OSCODA – In response to financial mismanagement claims made by Oscoda Township Supervisor Aaron Weed, Treasurer Jaimie McGuire has provided some documentation of her own.
First, it was during the June 22 board of trustees meeting when she addressed Weed’s remarks from the prior meeting, on June 8.
As reported, Weed said that in the last three years of audits, the clerk and treasurer departments made more than $22 million in mistakes which were found and had to be corrected by the auditor. When sharing his packet of documents, he advised that for 2019, there was $11,860,889 in such mistakes, with the auditor having made 50 adjustments.
Weed said his documentation clearly shows that the treasurer managed the accounts improperly by not entering checks and not following up on bills within a reasonable amount of time, thereby causing the township’s financial software system to inaccurately reflect balances and payment history. He claims it also shows that the clerk did not perform reconciliations within a reasonable amount of time.
While the township did receive an unmodified opinion for its latest financial audit – the highest level of assurance – Weed expressed concerns with the audit comments from the last couple of years.
He shared his remarks after an audit presentation was given by Stephenson & Company partner Cynthia Scott. This can be viewed on YouTube, by searching for miCTV Oscoda, and a copy of the actual report can be accessed on the township website, at www.oscodatownshipmi.gov.
As for the most recent meeting, McGuire said that, although she asked the supervisor for a copy of his documents on June 8, she had yet to receive it. “So, tonight, I’m only going to address the audit adjustment remarks because of the amount in the allegations.”
She asked Clerk John Nordeen if he had been given a copy, which he confirmed that he received right after the last meeting.
According to McGuire, the dollar amount of the entries Weed is referencing, includes several adjustments made only at year-end, preparation of the financial statements. “What Weed neglects to say, is they are not mistakes made during the year, but adjustments made to bring the township’s financial records to full accrual at year-end. What was not brought to light, is that in 2004, the township decided it was more cost-effective to contract with the auditor to perform these entries, rather than to hire a CPA or a finance department.”
The Michigan Department of Treasury has accepted this as a solution for governments in Michigan, she continued. In fact, when the audit is submitted to the department, it is asked if there are any other findings besides financial statement preparation controls, as they recognize it is not cost-effective for all governments to have a CPA or finance department.
“Weed fails to also mention, many of these entries include recordings of capital asset activities and other accruals,” McGuire said.
She noted that the numbers in 2019 are particularly high, as the auditors assisted with required entries to close out the community center fund – to the amount of almost $1.9 million, alone – which was highlighted and covered during the actual audit.
“Clearly, Weed either does not understand the audit process or this was a dirty political attack, using the same tactics we have seen in the past,” she remarked.
Also weighing in was Trustee Jim Baier, who said that he pleaded with people two weeks prior to call or visit McGuire or Nordeen if they had questions. He suggested doing so on a weekday, rather than during the board meetings; however, it is his understanding that no one has done so.
He added that he doesn’t see how they can get a good answer or discussion on a Monday night, without the treasurer being able to research the answer and so forth. “It grieves me to have to do this, but I just don’t see any reason for this, other than what we talked about two weeks ago – ambush, surprise. And I don’t think that’s the way to operate.”
Baier did say he felt that some of the questions were very good, but that those being asked should be given some time on it.
Nordeen pointed out that he and Weed actually sat down together earlier that day, before the meeting. “Hopefully it leads to good things. I appreciated it.”
(When asked by this reporter if he wanted to provide any statements on his side of the overall situation, Nordeen said he appreciated the opportunity, but that he would let the auditor’s report speak for itself).
Trustee William Palmer mentioned an e-mail which was sent to board members from an individual, calling Weed’s June 8 comments a “character assassination” on McGuire.
As reported, some attendees of that meeting expressed appreciation for the information presented by Weed, who is vying for the township treasurer’s seat. There were others, though, who said that with the election on the horizon, it seemed as if Weed was making a campaign pitch.
Palmer argued that this was certainly not an attack on her character, and he believes that Weed even mentioned several times that there were no instances of fraud. “This was merely an assessment of job performance.”
