McHenry County Blog

Those who read my article yesterday entitled,

708 Board Staff Outlines Audit Alternatives – “Audit…Might Be Very Damaging”

might have guessed I might have had something to say in public comment.

And I did.

I read the outlined part of the report that I emphasized in the article.

Having spent six years on the Legislative Audit Commission and reviewed hundreds of audits, I told the committee members, if I saw the head of an agency making such a recommendation that I would have demanded the most extensive audit possible.

I told the members that I hoped they would vote for a real audit.

Interim Executive Director Todd Schroll said that the memo was “not a true representation of my intent.”

He said, “It’s all about making sure we’re auditing the right things.”

Schroll pointed out that figures existed not only at the 708 Board, but also in County government.

Former Crystal Lake School District 47 Board member Rob Routzahn explained that he had talked to auditors and “the message I hear is to “ignore the county…to make this an audit of how [we're doing things].”

He said the Request for Proposal should be “really crisp about what we want to accomplish with the audit,” but that the Board should be open to modifications suggested by auditing firms.

Routzahn said the Board needed to “hedge against ‘We don’t know what we don’t know.’”

He was emphatic that the audit should not be an internal audit, but an external audit.

“We don’t want to be seen as steering the audit.”

“I agree with Rob,” subcommittee chairman Don Larsen said.

Schroll pointed out that they would not be auditing “the official numbers.”

“There’s not a fear of something wrong,” he added.

“If you remove the county from the picture, you remove separation of duties,” warned Fiscal Operations Manager Jane Wacker, a CPA.

“It’s one of checks and balances,” former Vice Chairman of the County Board Larsen agreed.

“None of this conversation should be considered as resistance to an audit,” Schroll said.  “They’re not coming to do a standard audit.  They’re coming to perform a blended audit.”

The third member of the Finance Committee, Connee Meschini then weighed in:

“I like a high audit like Cal said on the Mental Health Board not the County…and be open to what an auditor would say or affirm.”

Routzahn suggested that later, the Board might “want to do a procedural or operational audit, [but] let’s get out arms around the numbers first.”

He pointed out that the District 47 Board met with auditors without administrators in the room, asking other things the auditors had observed that were not in the audit or the management letter.

“They know when they see when  there’s something not right.”

Then Routzahn dropped this opinion:

“I do not think we should have a McHenry County [based] auditor.”

“That’s contrary to what we usually do,” Larsen pointed out.

Routzahn said he wanted the audit “so far above reproach, passing the sniff test for the public and me.”

The members voted 3-0 to present their idea at the next 708 Board meeting.

The following is contained in a memo about audit request for proposals from Interim Executive Director Todd P. Schroll to the McHenry County 708 Mental Health Board Finance Committee, which will meet Thursday afternoon at 3:30 at the Crystal Lake office:

Based our analysis and consultation with Grant Resources LLC, we note three potential options:

1. Expand the scope of the Financial Statement Audit to provide for reports on specified elements in the areas of

• management
• process/system
• risk/compliance
• information technology.

This is the most comprehensive solution.

It may also be the most expensive option and take more time and effort than a more focused approach.

2. The MHB can first engage in a series of separate audits of the specific elements.

These would typically be evaluated separately and required to be completed (to the extent necessary) in the early stages of a financial audit.

After the Board receives the results of these separate audits, it can decide whether it wants to expand the project to a full financial statement audit.

If systems and internal controls were found to be lacking, the organization could implement changes that improves the organization and enhances the reliability of the financial data. Although it could be less expensive than option number 1, it may be the least optimal solution as it would require more formalities than option number 3 without providing any additional substantive information.

3. The MHB can engage these projects separately as internal audit consulting projects whose findings can be used if the Board decides a full audit is necessary. An “audit” carries risk at a high cost so one may consider the internal control and systems “audits’ to be consulting projects with the organization, forming an internal audit committee, who will drive and own the responsibility for improvement, without causing formal documentation that could be negative. [emphasis added here and below.]

Facilitating “audits” in this manner is more strategic and minimizes the risk to the directors and board. Viewing this as a collaborative effort, initially, is probably best versus asking for an “audit” that might be very damaging in its content and very expensive to perform.

It is the staff’s recommendation to explore option #3 in more detail. This strategy allows an auditor/vendor to work collaboratively with the Board to focus more specifically on the specific elements, with a specific focus on financial reporting and management through the use of a supplemental system.

