Exhibit B Town of White Springs Operational Audit 2024-051.PDF

Sherrill F. Norman, CPA Auditor General

Report No. 2024-051 November 2023

TOWN OF WHITE SPRINGS

O p er at io n al A u d it

Council Members and Town Manager

During the period October 2021 through December 2022, the following individuals served as Town

Mayor, Vice Mayor, Town Council, and Town Manager.

Anita Rivers, Mayor

Nicole Williams, Vice Mayor through May 9, 2022

Jacqueline Williams, Vice Mayor from May 10, 2022

Mary Berry, Council Member

LaRita McCallum, Council Member

Vanessa George, Town Manager

The audit was supervised by Glenda K. Hart, CPA.

Please address inquiries regarding this report to Derek H. Noonan, CPA, Audit Manager, by e-mail at dereknoonan@aud.state.fl.us or by telephone at (850) 412-2895.

This report and other reports prepared by the Auditor General are available at:

FLAuditor.gov

Printed copies of our reports may be requested by contacting us at:

State of Florida Auditor General

Claude Pepper Building, Suite G74 · 111 West Madison Street · Tallahassee, FL 32399-1450 · (850) 412-2722 http://flauditor.gov/

Report No. 2024-051 November 2023 Page 1

TOWN OF WHITE SPRINGS

SUMMARY

This operational audit of the Town of White Springs (Town) focused on selected Town processes and administrative activities. Our audit disclosed a pervasive lack of adequate controls necessary to promote and encourage compliance with State laws, Town ordinances and regulations, contracts, grant agreements, and other applicable guidelines; reliability of records and reports; and the safeguarding of assets. Specifically, our operational audit disclosed that:

Finding 1: According to the auditor for the 2019-20 fiscal year financial audit, the Town’s most recent audit as of July 2023, the Town experienced deteriorating financial conditions. Due to inadequate and incomplete financial records, the Town’s financial condition as of March 2023 could not be determined.

Finding 2: Contrary to Government Finance Officers Association best practices, the Town had not, as of March 2023, established General Fund unrestricted fund balance requirements and Enterprise Fund working capital target amounts.

Finding 3: The Town did not timely provide for and submit required annual audited financial statements and annual financial reports to the Florida Auditor General and Florida Department of Financial Services, respectively, for the 2018-19 through 2021-22 fiscal years. Consequently, through September 2023, the

Department of Revenue withheld from the Town approximately $49,247 in combined half-cent sales tax and municipal revenue sharing revenues.

Finding 4: For the 2019-20 and 2020-21 fiscal years, the Town’s contracted accounting services were not adequate to ensure that Town accounting records were accurate and timely available for financial statement preparation.

Finding 5: Town accounting records contained numerous significant errors.

Finding 6: Bank account reconciliations were not timely performed, contained errors, and lacked evidence of review.

Finding 7: Town controls over the budgetary process need enhancement.

Finding 8: Town records did not always demonstrate that utility customers were correctly billed for services as required by Town Ordinances.

Finding 9: Incompatible duties were not effectively separated among Town personnel and compensating controls did not exist.

Finding 10: Town controls over the procurement of goods and services need enhancement.

Finding 11: Contrary to State law, the Town did not publicly announce requests for proposals for audit services for the 2019-20, 2020-21, and 2021-22 fiscal year financial audits.

Finding 12: Town personnel processes and procedures need enhancement.

Page 2 November 2023

Finding 13: Employment agreements with certain Town employees did not establish minimum work hours and the Town did not require these employees to provide documentation of time worked, activities performed, or any leave taken.

Finding 14: The Town did not have policies and procedures in place to document that public records requests were timely completed in accordance with State law.

Finding 15: The Town had not retained comprehensive records of Town ordinances and resolutions, contrary to State law.

Finding 16: The Town had not implemented anti-fraud policies and procedures to aid in the mitigation, detection, and prevention of fraud.

BACKGROUND

The Town of White Springs, Florida, was incorporated as a municipality in 1885, and the incorporation was legalized in 1903 by the provisions of Chapter 5368 (No. 263), Laws of Florida. The Town is located in Hamilton County and has an estimated population of 766.1

The Town operates under a council-manager form of government and is governed by five elected Town

Council members, each of whom are typically elected but a member may be appointed by the majority vote of the Council members to fill a vacant seat.2 All seats on the Town Council are at-large seats, and the Town Council elects a mayor and vice-mayor among itself. The Town Council is responsible for enacting ordinances, resolutions, and policies governing the Town, as well as for appointing the Town

Manager. The Town Manager is responsible for the day-to-day management of the Town. The Town provides citizens with the following services: general government; public works; water, sewer and solid waste disposal; and fire rescue. The Hamilton County Sheriff’s Office provides law enforcement services for the Town.

