By Rachel Madison

It took nearly a year longer than it should have, but the City of Liberty Hill’s financial audit is finally finished after months of struggles with missing invoices and other documents, as well as the termination of the City’s finance director in August 2021.

Under best practices, the previous year’s financial audit should be completed by the end of March. Interim Finance Director Misti Hancock told the City Council for months starting in September that the audit would be completed the following month, but various hurdles kept the audit from being completed until now.

Hancock told the Council during that time frame that she was spending time reconciling accounts that didn’t add up, searching for documents that were missing, and spending a lot of her time on the day-to-day financial operations of the City, which caused more delays.

Lupe Garcia of Whitley Penn, the firm that conducted the audit, said the audit could have ended much sooner than it did, but it wouldn’t have received a clean, or unmodified, opinion.

“Until we gathered all the information and corrected all the balances in the general ledger, we could not support that unmodified opinion,” he said. “I’m happy to report that’s the opinion we are issuing on the City’s 2020 financial statements.”

Garcia added that the clean opinion means the report can be relied upon as being materially correct, but that doesn’t mean there aren’t things in the City that can be improved.

“We know there’s been challenges working through the audit for fiscal year 2020,” Garcia said. “We’ve documented those challenges in the form of a management letter that contains material weaknesses, significant deficiencies and some instances of noncompliance that we noted as a result of the procedures that we perform. Management can address those concerns going forward, so the City can issue timely financial statements.”

The management letter provided to City staff, which The Independent obtained as part of the Open Records Act, noted several deficiencies in the City’s internal control, including bank reconciliation. During the audit, Whitley Penn noted that bank statements for various accounts were not reconciled to the general ledger; new accounts were opened during the year that were not recorded in the general ledger; and certain existing bank accounts had activity that was not recorded in the general ledger.

Another deficiency included capital assets, of which records were not maintained by the City. Whitley Penn recommended the City maintain detailed capital asset records and reconcile these records to the general ledger on a timely basis to ensure accurate accounting for assets, according to the management letter.

The audit procedure also discovered that certain capital assets were purchased through financing arrangements that were not recorded on the date of purchase; expenses were not recorded in the proper period; and numerous adjustments had to be made to the general ledger in areas such as cash, accounts receivable, accounts payable, debt, pension, revenues and expenses.

In addition, Whitley Penn noted that the City had difficulty locating certain records that were requested as a part of the audit process, and at the time of the audit, the City’s accounting records, supporting schedules, documents and other files, if they existed, were not in order.

When it comes to the audit itself, the first set of financial statements audited were the City’s capital assets and total liabilities. The City’s total assets and deferred outflows, as of Sept. 30, 2020, totaled $76.1 million, while the City’s total liabilities and deferred inflows totaled $38.9 million. This left the City with a net worth of $37.2 million as of Sept. 30, 2020, Garcia said.

The second set of financial reports in the audit include the general fund, debt service fund, capital improvements and public improvement districts. Garcia said the overall fund balance of the City started fiscal year 2020 with $10.7 million and ended with $8.2 million.

The report also showed that the City’s actual revenues of $6.3 million exceeded the budgeted amount by $2.1 million, and expenditures of $4.8 million exceeded the budgeted amount by $600,000.

“There was an increase of fund balance in the general fund of $300,000 to $5.6 million,” Garcia said. “That $5.6 million breaks down into two categories. You have a portion of it that is referred to as unassigned fund balance and that’s what’s available for spending for any lawful purpose.”

Over the last few years, the City has been adding to that unassigned fund balance, moving from $4 million in 2016 to $5.6 million in 2020.

“This is a good thing in a growing city,” Garcia said. “In the financial reporting for a governmental entity, that’s a very healthy position to be in, because your expenditures for one year in the general fund are only $4.8 million, but you have $5.5 million in your unassigned fund balance.”

The City has retained Whitley Penn to conduct its 2021 fiscal year audit, which Garcia said needs to begin immediately if there is a chance of getting it completed by the end of March.

“We will have to work very hard and very fast,” he said.