State auditor releases report
On March 23, the state auditor's office issued a management letter detailing the results of an investigation into allegations of conflict of interest, improper cash receipting and inappropriate grant revenue disbursement transactions at Helper's Western Mining and Railroad Museum.
The auditor's report identified several significant weaknesses involving Helper and the museum, which left uncorrected, the state agency advised could culminate in an unacceptable amount of errors or misappropriations of public monies to occur without detection.
The period scrutinized by the state auditor's office ranged from July 1, 2006 through July 31, 2008. The significant financial accounting weaknesses outlined in the state agency's report included:
â¢Helper failed to exercise adequate oversight for transactions between the museum and a related party vendor. Subsequently, the city purportedly processed inappropriate financial transactions involving the former museum director and the vendor.
The director had full responsibility at the museum, overseeing all transactions, including cash receipting, revenue disbursing and inventory at the facility. The former director's ownership in at least one of the vendor's businesses and occupancy of the same residence created a conflict of interest, pointed out the state agency.
The director did not formally disclose the interests to the city prior to making disbursements to the vendor, in violation of the Municipal Officers' and Employees' Ethics Act, Utah Code 10-3-1307, added the state auditor's office. But after becoming aware of the situation, Helper continued to approve disbursements for the questionable transactions.
"Transactions between related parties carry more risk; therefore, a higher level of independent oversight by the city should have been performed. Failure to exercise proper oversight for related party transactions increases the risk that misappropriations could occur without detection," emphasized the state auditor's management letter.
â¢Misappropriations and improprieties occurred due to the lack of adequate internal control procedures, proper review and approval of related party transactions by the council.
The auditor's office reviewed all 26 disbursements from July 2006 to July 2008 and identified several inappropriate or disbursements of grant monies to the related vendor for museum projects that have never been completed.
According to the state agency, disbursements totaling in excess of $20,000 in grant funding were dispersed to the related vendor for producing a museum catalog along with coal mining, Kenilworth and band room exhibits at the facility. In addition, the auditor's report questioned the propriety of disbursements for photo reprints, darkroom expenses at the museum and charges on the former director's credit card.
The state agency recommended that Helper implement internal control procedures and review policies to ensure documented expenditures. The auditor's office encouraged Helper to seek reimbursement for the misappropriated funds.
â¢Helper failed to execute contracts with the related party vendor for services at the museum. Contracts are necessary to document the terms and requirements of agreements. Without contracts, Helper officials may be exposing the city to unexpected risks, financial obligations and/or loss of revenue.
â¢The former director authored a book using museum photographs/artifacts, creating a conflict between the discharge of the employee's public duties and personal interests.
The museum board approved the former director's actions. But the members did not have the authority to grant approval under the city's resolution establishing the board and the matter should have been referred to the Helper council.
Helper did not enter into a contract documenting the book agreement. The former director's access to the museum's photos/artifacts were key resources for the publication.
The author continues to benefit from all royalties and the city failed to establish adequate internal control procedures to compensate for the former director's conflict of interest.
Records indicate that the museum purchased 361 copies of the director's book during an 11-month period. Because of the increased risk of fraud associated with conflict of interest, the city should have implemented procedures to ensure that the purchases were proper, book revenues were deposited and the facility's inventory was safeguarded..
Helper should approve all actions taken by the museum board and obtain written contracts to protect the city's interests, indicated the auditor's office. The state agency also recommend that the city and museum avoid transactions with potential conflicts of interest or establish the proper internal control to compensate for the situations.
â¢Inadequate separation of duties exists when one individual has access to assets and accounting records or reconciliation responsibilities.
The former director had access to the museum's cash records, committed the entity to exchange and reviewed expected receipts. Inadequate separation of duties could allow errors and fraud to occur without detection, noted the report.
â¢Helper lacks adequate internal control procedures to properly account for grants and related matching funds.
Without proper review, approval and accounting, the city cannot ensure that grant funds are spent according to specifications or that required matches are met, pointed out state state auditor's financial evaluation.
Responding to the auditor's report, Helper officials indicated that the city did not intentionally permit inappropriate financial transactions to the related party vendor and claimed that the undisclosed actions of the former museum director contributed to the problems. The officials assured the state agency that the city will closely review all purchase orders, execute contracts on projects, retain supporting documentation, refine the ordinance pertaining to the board and director, implement policies to avoid future conflicts, comply with separation of duties guidelines and establish as well as closely monitor separate grant accounts.
In addition, Helper officials indicated that the city intended to pursue reimbursement of the misappropriated funds with legal action if necessary.