Council hears audit that flags weak controls, $9.2 million in corrective entries and a $193,000 unresolved variance in treasurer's office

Chesterfield County Council members on March 2 heard a limited-scope diagnostic review of the treasurer’s office that described weaknesses in internal controls, large corrective journal entries and an unresolved variance of roughly $193,000.

Dr. Stephen Patrick, who conducted the diagnostic review, told the council the county’s ‘‘control environment’’ is the highest-area risk. ‘‘When you do not have a solid control environment, it allows frauds to occur,’’ he said, adding that many reconciliations were ‘‘reconstructive rather than contemporaneous.’’ He said outside accountants and auditors had made substantial corrective entries: ‘‘she had to book about $9.2 million in corrective journal entries,’’ Patrick said.

The report highlighted three immediate concerns: gaps in supervisory review and routine reconciliations; a $193,000 cumulative, unresolved variance whose cause could not be identified from the limited review; and manual cash-handling processes that create moderate risk. Patrick said those manual processes included ad hoc handling of overpayments and refunds—cash placed in envelopes and held on desks for days—creating opportunities for shortages.

‘‘I felt pretty good about it was probably more than one person that was putting their hands in that pot,’’ Patrick said when asked whether the diagnostic findings suggested multiple perpetrators. He described options for next steps: forward-looking control changes that strengthen procedures; targeted supplemental testing to reduce uncertainty; or a full transactional reconstruction if the council wanted to pursue it.

Holiday & Schwarz & Company’s auditor Stephanie delivered the formal audit briefing and described the county’s financial-statement and single-audit outcomes. ‘‘You have an unmodified audit opinion. That’s the best you can get,’’ she told the council, while noting continuing internal-control findings specific to the treasurer’s office. Stephanie said her firm had posted about $8.7 million in journal adjustments to receivables and payables to correct the books and that other outside accountants had cleaned up cash accounts.

Stephanie and Patrick both said materiality for a full financial-statement audit may not make a $193,000 misstatement reportable as a material error, but stressed the local significance of that amount and the larger corrective entries. ‘‘For a financial statement audit, [193,000]—no. But to me, that’s a lot of money,’’ Stephanie said.

Council members expressed frustration that the treasurer’s office is an elected office outside council control, but said they would continue to press for corrective action and oversight recommendations. Bishop McClendon said the finance committee had made recommendations similar to the diagnostic review’s suggestions and that staff had begun implementing some of them. Council members also said the council had sent a letter to the governor’s office seeking assistance.

Several council members asked whether a forensic investigation was warranted. Patrick cautioned that a deep forensic reconstruction might cost more than it would recover if the losses were petty misappropriation; he recommended, as a first step, letting accountants already familiar with the reconciliation process research the $193,000 variance before deciding whether to expand the probe.

Next steps: County staff and council members said they would continue to monitor implementation of corrective controls, follow up on items in the audit briefing (section 8 of the final report contains detailed corrective actions), and coordinate with outside accountants for targeted follow-up on the unresolved variance. The council also discussed forwarding additional questions to Dr. Patrick through staff for written response to guide any next procedural steps.