FINDINGS AND RECOMMENDATIONS

Finding 1: Financial Condition

Deteriorating financial conditions negatively affect the ability of a local government to provide, on a continuing basis, services at the level and quality required for the health, safety, and welfare of its citizens. Auditor General rules3 require independent certified public accountants (CPAs) who perform a financial audit of a local government to assess the government’s financial condition. The audit report management letter must include a statement that the CPA applied financial condition assessment

1 University of Florida, College of Liberal Arts and Sciences, Bureau of Economic and Business Research, Florida Estimates of Population by County and City 2022.

2 According to the Town Charter, Section 2.03, “If the election is more than 45 days away, the Council will nominate qualified Town residents and by majority vote of the remaining Council members choose one of the nominees to serve the remainder of the term of the vacated seat.”

3 According to Section 10.556(8), Rules of the Auditor General, the auditor is responsible for assessing financial condition and the methodology used is a matter of professional judgment.

November 2023 Page 3 procedures.4 If a deteriorating financial condition5 is noted, the CPA must disclose that the government’s financial condition is deteriorating and provide a description of the conditions causing the

CPA to make that conclusion.

As of July 2023, the Town’s 2019-20 fiscal year financial statements were the most recently audited financial statements. In the 2019-20 audit report management letter, the CPA disclosed a deteriorating financial condition because, at the September 30, 2020, fiscal year end, the Town’s Enterprise Fund included a $291,511 operating loss (a $153,343 increase over the 2018-19 fiscal year loss) and a negative $258,811 unrestricted net position balance. To correct the deteriorating financial condition, the auditor recommended that the Town implement strict measures to ensure that revenues are sufficient to fund expenses and replenish fiscal reserves in the Enterprise Fund. Although the management letter did not disclose a deteriorating financial condition in the General Fund, the 2019-20 fiscal year audited financial statements disclosed a deficit of revenues under expenditures of $195,588 and an unrestricted fund balance of $134,791 and, accordingly, the auditor also recommended that the

General Fund fiscal reserves be replenished.

In connection with our audit, we attempted to perform an assessment of the Town’s financial condition as of March 2023. However, as discussed in Finding 5, the Town’s accounting records were incomplete and contained significant errors, which precluded us from making an accurate assessment of the Town’s financial condition.

In response to our inquiries regarding efforts to improve the Town’s financial condition, Town personnel indicated that a water rate study performed in 2022 recommended rate increases for water and sewer services over the next 5 years. In addition, the Town increased solid waste service rates to replenish depleted reserves in the Enterprise Fund. The Town has also generated new revenues through Internet café permitting fees to help cover increased General Fund personnel costs. Notwithstanding these described efforts, given the Town’s insufficient accounting records, various control deficiencies, and instances of noncompliance disclosed in this report, there is an increased risk that the Town’s financial condition may continue to deteriorate.

Recommendation: The Town should continue efforts to improve the Town’s financial condition.

Finding 2: General Fund Unrestricted Fund Balance and Enterprise Fund Working Capital Requirements

To help ensure that adequate funds are available to mitigate current and future risks, such as revenue shortfalls or unanticipated expenditures, Government Finance Officers Association (GFOA) best practices recommend that governments establish a formal policy providing a level of unrestricted fund balance6 that should be maintained in the government’s general fund. According to the GFOA, such a policy should be set by the appropriate body (e.g., Town Council) and articulate a framework and

4 Section 10.554(1)(i)5., Rules of the Auditor General.

5 Pursuant to Section 10.554(1)(f), Rules of the Auditor General, a deteriorating financial condition is a circumstance determined as of the fiscal year end that significantly impairs a local government’s ability to generate enough revenues to meet its expenditures without causing a condition described in Section 218.503(1), Florida Statutes, to occur.

6 Unrestricted fund balance, according to the GFOA, includes committed, assigned, and unassigned fund balances and represents resources that have the least spending constraints.

Page 4 November 2023 process for how the government would increase or decrease the level of unrestricted fund balance over a specific period, including how resources will be directed to replenish fund balance should the balance fall below the level prescribed. The GFOA recommends that, at a minimum, general-purpose governments, regardless of size, maintain an unrestricted fund balance in their general fund that is no less than 2 months of the regular general fund operating revenues or regular general fund operating expenditures.7

The GFOA similarly recommends that governments develop a target amount of working capital8 to maintain in each enterprise fund and include such targets in a formal financial policy or plan. Maintaining targeted levels of working capital in enterprise funds helps provide a government with a buffer for meeting obligations in the event of revenue shortfalls or unanticipated expenses relating to the applicable enterprise operations. The GFOA further recommends that, to determine the appropriate target amount, local governments should start with a baseline of 90 days’ worth of working capital and then adjust the target based on the characteristics of the enterprise fund in question. The GFOA provides that in no case should the target be less than 45 days’ worth of the fund’s working capital needs. In its best practice advisory, the GFOA presents various characteristics that should be considered by a local government when determining the appropriate targets.9

Our examination of Town records and discussions with Town personnel disclosed that the Town had not adopted policies that address or provide an appropriate level of unrestricted fund balance to be maintained in the General Fund or an appropriate target amount of working capital to be maintained in the Enterprise Fund for the purpose of mitigating risks of revenue shortfalls and unanticipated expenditures or expenses. Town personnel indicated that they were not aware that they needed these policies.

