No SOX For You
I'd never given it much thought as to how a city government operates. I assumed that they would operate under the same types of accounting guidelines as most “mainstream” businesses. Imagine my dismay when I found out that in my community of Prior Lake, the City Manager approves his own P-card purchases. This means that Prior Lake’s City Manager is using an open line of credit that bills charges directly to the City of Prior Lake without any apparent review or approval on the part of anyone other than himself as the City Manager. Per the audited financials for 2011, the auditor specifically sited “During our audit procedures we noted that the City Manager is approving his own P-Card purchases. A good system of internal controls would require approval of all purchases from someone other than the person who initiated the transaction.”
How can this be…especially in today’s business environment, vis-a-vis Sarbannes-Oxley (SOX)? How has one local multi-million dollar city government remained under the radar such that they don't have process controls in place that review monies spent on employee expense accounts? What happened to the enlightenment for segregation of duties? What happened to City Council oversight in directing funds being spent on behalf of the tax base? Quite simply, why are there no key controls?
Scandals of the early 2000’s, like Enron, lead to the SOX federal legislation, where all publicly traded businesses - in order to stay in business - must validate that integral accounting practices are being adhered to and that cash revenues and expenses are protected from even the appearance of fraud. Even many privately owned companies use a modified form of SOX called SAS-70. These protections document that process controls are created and audited/tested (both internally and externally) to validate that balance sheet items, such as cash accounts, are being routinely monitored. So again, how has my community’s City Management and City Council been able to ignore their fiduciary responsibility to insure that the potential for malfeasance is not the order of the day?
Frighteningly enough, Prior Lake is probably not an anomaly as the only city out there neglecting process controls. Go online, your city’s records are public information and I bet there are other bastions of waste - or worse yet, fraud - that result from either a mild ignorance or a general lack of importance being given to key control establishment.
In this election year, we need to make sure that we are going to support candidates who are serious about protecting not only their citizenry, but taxpayer assets as well. Those vying for your support on local city councils, school boards, and/or local committees/boards need to be stepping up and making sure meaningful measures are taken in order to mitigate poor financial oversight on the part of any City Management. Challenge your local candidates to commit that they will begin the process of implementing controls and eliminate detected gaps for segregation of duties. Your community will be that much stronger as a result of the effort.
Cross-posted at Freedom Dogs.