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State auditors find procedural problems on Bainbridge, but no wrongdoing

A water glass can be half full or half empty. The state’s audit of the city could be construed the same way.

Depending on who you talk to, the audit either confirmed or rejected a barrage of citizen and council-members’ concerns relating to the city’s finances.

Draft findings given by the state auditors were mixed.

“You are compliant with laws and regulations,” said Don McMaster, the auditor who prepared the City of Bainbridge Island report. “The city designed the proper financial controls, and has good staff to oversee those controls.”

However, McMaster noted in two instances where “the city chose to disregard those controls.”

The first “significant finding” was the inclusion of a $420,000 grant from the Bainbridge Island Metropolitan Parks District as cash asset in 2007 when the money was not actually received until last month.

Also noted by the auditors was an inter-fund loan transfer from the general fund to the Storm and Surface Water Management utility to the tune of $536,000.

The city administration said the transfer was made based on a council ordinance. State law outlines that all transfers should be approved by the city council. Auditors also noted that if the SSWM fund should pay for itself, as ordered by council, the city needed to increase rates or reduce operating expenses.

“I’ll take complete responsibility for the inter-fund loan transfer,” Elray Konkel said toward the end of the meeting. “I’m not trying to nullify this, They are serious findings and they both have been reversed and the financial statements will reflect that.”

Auditors commented that those errors had to be reversed in order to conduct the state’s audit of the city.

“This was unique because the size of the transactions were material to the financial statements,” said Chuck Pfeil, director of State and Local Audits. “In order to give an opinion on the city’s financial statements, they had to reverse the transactions and they did that. Everything else we are reporting on is after that fact.”

While the rest of the auditor’s findings were largely positive, council member Debbie Vancil hinted that the fund transfers may reveal an institutional mismanagement of funds.

“These inter-fund transactions... do you perceive these to be isolated circumstances? It seems odd that this kind of procedure would be employed as a one or two-time thing,” Vancil said.

State auditor’s disagreed with that suggestion but said they only focused on transactions that were at “high risk” for mismanagement.

Auditors suggested that the council, as an oversight group, should have the resources and proper documents to monitor city spending and fund transactions.

They suggested looking to other cities for best practices pertaining to monthly financial reports.

“What it says to me is we need an internal auditor that reports to the council,” said council member Kjell Stoknes, who took the auditor’s suggestion a step further. “I don’t think we were intended to be bean counters. If other things don’t work that may be something we steer towards.”

While the two points the auditors contested seemed large, they insisted there was no wrongdoing and no illegal activity on the part of the city administration.

“As you can see from our accountability report, we looked at a variety of areas and on the whole we felt like the city was doing a good job,” Pfeil said. “We didn’t find a lot of significant issues, we only found those two that the city needed to work on.”

However, the majority of the 40-some citizens gathered seemed hostile to the mayor’s comments as she parried the auditor’s findings.

She stated that the SSWM fund transfer was based on a council ordinance and that there needed to be more documentation relating to the Parks District loan – comments met with whispers through the audience.

“I could really feel the cynics and skeptics – it was very palpable,” said Mayor Darlene Kordonowy. “This audit should provide some level of assurance to the community. (The auditors) were looking at our high-risk vulnerable matters. They were not saying we have any systemic problems, in fact I heard otherwise.”

Still, some members of the audience were vocal that the auditor’s findings were indicative of city malfeasance, and implied that there may be more problems that the auditor’s didn’t find.

“This is a matter of judgment and a matter of management,” one islander said at the hearing. “There are charges to the utility funds that would seem inappropriate. I don’t expect you to understand, but that is what we need to know.”

Another person in the audience shouted that he was looking forward to next year’s audit of the city.

“There is a lot of consternation about city finances and this always happens when revenues drop,” council chair Bill Knobloch said.

He also stated he was unhappy with the findings and that the city needed a more in-depth audit.

“As an elected official, I’m saying I’m still not satisfied,” Knobloch said. “It doesn’t give me the comfort zone I need. I still think we need forensic audit of our utilities.”

Auditors countered that their inspection of funding allocations showed no inappropriate allocations.

“The allocations that I saw appeared reasonable,” McMaster said. “We reviewed administrative allocations and my results indicated there were no findings in that area.”

The audit is not final and is still awaiting the city’s formal response.

Supplementary findings pertaining to individual citizen requests are expected to be released to the city in the coming weeks.

The city has not had an audit with a significant finding since 2002.

Council member Chris Snow commented that, overall, the audit was a positive mark for the city despite the consternation in the audience.

“There are small storms, big storms and there are tempests,” Snow said. “And there will always be people who will are suspicious of governments.”

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