FORT THOMAS, Ky. — The Fort Thomas Finance Committee spent much of its Nov. 5 meeting reviewing the city's FY 2023-24 audit and an associated $322,498 prior-period adjustment that auditors described as a reconciliation and posting problem rather than missing funds.

John Chamberlain, the audit manager leading the engagement, told the committee that "unaccounted for" is an accounting term used to justify a prior-period adjustment in the management letter and does not mean cash is missing. "I've done enough fraud that I know there's no fraud here," Chamberlain said, adding that the problem appeared to be "sloppy accounting" arising from missed postings and reconciliation gaps.

The audit team described specific categories of missed or incorrectly posted items that together produced the variance: school transfers that were not posted, payroll deferred-comp matches omitted, annual ADP fees not recorded, police-related gun and uniform expenses not posted, and carry-forward promissory-note and contractor payables that were not properly entered into the general ledger. Chamberlain said auditors could identify many of the pieces but noted that auditors make a single prior-period adjustment for the audited year rather than editing each prior year's ledgers.

Materiality and controls

Chamberlain explained that auditors apply a materiality threshold when deciding whether to require audit adjustments; for Fort Thomas, he said, the general-fund materiality used in practice is roughly $150,000. He and staff agreed that routine monthly bank reconciliations would have caught many of the issues and that the lack of consistent month-end reconciliation over multiple years allowed errors to accumulate.

Interim Finance Director Linda Chapman said the city has implemented monthly bank reconciliations and reorganized the general ledger so that each bank or investment account now has its own account number. "At every one of those bank recs, every CD, every savings account, every checking account has a bank reconciliation at the end of the month," Chapman said, noting the change will make routine reconciliation simpler going forward.

Training and documentation

Chapman told the committee she is documenting procedures and will train the incoming finance director, saying she has prepared a checklist of "what you do during the month" and other task-specific procedure tabs so that work can be continued without undue disruption. She said she will continue to review the incoming director's work monthly until she is confident it is consistently accurate.

Forensic-audit question

Committee members asked whether a forensic audit was warranted. Chamberlain and staff advised against it. Chamberlain said a forensic engagement is aimed at detecting fraud and would likely return the same conclusion given the available records and Springbrook's limited historical window; he said the issues looked like accounting and reconciliation failures rather than deliberate misappropriation.

Next steps

Committee members and staff said the audit cleanup is largely complete for FY 2024 and that the finalized audit and related work papers will be available for the committee to evaluate in early January. Staff also pledged to present monthly reconciliation reports to the council going forward.

Quotes and sourcing in this article come from the Nov. 5 Finance Committee meeting transcript and from remarks by John Chamberlain and Linda Chapman during that meeting.