As discussed in Finding 1, the Town’s 2019-20 fiscal year audited financial statements reported a

General Fund unrestricted fund balance of $134,791 and an Enterprise Fund deficit net position of

$258,811, as of September 30, 2020. Town policies establishing and requiring the maintenance of an appropriate General Fund unrestricted fund balance and Enterprise Fund working capital target amounts may help prevent future deteriorating financial conditions.

Recommendation: The Town should establish policies to ensure that the General Fund unrestricted fund balance and Enterprise Fund working capital amounts are maintained at acceptable levels consistent with GFOA best practices.

Finding 3: Financial Audits

Pursuant to State law,10 the Town is required to obtain a financial audit of its accounts and records by an independent CPA. The resulting audit report must be filed with the Auditor General within 45 days after delivery of the audit report to the governing body of the Town, but no later than 9 months after the

7 GFOA Best Practice: Fund Balance Guidelines for the General Fund, September 2015.

8 The GFOA defines working capital as current assets less current liabilities.

9 GFOA Best Practice: Working Capital Targets for Enterprise Funds, February 2011.

10 Section 218.39(1)(b), Florida Statutes, provides that any municipality with revenues or total expenditures and expenses in excess of $250,000, as reported on the fund financial statements, is required to obtain a financial audit of its accounts and records by an independent CPA.

November 2023 Page 5 end of the Town’s fiscal year.11 State law12 also requires the Town to submit a copy of its audit report and annual financial report (AFR) to the Department of Financial Services (DFS) within 45 days of the completion of the audit report but no later than 9 months after the end of the fiscal year.

Our discussions with Town personnel and examination of Town records disclosed that:

While the Town submitted its annual audit reports for the 2018-19 and 2019-20 fiscal years, the Town filed the 2018-19 report with the Auditor General in October 2021, 463 days late and the 2019-20 report in July 2022, 391 days late. As of July 2023, the audit report for the 2020-21 fiscal year had not been filed and was approximately 13 months late, and the 2021-22 fiscal year audit was approximately 1 month late.

While the Town submitted its AFR for the 2018-19 and 2019-20 fiscal years, the Town filed the 2018-19 and 2019-20 fiscal year AFRs with the DFS in November 2021 and August 2022, 503 and 399 days late, respectively. As of July 2023, the 2020-21 fiscal year AFR had not been filed and was approximately 13 months late, and the 2021-22 AFR was approximately 1 month late.

According to Florida Joint Legislative Auditing Committee records, as of September 2023, the Florida

Department of Revenue (DOR) and DFS had withheld from the Town half-cent sales tax revenues totaling

$25,312 and municipal revenue sharing revenues totaling $23,935 for the untimely filed 2018-19, 2019-20, and 2020-21 fiscal year audit reports.

According to Town personnel, the Town experienced significant employee turnover and a new administration was instated during the 2020-21 fiscal year, at which point the Town was already behind on the 2018-19 and 2019-20 fiscal year audits. Although Town personnel indicated that a CPA firm was engaged to perform the 2020-21 financial audit, the audit had not been completed because, as further discussed in Finding 4, the Town’s contracted accountant had not submitted all the required information to the auditors. As of July 2023, the Town had not engaged a CPA firm to complete the 2021-22 audit, which was due on June 30, 2023.

Timely audits are necessary to provide accountability and assurance to citizens and those charged with governance; help ensure that management and those charged with governance are promptly informed of financial concerns (e.g., deteriorating financial conditions), control deficiencies, and financial-related noncompliance; and allow for timely review by appropriate Federal, State, and county oversight agencies.

Failure to submit timely audits has resulted in the DOR and DFS withholding certain sales tax and revenue sharing funds and the potential loss of those funds. Additionally, as the DFS uses the information provided on AFRs to prepare a verified report pursuant to State law,13 failure to timely file AFRs with the

DFS may result in financial data not being available to DFS online data users.

Recommendation: The Town should enhance efforts to comply with State law and ensure that annual financial audit reports and AFRs are timely completed and filed with the Auditor General and the DFS.

11 Section 218.39 (7), Florida Statutes.

12 Section 218.32(1)(d), Florida Statutes.

13 Section 218.32(2), Florida Statutes.

Page 6 November 2023

Finding 4: Financial Statement Preparation

GFOA best practices14 recommend that local governments prepare their annual external financial statements in accordance with generally accepted accounting principles (GAAP) and fulfill their financial reporting responsibilities by hiring, training, developing, and retaining accounting staff with the knowledge and capability to produce GAAP financial statements. Small governments that cannot hire someone with this expertise could hire a consultant or an accounting firm, other than their independent auditor, to produce GAAP financial statements and other related financial management documents.

