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Auditor delivers unmodified opinion, flags internal-control weakness for Deer Lodge council
Summary
An auditor told the Deer Lodge City Council the draft independent audit for the year ended June 30, 2021, carries an "unmodified or unqualified" opinion but identified a significant deficiency in segregation of duties and recommended compensating controls; council was asked to approve the draft for state filing.
An outside auditor presented a draft independent auditor's report to the Deer Lodge City Council and said the financial statements for the year ended June 30, 2021, received an "unmodified or unqualified opinion." The auditor told the council the report will be filed with the State of Montana after local approval and an external reviewer signs off.
The auditor summarized key figures and adjustments. He reported governmental activities net position of $3,420,528 and business-type enterprise activity balances of 11,780,172. For enterprise funds he reported a net operating loss described in the presentation as roughly $380,000 and said there was a restatement tied to construction-in-progress that required an adjustment to the beginning net asset balance.
The auditor said the restatement and prior reporting issues were corrected by a contractor, Jennifer Cody, who discovered a misreported portion of construction in progress and prepared the adjustment. "Jennifer Cody . . . discovered it, made the adjustment, made the correction, and let us know," the auditor reported.
Beyond the opinion, the auditor identified a significant deficiency in internal control stemming from limited staffing and turnover that left duties insufficiently segregated. He said compensating controls should be implemented, including independent reconciliations and additional review processes for journal entries and bank reconciliations, because the city "doesn't have the ability to go out and hire 3 or 4 more existing staff members" to segregate duties.
The auditor described additional exit-conference observations, including locating pledged collateral documentation and management's acceptance of proposed adjustments. He said the normal process is for council approval of the draft, followed by review and approval by an external reviewer (identified in the meeting as Joie Rogers), then filing with the state database.
Council members asked procedural questions about approving the draft; the auditor said approval would speed filing. No formal council vote on the draft was recorded in the transcript.
The next procedural step the auditor requested was council review and formal approval of the draft audit so the firm may finalize submission to the state and complete follow-up work on the years that remain to be caught up.
