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Audit: City healthy but oversight needed

Audit Manager Michael Bosl presented the 2017 audit findings at the May 7 Osakis City Council meeting.

The good news is that Bosl reported "really stable activity within the general fund" and suggested that the city was "really financially healthy."

The funds in the general fund went down by $24,257 due to expenditures for a balance of $1,686,565.

The liquor store fund decreased by $43,000 in 2017. There was a transfer from the liquor store into the general fund of $50,500, for a net profit of $6,815.

The cash balance left in the liquor store fund was $75,892 and Bosl noted the position of that fund is tenuous if the city continues to transfer money from the municipal store.

"If you continue moving forward with this net balance, you'll approach a zero net balance," Bosl said.

Bosl had two major suggestions for improvements for the City of Osakis.

Oversight Issues

His first suggestion was about the level of oversight within the city departments and a lack of segregation of accounting duties, particularly with payroll oversight. Payroll is the city's biggest expense so the audit manager suggested increasing oversight there first.

"Even though you have a small staff, it's more important to make sure you have some oversight and mitigating controls," Bosl said. "It would really be prudent for the city to take a more documented look (at payroll records)."

In other similar sized cities, city council members are more involved with payroll oversight or outside companies are hired to take a look, Bosl said.

"It's important as a small city to make proactive risk assessment choices," Bosl said. "Proactive measures prevent fraud from happening. When I see fraud happening, it's going to cost you more in the long run. That's what all the statistics show."

Council member Justin Dalheimer agreed with Bosl and made a motion to get quotes from outside companies to take a 24 month look back at all of the city's payroll records. Council member Jerry Olson seconded the motion.

The auditor said there were no noted discrepancies, but it would be a proactive look.

"I don't think I have enough information to vote on it," Council member Jim Snyder said.

After further discussion, the motion passed with one vote of opposition from Mayor Keith Emerson.

Liquor store inventory problems

The other point of weakness in the audit was the liquor store. The auditors and the city both preformed independent inventory counts at the liquor store on January 1, 2018. Seventeen of the 30 items counted had variances and 31 percent of the city's items needed manual adjustment after the count.

The city and the auditors had to perform a second count of inventory at the liquor store in March, which yielded an increase in accuracy but still raised some questions. Five of the 25 items counted in March had issues. There were items listed as $90.15 that actually cost $8. Some items were listed to cost $0 and items in inventory were listed as $6 each when it was $6 for 12.

When the auditors looked back at inventory after the March count, the inconsistencies with pricing had not been fixed.

The extra inventory count cost the city an extra $5,000. The audit company put in more than 50 hours of additional work dealing with the inventory discrepancies.

Bosl also noted that the cash register tapes should match up with actual monies accrued but sometimes the tapes were $90 or even $100 off.

"It seems to happen more often than it should," Bosl said.

In April, the liquor store implemented a policy that if there is a $5 variance in the cash register tapes, then there needs to be follow-up steps but no one followed the policy.

When it was the manager of the liquor store, Julie Didier's, time to speak with the council she expressed frustration over lack of help and a heavy workload.

"It's very hard to do this when you're bartending and trying to do your job too," Didier said. "It's getting up at 5 a.m. and working 17 hours. I give up. I will turn in my keys tomorrow."

Didier has been working on checking inventory before the liquor store opens, but she cited a lack of qualified help as the issue.

"I don't run a liquor store, Julie, I can't give you all the answers," Dahlheimer responded to Didier's exasperation.

"If you want to send me help, that'll be great," she said.

The council approved a raise for part-time liquor store employees in hopes that that will increase retention and ease the workload for Didier so she can focus on cleaning up the various issues.