Our examination of Town records and inquiries with Town personnel disclosed that, although the Town

Charter15 states that the Town Clerk is responsible for accounting functions, Town personnel recognized that they did not have the knowledge and capability required to prepare GAAP financial statements for the 2020-21, 2021-22, and 2022-23 fiscal years. Consequently, the Town contracted with an independent CPA to prepare GAAP financial statements. Additionally, the Town contracted with another accounting firm to perform all accounting functions for the Town, and the contract requires the accountant to work onsite twice per month to provide unspecified “accounting and financial services.”16

Despite these efforts, as noted in Finding 5, the Town’s accounting records included significant errors.

Those errors contributed to the delays in submitting the financial audit reports and AFRs noted in Finding

3 and demonstrate that the level of services provided for in the accountant contract may not be sufficient for the performance of all the Town’s accounting functions.

Ineffective controls over the maintenance of accurate accounting records that provide the data needed for the timely preparation of financial statements in conformity with GAAP limits management’s assurances regarding accurate financial reporting in accordance with GAAP and the timely availability of financial statements for audit.

Recommendation: The Town should contract for specified accounting services necessary to ensure that accounting records are properly prepared and maintained and timely made available to the contracted CPA for financial statement preparation or, alternatively, take appropriate actions to hire, train, develop, and retain staff with the knowledge and capability to produce GAAP financial statements.

Finding 5: Accounting Records and Related Controls

Properly designed and maintained accounting systems are necessary to ensure accurate and complete financial information is available to timely prepare financial statements in conformity with GAAP. To help ensure the validity and accuracy of the accounting system information and records, it is important to maintain records in sufficient detail to support the amounts reported on the financial statements and to provide for periodic reconciliations of financial report amounts to the amounts recorded in general ledger or detailed subsidiary records.

14 GFOA Best Practices: Meeting and Exceeding Minimum GAAP Financial Reporting Requirements, October 2021.

15 Section 5.01, Administrative Department, Town Clerk, Town of White Springs Charter.

16 For the 2020-21 and 2021-22 fiscal years, the Town paid $40,411 and $42,622, respectively, for the accounting services and, as of March 2023, the Town had paid $22,927 for 2022-23 fiscal year accounting services.

November 2023 Page 7

To gain an understanding of Town accounting records, we inquired of Town personnel and examined

Town records and found that the Town’s contracted accountant was responsible for maintaining the accounting records using purchased accounting application software. We also requested for examination selected financial reports and related records, including details of activity for the period October 2019 through March 2023 and corresponding general ledger and detailed subsidiary records. Our comparison of these financial reports and records disclosed several significant errors. For example:

Analysis of the Town’s revenue recorded in the general ledger disclosed:

o Significant understatements totaling $50,898 in ad valorem tax revenues during the 2019-20, 2020-21, and 2021-22 fiscal years because certain tax revenues deposited in the Town’s checking accounts were not recorded in the accounting records.

o Some deposits were entered into the accounting records twice, overstating ad valorem tax revenues recorded in the 2019-20 fiscal year by $10,291 and resulting in unreconciled differences between the Town’s General Fund bank account and the General Fund cash balance in the accounting records.

The Town’s 2019-20 fiscal year audit report also disclosed misstatements in “intergovernmental revenues.”

According to the Town Council’s February 14, 2023, meeting minutes, the Town had collected Internet café permitting revenue of $96,000 during the period October 2022, through January 2023. Our examination of Town accounting records and bank statements disclosed that, as of March 31, 2023, the $96,000 had been deposited in the Town’s bank account but had not been recorded in the accounting records.

Capital asset balances reported on the March 31, 2023, trial balance for the General Fund and Enterprise Fund totaled $4.5 million and $8.4 million, respectively. In contrast, the Towns’ capital asset subsidiary records balances were $2.1 million and $6.4 million, respectively. We scanned the Town’s capital asset subsidiary records and noted that the records had not been updated since the 2018-19 fiscal year. According to Town personnel, capital asset subsidiary records had not been updated due to personnel turnover.

In response to our inquiries, Town personnel indicated that procedures had not been established to require and ensure the accurate and timely recording of financial activity, or periodic reconciliations of financial reports to the corresponding general ledger and detailed subsidiary records. Additionally, Town personnel believed that some differences could have resulted from year-end audit adjustments that the

Town’s contracted accountant had not posted in the Town’s accounting records.

Inadequate accounting records were similarly noted by the CPA firm that audited the Town’s

2018-19 fiscal year financial statements. Although the Town contracted with an accountant in the

2019-20 fiscal year to maintain accurate financial records, the auditor noted significant deficiencies in the

Town’s internal controls over financial reporting in that fiscal year, including incomplete and inaccurate capital asset records, lack of subsidiary records to accurately reflect the Town’s grant activity during the fiscal year, and inadequate support for disbursements, resulting in a disclaimer of opinion in the auditor’s report.17

17 In the independent auditor’s report for the 2019-20 fiscal year, the auditor did not express an opinion on the Town’s government-wide, General Fund, and Enterprise Fund opinion units because the auditor was unable to obtain sufficient audit evidence to provide a basis for an audit opinion.