Initial analysis of the County audit, as well as a potential exploration of specific areas of interest with a higher level of materiality, may be more feasible, achievable, and initially cost effective.

That’s columnist George Will’s question on TV today when discussing that it was underlings at IRS who targeted groups with “Tea Party,”"Patriot” or “9-12″ in their names for audits.

During the run-up of the 2012 Presidential election.

Will points out that similar targeting by President Richard M. Nixon was included in his impeachment resolution.

Nixon called it his “enemies list.”

“Nothing happening here. Keep moving, folks.”

A press release from Grafton Township Supervisor Linda Moore:

Grafton Township Forensic Audit Moves Forward

Grafton Township, IL – Today Judge Caldwell ruled against Township Supervisor Linda Moore, confirming the Grafton Trustees have the authority to order a forensic audit.

Supervisor Moore was incorrectly advised she did not have the authority to order the audit.

“I apologize for delaying this audit,” Linda Moore said.

“Immediately following the ruling I signed the forensic audit contract, which is now in the hands of the auditor.”

Grafton Township trustees still have not authorized payment for a completed audit prepared by Evans, Marshall and Pease for FY ending 2011.

A forensic audit will provide the board and taxpayers insight into township finances.

The work is scheduled to start within the next two weeks.

Here is the text of the letter:

November 19, 2012

Grafton Township Supervisor Moore and Board of Trustees:

Effective upon receipt of this letter, Evans, Marshall and Pease, P.C. is resigning as the independent auditors for the year ended March 31, 2011.

This decision was reached after much consideration of the facts and circumstances that have arisen throughout our relationship and relative to the planned meeting with the Township on November 28, 2012.

Pursuant to a conversation with Supervisor Moore, it was agreed that Mr. Paul H. Thermen C.P.A. would attend a board meeting to discuss the March 31, 2011 audit and the accompanying management letter.

It was agreed that the Board would submit to our office, the questions and other items that they wished to address relative to these items only.

The decision to limit the meeting to these items was that the March 31, 2010 was completed, accepted and paid for by the Township.

It was only the March 31, 2011 audit and management letter that were not accepted by the Township, hence the meeting.

Since then Mr. Thermen has been contacted by Trustee LaPorta, first wanting to know if the information regarding the meeting that he received from the supervisor was correct.

Then, on November 13, 2012, Mr. LaPorta e-mailed Mr. Thermen and stated that he felt that it was unreasonable to limit the meeting as stated.

He goes on to say that we never met to discuss the final report of the previous audit.

Mr. Thermen and Mr. Jeff Rollefson did in fact meet with the entire board relative to the audit report and it was subsequently revised to be in agreement with the Board’s request.

Mr. LaPorta asked for permission to expand the meeting to the prior year as well.

This request was not in accordance with the understanding reached with the Township Supervisor and therefore it was unacceptable.

On November 15, 2012, Mr. LaPorta e-mailed our office again, now stating that “Myself and/or our attorney’s will be contacting the AICPA and other professional organizations in your profession to determine if this is a normal reply. We will notify them of this refusal.”

He then states “We will also invite various media (2 newspapers and 2 on-line blog newspapers) to attend this meeting, of which we will highlight Paul’s refusal.”

This is not the first threat that has come from the Board via Mr. LaPorta.

At the beginning of our engagement, Evans, Marshall & Pease, P.C. was told that if the audit of the financial statements did not coincide with the allegations put forth by him, that legal action may ensue.

Our management letter set forth a number of items that we felt should be implemented, however nothing was found to impact the fairness of the financial statements for either audit period.

In light of this and the on-going tensions between the Board and the Township Supervisor, which is no place for the certified public accountants to be, we hereby tender our firm’s resignation.

As a result of our resignation, we feel that there is no purpose to the meeting scheduled for November 28, 2012 and Mr. Thermen will not be in attendance.

We suggest that the Township retain the services of another independent certified public accountant to perform the March 31, 2011 audit.

We have already submitted our invoice for the work performed on that audit and upon payment thereof we will fully co-operate with whomever the Township chooses.

Respectfully submitted,

Evans, Marshall & Pease, P.C.

The weekly newsletter from Grafton Township Supervisor Linda Moore:

Grafton Township Supervisor’s Weekly E-Newsletter

11/11/2012

Dear Constituents,

Now that the township assessments have been published the township assessors’ office has been quite busy. If you haven’t received your assessment letter, please contact the McHenry County Supervisor of Assessment at 1-815-334-4242.

