Island Transit was late with paperwork related to an audit, which is likely to have findings showing the misappropriation of federal funds, according to Oak Harbor Mayor Scott Dudley.

An audit exit conference has been tentatively scheduled at Island Transit for Friday, Oct. 24, but it’s unclear whether the board of directors will open it to the public.

Andy Asbjornsen, an audit manager with Washington State Auditor’s Office, explained that auditors are conducting two types of regularly scheduled audits of the troubled transit agency.

The “federal audit” looks at how the agency spent dollars from federal sources; for Island Transit, that means auditors are looking at how the $18-million federal grant for the new transit facility was spent.

The other is the accountability audit, which will be completed after the federal audit.

Asbjornsen said Island Transit missed the Sept. 30 deadline for completing the data collection form that goes along with the federal audit.

As a result, Asbjornsen explained, the federal government will automatically deem Island Transit as “high risk” for next year’s audit, which translates into greater scrutiny.

The grant dollars, however, have already been spent, so there essentially won’t be a federal audit next year.

“It is not likely to have a significant effect,” he said.

Asbjornsen noted that Island Transit has had recent staffing changes, which may have complicated the audit process. After financial problems came to light, the finance manager was fired, Martha Rose recently quit as director and 22 people were laid off.

“It’s taking a little longer than we had anticipated,” he said, adding that auditors have been in contact with their federal counterparts.

Asbjornsen wouldn’t say whether there may be findings on the financial audit since it isn’t yet finalized. Coupeville Councilman Bob Clay, chairman of the transit board, also said he wouldn’t discuss it until the audit is complete.

Dudley, on the other hand, said he spoke with one of the auditors working on the federal audit. She told him that findings for “financial health” and “misappropriation of federal funds” were likely, according to the mayor.

He said the latter finding could have major implications for Island Transit.

“We could have a situation where the federal government comes back and says, ‘We want some part or all of those grant dollars back,’” he said.

Asbjornsen said it is up to Island Transit to decide whether to open the exit conference to the public. He said it’s a chance for the auditors and the agency to discuss the audit before the report is finalized.

“It is their meeting,” he said.

Clay said Island Transit audit conferences are normally not open to the public, but it will have to be if a quorum of board members attend. He said the public, if allowed, won’t be able to give input.