Page 8 November 2023

Without accurate and complete accounting records and reports, the Town cannot demonstrate proper accountability for activities or assure citizens and oversight agencies of the appropriate stewardship of

Town resources. In addition, the lack of accurate and complete accounting records may have contributed to deficiencies noted in Findings 1, 3, 4 and 7 regarding financial condition monitoring, timely financial statement audits, financial statement preparation, and the budgetary process, respectively. Timely and properly performed bank account reconciliations may have detected errors in the accounting records;

however, as noted in Finding 6, the Town’s bank account reconciliation process was deficient.

Recommendation: The Town should establish and maintain a properly designed accounting system and related policies and procedures that require and ensure the accurate and timely recording of all financial activity in the Town accounting records and the maintenance of appropriate supporting documentation.

Finding 6: Bank Reconciliations

Bank account reconciliations verify that cash amounts included in the bank statements and the Town accounting records are accurate and complete and help provide for the timely detection of errors and fraud. Effective bank account reconciliation procedures require and ensure that:

Employees performing, reviewing, and approving the reconciliations do not have cash handling and journal entry responsibilities.

The identities of the employees who perform the reconciliations and the employees who review and approve the reconciliations are documented to properly affix responsibility for those functions.

Reconciling items are documented and promptly and thoroughly investigated, explained, and resolved.

Reconciliations are timely completed and any related adjustments to Town accounting records are timely made.

As of March 31, 2023, the Town had six bank accounts, including the General Fund and the Enterprise

Fund bank accounts, which accounted for most of the Town’s financial activities. As of that date, the balances in the six accounts totaled $1.7 million, including $1.2 million in the General Fund bank account, $72,959 in the Enterprise Fund bank account, and $489,018 in the other accounts. As of May 2023, the

General Fund bank account had not been reconciled since September 2021 and the Enterprise Fund bank account had not been reconciled since September 2020. Three of the other four bank accounts were last reconciled in August 2020, October 2020, and February 2022, and the fourth bank account was opened in March 2023 and had not yet been reconciled.

Our examination of the General Fund bank account reconciliation for September 30, 2021, disclosed numerous errors. For example:

One check for $18,245 dated May 29, 2020, was voided, and the Town subsequently issued a check for the same amount from the Enterprise Fund bank account. However, the Town did not record the check as voided in the accounting records. Consequently, expenditures were overstated, and cash was understated by that amount in the General Fund.

One check for $5,000 dated March 16, 2021, listed as an outstanding check, was posted twice in the accounting records, overstating General Fund expenditures and understating cash by $5,000.

November 2023 Page 9

The reconciliation listed 89 items totaling $88,098 as deposits or credits in transit. Our scanning of these items identified six deposits in transit totaling $66,917 posted in the accounting records twice, resulting in uncorrected overstatements of General Fund cash and revenues.

Unrecorded deposits were not listed as reconciling items on the bank reconciliation. According to previous bank statements, $50,773 in ad valorem tax collections were deposited into the bank account during the period October 2020 through September 2021 but had not been recorded in the accounting records as of June 2023, resulting in understatements of General Fund cash and revenues by the same amount.

According to Town personnel, the contracted accountant is responsible for preparing bank account reconciliations; however, the Town lacks written policies and procedures to require that bank account reconciliations be timely prepared and that someone other than the preparer perform a documented review of the reconciliation. Such review may have detected the bank account reconciliation errors discussed above.

Absent timely and complete bank reconciliations, review and approval of the reconciliations, and timely accounting record corrections for identified errors, including duplicate or unrecorded transactions, there is an increased risk that fraud and errors may occur and not be timely detected, and, as discussed in

Finding 5, the Town has limited assurance that its accounting records are accurate and complete.

Recommendation: The Town should establish appropriate policies and procedures to ensure that bank account reconciliations are properly and timely performed, reviewed, and approved.

Such policies and procedures should require that reconciling items be documented and promptly and thoroughly investigated, explained, and resolved and any necessary adjustments to Town accounting records be timely made.

Finding 7: Budgetary Process

Pursuant to State law,18 the Town must adopt a budget by ordinance or resolution each fiscal year and the total amount available from taxation and other sources, including balances brought forward from prior fiscal years, must equal the total appropriations for expenditures and reserves. The Town Council’s adopted budget must regulate the Town’s expenditures, and it is unlawful to expend or contract for expenditures in any fiscal year except pursuant to the adopted budget. The budget may be amended at any time during a fiscal year and within 60 days after the end of the fiscal year.19

Our examination of Town records and discussions with Town personnel regarding the budgetary process disclosed that controls over budget preparation, recording, reporting, and monitoring could be improved.

