Auditors find several journal adjustments

By Chad Koenen


The Henning City Council spent a majority of its meeting last week discussing a presentation on the city’s finances and books. 

During its regularly scheduled meeting on Monday night, the Henning City Council spent nearly 90 minutes discussing an audit performed by Carlson SV.  The closer look of the city’s finances came after the 2020 year end audit showed a difference between the city’s main bank account reconciliation for cash and cash equivalents, and the book cash and cash equivalents. The difference was approximately $31,000.

“At that time we didn’t have a lot of detail on what made up that difference,” said Dean Birkeland of Carlson SV, the city’s auditors. “We knew it was a difference, but we didn’t know exactly what made that difference up.”

Birkeland said the auditors talked to city clerk/treasurer Kim Schroeder about the difference during the audit. At the time, the two sides decided to not make an adjustment to the city’s books to allow Schroeder the chance to look for the difference between the city’s bank statements and city’s books. 

When that difference wasn’t uncovered, the council asked auditors at Carlson SV to take a closer look at the city’s books. The auditors looked back as far as 2018 and made several findings, even though some of the information in 2018 was no longer available. Birkeland said the differences over the past several months between the bank statements and the city’s books have remained about the same, suggesting that those months are likely accurate. 

During his presentation to the council, Birkeland said the expectation from auditors before performing an audit was that the city’s books matched the bank reconciliation statements—something he said didn’t always happen with the City of Henning. 

“Most of the time, when we begin an audit, the bank reconciliations balance. I’m not going to say it is a given, but it is an expectation (to not balance),” he said. 

In order to bring the city’s books in line with the bank statements, Birkeland said Carlson SV made audit adjustments with the 2019 audit. 

“In 2019 we made an audit adjustment to the books to make the books agree with the bank reconciliation,” he said. “After the adjustment was made, that is when you would expect the bank reconciliation would agree with the city books.”

At the end of 2020 the difference between the bank reconciliation and the city’s books grew to approximately $31,000. 

Throughout the course of the most recent look at the city’s finances, Carlson SV found that the difference through September 2021 was $33,089.23. The company found a total of $32,291.11 of adjustments that needed to be made to the city’s books, dating back to 2018. 

Before coming to the meeting last week, Birkeland said he asked a coworker to compare Henning’s books to other city’s Carlson SV performs audits on each year. 

“We do a lot of city audits and I said how do you compare the adjustments for (Henning) with others. We both came to the same conclusion, very comparable, with the exception of the adjustments we had with the bank reconciliation,” said Birkeland. “You have adjustments, but we have adjustments in every city audit, some more, some less. But I would put your city as very comparable to other city adjustments. The bank thing is the one thing that has really brought it to this point.”

Birkeland said the exception to that was when Carlson SV took over as the city’s auditors in 2017 and there were numerous adjustments that needed to be made to get the city’s books in order. 

When pressed by Henning Mayor Darren Wiese about whether the bank reconciliations were off due to employee errors, or another reason, Birkeland said they can be off for any number of reasons. He said it could be due to audit adjustments that were not posted correctly, an issue with the software program, incorrect journal entries and a number of other issues as well. 

Schroeder said she is not a forensic auditor and is trusting the city’s software when making entries. That being said, if the city were to miss a journal entry, she said it could throw off the city’s books altogether. 

“If we miss one of those entries posting in the books then it will throw that cash balance off,” she said. 

Schroeder said her goal was to have the city’s books match the bank reconciliation statements. She went on to say the city’s books were already off when she started with the City of Henning, but would make the necessary journal entries suggested by the auditor.

Much of the discussion then turned to the bill incurred by the City of Henning for the additional work completed by Carlson SV. Wiese asked how the council can answer taxpayer concerns regarding a bill that was approaching $8,000 to find the $31,000 discrepancy, especially given the past work Carlson SV has done for the city. 

Birkeland said at the time of the audit, Carlson SV representatives spoke with Schroeder about the discrepancy and the two sides decided to move forward with the audit. Birkeland said if they stopped the audit, and looked into the discrepancy right away, the city would have incurred a similar fee since the work performed is outside of the engagement letter from Carlson SV. 

“Had we been directed, or asked to look at it back when we were doing the field work in April or May, it is very, very, very likely we would have incurred similar time to find that difference,” he said. “According to the engagement letter the expectation is the bank reconciliation ties into the books.”

The council asked Schroeder to make those adjustments and asked Carlson SV to bring their bill for the work for the additional audit work to the next meeting. Later in the meeting the council tabled an engagement letter from Carlson SV to complete the city’s audit next year.

In other news 

• Heard an update from Otter Tail County CDA Director Amy Baldwin concerning the county’s tax rebate program. The program provides up to a $10,000 tax rebate on the county portion of taxes through 2024 for new homes constructed in Otter Tail County. The county rebate is in addition to any other tax rebates other cities in Otter Tail County may offer for new homes. Baldwin said Henning has not had a new home built in the city limits as part of the program, but several neighboring communities have had new homes constructed that have qualified for the tax rebate program.

• Heard from utilities manager Brenden Markuson that there has been an issue with the sanitary main on 2nd Street near Henning Hardware and the Landmark Center. He said the city and the contractor for the project are trying to find ways to correct the issue. 

• Heard the city’s contract rate for natural gas went up by almost $2 per MCD from last year.

• Heard that the Henning Ambulance Service has went on 357 calls so far this year, which ambulance director Jane Cook said is more than the department went on during an entire year in years past. The ambulance service is also continuing to work on updating necessary procedures, policies and a code of conduct.

• Approved the hiring of part-time EMR volunteer Grant Kahl. 

• Heard from Willow Creek Executive Director Lisa Augustus who said there are currently 20 residents at Willow Creek, with another admission scheduled for November 14. 

• Heard that the City of Ottertail and the City of Henning will be meeting for mediation regarding the current water contract between the two communities. The City of Henning has sought to increase the amount of money it charges the City of Ottertail for providing water to the community. The two sides have a water contract in place through 2029.

• Approved setting a special meeting for Monday, Nov. 22 at 5:30 p.m. to discuss a utility rate study and city budgets for 2022.