At the November 8 Board Meeting, the trustees hired a forensic auditor.

This action brings up many questions.

The Trustees won’t approve payment for last year’s audit.

The auditor refuses to start our 2011-12 audit that is now two months past due.

Now they are hoping a forensic audit with no specified total cost will have findings to their liking.

Please read on to gain a better understanding of the situation.

As supervisor, I welcome any audit of the township financials. However, we need to make sure we comply with township and state laws. We also need to conduct business in a logical and fiscally responsible manner. Decisions made in haste are often regretted later.

REGULAR OR FORENSIC AUDIT?

Three years of township records have been audited with no significant concerns found.

This timeline demonstrates the history of audits and gives you some insight into the situation.

• Fiscal Year 2008-09 Audit completed by Eder and Casella, no significant problems were found.
• Fiscal Year 2009-10 Audit completed by Evans, Marshall and Pease (EMP), no problems were found.
• Fiscal Year 2010-11 Audit in draft form, work done by EMP, no problems were found. Despite hiring this auditor, based on the fact that the results of the audit did not reflect their point of view on various issues, the trustees are withholding payment for services and now hope for a more favorable result with a forensic audit.-September 2012, final due date for submission of 2011-12 Audit has passed. In spite of the fact the trustees have chosen an auditor to complete this audit, it cannot be started until the prior auditing firm has been paid.
• October 2012, delinquent notice received from State Comptroller for 2011-12 Audit.
• November 8, 2012 Regular Board Meeting the board decides to meet with EMP on November 28th to ask questions about the 2010-11 Audit. The trustees have withheld payment for this audit for about a year.
• November 8, 2012 Regular Board Meeting, the board votes to hire forensic auditor.

Points of Interest include:

1. The Trustees directed the supervisor to advance payment to forensic auditor, ECS Financial Services, for services not performed in the amount of $10,000 as a retainer fee toward an unspecified total cost and further specifying the check is to be issued with a 24 hour deadline.  The regular audit for 2010-2011 has an outstanding bill of about $7,000.
2. Even though the board set a special meeting for November 28th with EMP, the trustees decide to move forward and hire a forensic auditor without paying EMP for work completed.
3. During this process, the trustees were not willing to define or identify the scope of the forensic audit. Currently the trustees have engages and used township money to have their attorneys, Ancel-Glink, create another set of financial records. Could this be the records the trustees will use for the forensic audit?
   These would not be the official financial records of the township.
4. The contract had not been presented to the supervisor for review prior to the meeting.
5. The agenda did not specify that the board would be interviewing auditors or reviewing a contract for a forensic audit.
6. The trustees have refused invitations to come to the township office to review the QuickBooks financial records. In fact, Trustee LaPorta made this statement on 11-10-12 on a blog:
   “We (trustees) don’t have the time–or the skill–to properly examine the financial records.” He went on to threaten the trustees by saying, “Would you rather be held personally accountable or put in jail for not taking care of the financials?”
7. The township owes the road district $300,000 which is due in 5 months. We also have a budget that spends $200,000 over the money received.
8. The trustees are two months late completing the regular audit for FY 2011-12.

As township residents, I would like to hear your ideas regarding this situation.

• Do you feel it would be best to complete the regular audits before contracting with a forensic auditor? Should the trustees have the time and skill to review QuickBooks records?
• Should the forensic audit be completed before we pay the vendor?
• Would the money be better spent paying our loan to the road district when it is due?

DEADLINE TO FILE PETITIONS FOR TOWNSHIP OFFICE

If you would like to run for township office you should be circulating your petition for candidacy. It is due to be filed starting the week of November 19th, through November 26, 5 pm, if you are to be part of the Republican Primary on February 26th. All elected offices are up for re-election and the term of office is four years. I encourage anyone who is concerned about the state of Grafton Township to throw their hat in the ring and become part of the future of Grafton Township.

Linda Moore, Grafton Township Supervisor

Robert Bush was in Judge Michael Caldwell’s courtroom today representing the Grafton Township Trustees. None of the Trustees were present.

Supervisor Linda Moore was accompanied by her attorney, John Nelson.

Before the judge came in, there was some exchanging of paperwork, which I misunderstood.

I thought Bush was withdrawing from the case, but, no, it was Nelson who was had agreed to withdraw the petition that was on the docket.

“It makes it easy for me,” Bush observed.

“This case is over except for the appeal, some of which is OK, some of which isn’t”

When informed of the change in plans, which freed up two hours in Judge Caldwell’s schedule, he said, “OK.”