Budget Preparation. We examined the Town’s approved 2021-22 and 2022-23 fiscal year budgets20 and found that, contrary to State law,21 prior fiscal year-end balances were not included in the budget as available for appropriation. According to Town personnel, the current administration’s first budget cycle was the 2021-22 fiscal year, and the Town’s financial audits for the 2018-19 and 2019-20 fiscal years

18 Section 166.241(2), Florida Statutes.

19 Section 166.241(7), Florida Statutes (2021).

20 Town of White Springs Resolution Nos. 21-01 and 21-02 for the 2021-22 fiscal year and Resolution Nos. 23-01 and 23-02 for the 2022-23 fiscal year.

21 Section 166.241(2), Florida Statutes.

Page 10 November 2023 had not been completed; consequently, the Town was unaware of what the fiscal year-end balances were and did not include any carryforward balances in the 2021-22 and 2022-23 fiscal year budgets.

Notwithstanding, fiscal year-end balances can be estimated and then later adjusted to actual amounts through the budget amendment process. Consideration of balances brought forward from prior fiscal years provides for transparency of all available sources, increases the usefulness of the budget as a financial management tool, and enables the Town to determine appropriate increases and decreases in revenues that may be needed to fund the Town’s budget priorities.

In addition, our examination of Town records and discussions with Town personnel disclosed that neither the Town Charter nor ordinances define the legal level of budgetary control. Therefore, it is incumbent on the Town Council to make appropriations and adopt a budget at the level of detail that it deems necessary. The Town Council-adopted resolutions22 for the 2021-22 and 2022-23 fiscal year budgets did not specify the legal level of budgetary control; however, the adopted budget presented expenditures for each fund at the department level. Although Town personnel indicated that budget policies had been implemented, the budget policies also did not define the legal level of budgetary control and, as indicated below, budgetary amounts were not entered into the Town’s accounting records. Accordingly, it is not apparent how Town personnel and the Town Council could readily determine whether resources were expended within budgeted amounts at the department level consistent with Town Council intent.

Although we inquired, Town personnel did not explain why the legal level of budgetary control had not been defined.

Budget Recording. To effectively manage expenditures, it is essential that adopted budgets be accurately input into the Town’s accounting records. Our examination of the Town’s accounting records disclosed that the 2021-22 and 2022-23 fiscal year budgeted expenditure amounts had not been input into the Town’s accounting records. Although we inquired, Town personnel did not explain why the approved budget amounts were not entered into the accounting records but responded that the amounts had been entered subsequent to our inquiry and were available for review. Absent controls to ensure that Town Council-approved budgeted expenditures are properly recorded in the accounting records, there is an increased risk that actual expenditures will not be consistent with, or will exceed, approved budgeted expenditure amounts.

Budget Reporting and Monitoring. According to GFOA recommendations,23 regular and frequent reporting is necessary to provide accountability, educate and inform stakeholders, and improve confidence in the government; communication and involvement is an essential component of every aspect of the budget process; and regular monitoring of budgetary performance provides an early warning of potential problems and gives decision makers time to consider actions that may be needed if major deviations in budget-to-actual comparison results become evident. The Town Charter24 requires the Town Manager to keep the Town Council fully advised as to the financial condition and future needs of the Town by providing a financial and budget progress report at each regular (monthly) Town Council meeting and submit and make available to the public a complete report on finances and administrative

22 Town of White Springs Resolution No. 21-02 for the 2021-22 fiscal year and Resolution No. 23-02 for the 2022-23 fiscal year.

23 Recommended Budget Practices of the National Advisory Council on State and Local Budgeting (1998).

24 Section 3.02 (f) and (h), Town of White Springs Charter.

November 2023 Page 11 activities as of the end of the fiscal year. Additionally, the Town Charter25 requires that the Town Manager quarterly review budget reports with department heads and advise or be advised of any allotment which is in danger of being exceeded. If at any time during the fiscal year it appears that appropriated revenues will be insufficient, the Town Manager is to immediately report to the Town Council the estimated amount of the deficit and suggest remedial action to be taken.

Our examination of Town records and discussions with Town personnel disclosed that, during the period

October 2021 through December 2022, the Town did not comply with Town Charter budgetary reporting and monitoring requirements and GFOA recommendations. Specifically:

Contrary to the Town Charter26 and GFOA recommendations, Town records did not evidence that the Town Manager prepared any of the required monthly financial and budget progress reports for presentation to the Town Council. Town personnel indicated that monthly financial reports were not available due to unreconciled accounts but that a complete report of finances and administrative activities is submitted to the Town Council and community members during the budget adoption process. Notwithstanding, absent the monthly financial and budget progress reports, the Town Council may not be adequately informed in time to consider actions that may be needed should budget-to-actual comparison results identify major deviations. The lack of such information may have contributed to the Town’s deteriorating financial condition discussed in Finding 1.

Contrary to the Town Charter,27 Town records did not evidence quarterly budget meetings held with department heads to ensure that budgeted amounts would not be exceeded. Although we inquired, the Town Manager did not explain why the quarterly meetings were not held but indicated that the Town would hold the meetings going forward. Without the quarterly budget meetings, there is an increased risk of budgetary overexpenditures and the Town cannot demonstrate compliance with the Town Charter.

