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01-08-54SpMtg JANUARY 8, 1954 A Special Meeting of the City Council of the City of Delray Beach was held in the Council Chambers at 7:30 ~.M. with Mayor Catherine E. Strong in the Chair, City Attorney Eeil E. MacMillan, City Manager Robert Lovelace, and the following Council members present: Robert J. Holland, Alma K. Woehle, Glenn B. Sundy, and W. Cottingham Allen, a quorum being present. The meeting was held for the purpose of hearing an oral re- port from Mr. Frederic Dunn-Ra~_kin of Frederic Dunn-Rankin & Co. on the disclosed shortage in the detailed audit. Mr. Dunn-Rankin announced that the final report would be forthcoming in written form. The following subject were dis- cussed in his oral report: The audit revealed a weak point in Internal Control which was that Mrs. Smith, as City Clerk and Treasurer, was responsible for making cash receipts reports, did t~ebookkeeping, and made the deposits. ~ithout delegation of those duties, it was easy to alter the set-up of Internal Control. Mr. Dunn-Rankin presented samples of forms used in various cities and suggested a Control form be used in Delray Beach. This would be made out in duplicate, one copy to be held by the cashier and one copy to go to the City Manager for approval and then to the bookkeeper. Form would be used to make deposits. Mr. Dunn- Rankin recommended a full time cashier be employed. Mr. Dunn-Rankin said that a detailed audit discovered the shortage where an ordinary audit would not be expected to. The auditors checked cash on hand with cash receipts up through December Il. Checked validation slips, checked each item. Made a summary by day, and compared slips with daily cash reports. Cash receipts after the end of the year totalled ~24,000.00. Mr. Dunn-Rankin stated the reason for the shortage was that the deposits were under by ,14,000. He stated that an auditor cannot check day by day each item. An ordinary report is a check by groups or types of receipts. A detailed audit of disbursements are checked. Every voucher is checked against invoices. These are cancelled with a rubber stamp. The detailed audit disclosed no major discrepancy whatever. Cash receipts were almost in perfect agreement. There was a discrepancy of one duplicate payment of ,12.35. Even with the most strict system you could have, Mr. Dunn- Ra~nkin stated, if a person wants to steal money - they can do it. The we~k point in Internal Control was the fact that the report was not a pre-numberea report and was made by the book- keeper who also made the deposits. Mr. Dunn-Rankin then discussed Petty Cash General Fund stat- ing that petty cash payments amounting to slightly over ,500 in advances to employees of the City, such as colored help. He said only about *130 could be considered as bad debts. He suggested the colored help be handled on an Employee's Loan Fund cT perhaps $500 - but not out of petty cash. A report on people owing personal property tax followed. Mr. Dunn-Rankin stated this was extremely revealing and that there were delegated personal property taxes back to 1947. Approxi- mately 50 percent of the letters sent out to those owing taxes were returned and he stated these are obviously uncollectable.' In the written supplementary report,' the auditor stated they would make a schedule of taxes believed to be uncollectable. Improvement liens of 1927 to 1943 were audited closely. Auditors found unpaid liens of ~11,379 and said the bulk of them are owed by public schools, etc. Mr. MacMi~lan said those were probably exempt. The audit showed net improvement liens of ~1,530. This, Mr. Dunn-Rankin stated was based on conversation with Mr. Worthing and his as sistant. Regarding liability accounts, partial payments were allowed in some cased on payment of taxes. Mr. Dunn-Rankin said he doubted 1 JANUARY 8, 19~4 if this was the true liability of the City. Mr. ~nn-Rankin then discussed the Dond Trading Account Trust Fund of ~817.39. Budget items were discussed for building a new club house for the Golf Course, adding to the Fire House fu~d, and to the Colored swimming pool. ne stated this was not an expenditure hut that it had been set up as~an expenditure and put up as reserve. An amended budget on Atlantic Avenue improvements was suggested by Mr. Dunn-Rankin. In the Debt Service Fund in the bank there is ~36,000 which Mr. Dunn-Rankin stated was not earning money. He said the only way to make it earning money was to redeem outstanding bonds. For the Water System Fund there is ~91,000 in the construction account and, allowing ~8,000 for new construction, leaves ~43,000 still in the account. ~n the regular account there is $77,000, so that if the