State auditor issues finding against Langley

The audit found that the city’s internal controls over its financial operations were inadequate.

The state Auditor’s Office issued a finding against the city of Langley in a recent audit report covering Jan. 1, 2019 through Dec. 31, 2020.

The audit found that the city’s internal controls over its financial operations and its process for preparing financial statements were inadequate for ensuring accurate financial reporting and safeguarding of public resources.

The auditor noted that the city received management letters in the prior two audits for inadequate controls over preparing financial statements.

The report states that city employees responsible for compiling financial information “lacked technical knowledge and experience needed to accurately prepare the financial statements.” In addition, the city “lacked an effective review process for ensuring amounts reported in the financial statements and schedules agreed to the underlying accounting records.”

“The city’s monitoring over bank reconciliations was inadequate for ensuring they were accurate and complete,” the report states.

As a result of these deficiencies, transfers between funds were understated by $601,313 in 2019 and $836,795 in 2020. Faulty implementation of required accounting changes led to additions and deductions in the fiduciary fund that were overstated by approximately $253,400 in 2019 and $246,600 in 2020, and ending fund balances were misclassified by $2.7 million.

“In 2020, the city could not provide an explanation for unreconciled amounts between its bank statements and accounting records,” the report states. “Amounts reported on the financial statements did not agree to the bank statements by $50,597 for expenditures and $44,515 for year-end cash.”

In its response to the audit finding, the city said it is investigating alternatives to the accounting software currently being used by Langley’s finance director. The city recently established a new commission dedicated to financial matters. Coupled with the hiring of an assistant treasurer in the near future – a position which has been vacant since September 2020 – this is intended to increase the city’s capacity to review financial reports.

“We believe that 2022 will be a watershed year for the City of Langley in terms of our financial reporting,” the city’s response stated. “Even if we are not able to obtain a new software platform due to budget limitations, we believe that the addition of a Finance and Personnel Committee will help remedy the problems that have chronically appeared in past audits and we look forward to having our 2022 audit being the best ever.”

The city’s next accountability and financial statement audit is scheduled for fall 2023. Auditors will be following up on the recommendations that were provided previously and will give an updated status on the resolution of the issues.

“It is very troubling that we have had similar reports for so many audits in a row, but that said, we have a very clear road map for what needs to be done and I’m very certain that our next audit will be completely free of any significant concerns,” Mayor Scott Chaplin said in an email to the South Whidbey Record.