DC Committee on Administration authorizes $67,000 for highway department forensic audit
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By LeAnn R. Ralph
MENOMONIE — The Dunn County Board’s Committee on Administration has authorized spending up to $67,000 in contingency funds for the county’s auditors, CliftonLarsonAllen, to conduct a forensic audit on the highway department’s financial records.
Dunn County has been conducting an investigation on allegations of financial mismanagement at the highway department, some of which appeared to be corroborated, said Paul Miller, county manager, at the Committee on Administration’s December 2 meeting.
According to the audit report presented to the Dunn County Board in July, the highway department had a $4 million budget deficit in 2020, requiring Dunn County to loan $4 million to the highway department from the county’s general fund. In 2017, the highway department had a $4 million surplus in the highway department’s unrestricted fund.
“We now have to make a more formal audit to make sure there is nothing else,” Miller said.
“The audit is necessary, in part, for our independent assessment (which) is necessary because we have upcoming federal and state reports that have to be done, and our county auditor, CliftonLarsonAllen, will put on hold those reports pending the outcome of this audit,” he said.
“We need to be able to assure the state and federal government, and our own contractors, that our financial house is in order,” Miller said.
“We do not expect to find mismanagement, but we won’t know until we do the audit, and we won’t be able to assure the audit was complete unless it was independent,” he said.
The proposal from CliftonLarsonAllen estimates the cost of the forensic audit from $47,000 to $66,000, Miller said.
The recommendation is to approve up to $67,000 from the county’s contingency fund to contract with CLA to conduct the forensic audit of the highway department, he said.
The audit may not be complete until after the end of the year, so the committee should also approve a carry-forward to 2022, he said.
More contingencies?
James Tripp, county board supervisor from Menomonie and a member of the Committee on Administration, asked how much money is currently in the contingency fund and whether any other requests for contingency funds would be likely before the end of the year.
If more contingency fund requests are likely, could the audit be postponed until next year? Tripp asked.
The $67,000 is what is left in the contingency fund, Miller said, adding that he is not anticipating any other requests for contingency funds by the end of the year.
If there are requests for contingency funds, the hope is that it would not be an emergency, and then the additional requests could be delayed until January, Miller said.
The recommendation is to use the balance of the contingency for the audit, he said.
When county officials met with representatives for CliftonLarsonAllen, there was no discussion of price, said Keith Strey, Dunn County’s Chief Financial Officer, in response to a comment from Tripp about whether CLA knew how much money was in the contingency fund before submitting a proposal for an audit to Dunn County.
This is a special audit, a forensic audit, and the cost will be driven by the findings, if any, and how much level of effort it will take to complete, Strey said.
An audit like this can take many different paths, and if the auditors start down a path and start seeing details that require more digging, that’s where the cost comes in, he said.
The county has checks in place to make sure the audit “does not get out of control,” Strey said.
Dunn County can stop the audit at any time because it is not open-ended and it is not a blank check, he said, noting that there are “very specific checkpoints.”
Strey plans to retire in January, and in fact, at the beginning of the December 2 meeting, the Committee on Administration met in closed session to conduct interviews for the CFO position.
Through the CFO transition, there is a team that will be monitoring the audit, Strey said.
The team includes Miller, Strey (until the new CFO starts working) and the county’s senior account manager.
“This will be heavily monitored. There will be a lot of monitoring by the key team to make sure we keep control of this,” Strey said.
Doubts
David Bartlett, county board supervisor from Boyceville and chair of the Dunn County Board, said he wanted to be certain that the audit was necessary, especially since there is “no expectation to find anything.”
“It seems like a lot of money if we don’t expect to find anything,” he said.
What puts Dunn County in the position of “we have to do this” is that CliftonLarsonAllen has put on hold the required federal and state audit process for 2021 pending this assessment, Miller said.
In other words, CLA will not do the audit for 2021 without conducting the forensic audit of the highway department first.
The process has been put on hold, and CLA “cannot move forward unless they can say the audit has been done,” Miller said.
“The situation is making us do this,” Strey said.
If the audit of the highway department is not completed, “that potentially jeopardizes our future ability to receive federal and state dollars, including reimbursements for state work,” he said.
Dunn County is, for example, reimbursed by the state for plowing snow on state highways in the county.