He added that, with the supervisor legally designated as the chief executive officer of the township, it is Weed’s responsibility is to oversee all operations of the township. “So, when he sees a problem in any given area, it’s his responsibility to bring that to the board and bring that to light. And I think that’s exactly what he did at the last meeting.”
As for the terms being used, such as “ambush,” Weed maintained that nothing he brought forward was a surprise to those involved. “It was information that was already known.”
He said that his job as an elected official is to hold the best interest of the township and to follow municipal law, according to the state of Michigan. In doing that, he has made numerous attempts to try to get things corrected, but has met resistance along the way.
“And I know that many of the discrepancies in our audit report were items that were not recorded properly,” he went on.
“I think people very well know that I am not going to lie or sugar-coat things or try to make them seem much prettier than what they really are,” he added. “Reality is reality, and I will convey it as such.”
In relation to this, Weed said that a $25,800 grant was received in January, the amount of which the treasurer entered into the BS&A system – the financial software used by the township – as an expense, rather than a revenue. It has also been double-booked in that regard, so now the documents show some $51,000 in expenses, instead of $25,800 in revenue.
“So, there’s just a lot of wrong entries being put in, and it’s definitely creating havoc on the budget,” according to Weed.
For McGuire’s take on the matter, when she shared some of her own paperwork with this publication on June 24, she said she still had not received a copy of Weed’s documents. Further, despite having made offers for people to stop by her office and ask questions or view documents, no one has done so since Weed gave his report – nor has she gotten a phone call or an e-mail.
While she never received a hard copy of Weed’s information, he did display it on his screen during the virtual meeting. Reiterating a similar statement she made at the time, McGuire said she hasn’t gone through all of Weed’s comments on the audit, but she doesn’t care because she knows she can poke holes in everything that he said.
McGuire, who has worked for the township since 1997 – 18 of those years as treasurer – also stressed that the audit is a township-wide process.
“This isn’t just about the clerk and the treasurer; everybody has a hand in it,” she said. “Things happen. Things get coded wrong, things get posted wrong; that’s why you have somebody doing the separate general ledger [G/L] entries to correct those, to make sure there isn’t fraud happening.”
McGuire said she doesn’t want to point fingers, but she provided a few examples of errors made by others in the township, so that people understand it’s not just her and the clerk and, when something happens, they try to correct things as best as they can.
For example, she showed two bills which were recently handed in at the same time, by Superintendent Dave Schaeffer, but were coded to the wrong fund.
“So, if [Deputy Treasurer Jane Hackborn] hadn’t caught it, it would have been posted to the wrong thing and John would have had to make a journal entry to correct it,” according to McGuire.
She also showed a bill which another employee initially coded to the wrong area, and then had to change. On top of that, McGuire said there was no money budgeted in this item.
She explained that when the deputy treasurer enters a bill, but there’s no money budgeted for same, Hackborn has to take it out of the system and set it aside until the money is budgeted. She then sends an e-mail to Schaeffer, they have to make an adjustment and Hackborn has to re-enter the entire thing.
Hackborn showed another example of this, from the day prior, and the steps she took which ended up being wasted time because there was no money for the item.
McGuire said what some of the board members don’t understand is that at the beginning of the year, the budget is Schaeffer’s job. “And Aaron’s, inherently, if you don’t have a council form of government. So, when the budget comes out, money should be appropriated at least, I would say, through the majority of the year because you know what you’re budgeting for.”
Therefore, she said there shouldn’t be cases where no money is budgeted, and then these things get set aside and aren’t paid on time. “Our job in the treasurer’s office is to pay the money on time. We’re not going to pay the money late at all, if possible.”
In reference to the recent bill coded by Schaeffer, McGuire said these types of incidents are why board members have pointed at her and asked why a bill is being paid so late. “And then we’re taking the blame for that and it’s really not us, when there’s other things that are factored into it.”
She displayed a $1,900 bill associated with the phone system upgrade, as well, saying that it was coded wrong by a township trustee, and that there was also no money budgeted for it. “It’s a project we knew that was coming; why wasn’t the money budgeted for it?” she noted.
“So, when I’m asking these questions – and I’ve had conversations with Aaron last year even – I’m giving Dave the benefit of the doubt because he was new,” she added.
