Fort Thomas is writing off $322,000 as an “error of the past” following an audit that revealed major accounting issues.
Conducted by Erlanger-based Chamberlin Owen, the audit was for the fiscal year ending June 2024. The audit started in January. During a special meeting of the Fort Thomas Finance Committee on Sept. 30, Certified Public Accountant and Partner with Chamberlin Owen, John Chamberlin, who conducted the audit, reviewed it with city council members and Fort Thomas City Administrator Matt Kremer.
“That $322,000 in an accounting term, we’d say that’s unaccounted for,” said Chamberlin. “We have no reason to believe it’s been misappropriated. We think it’s just been mishandled in the accounting.”
Some of the audit’s findings were:
- The prior year fund balance was $11 million off.
- No fixed asset schedules were prepared and ready for the auditor.
- The due-to and due-from accounts between funds are not current and have not been changed for several years, some as old as 2010.
- ARPA and opioid funds had not been recognized appropriately.
- Cash was paid out for a development agreement with no accompanying note receivable entry into the accounting system.
- The city was found noncompliant with Kentucky Revised Statutes for exceeding its general fund budget by about $1 million.
- The transfers between government funds do not balance.
- A general fund cash reconciliation had not been done (the general fund is the primary fund governments use to record day-to-day revenues and expenditures. A cash reconciliation is a step where accountants compare the fund’s cash records with the actual cash balance in the bank.)
“We notified management of this pretty immediately that these were significant issues, and these were things that were going to have to be worked on over the next few months,” Chamberlin said.
At the time, Joe Ewald served as the city’s finance director; he has since moved to a new role in Covington, where he serves as the budget director.
Chamberlin said some of the findings took “two minutes to fix,” such as the $11 million fund balance discrepancy, which was due to a software issue, and an adequate fixed asset schedule was provided, both of which were corrected by Ewald before he left the city.
The item Chamberlin called the “most disturbing” was the failure to perform the general fund cash reconciliation. The city has 13 accounts that roll into one general fund. After the first iteration of a cash reconciliation of the general fund, Chamberlin said one of the accounts was still missing about $361,000.
“Normally, cash accounts would get reconciled at any business or any city, small nonprofit; your cash account gets reconciled on a monthly basis,” Chamberlin said. “Joe was reconciling these on an annual basis, and the reconciliations just weren’t working. We saw that as a huge problem.”
In the Spring, Ewald had some health problems, and Kremer asked for a recommendation from Chamberlin, who suggested Linda Chapman to serve in the interim. Chapman previously served as the Florence Finance Director for 21 years and has over 40 years of experience as an auditor and finance director. Chapman is still in the interim role.
After coming on, Chapman worked to reconcile the due-to and due-from balance to zero, reconciled the transfers out to zero, split all of the city’s cash accounts into individual accounts, and each of the 13 accounts now has its own reconciled cash account.
Another aspect Chamberlin noted that likely contributed to the unaccounted-for funds was the work of the previous auditor.
Chamberlin said the work papers (detailed records that document the procedures performed, tests conducted, information obtained, and conclusions reached during an audit) provided did not meet industry accounting standards.
That auditor, Chamberlin said, has since died, but a senior auditor from the same firm said Fort Thomas had struggled with its cash position for years, raising concerns that the account may have been misstated for several years.
Chamberlin said Chapman made significant adjustments and got the general fund cash account within $322,000, which was as close as she could get it. Because of this, Chapman recommended that Kremer write off the $322,000 as an “error from the past,” and they made a prior period adjustment, which occurs when a mistake is discovered that impacts the accuracy of a prior period’s financial results.
“I have said for years that I was always worried that the next executive branch administration is going to have to clean up the mess from the first one, from the financial numbers,” Fort Thomas Councilmember Adam Blau said. “I think that the executive branch has probably been more concerned with protecting its friends and its staff than it is on the city, and our main focus should be to protect the city at all costs.”
The other significant finding Chamberlin said is the lack of internal control over financial reporting.
Fort Thomas City Councilmember Jeff Bezold asked how something like this could happen and how they could avoid it moving forward.
“I do believe it’s a combination of lack of commenting on the other’s part and letting that accumulate and go on for years to the point where it got to this accumulation,” Chapman said.
She also said the city didn’t have a proper accounting system in place, and now it does.
Fort Thomas Councilmember and Finance Committee Chair Ben Pendery said the city is facing a critically important decision in hiring a new finance director. He said Chapman would be involved with receiving and vetting applicants, and Chamberlin could also give guidance.
The full draft audit report is available for viewing here: