State audit: Mosquito Control District did not develop budget development policies, procedures

Palm Coast Observer
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The East Flagler Mosquito Control District did not establish proper budget development and monitoring policies and procedures, improperly maintained its records, and contravened state law by not using a competitive selection process when it procured architectural services for its new facility, according to a 24-page operational audit report from the State of Florida Auditor General's Office.

The district's management, in written responses to the auditors' findings, concurred with most of the findings and recommendations.

Florida Rep. Paul Renner and Sen. Travis Hutson had pushed for the state operational audit after the Mosquito Control District ended up with a $1.1 million budget deficit in 2017 due to an accounting error.

The audit was approved unanimously by the Florida Joint Legislative Auditing Committee in December 2017.

East Flagler Mosquito Control Board of Commissioners Chairman Julius Kwiatkowski replied to Auditor General Sherrill Norman in a letter dated Jan. 30, 2018, stating:

"We appreciate the opportunity afforded to us to work with your staff and receive these findings and recommendations. Their assistance has already allowed its to make improvements in our operations. We commend your staff for their diligence and genuine interest in improvement."

Kwiatkowski's letter added that the district's responses to the findings were being submitted electronically. They are included in the audit report, viewable in full HERE.

State findings and district responses

The following State of Florida Auditor General operational audit summary findings and the East Flagler Mosquito Control District management's responses are compiled from the audit report, available in full HERE.

State audit finding 1: Contrary to State law, the District did not use a competitive selection process to obtain architectural services for the Consolidated Facility Construction Project.

East Flagler Mosquito Control District management's response: As stated in the Auditor’s findings, the District utilized the “piggy back” method of contract procurement when soliciting the services of the design firm. ”Piggy backing” is a common practice utilized by local governments when the selection process has already been undertaken by another agency, in this case, Flagler County. The District will develop policies and procedures before considering any such projects in the future.

Finding 2: The District did not maintain records evidencing professional liability insurance required by the Consolidated Facility Construction Project architect contract.

District management’s response: The District concurs with the finding. Proper contract management by a qualified project manager should have included a procedure for verification of insurance coverage. The District will develop policies and procedures before considering any such projects in the future.

Finding 3: The Board had not established policies or procedures for evaluating the suitability of proposed construction sites prior to obligating District resources for site leases.

District management’s response: The District concurs with the finding. The Lease with the County Airport should have included a clause for cancellation had the site not been suitable for the project. The District will develop policies and procedures before considering any such projects in the future.

Finding 4: Contrary to State law, the District did not retain all records identified in the construction contract agreement.

District management’s response: The District agrees with the recommendation. The former Director should have retained and catalogued all documents related to the project. The District will develop policies and procedures before considering any such projects in the future.

Finding 5: Although the Consolidated Facility Construction Project was completed a year after the planned completion date, District records did not evidence consideration of damage assessments against the contractor for delays.

District management’s response: The District agrees with the recommendation. Many circumstances delayed construction, as mentioned in the Auditor’s findings. Determining if the contractor bore any responsibility for delays would have required legal action. The building was completed, with a reasonable delay because ofchange orders and Hurricane Matthew without additional cost related to delays. The District will develop policies and procedures before considering any such projects in the future.

Finding 6: District procedures for monitoring construction project change orders could be improved.

District management’s response: The District agrees with the recommendation. Again, the former Director should have retained and catalogued all documents related to the project. The former Director should have also followed the District’s purchasing policy for approving purchases and properly informed the Board when required. The District Attorney will provide an evaluation for construction damages reimbursement.

Finding 7: The Board did not have policies and procedures for direct purchases of construction materials and the District did not take advantage of sales tax exemptions by making direct purchases of construction materials or document why such purchases would not result in cost savings to the District.

District management’s response: The District agrees with the recommendations. Options for the direct purchase of materials should have been formally documented and cost savings from sales tax emption for supplying materials should have been weighed against the assumed risk of directly supplying materials to determine if there was any economic feasibility to this option.

Finding 8: The Board had not established policies and procedures for budget development and monitoring.

District management’s response: In the past the District had followed a simple manual provided by the Florida Department of Agriculture and Consumer Services to prepare and track the budget, just as many mosquito control programs around the State do. The District has in the intervening time researched and prepared an anti-fraud policy, 5-year capital outlay plan, Capital assets policy, revised purchasing policy, purchased and implemented new accounting software, enhanced financial reporting so that the Board has better information with which to make decisions, and retained the services of a CPA to serve as a part-time CFO and is another check on financial monitoring and process improvement. We will continue to strengthen our policies and procedures in this area.

Finding 9: The beginning fund balance for the 2016-17 fiscal year original budget was overstated by $1.1 million because the estimates used by District personnel did not consider the most current available data.

District management’s response: The Auditors’ findings are consistent with what our independent auditor initially reported. Specifically, that $1.1 million was not misspent but was a budgeting error that should have been found and corrected by previous staff early on. Consequently, incorrect information was reported to the Board. The District now uses only Reserve and untapped contingency funds to estimate the beginning fund balance for the following year, which is a far more conservative method than the previous. The District will continue to improve its’ policies and procedures on budget preparation and monitoring.

Finding 10: District policies and procedures did not require and ensure that budget amendments that increase the budget are posted on the District Web site within 5 days after adoption and remain there for at least 2 years.

District management’s response: Previously, only the current year’s Budget documents were posted to the District’s website. Budget materials will remain on the website for at least two years.

Finding 11: District records could be enhanced by using capital projects funds to separately account for construction projects.

District management’s response: The way in which the expenditures for the capital projects were reported may have been cumbersome but did not negatively affect the tracking of expenditures, as this is a separate issue from the incorrectly stated estimate for the beginning fund balance. As stated, earlier in this report, budget preparation was the critical component for error. The use of separate funds will be further considered for capital outlay projects.

Finding 12: The Board had not adopted policies and procedures establishing the minimum unrestricted fund balance for the General Fund.

District management’s response: The District concurs with the recommendation. The GFOA recommendation may not be sufficient since the fiscal year begins October 1 and the intervening months until December when ad valorem revenue is collected to fund the current year’s budget are prime hurricane months. This potential for extreme storm events, as has happened in the past two years in a row, necessitates a greater fund balance to ensure services. A policy for replenishing funds is possible. As long as a policy for maintaining fund balances is in place as part of an overall budget policy, the Board can make decisions as to how to address replenishing funds as they see fit based on current circumstances as raising funds is the sole discretion of the Board at that time.

Finding 13: As of March 2018, the District had not established any anti-fraud policies or procedures.

District management’s response: Anti-fraud policy was adopted on April 16, 2018 and is based on the model policy available from the Association of Certified Fraud Examiners. Staff will receive training on this annually. To be clear, no fraud has been detected or reported.

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State audit: Mosquito Control District did not develop budget development policies, procedures

The East Flagler Mosquito Control District had a $1.1 million budget hole in 2017 due to an accounting error.

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