And out the door the attorneys and Moore went.

Moore’s attorney Nelson provided the following commentary:

“They did pay the auditor’s bill and I’m going to consider that an olive branch and see if I can work with attorney Bush to see if we can resolve the issued that have boiled over during this term.

“Supervisor Moore is willing to make one last attempt to resolve matters short of all-out litigation.”

When asked if mediator Rob Hanlon would be assisting, the answer was, “No.”

“I’m going to try to work directly with attorney Bush. He was instrumental in getting the auditor’s bill [paid] for the first year.

“If efforts at reconciliation are unsuccessful, we still have plenty of time to litigate matters enforcing the court order before Judge Caldwell.

“My client would like to see an end to the lawyers’ never ending legal bills in this case.

“We are putting the ball into the Trustees court on that matter.”

As I was leaving volunteer mediator Rob Hanlon was conferring with Nelson to find three dates that could be offered to Township Assessor Bill Ottley’s attorney Mike Poper at one of which a compromise between Ottley and Moore would be sought.

A press release from State Senator Dan Duffy:

Dixon $30 million theft prompts Sens. Duffy to call for government checkbooks to be online

Lawmaker says transparency could have prevented theft from city

SPRINGFIELD, Ill. (May 1, 2012) – Following allegations that a Dixon city official stole $30 million from city coffers, State Sens. Dan Duffy is calling for legislation that would require local governments in Illinois to post their checkbooks online.

Senate Bill 3392 would require all local governments – including school boards, townships and municipalities – to post their checkbooks online. The state senators say it’s possible that the alleged theft could have been flagged earlier if the public had access to this vital information.

“These accusations highlight why it’s so important for Illinois to move forward on government transparency,” said Sen. Duffy, R-Lake Barrington.

“If you look at the city of Dixon’s website, there is almost no financial information available to the public. Without filing onerous Freedom of Information Act requests, the public had no mechanism for holding its city officials accountable or investigating the finances themselves.”

The Illinois Policy Institute supports this legislation and greater efforts by Sen. Duffy and others to improve the level of government transparency in Illinois.

Since 2010, the nonpartisan Institute has partnered with local citizen activists to grade governments on how much public information is available online. More than 130 government entities have been graded using the Institute’s 10-Point Transparency Checklist.

The city of Dixon received a failing grade on the Institute’s audit, scoring only 18.1 out of 100 possible points. In addition to having no budget or financial information available on the city’s website, there also is no information outlining how to file a Freedom of Information Request, how much government employees are paid or tax information.

“After seeing how little public information is available on Dixon’s website, it’s no surprise that the alleged theft went under the radar for so long,” said Brian Costin, director of government reform at the Illinois Policy Institute. “What Dixon and the entire state must do now is create a culture of transparency and accountability. This will help weed out corruption, and restore the public’s faith in local government.”

At the last Grafton Township Board meeting, the following slip of paper was handed out by Township Trustees to those in attendance:

Noting that the document has no letterhead, I gave it no credence, even though it seemed to make sense.

Today, Grafton Township Supervisor Linda Moore shared what she heard when she talked to the IRS Agent who did the audit of township books. McHenry County Blog’s original story is here. Her email follows:

“Recent Township IRS Audit

“At the township meeting last week, an attorney misinformed the board that IRS Auditor John Lauer had recanted ‘Taxable Income’ dinners ruling made during the audit.

“I have spoken with the IRS agent today and he informed me that there will be no amendment made to Grafton Township’s audit.

“Unfortunately, the trustees distributed a slip of paper to all in attendance at this meeting, with a misquote of the IRS agent.

“At this point, I recommend that the IRS documents are the most reliable source of information from the IRS and any statements made by third parties should be disregarded to avoid any further confusion.

“As the Township Supervisor I will follow the direction of the IRS when administering the township payroll operations.”

= = = = =
I have added additional parts of the IRS Audit here.

Most of what outside auditors do is pretty dry.

Having served on the Illinois Legislative Audit Commission, I’ve read enough of them.

The real interesting stuff is in the Management Letter.

When I saw McHenry County College Board Agenda for October 27th had the Management Letter on it, I filed a Freedom of Information Act request for it.

It took the maximum length of time to receive a reply and it was, in a word:  “No.”

The denial letter is below. Click to enlarge.

So, again MCC retreats into its secret chamber and refuses to reveal problems, this time discovered by its outside auditor