Despite significant differences between the budget and actual amounts, and contrary to Town Charter provisions and GFOA recommendations, the Town did not amend the budget. Our comparison of the Town-adopted 2021-22 fiscal year budgeted revenue and expenditure amounts to actual revenue and expenditure amounts recorded in the Town accounting records disclosed significant differences as:

o Total budgeted revenues for the General Fund exceeded actual revenues by $148,192, and total budgeted expenditures exceeded actual expenditures by $175,697.

o Total budgeted revenues for the Enterprise Fund exceeded actual revenues by $119,537 and, contrary to State law,28 total actual expenses exceeded budgeted expenses by $408,029.

Although we requested, Town personnel did not explain why periodic budget amendments were not made to reflect actual revenues and expenditures that significantly differed from budgetary expectations.

Absent periodic budget-to-actual comparison reports, the Town Council and the public lack the information necessary to gain an appropriate understanding of the Town’s financial status. Such information is essential to identifying and timely remedying critical budget shortfalls and verifying that funds are available before authorizing purchases and expenditures. Additionally, absent periodic budget amendments, the budget may not accurately reflect anticipated revenues and expenditures and there is

25 Section 6.09 (a) and 6.07 (b), Town of White Springs Charter.

26 Section 3.02 (f) and (h), Town of White Springs Charter.

27 Section 6.09 (a), Town of White Springs Charter.

28 Section 166.241(2), Florida Statutes.

Page 12 November 2023 an increased risk that Town expenditures may exceed available resources and that the Town will experience a deteriorating financial condition, such as noted in Finding 1.

Recommendation: The Town should enhance controls over the budgetary process to ensure that:

Balances are brought forward from prior years and included in the budget.

The desired legal level of budgetary control is established for Town budgets.

Town Council-approved budgeted expenditures are properly recorded in Town accounting records.

Actual expenditures are limited to budgeted amounts as required by State law.

The Town Manager prepares and provides to the Town Council monthly financial reports reflecting budget-to-actual comparisons and meets quarterly with department heads as required by the Town Charter.

Budgets are periodically amended to reflect actual revenues and expenditures that significantly differ from budgeted amounts.

Finding 8: Utility Services Billing and Collection Processes

The Town provides water and sewer services to customers connected to the Town’s water and sewer utility systems. Additionally, the Town contracted with a vendor to provide solid waste (garbage) services.

Town ordinances29 require residents to connect to and use the Town’s water and sewer systems and the

Town’s garbage collection services at fees established by the Town Council. If any landowner within

Town limits refuses to connect to the sewer system after notification by the Town Clerk, the Town is authorized to make the connection at the owner’s expense. However, Town ordinances also allow owners of private sewage facilities to pay a monthly fee equal to the minimum usage fee rather than use the Town’s sewer system.

While the Town had not established written policies and procedures over the utility services billing and collection processes, in practice, the Town requires customers to complete an application for utility services and pay the required deposit and any applicable fees (for example, a water and sewer connection fee). Town personnel then enter the application information into the Town’s utility billing system to establish a new customer account and enter the Town Council-approved billing rates. Rates for water and sewer are entered into the system on a per unit basis, and solid waste rates are dependent upon can or dumpster types. Town personnel read meters monthly and update the utility billing system for monthly consumption of water (in gallons), and the utility billing system calculates the monthly billings.

The water and sewer charges billed include a monthly base charge plus actual usage charges based on meter readings while garbage services are determined based on the contracted rate plus a markup.

As of December 2022, the Town had 474 utility services customer accounts. To determine whether Town processes related to meter reading, billing, and collection of water, sewer and garbage service fees were operating effectively, we examined records supporting utility billings totaling $2,406, before taxes, for

30 selected accounts, 27 of which were active accounts, during the December 2022 billing period. Our

29 Town of White Springs Ordinance No. 15-01.

November 2023 Page 13 examination disclosed the following deficiencies, which may have been caused, in part, by the lack of written policies and procedures:

Although we requested, applications establishing services were not provided for 25 of the accounts, including 22 active accounts. Town personnel indicated that the 25 applications not located were related to accounts established prior to the current Town administration.

While applications were provided for 5 active accounts, the information noted on the applications was not sufficient. During the audit period, and subsequently, the Town used two different application forms for utility services, one that detailed the services offered by the Town and required the applicant to select the services requested, and another that did not provide detail of the services offered nor require the customer to request specific services. Although we requested, Town personnel could not provide an explanation as to why one application form was sometimes used instead of the other. Our examination of the 5 provided applications found that:

o 2 applications were incomplete because, although required by the application, the types of utility services requested were not specified.

o 2 other applications did not require identification of the services requested.

o None of the 5 applications specified whether any additional fees were required or if sewer was available.

Absent properly designed applications for service that are accurately completed prior to entering the information into the Town’s utility billing system, Town records did not establish a basis for monthly utility charges to be assessed to the applicant.

