Audit reports from 2006 through 2008 at the Eastern Plains Council of Government repeat findings from a 2005 report — poor accounting practices that either contributed to misuse of government-provided monies, or at least provided such opportunities.
Just like an auditor's report and financial statement of 2005 done by Woodard, Cowen and Co., the three auditors reports and financial statements prepared by Hinkle and Landers listed widespread problems of borrowing between funds, misclassification of funds, posting of expenditures to improper funds, failure to balance bank statements, and failure to utilize accounting software.
Established in 1972, EPCOG is a voluntary association of county and municipal governments in seven eastern New Mexico counties. Those counties pay annual dues to participate in EPCOG, which then assists in planning and economic development.
The audits are required annually for the council to receive and disperse government monies, and current EPCOG staff is not sure how state funding was possible without audits from 2005 to 2011.
All three reports were discussed in a closed session June 15 with current EPCOG Executive Director Sandy Chancey, Board Chair Caleb Chandler, Treasurer Wesley Shafer and Accountant Odessa Hamilton.
"It's pretty much the same findings (as the 2005 report), because they were using the same financial management policies," Chancey said. "We didn't find anything new, other than what we found in 2005."
The agency noted that the accounting processes in many instances were so poor Hinkle and Landers could not assure EPCOG staff they'd caught every potential misdeed.
"The EPCOG's Management has not designed, implemented or monitored the policies and procedures needed to capture, record and present revenues, expenditures, contracts, grants, other agreements, and budgetary information completely and accurately in their financial statements," the statement read. "The severity and pervasiveness of the material weaknesses in the EPCOG's system of internal control over financial reporting has caused significant doubt that all possible material misstatements could be detected by our audit procedures."
Attempts to contact then-Executive Director Lee Tillman for comment were unsuccessful. Nick Brady, who had served in various positions, declined comment, noting an unfamiliarity with the reports and said he wasn't in positions overseeing finances.
"I don't know that there's anything I could even comment on," Brady said, "because I wasn't really in that position."
Problems identified in the three reports included:
- Significantly late audit reports.
- Weak internal control over grant management.
- Negative cash balances in the Housing and Urban Development fund in all three years ($105,844, $130,017 and $118,223, respectively). There was a failure to identify cash by fund and posting transfers in a timely manner created a situation where management was not aware of the actual financial position of funds, especially with cash belonging to several funds pooled into a single bank account.
- Poor internal controls, allowing an employee to create false identities and embezzle at least $145,000 in federal funds intended for tornado relief purposes. Former employee Lori Howard was convicted of the embezzlement in 2010 and is serving a 10-year sentence.
- No real system to provide review for accuracy in posting and financial information. "Staff at EPCOG did not have a reliable communication structure or means of resolving issues. Many staff were left to their own devices and did what they wanted to do."
- Gaps in check sequences, with several blank checks discovered in the desks of former employees. The existence of the blank checks was considered "especially problematic" with check signatures stored in the system.
- Lack of duty segregation, allowing the accounts payable clerk to print, sign and mail checks without oversight.
- Gift cards to Wal-Mart between $20 and $50 purchased for participants in a teen mother program. Additionally, a $2,000 gift card was purchased from Lowe's for purchasing household supplies for teen mothers. The purchases "circumvented the purchase controls of the entity," and were subject to fraud and misuse by EPCOG staff.
- Numerous excessive travel expenses, including lack of supporting documentation for a $1,074 hotel reservation charged to the company credit card; a mileage reimbursement of 37 cents/mile instead of a New Mexico Association of Counties mandated rate of 32 cents/mile; personal vehicles used with no explanation to why agency vehicles weren't used at a lower cost; hotel rooms booked at higher rates than other employees on the same trip with no explanation.
- Budget records that appeared to combine fiscal years or give unreliable revenue and expenditure amounts.
- Lack of a pre-numbered, controlled purchase order system.
For each problem identified, EPCOG issued the same response: "The Eastern Plains Council of Governments understands the seriousness of these findings and has been working toward revising policies and procedures to address these issues as well as taking steps to begin working on determining beginning account balances. The accounting system is also being looked at to change security and ensure proper reports are produced. Personnel in charge at that time are no longer employed with the organization. We understand that this will take significant amount of time to complete these tasks and are working to have a fresh start July 1, 2012, and continue to work on getting audits caught up."
During an EPCOG executive committee meeting Monday morning, Chancey said the 2009 and 2010 reports would soon be completed, and an auditor was scheduled to visit the following week to start the 2011 audit process.
"I expect the same findings we've had up to now," Chancey said, "and maybe a few new ones in 2009, when ARRA (American Recovery and Reinvestment Act) funds kicked in."
Chandler said the findings didn't come as a surprise.
"I think Sandy has set up some very good procedures with checks and balances to make sure the proper records are checked now," Chandler said. "I think with those records, the auditors will be able to do their job properly. That should put the COG back on the track it needs to be."