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Jackson City audit finds $13 million in cash-pool corrections, faults recordkeeping and reporting
Summary
An independent auditor told the Jackson City audit committee that migration to a new ledger left receipts outside the city's cash pool, forcing about $13 million in adjustments, identifying a timekeeping abuse near $30,000 and repeated reporting errors to US Treasury; the committee was urged to adopt an internal-audit plan and short-term consultant support.
An external auditor told the Jackson City audit committee that a recent financial-management system change left receipts and disbursements misrouted, producing a temporary negative cash-pool balance and roughly $13 million in correcting journal entries.
"It showed the city had negative $8,000,000 cash because all the receipts weren't flowing through the pool," Speaker 1, the presenting auditor, said. The auditor said the city had established a single "full cash" general ledger in its Tyler system but that some receipts were still going into accounts outside the pool, forcing staff and auditors to reverse and reclassify transactions so the pooled cash reflected actual holdings.
The finding was presented as a material weakness: auditors reported that manual entries and unreconciled internal balances meant the pool could not automatically allocate ownership among funds, a problem the team said required unwinding eight months of cash transactions. "That resulted in about $13,000,000 of adjustments to move that activity to the pool so the pool can be set up and work the appropriate way," Speaker 1 said.
In addition to cash-pool problems, the audit identified other year-end and control weaknesses. Auditors found cutoff and accrual issues in revenue and receivable reporting where subledgers did not agree with the general ledger; three instances lacked approved documentation for allowable activities in federal-program testing; and several funds were overextended without system budget blocks to prevent overspending.
The audit also disclosed one employee timekeeping abuse spanning 2019'2022 that the auditor said resulted in roughly $30,000 in payroll and benefits; restitution has been reported and obtained. "Any time there's been an abuse of the system greater than $100 we have to report," Speaker 1 said.
Committee members pressed the auditor about whether internal audit could have detected the issues. The auditor replied that internal-audit functions vary widely and are often process-focused rather than focused on financial-statement reporting; the audit committee "should build a plan annually and a budget" that specifies the internal-audit work to be performed, the auditor said.
On federal reporting, Speaker 1 said the city's quarterly reporting to the US Treasury had been prepared using purchase-order data rather than actual disbursements, producing inaccurate submissions; the auditor said Treasury expects errors to be corrected by the final report. A deadline of 01/31/2027 for the final Treasury report was mentioned in the discussion.
The auditor highlighted an upcoming accounting standard change referenced in the presentation (transcript: "GASB 101") effective for the year ending 06/30/2025 that will broaden the definition of compensated-absence liabilities to include items such as sick time and comp time. The auditor warned that recording these additional liabilities will increase reported long-term obligations and reduce unrestricted net position, though it does not require immediate cash funding.
To address findings, presenters and committee members recommended several follow-up actions: (1) develop a corrective-action plan assigning responsibilities and timelines (Speaker 5 and city staff discussed Nathan drafting that plan), (2) strengthen month-end reconciliations and require spot checks, (3) consider short-term consultant support to supplement staff capacity for FY25, and (4) define an internal-audit plan and budget so the internal-audit function can monitor controls such as bank reconciliations.
Speaker 1 offered continuing-education resources and noted the firm's advisory team could help design an internal-audit plan while maintaining auditor independence: "we can help build game plans," the auditor said, but added auditors cannot both audit and implement controls.
The committee agreed to gather suggested agenda items for a December meeting to follow up on corrective actions and oversight responsibilities. A motion to adjourn was made and the meeting ended.
What happens next: management and the audit committee are expected to document a corrective-action plan, implement tightened reconciliation procedures and consider short-term outside support to resolve FY25 priorities before the next audit cycle.
