LIHUE — The county’s finance department is over a year behind in its quarterly cash counts and some county employees are not following laws that require them to get approval prior to making purchases on county-issued credit cards, according to two reports issued last month by an independent accounting firm.
The audit was completed by N&K CPAs, Inc., a Honolulu accounting firm hired by the county to conduct an annual assessment of its basic financial statements required for all entities that receive over a certain amount of funding from federal government programs.
Auditors found two discrepancies related to a backlog of financial statements and two issues with the housing department’s distribution of funds through a federal housing program for investment in the development of affordable housing.
In addition to its finding on the county’s financial status, the firm conducting the audit also issued an advisory report to the county regarding several management issues.
At the Kauai County Council meeting last week, Finance Director Reiko Matsuyama said the finance department has only completed the quarterly cash counts through November 2017.
The problem, according to Matsuyama and the findings of the auditor, stems from a transitionary period in late 2017, when a number of finance department officials retired and new accounting software was implemented, causing delays.
“It’s a violation of the charter and we are aware of it,” Matsuyama said.
“It’s very dangerous when you fall behind in performing these basic tasks of accounting,” Council Vice Chair Ross Kagawa said and asked whether the county should have a backup plan to prevent something like this from happening again.
Blake Isobe, a principal with N&K CPAs, said at the council meeting that retirements and vacations are inevitable and having a contingency plan to deal with those is “probably something that should happen.”
Auditors also found that mandatory reconciliations between county ledgers and bank account balances from December 2017 were not completed until June, and bank reconciliations from January through June were not finished until September. Matsuyama said those issues were resolved as of October and the finance department is currently up to date.
Random testing by the county’s Division of Purchasing and the auditors uncovered a number of instances last year in which county employees did not follow appropriate procedures when getting approval for county-issued credit card purchases.
County employees are required to get approval from department heads prior to making purchases using their county-issued cards.
But in several cases, approval was made after the purchase.
One purchase was made by an employee that was not authorized to use the card, and in one instance, a purchase was made without ever obtaining approval.
And according to Matsuyama more instances of P-Card misuse have already been found since auditors finished their assessment, which covered the previous fiscal year, ending June 30.
“We have found exceptions already this fiscal year, and we’re going to implement subsequent testing on the culprits,” Matsuyama said. “We’ll be more forceful in our punishments, including potential revocation of the card.”
Matsuyama said nobody is abusing the cards or using them unethically.
“It’s just the approval process that is the problem,” she said.
Housing Director Kanani Fu also appeared before the council to explain another discrepancy in the auditors’ report.
Auditors found that $380,000 approved by the county to pay a contractor for work on an affordable housing development was not reimbursible through a U.S. Department of Housing and Urban Development program, as initially anticipated.
Fu said the housing agency officials often pay subcontractors ahead of time and then submit the necessary paperwork for reimbursement through federal funds. But the requirements for availability of federal funds are often vague and complicated, and Fu estimated the housing department normally has to process close to 60 invoices a week.
In this instance, the county paid a contractor for work in fiscal year 2018, but a government representative with the Hawaii Housing Finance and Development Corporation did not determine the cost was not allowable until after the end of the fiscal year, causing the discrepancy.
Fu said one practice that could prevent this type of discrepancy in the future, practiced by other counties, is to not disburse any federal funds after April 30, two months prior to the end of the fiscal year.
The county processes payments up until June 15, Fu explained, saying, “We try not to hold developers up.”
Fu said the error did not delay the project or prevent financing, and that the developer agreed t0 pay the county back, instead shifting funds to finance the project from “another eligible source.”
Caleb Loehrer, staff writer, can be reached at 245-0441 or email@example.com.