Massive forensic audit of Marion’s finances nears completion

The massive job of conducting a forensic audit of the City of Marion’s finances for fiscal years 2020 and 2021 is nearing an end, according to a representative of the firm contracted to perform the project.

Marion City Council approved a contract on Nov. 14, 2022, with Veritas Solutions Group LLC in the amount of $55,540 to do the forensic audit. Council then approved an appropriation in the amount of $20,300 on March 27 for additional work on the forensic audit.

Greg Blate, managing director of Veritas Solutions Group LLC, provided Marion City Council with an update on the project during Monday’s meeting.

“What we were engaged to do was to look at the books and records of the city, primarily related to the cash balances for (fiscal years) 2020 and 2021, and look at those in the absence of cash reconciliations having been performed and differences that were noted between the book and bank balances,” Blate explained. “Part of what we did was to help understand what those differences were and to help the auditor’s office in creating entries to correct those errors for those periods of time.

“But, most importantly, too, is after we fix this, is that we understand what caused (the discrepancies) and be able to explain that to the auditor’s office and the treasurer’s office for the purpose of ensuring that these issues would not continue on and to also provide some recommendations in best practices on what processes should be considered by the auditor’s and treasurer’s offices moving forward.”

Blate told City Council that “the biggest deficiencies” Veritas has discovered during its review of city financial records is “how reconciliations have been performed, which contributed to this ongoing issue.”

“We are working with the (City of Marion) auditor’s office and the treasurer’s office to evaluate some of those processes,” Blate explained. “I’ve met directly with Auditor (Miranda) Meginness. I’ve met directly with Treasurer (Tommy) Reese. I see what the current process is and I can see what the deficiencies are. Job one has been to get everything fixed so we can get this financial issue completed and booked and move on. And then we’re going to focus on what’s the new process that we should undertake to make sure that this issue doesn’t continue and to have a proper process in place.”

Blate said his firm has reviewed more than 600,000 lines of transactions in the city’s accounting system that affected cash during the time period of fiscal years 2020 and 2021. He said they’ve been able to reconcile 98% of those transactions.

Veritas employees have also reviewed bank records from 18 different bank accounts that were active in 2020 and 2021. That work entailed reviewing more than 25,000 transactions in those accounts. Blate said Veritas employees have reconciled nearly all of those transactions.

“From our perspective, the lion’s share of that work (forensic audit) is now complete and we’ve created journal entries that we’ve provided to the auditor’s office to consider,” Blate told City Council.

Blate said Marion Auditor Miranda Meginness and her staff are now reviewing the journal entries that Veritas has provided to determine their accuracy and determine which of the city’s accounts the adjustments recommended by Veritas should be applied. He said the 72 journal entries “approximate over $20 million worth of adjustments,” then provided city council with context of what that figure actually reflects.

“That is not the same thing as $20 million in errors in cash or $20 million in an error in the city’s profits or losses,” Blate emphasized.

Blate said he expects that Meginness and her staff will complete their review of the recommended journal entries in the next seven to ten days. After that, the recommended adjustments will be applied to the appropriate city accounts. Blate noted that the New World software system that the city uses to track its finances hasn’t been fully utilized. He said Veritas will make some recommendations about how the auditor and treasurer can use the software in a more efficient and useful fashion in the future.

Blate noted that during the process of conducting the forensic audit, Veritas has discovered errors in bank reconciliation that occurred prior to the 2020 fiscal year. He said the errors that pre-date 2020 will be recorded in a single journal entry.

Beyond the work it is doing to reconcile the city’s books for fiscal years 2020 and 2021, Blate said Veritas is assisting the auditor’s office to make sure that bank reconciliations are completed to the current time period in fiscal year 2023. He noted, as Meginness has noted in the past, that once Veritas has completed its work, that Charles E. Harris and Associates can then complete the fiscal year 2021 audit.

Once the 2021 financial audit is completed, the firm of Clark Schaefer Hackett Business Advisors will then begin work on the 2022 financial audit, Meginness said. The city hired that company to perform the city’s financial audits for fiscal years 2022, 2023, and 2024. The estimated cost for services for the 2022 and 2023 audits is $25,000 while the cost estimate for services related to the 2024 audit is $26,000.