Summing up the problems he found in his months-delayed audit of the Recreation and Parks Department’s 2012 financial statements, the city auditor says he found, among other issues:

• Financial statements prepared by the Department of Finance that did not square with the city’s financial accounting system.

• Improper documentation of time sheets and payroll records, including one recreation center that “did not have employees use sign-in sheets.”

• The absence of a standard operating manual “to guide, direct and instruct its employees on cash handling.”

• Improper recording of revenues by the Fiscal Service Division – some revenues were classified as expenses.

In his letter to Comptroller Joan M. Pratt accompanying the 31-page financial report (first described by The Brew yesterday), City Auditor Robert L. McCarty, Jr. noted that because of the scope of his audit, “there can be no assurance that all deficiencies, significant deficiencies or material weaknesses have been identified.”

More Problems Revealed

But the document, Rec and Parks’ first financial report in decades, does provide some insight into the accounting lapses that may have accrued over that time and some discussion from the department about how they are being addressed.

Faced with mounting criticism about the decades-long lack of auditing of major city agencies – and a formal request for a Rec and Parks audit by City Councilman Carl Stokes two years ago – McCarty undertook the task in January 2013.

His comments in the letter, read at yesterday’s Board of Estimates meeting, highlight some reasons why the report was turned in more than half a year later than first promised.

McCarty’s analysis adds to the revelations contained in the departmental financial report, which showed Rec and Parks ran up a $6.8 million deficit in fiscal 2012.

The financial report also revealed the existence of a $597,500 off-budget funding stream for the department – expenditures for broad categories,  including  “program contractual services” and “program dues and fees” and “program travel.”

The spending comes not from public funds, according to the statement but from the non-profit Baltimore City Foundation, created by the city and controlled, via board appointments by the Office of the Mayor.

Among the off-budget expenditures made by the Foundation was $32,900 for the “Junior Cotillion.” Rec and Park officials have not yet provided answers to The Brew’s questions about this spending.

Statements Reconciled After “Numerous Revisions”

As The Brew has reported, difficulties in reconciling cash balances recorded by the agency’s fiscal office and the Finance Department contributed to the delay.

In particular, there appeared to be a mismatch between the cash balances indicated by the Finance Department’s Bureau of Accounts and Payroll Services (BAPS) and those of the city’s financial accounting system, CityDynamics.

That posed a serious problem, in accounting terms, a “material weakness” that could result in inaccurate financial statements.

“The Departments of Finance and Recreation and Parks did not initially provide accurate financial statements of the financial activity of the Department of Recreation and Parks for fiscal year 2012,” McCarty wrote.

“The Department of Recreation and Parks could not determine how the numbers were developed by BAPS, and subsequently developed separate financial statements,” the auditor said in his report. “After numerous revisions by the Department of Recreation and Parks, the statements agreed to CityDynamics.”

The audit also found numerous problems with payroll not being documented properly, including instances where Fiscal Service’s “E-Time” records were “not supported by” sign-in sheets and sign-in sheets were not properly filled out or authorized.

“For example, employees were marked as on leave in E-time when the sign-in sheets noted the employee as present, or the E-time had an employee marked present, but leave was approved and the employee did not sign-in,” McCarty noted in his letter.

Murky Record of Inter-agency Billing

Another problem highlighted was that the department did not have a standard operating procedure manual to guide employees in correct procedures for handling cash. They currently only use the city’s Administrative Manual, the report noted.

“We found inconsistencies among the Recreation Centers in how to account for tickets which supports the collection and reporting of cash for activities,” McCarty wrote.

Another area where he found flaws was in accounting for revenues.

“We found that the Fiscal Service Division was depositing revenue funds in an expense account,” McCarty wrote. “Offsetting revenues against expenditures can understate actual expenditures and revenues reported in the financial statements.”

Another area of poor record-keeping identified was Rec and Parks’ billing of other city agencies.

“The Department of Recreation and Parks did not maintain support for interagency billings related to capital project expenditures,” McCarty wrote.

Testing expenditures of capital projects for the period July 1, 2011 to June 30, 2012, McCarty found some inter-agency expenditures not properly documented.

“These transactions were related to services provided by the Department of Public Works, but authorization and other supporting documentation for the transactions were not maintained in the Department of Recreation and Parks’ files for the projects involved,” McCarty wrote.

City’s Response

McCarty’s letter includes point-by-point responses from the departments of Finance and Recreation and Parks in which they generally agreed with the auditor’s recommendations, promised to institute recommended reforms or said they are already underway.

Finance said that BAPS will implement a process for compiling financial statements for city agencies in coordination with agency fiscal staff and will draft a procedures manual for agency financial statement compilation.

The department will have BAPS “evaluate the current financial reporting controls and design and implement additional controls, where necessary, to ensure the agency financials are compiled accurately.”

Rec and Parks said its Fiscal Services team will prepare a process manual to provide guidance to its accounting staff and work with BAPS to finalize it.

As for the inconsistencies in the time and attendance records on the paper document versus the time and attendance record in electronic format (E-time), Rec and Parks said a review showed they “are mainly due to employees’ mistakes or errors.”

“Personnel policies and procedures are currently under review and the findings have increased the urgency to change or update time and attendance policies and procedures,” they said.

New Software and Accreditation Process

Among the auditor’s  recommendations was that the department create a standard operating procedures manual. “These procedures should also include documenting the attendance of participants, recording cash collected, and the reconciling and reporting of activities,” he wrote.

In its response, the department says some of these are already in place or being developed using RecPro management software and that a manual is being created as part of the accreditation process.

On improving the accounting of revenues, the department had a four-point response.

As for the failure to document inter-agency capital expenditures, the department said it “has maintained a tradition, borne out of the budget process, to keep capital financial management and the operating financial management separate.”

“However, under the current Director, efforts have been made to get the Fiscal Services Division more involved with the financial management of capital development activities. The Chief of Fiscal Services now attends capital improvement planning (CIP) meetings.

“Quarterly financial management meetings have been held between with both entities. The next meeting will be held in April. New policies and procedures to improve the capital approval process are currently being formulated for implementation. ”
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GO HERE FOR COMPLETE TEXT OF AUDITOR’S REPORT