Tybee Transfers Review

7/29/2019 Tybee Transfers Review

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City of Tybee Island

Review of Audited Transactions

March 12, 2013

The city had an agreement with the FAO US Corp of engineers to perform a Beach Renourishment

project. The FAO would provide approximately $6-7 M of Federal funding and the city had to provide

approximately $4.8-5M. The State DNR agreed to provide the city money, $2,930,000, to help with the

cost of the project. Chatham County agreed to give us $600,000 for the project as well. The city had to

come up with the remaining share for the project. The city’s plan for funding its share of the project is

shown below:

Description of Funding Source Funding Source

City of Tybee General Fund Balance $ 550,000.00

2003 SPLOST $ 1,000,000.00

LNG Grant $ 35,000.00

Chatham County 2009 Funding $ 150,000.00

Chatham County Funding $ 450,000.00

State Bonds from DNR $ 2,930,000.00

Total Non-Federal Funding Available: $ 5,115,000.00

Prior to initiating the RFP’s, etc. for the project the FAO required that the city give them access to all ofthe city’s share of the money by placing the money in an escrow checking account or sending the moneydirectly to the them to hold. As the project proceeded the FAO would spend the money to pay for the costof the project and notify the city of how much money was spent at which time the city would recordexpenditure for beach renourishment. As long as our money was sitting in an escrow checking accountor being held by the FAO, the city had not incurred expenditure for the project; the city should havereported an accounts receivable from the FAO money deposited in the escrow checking account ormoney held by the FAO until the money was expended.

The construction phase of the project managed by the FAO began an ending within the first 6 months of

fiscal year 2008-2009 in December 22, 2008. The city’s total cost incurred for the project on directly

managed by the FAO US Corp of Engineers was $3,940,629.75.

FY2008The city opened an Escrow Checking account # 2145324 with the First Chatham Bank to give the FAOaccess to withdraw money from the account as needed once the funds were deposited into the checkingaccount. The DNR took out bonds in order to generate the $2,930,000 to give to the city for the project.Since the money originated as bond money, that money could not be placed in an interest bearingchecking account due to arbitrage laws. It appears that a decision was made to turn the money over toFAO US Corp to hold instead of the city placing the money into the escrow checking account.

FY2008 General Fund ExpendituresThe City received $2,930,000 from the DNR on May 8, 2008 and deposited the money into the generalfund pooled operating checking account. The money that the city received from the FAO was considereda grant to the city; the DNR gave the city the money in lump sum payment of $2,930,000. The accounting

standards states that grant revenues can only been recognized (meaning be recorded as revenue) whenearned i.e. when an expenditure has been incurred relating to the grant receipt. Since the FAO gave themoney to the city upfront prior to money being spent; the city should have recorded the transaction bydebiting the general fund pooled cash checking account and crediting the deferred revenue account, bothbalance sheet accounts.


Review of Audited Financial Transactions

March 12, 2013 Page 1





March 12, 2013

When the city received the money from the DNR, the city should have recorded as the money as a debitto cash in the general operating account and as a credit to deferred revenue. On May 15, 2008, the cityissued check no. 307730 to the FAO to hold for the project at which time the the city should have debitedan accounts receivable account and credited pooled cash. Because the city had not incurred an expense

(no money had actually been spent for the project), the city could not record either an expense norrecognize the revenue for the transaction. The money had to be reported as an accounts receivableamount because until the FAO spent the money and we could record expenditure for it; the FAO ownedthis money back to the city.

Instead, what actually happen:1. Prior to receiving the money, an entry was posted in the general fund to accounts

receivable (debit) and beach renourishment expense account , 100-6125-54-1402,for $2,930,000 was (credit);

2. When the city received the money, the pooled cash accounts was debited andaccounts receivable was credited for $2,930,000;

3. On May 15, 2008, a check, #307730 for $2,930,000 was issued to the FAO US Corpto hold until the project got underway; for this transaction, the beach renourishmentexpense account in the general fund, 100-6125-54-1402 was debited and pooledcash credited. These entries zero-out the credit balance that had been recorded inthe expense account.

