Municipal officials will carry out a corrective action plan that will seek to rectify four inconsistencies in the borough’s finances that were uncovered during Red Bank’s 2018 audit.
On Dec. 11, Red Bank Borough Council members passed a resolution that outlines the corrective action plan. The 2018 audit of Red Bank’s finances was conducted by Charles J. Fallon of the firm Fallon & Larsen, LLP.
The corrective action plan outlines the following inconsistencies and a corresponding corrective action:
• The general ledgers of the following funds were incomplete: current fund, trust fund, payroll trust fund, capital fund and water sewer operating fund and the general fixed asset account group.
The auditors said this condition is attributable to a four-month transition process to refill the chief financial officer’s position that remained absent during this time.
The corrective action plan suggests that the borough reassess its policies, design
and implement a system of internal controls related to the preparation and presentation of financial statements that are fairly stated and free of material misstatement.
Accurate and up-to-date general ledgers will be maintained by the chief financial officer. Red Bank will employ the services of a firm specializing in cataloguing fixed assets to reflect an up-to-date inventory.
• At the time of audit there was no readily available method of reconciling individual contractors’ accounts for the Outside Employment of Police Trust Account (special duty police assignments), to the balance of record in the finance office. There is a large unreconciled balance in the account.
According to the auditor, based on discussions with management, there are special duty assignments that have been undertaken without the required escrow first being deposited. It is likely Red Bank has not realized the full value of administrative fees paid into the system and those fees are likely a partial explanation for the large unreconciled balance in the account.
The corrective action plan suggests the borough reassess the policies and internal controls related to the Special Duty Police Trust Fund. Red Bank should design and implement a set of internal controls that reasonably assure that financial statements are prepared and presented without material misstatement and that the trust fund is administered in accordance with the requirements of the Borough Code and the Division of Local Government Services.
The corrective action plan also suggests an account should be made of unreconciled funds in the account and a determination should be made with respect to the disposition(s) of those funds.
The Outside Employment of Police Trust Account database application will be enhanced to provide reporting capabilities that will address the reconciliation needs of the finance office as well as track the accumulation of administrative fees.
This measure will entail the new chief financial officer to become acquainted with the Red Bank Police Department’s record keeping, scope out the requirements, and implement a solution that will satisfy the audit condition.
• Fourth quarter pension reports were not filed with the state in a timely manner.
The corrective action plan suggests that all pension reports should be filed on time. The action required entails a four-month transition process to refill the appointed chief financial officer position that remained absent during such time. Quarterly pension reports will be filed in a timely manner with the state.
• The auditors said an examination of expenditures revealed deficiencies in the application of Red Bank’s internal control policies and procedures over expenditures. There was no purchase order date for 14 of 40 items tested. The invoice for one of 40 items tested was not attached to the purchase order. The invoice date for three of 40 items tested was prior to the purchase order date. Competitive quotes for one of 40 items tested was not obtained;
Regarding water/sewer utility billing, the auditors said, “Our examination of water-sewer billing registers revealed that the third quarter 2018 billing was not in accordance with the borough’s rate ordinance. Numerous accounts were over-billed. The accounts were not re-billed for this error.”
Regarding construction, the auditors said, “Our examination of permit fees collected by the Construction Department revealed these fees were not in accordance with the borough’s rate ordinance. The Certificate of Occupancy fee for two of 10 items tested was not properly charged. The fire permit fee for one of 10 items tested was not properly charged.”
The corrective action plan suggests that policies and internal controls related to purchasing, utility billing and the collection of construction fees should be reassessed for the specific deficiencies noted above and improved upon based on the results of that reassessment.
The corrective action plan states that staff training, policies and processes will be implemented to directly address the expenditure issues identified by the audit. An extra verification step has been implemented by the tax collection office to ensure accurate water-sewer utility billings.
Billing corrections for water consumption will be mailed in mid- to late January 2020; third quarter 2018 sewer billing was correct, according to the auditors.
A vendor who was hired to maintain the Construction Department’s information technology system incorrectly configured the system with permit fees that were lower than Red Bank’s rate ordinance. The configuration error has been corrected, according to the corrective action plan.
On Dec. 12, Mayor Pasquale Menna was asked to comment on the matter. He said the inconsistencies “are routine and due in part to the fact that in early 2019 the Borough Council did not reappoint our chief financial officer and consequently we were without a CFO for many months which resulted in a backlog.”