McGuire said that the switch from how things were done with the previous superintendent, to now, has been like night and day. And, while there are good things for it, it’s going to take time for everybody to adjust to the whole system.
As for her June 22 comments on the audit adjustments, she elaborated that there are two different types of these, one being government-wide audit adjustments. “Every government-wide entity has these adjustments, and the townships don’t do those. These are just for the auditors to do.”
The others are adjusting journal entries. McGuire said that a majority of these adjustments in 2019 pertain to such items as depreciation, assets, closure of the CDBG fund, closure of the community center fund and more. “Are some of them errors? Absolutely. And that’s why we have an audit.”
She brought up one of Weed’s statements about the clerk and treasurer’s offices scrambling during last December and early January to catch up on their backlog and responsibilities during 2019. “Well, if he worked in the offices, he would know you get a list from the auditors to prepare for an audit and that’s what we’re doing is, we’re going through and reviewing things on our own to make sure that we don’t have journal entries that count against us.”
She explained that if staff catch these items and fix them, or let the auditors know about it, then they don’t count against the township.
“We’re humans; it happens,” she continued. “I mean, we write $14 million a year, just in checks. I take in over $10 million in taxes, so, it’s going to happen.”
McGuire went on to address one of Weed’s audit comments involving Downtown Development Authority (DDA) fund 248.
As reported, Weed said that one of the issues in 2020 which caused him to be concerned about the management of township finances entails a bill payment presented to the board on Jan. 13, for two payments that were made six months earlier.
He stated that, immediately before that meeting, McGuire put a BS&A check disbursement report in front of the board, and said it was to be placed on the consent agenda. There was no further explanation given. He displayed a copy of this document, which shows two bills to be paid from DDA fund 248 – one being check No. 1425 for utilities, in the amount of $20.02.
When he showed a copy of the actual check for DDA utilities, dated July 19, 2019, it was written in the amount of $26.36 and signed by the treasurer. He said this was never presented to the board for approval, and that this also shows a discrepancy between the check amount and the Jan. 10, 2020 bill pay document of $20.02.
Weed noted that an e-mail from the deputy treasurer indicates that the treasurer’s office started to enter this check into the township financial system on Jan. 7. “Up to this point, the documentation shows checks were written and coded June and July of 2019, but were finally entered into the township financial system in December 2019 at the earliest.”
He also showed the journal entry for check No. 1425, in the full amount of $26.36. He said it was entered into the financial software again on Jan. 8, 2020 and back dated to Dec. 31, 2019 by the treasurer’s office. “This document shows the $6.34 amount that I previously could not find because it was coded to account 252, the DDA restricted fund.”
Weed said the answer to why this amount hasn’t shown up until this point lies in the other BS&A documents he then highlighted, which shows payments made from fund 252. “But these partial payments were never presented to the board in bill payment reports.”
McGuire said that when Weed shared the check disbursement report, showing the $20.02 amount, he presented only the first of five pages. The second page of the same document lists the $6.34, under fund 252, which is also a DDA account.
“The board got that,” said McGuire, who confirmed that this was presented at the Jan. 13 meeting. “It was on the board table; we discussed it. In the minutes, there wasn’t anything specific to the consent agenda; so that’s all I can say – they did see it, they did get, there’s the $6.34.”
She noted that all of the DDA checks were manually written, because the authority had its own checking account, and then entered by Hackborn into the G/L.
As for the utility bill Weed is questioning, a portion was in fund 248 and the other in fund 252. “What they were doing, is they were charging them to 248. They’re supposed to be charged to 252, and they were making entries into 252-923; which, here’s water bills to reflect those changes,” said McGuire, while presenting the documents. She pulled the DDA utility bills from 2019, which were supposed to be coded to fund 252. “And you can look, they were coding them back and forth, all over the place.”
McGuire said that the bills get coded by the department heads and turned into the treasurer’s office for payment. “We pay whatever they put on there. That’s what they’re coding it to. When the bills get to me, they’re supposed to be ready to be paid.”
She also pointed out that the DDA changed treasurers four times last year, between Jolene Senn, Weed for a short time, Martin Gayeski and then Rose Mary Nentwig – who was treasurer until McGuire’s department took the account back last July.
