Local government agencies and authorities are required to audit their books annually, and one might think that these audits are sufficient to ensure that everything is on the up and up. But the audits merely point out financial reporting deficiencies--sometimes the same deficiencies year after year--and the agency or authority that paid for the audit may elect to take no corrective action.
A case in point is the Borough of Dunellen's (Middlesex County) Parking Authority. While reviewing the auditor's August 30, 2010 cover letter that accompanied the Authority's 2008 and 2009 audits, I was struck by the following sentence: "Because of the inadequacy of accounting system and records for the year ended December 31, 2008, we are unable to form an opinion regarding the amounts at which accounts receivable, accounts payable and deferred parking permit revenues are recorded/not recorded on the balance sheet or accompanying financial statements. The respective amounts are unknown." I felt that this sentence was significant because it said, in essence, that the Parking Authority, which reported $631,305 in net assets and had $124,798 in cash and equivalents on hand as of December 31, 2009, didn't properly record and account for its income during 2008.
I reported my concerns to the Division of Local Government Services (DLGS) within the Department of Community Affairs. The DLGS, after reviewing its records, learned that the Authority's record keeping deficiencies were not restricted to 2008 but spanned several years. In a November 29, 2011 letter, the DLGS noted that the Authority, for several years, had insufficient controls "surrounding the monitoring of parking permit fees and parking meter collections and proof of collections." Also, the DLGS noted that the Authority had ignored its auditors warnings that "the same person may collect, record, deposit, disburse, analyze and/or reconcile cash and investment activity within the Finance Office and Authority operations."
In sum, it appears that the Parking Authority, which takes in a significant amount of cash from parking meters and through parking permit sales, established an environment where officials could have pilfered that cash without it being known that any cash was missing. Of course, I do not know that any actual theft took place, but the conditions were such that money could have been stolen without detection.
After having allowed these deficiencies to exist, I believe that, at the very least, the Parking Commissioners who were at the helm during this period should not be rewarded with reappointment. Accordingly, I have written to the Mayor and Council recommending that different individuals be appointed to those seats. That letter is on-line here. It will be interesting to see whether the Borough Council heeds my recommendation.
In conclusion, don't assume that an annual audit safeguards the public fisc. Rather, take the time to read the audits carefully to determine whether public money is being properly maintained.