4. On May 16, 2008, journal entry, # 5493 was made adding the $2,930,000 back to theexpense account in the general fund, 100-6125-54-1402 as a debit and recorded arevenue balance for the amount (credit) in the general fund, 100-00-33-6015.

In summary, the revenue and expense were reported in the general fund in error for $2,930,000. Itappears that there was a lack of understand that the FAO was only holding the money and the moneyhad not been expended for the beach renourishment project, yet. The schedules below summarize thehow the transactions were actually recorded and how the transactions should have been recorded as ofJune 30, 2008:

General Fund

General Ledger Reported

Expenditures

FY2008 FAO US Corp 2,930,000.00 100-6125-54-1402 Check issued to FAO

FY2008 FAO US Corp (945,246.57) 100-6125-54-1402 Journal entry moving a part of the expense to SPLOST

FY2008 Olsen & Assoc. Inc 233,610.01 100-6125-54-1402

2,218,363.4 Total Beach Renourishment Expenses reported in FY2008

General Fund

General Ledger Reported

Expenditures

FY2008 -


233,610.0 Total Beach Renourishment Expenses that should have reported in FY2008

Difference (1,984,753.43) Amount of Beach Renourishment Expense Overstated in General Fund

SPLOST & General Fund (2,930,000.00) Grand Total Amount of Over-stated Beach Expenses For FY2008








March 12, 2013

General Fund Revenue 2,930,000.00 Beach Renourishment Revenue Overstated by DNR Grant

FY2008 SPLOST Expenditures:The city’s auditors did not identify the error with the overstatement of the beach renourishment

expenditure in the general fund instead an adjustment was made to reclassify a portion of thatexpenditure to SPLOST. The SPLOST 2008 general ledger balances agrees to the audit report;however, the balances are not correct as they are reporting that $1,000,000 in the beach renourishmentwas spent which was in error, the balance should have only been $54,534.30 (see items A and B.

A. $42,603.43 check # 829B. $12,150.00 check # 834

The city planned to contribute $1,000,000 of SPLOST funds to the beach renourishment project. Sincethe city appeared to have believed that the disbursement of the $2,930,000 to the FAO was an actualexpense, during the audit process on October 28, 2008 upon reviewing the SPLOST Schedule ofExpenditures prepared by the auditors in which they reported $54,534.30 of expenses for beachrenourishment, someone thought that it should be $1,000,000. The city posted a journal entry (#5498) re-classifying $945,246.57 of non-existent expenses from the general fund’s beach renourishment account

no. 100-6125-54-1402 to the SPLOST beach renourishment account no. 320-6125-54-1402. Thisadjustment created a payable to the general fund of $945,245.57 because the JE (#5498) made it appearthat the general fund had paid for expenses that should have been for a SPLOST project. The auditorsfixed the problem with the payable to the general fund with JE# 6144; yet this entry removed any trace ofthe payable back to the general fund. The auditor ran the payable through the claim on cash account.

In summary, a payable to the general fund from the SPLOST fund for $945,246.57 was recorded in error;the expense for SPLOST was overstated by $945,246.57. A payable to the general fund from theSPLOST fund for $945,246.57 was not recorded.

The first schedule below summarizes how the transactions for the beach renourishment expensesaccount were recorded and the second schedule shows how beach renourishment expense balanceshould have been recorded in the SPLOST fund:

SPLOST Fund General Ledger

Reported

Expenditures

FY2008 FAO US Corp 42,603.43 Splost 320-6125-54-1402

FY2008 FAO US Corp 945,246.57 Splost 320-6125-54-1402 JE actual portion of dnr grant

FY2008 Olsen & Assoc. Inc 12,150.00 Splost 320-6125-54-1402


SPLOST Fund General Ledger

ReportedExpenditures

FY2008 FAO US Corp 42,603.43 Splost 320-6125-54-1402

FY2008 Olsen & Assoc. Inc 12,150.00 Splost 320-6125-54-1402

54,753.4 Total Beach Renourishment Expenses that should have reported in FY2008








March 12, 2013

Difference (945,246.57) Amount of Beach Renourishment Expense Overstated in SPLOST Fund

The city had a money market checking account with First Chatham Bank (#6010748) in which SPLOST,

general fund and water & sewer cash was deposited; the balance in the checking account wasmaintained on the general ledger in three separate general ledger accounts.