“I did not want to give up the checking account for the DDA. I was adamant about it, because I knew it was going to cause problems. They made me give it up anyways,” McGuire said.
She also shared multiple e-mails regarding bill payments and other such items. In a March 11, 2019 message to the DDA and Schaeffer, she wrote that she still did not have budgeted money to pay their bills in the G/L from the February bills, and that this was delaying the bank reconciliations. “We will not process anymore checks until this is rectified.”
She followed this up with another e-mail to the same individuals, on March 29, 2019, again advising that her office is unable to process the DDA bills as coded. “Please provide direction. Bills are now past due.”
A few days later, McGuire e-mailed Weed and stated that Gayeski had stopped in to sign two DDA checks for utilities. She asked Weed to sign them also, so they could be mailed, noting that the bills were late.
She said that another important document involving the DDA is the list of procedures for the group, as of Jan. 1, 2019, which was approved by the authority.
In particular, she highlighted a paragraph which reads, “DDA Treasurer or designated party shall perform bank reconciliation and provide copies of bank statements to the Treasurer’s office so we can verify and enter information into the G/L.”
McGuire contends that, when the DDA had the checkbook, they were not giving the treasurer’s office copies of their bank reconciliations.
She said she understands that it was a hectic time when the DDA was undergoing a number of changes. As reported, officials voted last April to dissolve the DDA, in favor of creating an economic development sub-committee of the board of trustees.
On the page of Weed’s report which shows a copy of the $26.36 check, there are handwritten notes. One of these asks that, since the DDA was officially dissolved, has the checking account been closed and any remaining funds moved over to the township’s common checking account?
To this, McGuire said, “In the dissolving documents, it does not designate anybody that was supposed to be handling this.”
She added that, when former DDA Director Ann Richards and former Superintendent Robert Stalker were involved, Richards essentially ran the DDA and Stalker took care of the budget. “And when those two were gone, it literally got dropped. Nobody was taking care of it.”
As for the question of the $6.34 being paid late, McGuire said that the bills got turned in and they ended up in a folder that was for the completed items. When Hackborn went to code it, there was no money budgeted for it. As Nordeen started doing the bank reconciliations, he noticed that the money was off. So, those in the treasurer’s office sifted through all of the DDA items, found that there were two bills in the folder and handled it as soon as they got a hold of them.
“I submitted the report to the board, like Aaron said, and the reason why it’s dated back to Dec. 31 of 2019 is because that’s where the expenditure belongs to – in 2019,” McGuire said. “We caught the issue and we fixed it. And that’s pretty much it.”
She added that Nordeen has a lot on his plate, and when he got around to this particular item in question, that’s when the offices realized the issue with the two checks. “But since then, the bank statements have been done in a timely fashion.”
Nordeen also touched on this at the June 8 meeting, noting that when the bank reconciliation duties were transferred to his office last year, he expressed that it was quite a workload.
So, in July and August when trying to catch up with that workload, he said this was the longest time it took him to process bank reconciliations. But, once he wrapped his arms back around the process from his time as deputy treasurer, the items were reconciled monthly.
In working with Schaeffer and the budget and dealing with the appropriations timely, McGuire said Schaeffer asked if they could work on a goal of getting the bank reconciliations done by the 10th of the month. “And when they were taken from the treasurer’s office, we were meeting that goal.”
She then addressed Weed’s latest comments about the $25,800 grant, which was for the police department’s mobile data terminals. She said she entered and posted everything, then realized that same day that she posted it to the wrong account number. “And I did change it and I coded it to an expense. But immediately, I wrote, this is where it was supposed to go. I gave it to John because he does the corrections, the journal entries, and he made the journal entry for me the same day and corrected it right here.”
McGuire said that, in her mind, the actions of Weed and some of the other board members show that they are not interested in answers. For instance, for the last three years she has invited board members to come into the treasurer’s office and see what they do. “And it just baffles me, honestly.”
She also wondered why Weed didn’t simply come to her and ask about the $25,800 grant situation.
