Heather Disselkoen

Heather Disselkoen

On April 20, the Pocatello Development Authority (PDA) board reviewed its Comprehensive Annual Financial Report (audit) ending Sept. 30, 2021.

There were some issues identified, but let me first acknowledge that prior to the review, the PDA had already taken the positive step to seek an independent treasurer/bookkeeper versus continuing to wait for a bity CFO replacement.

The audit’s findings illustrate the importance of our local government representatives’ fiduciary role by documenting that even this small governmental entity with relatively few monthly transactions was impacted by a lack of internal controls.

The full report — found at pda.pocatello.us/agendas/2022/042022.pdf — explains the difference between two possible types of internal control deficiencies: “material” weaknesses versus “significant” weaknesses (“material” weaknesses being the more severe).

The PDA’s audit identified three “material” internal control weaknesses:

“2021-001: The Authority’s internal control system did not property (sic) allocate all payments received for notes receivable between interest revenue and principal. It was also determined that the terms for delinquent payments were not followed. We were also unable to find supporting documents to verify new terms or changes to loan agreements and whether such terms were agreed upon by both parties.”

“2021-002: During the audit it was determined that over $140,000 was loaned from the general fund to the Airport District fund with no documentation of proper authorization. Delinquent bank statements were also found through out (sic) the year. No bank reconciliations were found in the software backup provided December 2, 2021, for the months of July through September 30, 2021.”

“2021-003: During the audit it was determined that over $45,000 was deposited erroneously into the City of Pocatello’s bank account rather than the Authority’s account.”

Are these correctable issues? Absolutely. The seriousness of these deficiencies varies. Certainly, an internal control deficiency leading to overspending from the Airport TIF Fund (reimbursement to the now terminated Frigitek project) and a transfer (“loan”) made from the PDA General Fund to cover this deficit, without being brought before the PDA for action, reveals a serious lapse in separation of duties/oversight. The PDA governing board was bypassed! Based upon the auditor’s recommendation to review financial policies and procedures to ensure proper controls are in place, the PDA (reliant upon city policies/procedures) now appears to recognize their need for independent financial policies — something I expect will be addressed upon hiring an outside treasurer.

Looking at the bigger picture, the audit report begs the question — can the public trust there aren’t issues on a larger scale within the city since city transactions are greater in both quantity and complexity? The city’s former CFO (also appointed PDA treasurer) resigned in June 2021, but continued on a part-time, contractual basis through at least the end of October to complete the city’s FY20 audit and FY22 budget.

On Oct. 14, 2021, he highlighted areas within existing financial policies needing attention and made a similar recommendation for review — noting a review was years overdue. The majority consensus was to form a subcommittee to prepare recommendations for strengthening financial policies and procedures. But, despite the mayor committing to put it on the first agenda following the election, he hasn’t done so yet. Why not? Any incoming CFO will be burdened with bringing financial matters up-to-date. Having revised financial policy drafts in place would save valuable time by allowing the incoming CFO to focus on finalizing drafts.

The importance of strong financial policies/procedures cannot be overemphasized. Consider the recent discovery that a Yale University School of Medicine director had engaged in a seven-plus-year scheme to steal over $40 million in computers and electronic hardware by exploiting a loophole in their purchasing card policy. It happens.

With all this in mind, are there strong internal controls? If so, are they adhered to? Are any issues actively identified and addressed? Can we trust that the governing body of the city (the council) hasn’t been improperly bypassed as was the PDA? I can’t answer these questions. The city’s FY20 audit was not completed until December 2021 and the FY21 audit will likely also be late.

Clearly, a lengthy absence of a qualified CFO could have a significant impact on any organization. Yet, despite this fact, the majority council, completely satisfied there is nothing to be concerned with, has adopted a lackadaisical approach to their fiduciary responsibilities. We know from the audit report, “a deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis.” In the case of the PDA, they relied on faulty information to make a decision that overspent the airport TIF Fund by over $140,000.

Council fiduciary responsibility involves acting solely in the taxpayer’s best interest. Imagine the change in approach if council members were financially liable to account for any missteps. This audit shines some light on shortcomings and definitely adds context to why council members Bray, Stevens and Ortega push for more detailed financial reports and ask hard financial questions. Evidently their concerns and commitment to remain vigilant are warranted on at least some level.

Heather Disselkoen is co-founder of Pocatello for Accountable Government Entities (P.A.G.E.).