Why can’t Issaquah complete an audit?

All of the last four audits have come back with significant findings.

The city of Issaquah has made significant errors in its last four financial audits conducted by the state of Washington.

Washington state audits of the fiscal years 2014 through 2017 noted that the city’s finance department experienced turnover which led to duplicate entries, overstating ending balances and other significant errors. One notable error in 2014 saw the city accidentally duplicate a $19 million entry. While that does not mean the money was used illegally, reporting errors can cause confusion among residents and investors hoping to get an accurate picture of the city’s finances.

In every report over the four-year period (four audit reports total), the Washington State Auditors Office noted that Issaquah’s “controls over its financial statement preparation were inadequate to ensure accurate and complete financial reporting.” To put that in perspective, over the same period of time Bellevue and Sammamish were each found to have findings in one their audits. The cities of Kirkland and Redmond had none. Stretching back even further, between 2000 and 2013 Issaquah only had two findings in its financial audits.

It’s not entirely clear what’s happening in the city’s financial department, but multiple audits note turnover in key positions as affecting the city’s performance, but the reports do not directly provide information on the intensity of turnover.

“In the past three years, the city has experienced turnover in key finance and accounting positions in addition to extensive employee trainings and process changes due to a new accounting software update,” the 2017 audit read.

Emily Moon, Issaquah’s city administrator, said the city has been switching to a new financial management system, which requires staff retraining.

“Most of our challenges over those years have been that we have made a significant change in our financial management system — we have been implementing a new system and that is always challenging,” Moon said.

To address those challenges, the city has begun providing additional resources for staff and it is working with a contractor from the Government Finance Officers Association to develop best practices. The city also is adding positions and restructuring to clarify employee roles and responsibilities within its finance department, Moon said. The city additionally hired Beth Goldberg as a finance director who has worked for Seattle and King County.

Kathleen Cooper is the director of communications for the Washington State Auditors Office. Errors in audits can affect whether a city can get bonds, and at what rate. If there are errors on its books, it can provide a misleading financial picture for residents hoping to look at the state of the city. However, Cooper said the state office hadn’t found any evidence of mismanagement of the money itself.

“It means that there’s less transparency for the taxpayers, for bondholders, for anyone who might be interested in the financial situation of the city, so it’s a technical error, but it’s not an insignificant error,” Cooper said.

Issaquah uses a system known as the Generally Accepted Accounting Principals, which Cooper described as very complex. That system coupled with turnover in key positions could be hurting the city’s ability to produce reliable financial reports.

The city responded to each of the audits and Moon said the necessary corrections identified in the audits were made. Regarding turnover, Moon said some employees had retired or moved to different cities, meaning the city had to reinvest and train people to fill those positions.

It’s worth noting that all four audit findings reference some sort of turnover, with one senior accountant’s departure in 2015 being noted in the 2014 and 2015 reports. Other departures, including for retirement, were also noted. The Reporter has filed a records request with the city seeking information to construct a timeline of employees within the city’s Finance department.

“Due to employee turnover and staffing shortage at the finance department, a thorough review of the financial statements and required schedules was not completed,” the 2017 audit read. “The employee who was temporarily assigned this task was unable to dedicate sufficient time and resources to ensure the underlining accounting records to be included in the final reported numbers were accurate and complete.”

The audit credited its findings to continued turnovers in the city’s finance department while adjusting to the new enterprise resource planning system. The 2016 audit credits the findings to a lack of staff, and the prior two cite turnover in key positions as contributing to reporting errors.

Moon disagreed with the idea that the city’s finance department was experiencing unusually high rates of turnover.

“We have a lot of people in our department who have been here for numerous years — including some who have been here for a decade or more — and they are very, very professional, dedicated public finance experts who are serving this community well,” Moon said.

The Reporter has additionally request copies of complaints or disciplinary action filed or taken against employees or management of Issaquah’s Finance department since the beginning of 2013.

“It is unusual to have a finding, it is uncommon to have repeated findings over the course of years, but it is not uncommon to find findings as a result of staffing turnover,” Cooper said.