The FAO required that the city have $4,219,045.85 available to spend on the beach renourishmentproject by June 16, 2008 and set aside in the city’s escrow checking account in given to the FAO to holdbefore the FAO could proceed with issuing a RFP for the project. The city had already given the FAO the$2,930,000 money from the DNR, the remaining balance needed was $1,289,045.85.

On June 16, 2008, $1,289,045.85 was transferred from the city’s money market bank account, #6010748, to the city’s general fund pooled operating checking account, # 28266, and then the citytransferred the money to the escrow checking account # 2145324 to be spent by the FAO for the beachrenourishment project. Based on the information taken from the June 30, 2008 bank statement and thegeneral ledger the following transactions took place in June.

General Fund SPLOST Water & Sewer Fund

Total 100-00-11-1119 320-00-11-1119 505-00-11-1119

May 31, 2008 Balance

3,840,126.28 730,345.20 2,987,599.74 122,181.34

June Activity:

5/30/2008 Transfer to General Fund Pooled cash # 28266

(228,000.00)-

(228,000.00) -


(300,000.00)(300,000.00)

- -


(300,000.00)(300,000.00)

-

6/10/2008 Transfer to SPLOST 03 cash # 28258

(540,000.00)-

(540,000.00) -


(1,289,045.85)-

(1,289,045.85)

6/30/2008 Interest Income

4,685.93891.21

3,645.63 149.09

Total Money Market Account CashBalance 6/30/08 1,187,766.36 131,236.41 934,199.52 122,330.43

The schedule discloses that the $1,289,045.85 transferred from the account was all SPLOST money.Only $1,000,000 should have come from SPLOST funds the remaining money should have come fromthe general fund monies. The schedule shows the bank balances as of May 31, 2008 and the activity inthe account through June 30, 2008. There was not enough general fund money in the account to coverits share $289,045.85 for the project.

The auditor said that the city wanted him to split the cash balance for the $1,289,045.85, transferred outof the money market account to the escrow account and the $1535 interest income earned on theaccount in June into two balances as follows:

General fund 100-00-11-1130 Escrow Checking Account $ 368,268.53SPLOST Fund 320-00-11-1110 Cash Pooled Account $922,314.49

Since all of the money came from the SPLOST portion of the funds in the money market account, apayable from the general fund to SPLOST should have been created for the $368,268.53; the payable tothe SPLOST proceeds was posted to the pooled cash fund account, 320-00-11-1110. Also the city








March 12, 2013

should have created a separate SPLOST escrow checking account general ledger number to record theSPLOST portion (320-00-11-1130); instead the SPLOST portion was posted against the claim on pooledcash general ledger number 320-00-11-1110 in error. JE # 6144 also ran the $922,314.49 amountthrough the general fund pooled account 999-11-1110 in error. Also, the SPLOST fund does not have an

“active” claim on cash account that works as due/to account to track payables between the general fundand the SPLOST fund; therefore, any transactions posted into this account had to be made with a journalentry.

As of June 30, 2008, the funds available for the beach renourishment project were as follows:

