Report No. 2007-76
December 2007

Complete Audit Report

The following findings were included in our audit report on the Pulaski County Sewer District #1.

The Pulaski County Sewer District #1 (PCSD) maintains three separate computerized accounting systems. These systems are not linked, resulting in additional manual data entry and manual record-keeping, as well as some duplication of effort. One of the three systems is maintained by a certified public accountant whose services were obtained in 2006 after the Board of Trustees began questioning the accuracy of the information and reports provided by the former operations manager. The accountant also compiles the district's financial statements and was subsequently appointed board treasurer in December 2006.

While district records have improved, maintenance of three separate accounting systems appears to be inefficient and increases the overall expense of maintaining accounting records, and increases the risk of inaccurate records. The PCSD should review its overall accounting records and procedures and work toward establishing a system that meets all the district's needs in the most economical way.

The 2007 sewer rate calculations included errors and omissions and were not consistent with suggested guidelines and methodology developed by the Department of Natural Resources. As a result, it appears about 54 percent of customers' monthly bills were too high and about 46 percent were too low if the suggested rate-setting methodology had been used correctly. The rate calculations did not include beginning available resources and were not consistent with some budgetary decisions of the board. The PCSD did not make adjustments to customers' bills based upon the average winter water consumption as required by board policy, and did not provide public notice that a rate adjustment would be considered during the board meeting in December 2006.

The district's annual budgets do not include some information required by state law. The 2007 annual budget did not include planned capital improvement expenses of $3.5 million, and the budgeted debt service expense was overstated by more than $117,000 or 28 percent. The incorrect budgeted amount for debt service expenditures contributed to the problems while setting the 2007 sewer rates.

The PCSD does not maintain an accurate listing of customer deposits received, held, or refunded and does not have written policies and procedures for the handling of customer deposits. At April 30, 2007, the balance of customer deposits held as reported in the billing system exceeded the bank account balance by $14,747, and neither the billing system balance nor bank account balance agreed with the customer deposit general ledger liability account.

The PCSD does not maintain a complete and accurate listing of sewer impact fees paid by and due from customers and does not have comprehensive written policies and procedures for the imposition and collection of sewer impact fees. The PCSD established a sewer impact fee (SIF) of $1,000 when the district was formed in 1989, to be paid by property owners when making a connection to the district's central collection system. The district's detailed listing of SIF receipts does not agree to the district's accounting records, resulting in a difference of $162,000 between the two records. The detailed listing also included 174 addresses with a total amount due of over $208,000 and over 1,100 addresses for which neither an amount paid nor amount due was listed. Developers are charged a lower SIF rate but the district has not established written criteria that the developer must meet to qualify for the lower rate. The PCSD increased the SIF to $1,500 per household effective January 1, 2007, but did not perform any cost analysis to support the amount of the fee increase.

The PCSD does not have comprehensive procedures for the recognition, collection, and accounting of overdue customer accounts. The PCSD does not utilize all available means to collect overdue accounts or take timely action to collect such accounts, and does not write off bad debts when collection is unlikely. The district does not require management or board approval for adjustments to customer accounts. From January through May 2007, the PCSD recorded 1,049 adjustments, increasing the accounts receivables by a net of $16,005.

At December 31, 2006, the PCSD maintained 17 bank accounts and two certificates of deposit at four different banks with a total balance of over $1 million, resulting in receipts not being deposited intact and creating unnecessary additional bookkeeping responsibilities. The district does not solicit bids for banking services and it appears interest earnings on district funds have not been maximized. During 2006, it appears the district could have earned an additional $20,000 in interest if the district had invested its available funds in higher yielding certificates of deposit.

The PCSD reported net capital assets of $8.79 million at December 31, 2006. The PCSD has not developed a comprehensive long-term maintenance program for critical collection system and treatment plant components and does not maintain a complete listing of capital assets. The PCSD does not maintain parts and supplies inventories on a perpetual basis, does not maintain vehicle usage and maintenance logs, and sold a vehicle to an employee without soliciting bids.

The district does not have formal bidding policies. Additionally, the PCSD spent $69,068 in 2006 for professional services including engineering, legal and accounting, but did not solicit proposals or requests for qualifications. The district paid $4,706 for items purchased for a local contractor's business but did not seek reimbursement for the items.

Complete Audit Report