Audit finds ‘deficiencies’ in Camas’ financial reporting

The Office of the Washington State Auditor has identified deficiencies in the city of Camas’ internal control over financial reporting.

In a letter sent to Camas Mayor Steve Hogan and members of the Camas City Council Aug. 17, Washington State Auditor Pat McCarthy said the state had noted “no instances of noncompliance material to the financial statements of the City,” but had “identified deficiencies that (the state) consider(s) to be material weaknesses.”

The auditor’s report showed that the city’s “internal controls were inadequate for ensuring accurate financial reporting.”

“Our audit identified deficiencies in the City’s internal controls that hindered its ability to produce accurate financial statements,” McCarthy stated in the report sent to city officials. “We identified the following deficiencies in internal controls over the City’s process for preparing the financial statements. When taken together, they represent a material weakness.”

McCarthy said the City’s financial information “contained errors that management did not detect” during the audit period of Jan. 1, 2022 through Dec. 31, 2022. Those included:

• An error in a journal entry that resulted in $75,986 in underreported revenues for the Camas-Washougal fire and emergency medical services (EMS) fund;
• An “allowance for doubtful accounts receivable in its Camas-Washougal fire and EMS fund that exceeded the related receivable by $61,653;”
• The non-reporting of accounts payable for all funds. Instead, state auditors found the City “reduced cash by the amount of payables outstanding, totaling $1,027,816;”
• A reporting of more than $48 million in “fully depreciated infrastructure activities within “government activities’” indicating the City “is not regularly reevaluating the useful lives of its assets;” and
• “Overstating depreciable assets by an unknown amount as a result of not removing assets that have been replaced or are no longer in service.”

The City has corrected the first two errors noted in the report, according to the state auditor’s office.

To remedy the findings, the state has recommended the City “improve internal controls over its processes for preparing journal entries and financial statements to ensure accurate financial reporting in accordance with (generally accepted accounting principles).”

“Specifically, we recommend the City dedicate sufficient time and resources to preparing and reviewing journal entries, capital assets and financial statements,” the auditor’s office noted in its report.

The City responded to the auditor’s findings and noted that it has had just two findings from the state auditor over the past decade, including one in 2016 and another in 2019.

“Camas continues to work diligently and continuously to implement each recommendation of the State Auditor’s Office, as well as work toward complete implementation of … best practices,” the City noted in its response to the state report, adding that it also “strives to produce reliable financial statements by continuous improvement toward our accounting and reporting practices with ongoing training for staff.”

The City also noted that the 2023 preparation of its 2022 annual financial report “posed a unique challenge” for the city’s finance staff due to staff turnover and the implementation of a new financial system.

“Implementations in general require a large amount of key staff time in general with the same time considerations in preparing of financial statements,” the City noted in its response. “Unfortunately, errors were made. As of July 5, 2023, the City has completed the new financial system implementation. The new financial system is more efficient with enhanced internal control processes. The City will also be implementing three new modules later in the year for capital assets, inventory and enterprise asset management. These three new modules (will) address the useful lives and fully depreciated assets concerns by automating these processes and ensure assets are correctly recorded.”

The state auditor’s office thanked the City for its cooperation and assistance during the audit and told city officials it “appreciate(s) the City’s commitment to resolve this finding” and will “review the corrective action taken during our next regular audit.”