DALLAS — A much-delayed
The report on New Orleans’ calendar-year 2006 finances by KPMG LLP found nine significant deficiencies with internal fiscal controls, making it unlikely that city accountants would find material errors in financial statements.
The audit spotlights widespread problems in the system, including weak internal controls over financial reporting, incomplete listings of capital assets and on-hand cash, inaccurate records of federal loans and grants, and improper access by employees to computer systems.
For these reasons and others, KPMG said, New Orleans cannot produce accurate financial reports on a timely basis.
“The city does not have adequate policies, procedures, and related internal controls to prepare accurate and complete financial statements,” the report notes.
The city did not reconcile its accounts with its bank statements in a timely fashion from 2005 to 2007, the KPMG audit said. The bank accounts listed on Dec. 31, 2006, were not reconciled until Oct. 15, and as of mid-December the accounts for 2007 had not been reconciled.
“In each year, journal entries were made to bring the reconciliation into balance with amounts recorded into miscellaneous revenue,” the audit found. “Entries were made to cash even after the staff presented the reconciliation as final.”
KPMG also found “cash journal entries that did not show evidence of review and approval by someone other than the preparer.”
The city failed to notice it did not remit employee federal payroll taxes to the Internal Revenue Service for five months, including the last four months of 2006 and January 2007, the audit found. The IRS waived penalties and interest resulting from the oversight that the audit said were “significant” after the situation was recognized in early 2007.
Mark Garrett of KPMG’s New Orleans office declined to comment on the audit.
“I can’t talk about that,” he said. “We’ve issued our report. It pretty much has to stand on its own.”
James Ross, deputy director of communications for Mayor Ray Nagin, said most of the issues cited in the audit were the result of staff shortages caused by massive municipal layoffs in the wake of Hurricane Katrina in August 2005. The city has fixed some of the problems and is correcting additional deficiencies with help from Public Financial Management Inc.’s office in Atlanta, Ross said.
“Our finance department recently began working with PFM, the financial consulting firm who assisted with the development of our budget, to put additional policies in place to further decrease or eliminate future findings,” Ross said.
New Orleans laid off 37% of its workers in October 2005 after tax revenues plummeted as a result of the devastation caused by Katrina, which put 80% of the city under water when it hit on Aug. 29, and Hurricane Rita, which re-flooded parts of the city a month later. The city said 50% of the accounting staff was lost to layoffs, retirements, and the inability of some employees to return to the city after the storms.
Legislative auditor Steve Theriot released the audit Tuesday.
The audit was submitted Dec. 18 to the Legislative Audit Advisory Council, which oversees audits of all public agencies in Louisiana. It had been due June 30.
The city received four extensions to the June deadline, finally providing the document on the day the council was set to cut off state aid to New Orleans for non-compliance.
New Orleans’ general obligation bonds have unenhanced ratings of Baa3 from Moody’s Investors Service, BB from Standard & Poor’s, and BBB-minus from Fitch Ratings.
Total bonded debt at the end of 2006 was $801.7 million, KPMG said, including $614 million of outstanding GOs, $155.8 million of revenue bonds, and $31.6 million of limited-tax bonds.
New Orleans received $35.5 million in Gulf Opportunity Zone bond proceeds from the state for debt service on city bonds in 2006, and another $76.2 million in federal disaster loans for hurricane-related expenses.
