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The Babbitt city council discussed why the annual audit cost an additional $10,000. Auditor Tom Kelly of Walker, Giroux and Hanne discussed the issue with the council at a study session on Sept. 18.
City clerk Robecca Jaeger and council members Glenn Anderson and Joe White were not present.
Kelly said having new office staff was one of the reasons the cost was so much higher.
“Whenever there’s turn over, especially in an office, and you guys had the same office for many years with Cathy (Hoheisel)…some of this is expected,” said Kelly.
He said the problems included having two checking accounts that didn’t reconcile.
“The city and PUC checking accounts, typically, those have always reconciled. So we had to put a lot of work into that this year,” said Kelly. “When cash is off, something else is off. So with cash, that could be just about anything. So it’s a lot of digging into that to see if something isn’t recorded in cash, is it recorded twice, what else is missing or recorded duplicate or in an incorrect amount?”
“We had to dig into the files and figure out what those reasons were for the two checking accounts and then what else was affected by that,” said Kelly.
MayorDuaneLossingaskedwhat the reason was for the reconciliation problems.
“We were told she was told not to reconcile,” said Lossing.
“Well, I believe that after talking to Becky afterwards, I think that misunderstanding was for 2024, not 2023. That wouldn’t affected the audit per se,” said Kelly. “That doesn’t have anything to do with what we’re talking about right here.”
Council member Paul Hoheisel questioned why there ever would be a time when books wouldn’t be reconciled.
“We wouldn’t ever tell city not to reconcile,” said Kelly.
City staff said the part of the problem was a transaction posted in the wrong year and that new software won’t allow that to happen going forward.
“Those are just literally human errors that were I would say sometimes common,” said Sarah Powell.
Kelly also said a clearing account didn’t reconcile.
“Because you have two companies being a city and a PUC in the accounting software, that adds a little another layer of complication,” said Kelly. “That’s usually zeroed out or at least if it’s not zero, you can really easily identify small dollar sets in there. There was a balance in there, we had to reconcile that. That’s not typically something we have to do, so that was not factored in the engagement letter price either.”
Kelly said the third item had to do with payroll.
“Payroll didn’t reconcile, that always has as well, so we had to dig into why payroll in the accounting software expense-wise agreed to supporting documentation like quarterly, 941 tax returns, payroll tax returns, the W3, which is filed annually with IRS, that sort of thing.
“So that took some digging that again, we usually don’t have to do, we haven’t had to do, I should say,, so that was not factored in as well. That added a significant amount of work as well,” said Kelly.
Former clerk Cathy Hoheisel asked when the errors occured.
“I’ve been hearing from council members that we’ve had three clerks and so it’s an excuse why the books are messed up. And I can tell every person sitting up there and you that I helped Becky through November and everything was balanced. So I don’t want the council to think that it was when I was a there,” said Cathy Hoheisel.
“I’d imagine that wouldn’t be the case being I worked with you for almost 15 years, and things were always in good shape,” said Kelly.
He said their original price was based on how the books were kept in the past. Paul Hoheisel said the books were balanced through November so the problem occurred in December of 2023.
Powell said when Kathy Vraa left the city she didn’t have any experience with end of the month balancing or journal entries.
Kelly said adding in the campground accounting was an additional expense as well.
“What I recall and I didn’t review the file before I came here for specifics, but there was the same template used, but different ways of getting to the file. Some of the ways that the final numbers were gotten to was what we called plugged in the accounting world. So it took more work to our end to look at how each month was done,” said Kelly.
There was also a post to the wrong period in the campground numbers as well.
“There’s just some misdating of certain things, so some were posted in 22 that should have been 23, some are posted in 23 that should have been 24. And that’s always a bit of a headache to try to figure out what those are because you typically don’t think you’re going have to encounter something like that,” said Kelly.
Powell said she would have caught the error in February of 2024 but the auditors caught it before she did.
Kelly said there were also issues locating documents.
“This kind of piggy backs off of what I started with where when you have new staff in the office, sometimes physically finding stuff. Cathy probably could have came in and pointed right away about Becky (Jaeger) and I were looking. Sara probably remembers us looking through cabinets and that sort of thing for them. We got what we needed, but that’s taken extra time that we’re not anticipating doing,” said Kelly.
Cathy Hoheisel said she has always told the staff if there is a question to call her.
Kelly said for the reasons he discussed the cost was $10,000 more.
“I feel like we’re being equitable with what we’re asking of you,” said Kelly.
Lossing asked of the issues cited by Kelly, which ones cost the most.
Kelly said the campground and physically looking for the files were the least costly.
Paul Hoheisel asked if Kelly thinks the same amount of work will be required next year.
“At this point, I don’t have a reason to not think that it’s gonna be a significant amount of work again,” said Kelly.
Lossing asked about city offices having to be closed for a time and if that was attributed to the audit.
“To clarify, we had no plans to come,” said Kelly. “The office was gonna be closed.”
“We were told the reason to shut the office down was so software could be implemented, and then when we asked why the software wasn’t implemented, it was because you guys didn’t show up,” said Lossing.
“Yeah, no, we had no plans on that,” said Kelly.
Powell said she wanted to get started on the work but was told not to into March.
“I’m like chomping at the bit because I was told by my supervisor that we are not to touch anything or reconcile our statements and I’m chomping at the bit because it can’t be three months behind. It won’t work. So I kind of went above maybe I maybe stepped on Becky’s toes and I reached out to the auditors and said, hey, Hillary, did you really see this? Because I’m freaking out. And Hilary said, no, I think that’s a misunderstanding. You’re supposed to be reconciling,” said Powell.
Paul Hoheisel asked if the bank accounts are being reconciled each month.
Powell said, “I don’t know. I don’t think so. I know the general entries are going in and I know that I’ve been told that the monthly statements are reconciled. I haven’t seen that part of the paperwork because that’s not my office.”
Powell added that she has had to fix errors made by Jaeger.
“That’s what I’m doing but she’s learning, but the end of the month reconciliations are complicated,” said Powell. “It took awhile for Kathy Vraa to catch on.”
Paul Hoheisel asked about if additional projects like the marina would increase the cost of an audit which was $42,000. Kelly said it would increase.
“They gave us a big break this year. Or basically it would have doubled,” said Lossing.