Money Made Available to FAO Corp of Engineers for Beach Project

2,930,000.00 5-15-08 Check Issued to FAO to Hold for the project

1,289,045.85 6-15-2008 SPLOST Money Transferred to Escrow Checking Account

4,219,045.85 June 30, 2008 Total Money Available to FAO

FY2008 General Fund Revenue:In the June 30, 2008 annual financial statement audit, the city reported that the city received $3,390,000in grant revenue in the general fund’s beach renourishment revenue account 100-00-33-6105, in error.The balance for the $3,390,000 includes Feb 15, 2008 contribution from Chatham County for $450,000;the May 8, 2008 DNR Bond/Grant of $2,930,000; and a $10,000 amount from a journal entry posted bythe Finance Director; all of these transactions were recorded by the city prior to the annual auditbeginning. As aforementioned on page 1 of this report, the $450,000 from Chatham County was supposeto be used for the beach renourishment project and therefore should have been deposited into the city’sescrow checking account and recorded as deferred revenue on the general ledger. This money wasdeposited into the general fund pooled cash account and recognized as revenue in the beachrenourishment revenue account. By recording the $450,000 in the pooled cash account and recognizingit as revenue immediately, the off-set the expenses that the city was paying to Olsen Associates, Inc.from the General Fund pooled cash account which were cost for beach renourishment that were in

addition to the money that had to be provided to the FAO. In addition, the $2,930,000 money from theDNR should have been recorded as deferred revenue as well.

In summary, no revenue should have been reported in the general fund as beach renourishment revenueas of June 30, 2008.

FY2009

The city changed from a calendar year to a fiscal year with its first fiscal year being January 1, 2008 toJune 30, 2008. The city created a new financial system database to use for the new fiscal year reporting.However, all of the fiscal year 2008 is recorded in the “old database” financial system. The city continued

to use the “old database for the first six months of fiscal year 2008-2009 and began using the newdatabase on January 1, 2009. The city never posted the revenue and the expense transactions from theold database for the first 6 months of FY2009 (July 2008-Dec. 31, 2008) into the current database yearsending June 30, 2009. In order to obtain financial information for FY2008-2009 reports must be run forboth databases and compiled.








March 12, 2013

The FAO requested an additional $622,000 be made available for the project. The City Council approvedthe additional $622,000 be taken from general fund money for the project. On August 1, 2008, anaddition, $622,000 transfer of cash was placed into the escrow checking account; originally $662,000 wastransferred from the money market checking account and placed in the general fund operating checking

account. Then a check was cut from the general fund operating account made out to FAO USCOE$622,000 and expensed to general ledger account 100-6125-54-1402, beach renourishment. However,the check did not go directly to the FAO, the city deposited the check into the city’s FCB Escrow checkingaccount #2145324.

On August 1, 2008, the entry to record the $662,000 transfer from the money market account to thepooled cash account does not appear to be recorded’ JE#5079 posted to amount to the pooled cashaccount and then JE#5343 reversed it back out. Then 62,000 were recorded in the general fund pooledcash and the remaining $600,000 was recorded on the SPLOST claim cash (escrow) account. Since themoney from the market account was used to be placed in the escrow checking account, the city usedSPLOST money instead of general fund money to pay for the beach renourishment project because therewas not enough general fund available in the money market checking account to cost the $622,000 costs;the majority of the money in the money market account as of August, 2008 was SPLOST. The schedulebelow discloses the account balances in the money market checking account from June 30, 2008 throughSeptember 30, 2008:

June Activity:

General Fund SPLOST

Water & Sewer Fund

5/30/2008 Transfer to General Fund Pooled cash # 28266 (228,000.00)- (228,000.00)

-

6/10/2008 Transfer to General Fund Pooled cash # 28266 (300,000.00) (300,000.00) - -

6/10/2008 Transfer to General Fund Pooled cash # 28266 (300,000.00) (300,000.00) -

6/10/2008 Transfer to SPLOST 03 cash # 28258 (540,000.00) - (540,000.00) -

6/16/2008 Transfer to General Fund Pooled cash # 28266 (1,289,045.85) - (1,289,045.85)

6/30/2008 Interest Income 4,685.93 891.21 3,645.63 149.09

Total Money Market Account Cash Balance 6/30/08 1,187,766.36 131,236.41 934,199.52 122,330.43

July Activity:

General Fund SPLOST

Water & Sewer Fund

7/31/2008 Interest Income 2,494.24 275.59 1,961.76 256.89

Total Money Market Account Cash Balance 7/31/08 1,190,260.60 131,512.00 936,161.28 122,587.32

August Activity:

General Fund SPLOST

Water & Sewer Fund

8/1/2008 Transfer to General Fund Pooled cash # 28266 (662,000.00) - (662,000.00) -