“It’s county wide and not just department specific,” Strey said.
“When the federal government looks at us, they look at us as an entity. We receive millions of dollars in federal and state dollars throughout the year in our budget in multiple departments,” he said.
The agencies rely on an audit report, and without the report, there could be impacts on future, and current, grant funding, Strey said.
If an agency believes there is an issue with the county’s finances, the agency could require Dunn County to pay money back, he said.
CliftonLarsonAllen also feels compelled to meet their own standards, to show the federal government that CLA is a qualified auditing firm that meets the best management practices and standards, Miller said.
CliftonLarsonAllen is putting the 2021 audit on hold so CLA can report “we are following practices.” Without the forensic audit of the highway department, CliftonLarsonAllen could issue an audit for 2021 “with a great big caveat” that the auditors are not confident about the audit report since they did not do the forensic audit, he said.
CLA could say, “we did not do an audit because we were told by the county we couldn’t,” Miller said.
“I don’t think we want that flag on the (2021) audit,” he said.
Nerves
Tripp urged Miller and Strey to continue making the explanation — that the county is in a situation where the county’s auditing firm will not complete the 2021 audit until the auditors do the forensic audit.
This is a situation “you have to be able to explain not just to this committee, but to the general public and the (county) board as a whole,” he said.
“Keep reassuring me because this makes me nervous,” Tripp said.
“This ultimately is about transparency. It’s about transparency of our finances,” Miller said.
CLA is the county’s auditor, and the company remains an independent source for the audit, he said.
Because CliftonLarsonAllen is the county’s auditor, they are in the best position to conduct a forensic audit. The auditors know the county, and they know the county’s finances, Miller said.
“It’s about transparency. There could be other mismanagement that has not yet been brought to light,” he said.
The Dunn County Board’s Committee on Administration unanimously approved authorizing up to $67,000 in contingency funds for the CliftonLarsonAllen proposal to conduct a forensic audit of the highway department’s finances.
Enhanced reporting
Earlier in the meeting, Tripp had asked about Strey’s report to the committee in which Strey had indicated there would be enhanced financial report monitoring for the highway department.
The Committee on Administration reviews vouchers for all of the county departments except the highway department and the Neighbors of Dunn County, Tripp noted.
Would the enhanced monitoring include having the Committee on Administration review the highway department’s vouchers as well’’? he asked.
There will be enhanced monitoring for a period of time, and there will be adjustments in the financial reporting to the highway committee, Strey said.
County ordinance and state statute grants certain authorities to the highway commissioner and the highway committee, he said.
The plan is to enhance the reporting and increase the reporting to the highway committee, Strey said.
“We are doing a complete ground up rebuild of analysis and review. We are working closely with the interim highway commissioner on the 2022 budget to make it clearer so everybody is understanding more in depth what’s in that budget to help everybody understand what’s there and to monitor,” he said.
Audit report
According to the audit report the Dunn County Board received at the July 28 meeting, in addition to the highway department’s $4.1 million deficit in the unrestricted fund balance in 2020 and the county loaning $4 million to the highway department to pay for highway operations, in 2019, the highway department had a negative unrestricted fund balance of $1.6 million.
In 2018, the highway department had a positive balance in the unrestricted fund of $1.98 million.
In 2017, the highway department had a positive balance in the unrestricted fund of $3.96 million.
The highway department’s expenditures exceeded the revenue in both 2020 and in 2019.
The current ratio of assets to current liabilities for the highway department is .17. The desired ratio is 1.
In 2019, the highway department had ratio of .27 of assets to liabilities. In 2018, the ratio was 4.43, and in 2017, it was 4.45, according to the audit report.
2022 budget
The adopted budget in 2021 for the highway department was $11.3 million.
The highway department budget for 2022 is $14.9 million.
When the county board reviewed the budget requests for 2022 at the July 28 meeting, there was a deficit of $4.9 million in the nearly $91 million dollar proposed budget.
Using $3.2 million in American Recovery Plan Act funds for county road work helped reduce the deficit, along with a variety of other reductions, including delaying two scheduled facilities projects for $235,000, delaying the highway department roofing project for $700,000, and removing the funding for a vacant mechanic/welder position at the highway department for $88,000 and increasing the amount of general fund applied to the budget by nearly $200,000.