As for Oscoda’s 2019 financial audit, Scott said the audit opinion letter addresses whether the information is accurate and free of material misstatement. “And we were able to issue an unmodified opinion, which is the highest level of assurance.”
She pointed out that those from Stephenson & Company aren’t saying whether the township is in good or bad financial standing, but if the information is accurate and can be relied on.
The auditors outlined some financial highlights in the report, for the year ended Dec. 31, 2019, which includes the township’s total net position having increased by $876,985.
The general fund year-end fund balance is $2,289,285, which is an approximately $500,000 increase from the prior year.
Scott said the township’s net pension liability, at year-end, was $1,691,867. This represents a decrease of $116,538 from 2018. She stressed that this is only an estimate, and that it can change drastically from year to year, based on the assumptions the actuaries make. “Now, many governments across the state are in the red on their government-wide statements, because that net pension liability is so huge; you are not. You are still in the black. Your primary government ending net position is over $15 million. So, that’s really exciting to see.”
For Oscoda’s enterprise funds, auditors report that the ending net position – which includes fixed assets – for the sewage disposal system fund was $2,839,093; for the water fund was $9,964,443; and for the Old Orchard Park fund was $706,021, all of which increased from 2018.
A key component of an audit is the management letter, which outlines the areas in which the auditors are making recommendations for improvement.
Scott said a material weakness is the most significant of the comments and, while this doesn’t mean that something has gone wrong, it means that it’s reasonably possible that something could go wrong. “And if something did go wrong, it’s possible that it could be material to the financial statements.”
For the “Material Weakness – Financial Statement Preparation” section, Scott said this is noting that it is completely allowable and acceptable in AICPA standards for the township’s auditor to prepare its financial statements. “I do not have a single government audit that I do, that I do not prepare their financial statements.”
Scott said that, just because this is listed as a material weakness, she doesn’t want anyone to panic. Touching on one of McGuire’s previous remarks, she added that the state is interested in any material weaknesses other than financial statement preparation.
According to the management letter, if at any point in the audit the auditors are part of the township’s control system for producing reliable financial statements, auditing standards indicate that the township has a control deficiency.
An example of where the township relies on the auditor as a control for producing reliable financial statements is in the excessive number of adjusting journal entries proposed during the audit, the letter goes on. The auditors advise that, by accounts not being adjusted monthly, the financial records provided to the board each month are not an accurate reflection of the township’s standings. This then adds substantial time and testing during the audit in determining accurate balances.
Scott said that the way this could come down in severity, to being a lower comment, would be with fewer or non-material journal entries having to be posted. “So, one thing that we talked about with the finance team, is sitting down at some point between now and next year’s audit and going through all these adjusting journal entries that had to be posted, to make sure everyone understands them, so that way when they’re preparing to close out the books next year, they can hopefully post as many of those as possible.”
She also summarized the two significant deficiencies noted in the 2019 audit, which are a step down from a material weakness. These deficiencies don’t mean that something went wrong, but it’s reasonably possible that something could wrong. If it did happen, it most likely would not be material to the financial statements.
With the first item, Scott says that bank reconciliations were, in fact, being conducted; however, the problem was with the documentation. The auditors were not able to verify the time line of when these were done. So, the firm is simply recommending that procedures be established to ensure that cash accounts are reconciled on a monthly basis, with a secondary review by someone who is not involved in the reconciliation process. Both the preparation and review should then be documented by initialing and dating directly on the reconciliation.
Scott also advised that, in reviewing the bank reconciliations, the auditors noted several outstanding checks more than three months old. Therefore, the recommendation is that all checks outstanding more than three months old should be investigated and acted upon, following the guidelines in the Michigan’s Uniform Unclaimed Property Act.
“And I do understand that that’s already being done,” she pointed out.
As for the comments from the prior year, Scott said it’s really exciting to see that the township corrected all but two of the seven items from 2018, with progress being made on one item.
Trustee Timothy Cummings said he noticed that the segregation of duties is not listed in this latest audit report, which is good.
Nordeen agreed, saying he was encouraged by this, as well as the number of prior year comments having been resolved almost entirely; the fact that the township received an unmodified opinion; and that the number of audit adjustments were reduced, and have been trending downwards for a couple years in a row now.