8/13/2008 Transfer to SPLOST 03 cash # 28258 (8,000.00) (8,000.00)

8/14/2008 Transfer to General Fund Pooled cash # 28266 (280,000.00) (13,838.72) (266,161.28)

8/31/2008 Interest Income 554.78 61.30 436.34 57.14

Total Money Market Account Cash Balance 8/31/08 240,815.38 117,734.58 436.34 122,644.46

Sept Activity:

General Fund SPLOST

Water & Sewer Fund

9/11/2008 Transfer from Parking Checking Acct cash # 2137198 100,000.00 100,000.00 - -

9/30/2008 Interest Income 571.26 165.04 115.28 290.94

- - -

- - - -

Total Money Market Account Cash Balance 9/30/08 341,386.64 217,899.62 551.62 122,935.40








March 12, 2013

On August 4, 2008, the FAO made and wire transfer and removed the money$1,912,583.02 from theescrow checking account leaving a balance of $3,646.83. The city’s general ledger did not timely recordthe transaction in the escrow account.

The FAO reported that the project was completed on December 22, 2012.

FY2009 SPLOST Cash Balance and Expenditures:The city continued to make entries into the escrow checking account as is the account was a “real claimon cash account” that distorted the balance. Also, on August 14, 2008, a wire transfer was made moving$280,000 of SPLOST money from the First Chatham Bank into the general fund pooled cash account. A

journal entry was posted debiting the “pooled cash account “ # 320-00-11-1110 and crediting the moneymarket account # 320-00-11-1119 and debiting pooled cash 999-0-11-1110 and crediting due to otherfunds in error. The following entry should have been done: debit - due from general fund # 320-00-11-1500; credit money market account # 320-00-11-1119; debit pooled cash account 999-00-1110; andcredit due to SPLOST # 100-00-12-1903. The escrow account\claim on cash account balance finallycame to $1,797,441 as of June 30, 2009. After the audit began, the auditors initially gave an adjustmentto post the $1,797,441 as debiting the beach renourishment expense # 320-6125-54-1402 and bycrediting the escrow\claim on cash account 320-00-11-1110 in order to record the beach renourishmentexpenses. The city posted the entry.

The auditors issued the trail balances for the June 30, 2009 audit on October 1, 2009. By October 22,2009, upon the city realizing the that the beach renourishment expense account was overstated beyondthe $1,000,000 that the city was authorize to spend on the beach renourishment project. The auditorchanged the cash balances, expense balances in the general fund and SPLOST fund as reflected in thetrail balances re-issued by the auditors dated December 5, 2009 for the purposed as the auditorNovember 2009 email to the Finance Director stated that he figured out how to get the beachrenourishment off of the SPLOST general ledger.

The auditors ended up making off the book entries to the audited financial statements reversing the

previous entry instead removing the beach renourishment expense from the SPLOST fund by making upthe following entry:

General FundDebit 100-6125-54-1402 Beach Renourishment Expense $1,797,441.00Credit 100-00-39-XXXX Transfer in from SPLOST (426,319.00)Credit 100-00-11-1116 Georgia Fund 1 Cash Account (1,371,122.00)

SPLOST FundDebit Georgia Fund I Cash 320-00-11-1116 1,371,122.00Debit Transfer to General Fund 320-7520-6110 426,319.00Credit Escrow/Claim on Cash 320-00-11-1110 (1,797,441.00)

The auditor’s entries made it appear that the Georgia Fund One cash account had SPLOST money and

removed the beach renourishment expense from the SPLOST fund eliminating any trace that the escrowmoney from SPLOST were spent by the FAO Corp of Engineers for beach renourishment and eliminatingany record of the money being owed back to the general fund for an share of the expense. The transferfor $426,319 from SPLOST to the General Fund needs to be reversed and a payable to the SPLOSTfunds from the General Fund should be recorded for the 1,797,441 money expensed in the general fundas beach renourishment.