City has any indication of more construction they have money to do it. The auditor stated the Golf Course Fund, which is a semi- utility, should have as its depreciation the cost of operation. There is $45,000 set up in the budget for a new club house which was not built and in the General Fund ~10,000 for the new club house. Net assets in the Revolving Improvement Fund of ~78,000 of which ~13,0D0 is cash. In the Trust Fund there is 42?,600 which is in a regular account at the First National Bank. Mr. ~unn-Ranktn stated this should be available in case of disaster and suggested it could be invested in Government Bonds or some other safe investment and that it should be utilized. He stated that general Fixed Assets of $82,000 were acquired during the year and outstanding Refund Bonds were ~993,000. He then recommended the Control form be put in use as soon as~ossible. Mr. Dunn-Rankin then concluded his report and asked for questions from the Council. Mayor Strong asked why he did not talk to Mr. MacMillan before taking the records out of the City Hall, Mr. Dunn-Rankin replying that he worked until 8:30 Christmas Eve. Mayor Strong then stated that Mr. Lovelace could have seen that the records were protected and Mr. Dunn-Rankin replied that he had to be protected too. Mr. MacMillan made a recommendation that the records be kept in a lockbox in the bank, and after discussion about leaving them in the vault in the City Hall, Councilman Sundy made a motion that the records be kept in the vault until Monday and then placed in a lockbox in the bank. The motion was seconded by Mr. nllen and after roll call the motion was carried unanimously. Mr. Woehle asked the auditor if his summary was a closing state- ment on a sheet that could indicate how much money and what our actual assets are, or if his oral report was what he was going to give. Mr. Dunn-Rankin stated there would be .a written report which would incorporate what he had discussed at this meeting. Mrs. Woehle then asked if the statement was so that anyone could tell at a glance what our assets are. Mr. Dunn-Rankin said they would supply those figures. Mrs. Woehle then asked the auditor who set up the Internal Control - whether it was Mr. Dunn-Rankin or an administrative Job, and the auditor stated it was mostly their work. Mrs. Woehle questioned him as to why he couldn't see that the Internal Control was weak and tc make suggestions. Mr. Dunn-Rankin stated he had been making recommendations from year to year, most of which were accepted, but one of those recommendations, the Control Form, was resisted. Mrs. Woehle asked "by whom" and the auditor replied "~rs. Smi t h". Mayor Strong asked the auditor if he didn't become suspicious and if he couldn't tell when books were behind or that something might not be Just right. She asked why, in previous years, the auditor didn't see that the records were being made to cover a shortage. Mr. Dunn-Rankin stated all the books were in order. JANUA 8, 1954 Mrs. ~oehle asked the auditor why he didn't take records he needed for the report and asked if he just took ~hat Mrs. Smith gave him. The auditor e~plained that books for any one fiscal year are in agreement with cash receipts but past period is tem- porarily out of agreement Just for the purpose of putting the auditor out and that when the auditor departs they are in agree- ment. Mrs. Strong asked if he didn't take machine tapes and the auditor replied that "that was it". Mrs. Woehle asked if we could get a detailed audit for 1953 and the auditor replied "yes". She then asked him if the City could be short more, to which he replied "We could be out or $25.", and said that when Mrs. Smith's desk was taken ov~ by the sheriff there was a check from another person in a drawer and that they did not know what it was for. Mayor Strong asked why daily receipts couldn't be checked and what if the audit receipts were not in order. The auditor explained that they did check them and that numbers are placed on them by other offices. Mayor Strong inquired if numbers were checked in previous years when they made the regular audit and Mr. Dunn-Rankin stated they were. Councilman Sundy asked if the auditor had recommended a cashier being employed to which he replied "no" but that he believed the amount of bond could be increased at a small pre- mium. He recommended a blanket bond which would be a wise pre- caution and not much more expensive than bonds cost now. Mr. ~acMillan asked~howmuch of an increase the auditor would suggest and he replied that he thought ~lO,O00.O0. Mr. MacMillan then asked if daily deposits were not made before and if they are being made daily now, and the auditor said they are being made