On-site work on Bethany Beach’s annual audit began at town hall just Monday, but already things are looking good for the town.
“Financially, it was another great year,” reported Herb Geary of auditing firm Trice, Geary and Myers at the Audit Committee’s June 7 meeting.
Geary said the firm typically drafts a management report to identify adjustments clients may want to make to their accounting practices in the coming year, but so far, “that’s all done already,” he said.
Again, auditors and committee members alike heaped praise on Finance Director Janet Connery. Geary noted that the firm had received the first set of digital documents of the 2006 fiscal year from Connery on April 21, just three weeks after the close of the fiscal year.
With work on those documents in the company’s home office, they were able to get halfway through the auditing process by Wednesday, with time to meet with the Audit Committee and target any particular areas of concern for the committee members.
“It seems like things are going very smoothly,” Mayor Jack Walsh said upon the conclusion of Geary’s report.
As for those areas of interest — Committee member Steve Trodden had just one: internal auditing procedures and the areas of vulnerability to fraud that they might uncover. It was the same concern he’d expressed at the previous meeting with TGM, and Geary said it would be addressed in the firm’s final report to the town.
Bethany Beach did take an additional step on that front in the last year, hiring an independent auditor to specifically review vulnerabilities and the town’s internal auditing procedures. Craig Boyce is set to start on that process after the TGM audit concludes.
But Geary also noted a shift in accounting standards that was “in the pipeline” and would put similar focus on vulnerability assessments.
“Risk-assessment auditing standards” (RAAS), Geary said, were due to go into effect in the 2008 fiscal year, shifting the focus of all audits from an 80/20 work split in favor of verifying numbers to the reverse of that — 20 percent of time spent on numbers and taking samples, with 80 percent on internal controls to prevent fraud.
As a result, instead of verifying financial procedures for perhaps a dozen types of transactions and recalculating all the town’s numerical data, Geary said, the auditors would instead be looking for areas of vulnerability and perhaps examining one or two transactions in those areas.
The shift came, he said, in the wake of the Enron scandal and the resulting Sarbanes-Oxley Act mandating better accountability in finance for public and private companies, as well as government.
There, the town may come out ahead. Between Connery’s ongoing reviews of internal controls and the town’s existing focus on vulnerability assessment, it puts them ahead of the game. The scant management report from TGM should testify to that.
Geary noted that, depending on the outcome of such assessments as part of the RAAS shift, clients could expect either the same (for those with strong controls) or significantly increased time and costs involved in their audits (for those with significant vulnerabilities). If the town were found to have some high-risk areas, the auditors would be forced to go back and examine all the numbers in detail after all, he explained, as well as to help design new internal controls.
That was not the expectation for the town, however, due to that ongoing focus. Connery said her own examination of risks in the last year had shown that there were few significant ones, and the ones that did exist — such as cash taken in during the summer — had good controls in place to prevent fraud.
In addition to the move toward an independent auditor to perform additional scrutiny, those checks include monthly reports on town finances that are examined by Trodden, Don Doyle and Council Member Lew Killmer — all members of the committee.
In closing out any areas of questions or concerns, Doyle asked how it was that the town was no longer having such complaints about its financial software as it had had in the years before Connery arrived.
Connery said she hadn’t had many problems with the software but had spent considerable time developing customized reports that helped boil data down to the information town officials needed. Doyle praised her work on that front as well.
All in all, the town’s finances were deemed to be in good hands and running smoothly, with the proof of that to be delivered in a draft audit report expected from TGM in the next two weeks. From there, it will be reviewed by the committee and finalized before being presented to the town council (expected in July).
But Geary was confident the news would be good.
“I would be shocked if there’s something in the report that you’re surprised by,” Geary said.
Trodden said he hoped the final report would convey the fact that the town had had a good year, and Town Treasurer Tony McClenny capped the meeting with another positive financial note. “We’re still on target” with the budget, he said.