March 12, 2013

On December 8, 2008, the city received a reimbursement check from the FAO Corp of Engineers for$353,250.00. The FAO returned $353,250 to the city via check because FAO did not need the all of theadditional $622,000 that they requested in August. The city deposited the money into the general fundpooled operating checking account with First Chatham Bank, acct# 28266. The city recorded the

reimbursement in beach renourishment revenue, acct. 100-00-33-6015 in error. The cash receipt shouldhave been posted against the expense account to off-set the $622,000 disbursement expensed and givento FAO on August 1, 2008. The money should have been deposited into the SPLOST 2003 checkingaccount.

The city received a payment from Chatham County on August 4, 2008 for $150,000 for its share of theproject costs. This cash receipt payment was recorded in the general fund pooled operating checkingaccount with FCB acct#, 28266 and posted to the beach revenue account, 100-00-33-6015. Thus, thetotal beach revenue account balance at 6-30-09 was $503,250.00. The balance also included a refundpayment from the FAO US Corp of Engineers for $353,250.00.

The Reznick Group auditors reclassified the entire $503,250.00 from the revenue account to the Beachrenourishment expense account in the general fund acct. # 100-6125-54-1402. The $150,000contribution from Chatham County should have been recorded as revenue.

On October 27, 2009, the city received an addition check, # 8736-01538691 from the FAO for$548,703.27 returning more money from the project. The money was recorded in the general fundpooled cash checking account # 28266 on Oct. 28, 2009. The city recorded this cash receipt in error asmiscellaneous revenue in the general fund in account number 100-00-38-9003. This money should havebeen re-deposited into the SPLOST 2003 checking account.

General Fund

General Ledger

Reported

Expenditures

FY2009 FAO US Corp 622,000.00

100-6125-54-1402 Check written to FAO but deposited in city Escrow account.

This money originally came from the SPLOST portion of the money market

account.

FY2009 Advertisement + postage 66.25 100-6125-54-1402

FY2009 adjustment 368,268.53

100-6125-54-1402 JE#6405 to reclassify cash from escrow account as beach

expenses. This originally money came from Splost funds in the money market

account.


FY2009 Reznick Group/Auditors AJE (150,000.00)

Erroneous adjustment made by Reznick Group in which they reclassified the

$150,000 contribution from Chatham County against the expense instead of

recording it as revenue

FY2009 Reznick Group/Auditors AJE (353,250.00)

Adjustment made by Reznick Group to record the refund from FAO against the

expense; this should have gone to the Splost fund.

FY2009 Reznick Group/Auditors AJE 1,797,441.00

Auditors booked this adjustment reclassifying the expense from SPLOST to the

general fund in the face of the financial statements


The city’s general ledger does not reflect the changes made with the auditor’s final adjustment. The city’sgeneral ledger as of June 30, 2009 still reported the $1,797,411 as beach renourishment expenses in theSPLOST fund. It reports that the Georgia Fund One checking account balance is 2,592,661.33 beforethe erroneous adjustments were made.








March 12, 2013

FY2010The $145,424 transfer into the SPLOST fund from the General Fund appears to be an error. The city hadcut a check from the general fund pooled checking account to the SPLOST 2003 fund checking accountfor $145,000; the check appears have been to repay interest earned. Instead of posting the transaction

by debiting pooled cash and crediting the due to SPLOST account in the general fund and debitingSPLOST 2003 cash account and crediting the interest income account in the SPLOST fund, the citydebited pooled cash and credited the transfers out in the general fund; and then debited SPLOST 2003cash account and credited the transfers in revenue account in the SPLOST fund. The entry transferneeds to be reversed and an entry recorded to reflect the disbursement from the general fund pooledcash account and the interest income revenue in the SPLOST fund.

FY2011For the $175,701.72 transfer from the SPLOST fund to the General Fund, it appears to be a plug by theauditors in an attempt to balance the funds in an attempt to fix the fund balance in the SPLOST fundwhich was zero at the time that began the audit. They made entries to try to fix the transfers in account

and transfers out which had transactions in them at the time the audit began for FY2011. This transfersneeds to be reversed.




Documents

Tybee Transfers Review