Monday, October 19, 2009
 
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What happened in City Hall

Part 2: New financial safeguards instituted

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[October 19, 2009]  For those handling city finances, there is no good time to find out that your clerk has been embezzling funds. But when state investigators moved in on City Hall on Feb. 9, the city treasurer and finance chairman were just starting to gather the information needed to build the city budget for the new year. Melanie Riggs immediately tendered her resignation as city clerk and left the building for the last time that very day. It was perhaps one of the worst times of year that anything like this could have happened.

Riggs had always played a huge part in the budget process, and in her absence it was left to the deputy city clerk, Susan Gehlbach, to work on the task with Les Plotner, the treasurer, and Melody Anderson, finance chair.

There was another problem. Riggs had played so many things so close to the cuff that Plotner, Anderson and Gehlbach all knew that if they were going to move forward and keep the city running, they were going to have to have some help.

That help came in the form of WTI and Laura Wernsing. WTI is the company that provided the initial accounting software for the city. Wernsing, who is located in Springfield, was the consultant for the software and is also a certified public accountant.

At the city's Feb. 27 committee of the whole, Anderson and Gehlbach said that Wernsing's help had been invaluable and that her services would continue to be needed throughout the coming months.

Managing the city's money is not a simple task. Imagine one large corporation with several subsidiaries. Each subsidiary -- such as streets and alleys, police, fire, building and grounds, and wastewater management -- has to have its own budget for the year. They also have differing sources of revenue.

These accounts need to be kept separate so that revenues and expenditures within the subsidiaries can be tracked accurately. However, there are also times when the city treasurer needs to see the "big picture," or the well-being of the city as a whole.

Pharmacy

These actions can be accomplished through one software program, generally referred to as "fund accounting software." However, when Riggs left, the software was out of date and incomplete, making it all the more difficult for those left behind. The city soon started upgrading the accounting software, bringing current programs up to date and adding programs that would make the system more secure.

No more handwritten checks; no blank payee

Among the first added was a cash disbursements component that included check writing. There would be no more handwritten checks with copies used to make journal entries. In addition no check could ever be written with a blank payee.

The software would issue a check and simultaneously post the bill as paid in the accounting system.

Computer-generated bank reports

Another program that was added to the system was for doing bank reconciliations. With the push of a few keys on the computer, a report would be generated that showed all the deposits made into accounts and all the checks written. There was no more listing them by hand, which meant less likelihood of error.

Reduction of checking accounts

All of the paper checkbooks were destroyed, and over time, Martinek and her staff have worked to determine how many of the 25-plus accounts were actually needed.

It has been a long process, but the city now has less than 10 accounts. Martinek said that there are several accounts that must be kept separate, but with the fund accounting, the best practice is to combine everything that can be legally combined and let the software do its job in keeping things separated.

Canceled check payee and endorsements monitored

In addition to this, the city has made better arrangements with the banks and now receives copies of all the canceled checks, both front and back, so they can identify not only the payee but also who endorsed or cashed the check.

Cash tracked through multi-person transactions

Another component that has been added is a daily cash receipts system. Martinek said that no one ever proved that cash was being taken from the cash drawers at City Hall. However, the system that was in place would have made it easy to do so and virtually impossible to trace.

The staff is also now working with better checks and balances in place so that no one person performs every step in a transaction.

For example, Gehlbach enters cash received into the computer and then hands over a receipt report and the cash to Martinek, who in turn makes the deposit and enters that into the computer.

At the end of the month a report is printed showing all the cash received and another showing all the deposits for the month. The two reports must agree, and if they don't, the staff sets to work immediately to find out why.

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Exterminator

One might wonder why none of these important upgrades and components had been added to the software system as they became available. Martinek said that the answer came one day in a conversation with Wernsing.

Wernsing recounted that WTI had contacted Riggs about upgrades and the bank reconciliation component a few years ago. Shortly thereafter the firm received a letter from Riggs that was very explicit.

Riggs stated that the city of Lincoln had no need for the upgrades, the new components or even accounting support. She said that the only instances when she would need WTI were if something went wrong with the hardware or physical computers.

Wernsing also told Martinek that there had been a similar situation in another town, where the clerk was not interested in keeping the computers up to date, and in that case also, it was later discovered that money was being stolen from the city coffers.

Martinek said that there are still some things that need to be done to make all the city's accounting and records management systems more efficient and secure. But there has been a great deal of money invested thus far this year, and some things may have to wait.

In the meantime, though, there are other issues that need to be addressed.

Martinek says that the staff needs a new written policy and procedure manual that will outline the responsibilities of each staff member. Writing the procedure will include adding standard checks and balances that will assure that in the future no one person has total control over transactions.

She also says that she is somewhat concerned about how checks are signed, and it is a topic she hopes to address at some point in the future.

The next big issue for the city clerk's staff and city council is going to be the result of the audit for the 2008-09 fiscal year.

Martinek said that the audit should have been finished over a month ago, but with all the deception that has been folded into the city finances, the auditors have struggled to get everything sorted out.

Water

Estes, Bridgewater & Ogden of Springfield are the auditors of the books for the first time this year. They have kept Martinek abreast of their activities and have told her that everything should be completed very soon.

Once they are finished, there will be numerous adjusting entries to be made. There will be a management letter or a letter of findings, which is no surprise to the city clerk.

Martinek also expects that the 2009-10 audit will be equally as difficult to handle, but she is confident that by the time the audit for 2010-11 comes around, all the city's financial records will be in proper order.

Martinek says she does feel bad for the council. They have had to deal with a lot in the past nine months, and there is still more to come.

She said that while most of them have become very proactive in the daily running of the city's finances, others would like to pretend this never happened. But it did.

She adds that the taxpayers have the right to know that the city council and city staff are holding themselves accountable for the dollars entrusted to them.

Martinek knows that change is hard, and sometimes it's easier to just maintain in the same old way, but in this case change is very necessary. The best thing to do now is move on; learn from the experience and work together to keep improving on what has been started in the last few months.

To end the story on a slightly amusing and somewhat bizarre note... Martinek said she took a phone call one day not long ago. The person on the other end of the line was with the Internal Revenue Service. It seems that now that Riggs has pleaded guilty to the embezzlement of city funds, she is going to be held liable to pay income tax on the money she stole.

[By NILA SMITH]

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