daily. Mrs. ~Oehle asked if this was the first time the auditor had tried to reconcile a bank statement to which he replied "no". Mr. MacMillan then recommended giving the City Manager auth- ority to consult with local insurance companies to get the blanket bond rates and to report back to the Council. Mr. Allen so moved and Mr. Sundy seconded the motion which carried unanimously. Mr. MacMillan told the Council that he had explained'to Mr. Dunn-Rankin that outside auditors were to give their opinion as to the audits redeived in the past and why the shortage was not found in the past, and he said Mr. Dunn-Rankin was ~i lling to do this. The anditor stated that they ~ill give a financial report soon which is what the outside auditors want. Mayor Strong asked if there would be a written report which would include what his oral report covered and the.~ auditor stated there would be. Councilman Sundy asked if the City Clerk has all the records he needs to get the books up to date and the auditor explained that a National ~ookkeeping representative had been here to post the Journal entries and that the ~ooks were closed for September 30. He stated all the cash receipts had been coded and that he estimated about two w~eks to finish post- ing what is behind. Mr.. MacMillan asked Mr. ~unn-Rankin if they audit in other cities and he named North Miami, Sout~ Miami, and Kissimee, and said about ten cities~ altogether. He explained that two cities have a monthly retainer basis and that their books are checked continuously but said this would be more expensive. Mayor Strong asked how much more expensive and he replied, figuring on two days check a month, plus a staff doing routine checking, the fee would be ~3,000 a year. Mayor Strong asked if, at the end of the year, they would prepare a detailed audit and he stated they could. Mr. MacMillan asked i~ this would render still greater work and the auditor explained that the bookkeeping machine is equipped .to give monthly or weekly reports. Councilman Sundy asked how long the City has had the machine and the auditor estimated three years. Mayor Strong asked if it had been used for that purpose and Mr. Dunn- Rankin stated "no". JANUARY 8, 1954 Mr. John Kabler asked if a detailed audit for 1953 would show the loss ~acurred in 1953 to which Mr. Dunn-Rankin replied it would show the loss occurred in November and December 1953, and that the cash receipts were falsified. Mrs. ~oeh~le stated, that Mrs. Smith had said otherwise, and Mr. MacMillan suggested not discussing what Mrs. Smith said. Councilman Allen asked the auditor if the report states that it happened at that time or was revealed then. The audit said the report states there were omissions in the records in the City's Financial report. Dr. W. C. Williams addressed the auditor and asked if the detailed audit shows the entire time Mrs. Smith served as City Clerk or how far back the detailed audit covers. Mr. Dunn-Rankin replied that the shortage shows before January 1954. City Manager ~ovelace then made a correction to the Council in regard to the bookkeeping machine, stating the City has had it for one and one-half years. Mrs. Woehle then asked if there is anyone who can operate it and the City Manager said "we~are train- ing someone. Mr. Kabler then asked if the audit for 1953 would show no shortage that occurred in 1953 and if it was not po ssible to do so. Mr. Dunn-Rankin said he would try to reconcile as to whether the cash was on hand December 30. Mr. Kabler then asked if the machine had been in use since the City has had.~it and the auditor replied it had. Mr. Kabler then asked if it had been brought up every day and Mr. Dunn-Rankin stated Mrs. Smith was still posting in 1953. M~. Kabler asked if this was the first year Mr. Dunn- Rankin has made a post audit to which he replied "no". Mr. Kabler then asked why it was never caught in previous years and if there was any reason they shouldn't have found it in a post audit in prior years. The auditor said he did not check in detail the cash receipts and that checking tapes had taken two people three days. Mr. Kabler asked if the auditor had ever recommended a de- tailed~audit to which he replied "no". Mr. Kabler asked if there was any reason and the auditor said he saw no reason it was re- quired. Mr. Kabler asked if he had recommended an increase in bonds and when the auditor said no, Mr. Kabler asked if there had been a reason. Mr. Dunn-Rankin said he thought ~5,000 was adequate. Mr. Kabler then asked if there was any way we could ascer- tain howthe loss occurred and the auditor said they could ask Mrs. Smith if she ever kept records. The meeting then adjourned. ROVED: Mayor ATTEST: City C~erk