One account was underbilled for sewer services by approximately $60 per month30 due to the additional rate for water consumption over 1,000 gallons not being applied.31 Town personnel indicated that the underbilling resulted from the account being incorrectly classified when established in 2019.32 When errors made in setting up accounts in the utility billing system are not timely discovered, a continuous loss of revenue may occur.

One account was not billed for water services for the month of December 2022. According to Town personnel, the customer requested services to be turned off for the month. In response to our inquiries, Town personnel did not provide the legal authority for services to be suspended and reinstated upon a customer’s request but indicated that it was common practice in previous administrations. By allowing accounts to be suspended and reinstated upon request without apparent legal authority, the Town is foregoing revenue needed to cover the costs of operating the water and sewer system.

One account was not billed for sewer services, nor was it billed the required minimum monthly usage fee for nonparticipation. Town personnel indicated that, because they identified four other accounts not participating in the service and not being charged the required minimum fee, for consistency they suspended the fee for the fifth account in March 2022. Notwithstanding, Town personnel lacked apparent legal authority to suspend billings of a required fee, and failure to assess the fee on the five accounts resulted in an annual loss of $1,039 in Town utility revenues.33

One account with no record of water consumption had not been billed for any services since November 2017. Town personnel indicated that the account was closed; however, although there was a meter assigned to the property, Town personnel could not provide any evidence to support

30 The $60 was calculated by subtracting the minimum fee of $17.31 for first 1,000 gallons from the minimum fee plus $8.56 per each additional 1,000 gallons resulting in monthly bill of $77.74 based on the average monthly use of 8,060 gallons of water.

31 Published rate schedule in accordance with Town Ordinance 15-01.

32 The source rate class, which determines how the utility billing system calculates the fee was set to sewer minimum instead of sewer residential resulting in the minimum fee being charged to the customer.

33 The $1,039 was calculated by multiplying the minimum fee of $17.31 by 12 months and five accounts.

Page 14 November 2023 that the customer had been connected to the water and sewer system or that the customer had requested the account be closed. We expanded our procedures to scan billing system records for other accounts with no recorded water consumption and noted that in the month of December 2022 the Town had 102 meters, approximately 30 percent of all meters, assigned to addresses with no water consumption. In response to our inquiries, Town personnel indicated that the accounts associated with the 102 meters were closed but did not provide records to evidence the closing of the accounts. Absent an investigation into meters assigned to properties without recorded water consumption, the Town has limited assurance that all property owners are connected to the Town’s water and sewer systems (or, if just connected to the water system, paying the sewer minimum usage fee) as required by Town ordinances, that meters are operating correctly, and that the Town is collecting all utility revenues to which it is entitled to cover the costs of operating the water and sewer systems.

Although we did not note any instances of non-billing for garbage services, Town personnel do not require property owners to sign up for garbage service, contrary to Town ordinances. Rather, the garbage contractor empties all garbage cans with the contractor’s logo and placed out for pick up within the Town and bills the Town based on a customer count periodically provided by Town personnel. However, because the Town does not monthly update the count to reflect the number of garbage customers in the utility billing system, the Town may not be billing all customers served by the garbage contractor. Consequently, there is an increased risk that garbage collection services are being provided to users who are not being billed by the Town. In response to our inquiries, Town personnel indicated they were not aware of the Town ordinance requirements.

Without written procedures that are properly designed and implemented to ensure that applications for utility services are appropriately completed and maintained, all properties requiring connection to the

Town’s water and sewer systems are connected, and all accounts are appropriately set up in the utility billing system and billed in accordance with Town ordinances, Town records do not support the basis for fees charged to customers and the revenues collected may not be sufficient to cover the costs of operations.

Recommendation: The Town should establish written procedures requiring appropriately designed applications be completed prior to accounts being set up in the utility billing system.

In addition, the procedures should ensure that completed applications are maintained to support the fees charged for the services provided, all properties requiring connection to the water and sewer systems are connected, accounts are properly set up in the utility billing system, all accounts are charged at least the minimum required fees and as required by Town ordinances, and prompt investigations are conducted for meters with no recorded water consumption. Also, Town personnel should monthly reconcile the garbage contractor’s invoices to active billing system account records to ensure that the Town is billing all customers receiving garbage services.

Finding 9: Separation of Duties

Governmental organizations, to the extent possible with existing personnel, should separate duties so that no one employee has control over all phases of a transaction. For example, no one employee should have access to physical assets and recordkeeping responsibilities for those assets.

Our review of Town records and discussions with Town personnel disclosed that duties were not always appropriately separated among employees. Specifically, the Utility Clerk, who is one of the Town’s four

November 2023 Page 15 administrative employees,34 prepares and sends invoices for water, sewer, and garbage services;

collects cash and checks as payment; records payments to customer accounts in the utility billing system;

prepares related bank deposits; and deposits the funds into the applicable bank account weekly.

Although deposits are recorded in the accounting records by the contracted accountant,…