.28|
|Pct. 4 Commissioner James Metts||Phyllis Martin||$124,999.94|
Commissioner Riley and Bruce Berger have been heavily involved in MCTRA’s finances for the purpose of constructing the 249-toll road and setting up MCTRA’s organizational structure. However, neither noticed they were short the $1.6 million in MCTRA funds identified in the external audit or the continued discrepancies in FY 2020.
Commissioner Noack’s presence in Commissioners Court is usually accompanied by an entire table of documents stacked next to his chair and neatly organized with the details for each agenda item with an emphasis on cutting costs. Evan Besong is usually present and available to retrieve any additional information requested from Commissioner Noack.
Commissioner Metts is accompanied by Phyllis Martin, the previous County Auditor for Montgomery County, who should be able to navigate the reports better than anyone.
However, the Commissioners continue to use these reports to make decisions affecting the future operations of Montgomery County. Without all the adjustments, the Commissioners are using financial information that could be off by $1.6 million, $2.6 million, $600,000 or any other amount.
If these problems regarding County investments and balances in depository accounts are not corrected and the internal controls changed, someone in Montgomery County is going to end up making a decision based on insufficient data that causes a major financial shortfall and the taxpayers will have to foot the bill to correct it.
View the March 24, 2020 Commissioners Court where Noack deferred the Treasurer’s Statement of Balances: https://montgomerycountytx.swagit.com/play/03242020-619/5/
View the Treasurer’s Statement of Balances report for February 29, 2020 with notes (made by the Auditor’s Office) as to the discrepancies with the General Ledger: https://emcgazette.com/clients/emcgazette/AuditorTreasurer.pdf