North Lee audit cites financial issues

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Thomas Wells | Buy at photos.djournal.com A 2013 audit suggests the North Lee County Water Association kept poor records.

Thomas Wells | Buy at photos.djournal.com
A 2013 audit suggests the North Lee County Water Association kept poor records.

Updates: North Lee whistleblower fired, Fired North Lee Employee Seeks Job Back, North Lee Faces Criminal Investigation

Skip to: The audit, Terry Anderson responses

TUPELO – An audit of the North Lee County Water Association revealed widespread financial management problems in the nonprofit cooperative.

The audit’s findings include poor record keeping, failure to file required financial reports and to formally adopt a budget, and approximately $14,000 in unaccounted for funds.

North Lee violated several state and federal laws, according to the audit, a copy of which was obtained recently by the Daily Journal.

North Lee Board of Directors President Terry Anderson says the problems cited in the audit – which was for the fiscal year ending June 30, 2013 and received Feb. 18 of this year – are being addressed.

Increased scrutiny on North Lee after it received a $1.2 million U.S. Department of Agriculture Rural Development loan a year ago included the requirement of an independent audit meeting federal Office of Management and Budget standards. It is likely the most rigorous examination ever of the water association’s financial records.

Findings included concerns ranging from not paying employees for time worked to not approving an annual budget for two consecutive years and non-compliance with federal loan requirements.

Booneville-based Jones & Jones Certified Public Accountant firm conducted the audit that covered North Lee’s fiscal year 2013 that ended on June 30 and also identified serious finance-related concerns from FY 2012.

Federal regulations require North Lee to make audit copies available for public inspection. Mississippi Rural Water Association CEO Kirby Mayfield said the audit is a public document, as did a USDA Rural Development spokeswoman in Jackson.

But Anderson disagreed, saying only water association members, or customers, should have access.

The water association also did not comply with state law requiring copies of financial statements to be kept at the Lee County Library.

Overall, the audit revealed eight “material weaknesses,” practices that could lead to federal money being missing or misspent, or other issues that couldn’t be prevented, corrected or resolved in a timely manner.

North Lee received $882,763 of the federal loan in fiscal year 2013 for water system improvements and hadn’t used the remainder. The nonprofit has also received approval for a second Rural Development loan of $8.9 million.

Poor record-keeping

Specifics in the 2013 audit suggest the nonprofit organization kept poor records leading to overpayment of the employer’s share of insurance costs and didn’t file required quarterly and annual reports as part of the Rural Utility Services loan agreement.

The report showed two consecutive years of violating state law that requires transfer of money owed to former customers to the state treasurer’s office. Improper actions related to federal loan money include not spending it within the required time after disbursement, having expenses not approved by a designated person, failing to provide quarterly and annual budgets and using quotes instead of actual expense costs to receive loan money.

No records exist of North Lee’s board passing an annual budget for either 2012 or 2013. The association must send budgets and quarterly reports to the Rural Development Administration as part of loan requirements. The association explained in the audit the bookkeeper wasn’t told to provide the records but has since provided them.

However, North Lee’s budget provided to Rural Development likely does not fulfill reporting requirements.

“The budget was never formally adopted by the board,” Anderson said in a written response to Daily Journal questions.

Janis Nolan, Jackson-based loan specialist with Rural Development’s water and environmental division, said water associations periodically provide tentative budgets but must also provide board-approved budgets.

“In all properly approved budgets, they are approved by board members,” Nolan said.

The audit also reported the association’s “billing, accounts receivable, meter deposit, and adjustments record are not sufficient to reconcile recorded income.”

This resulted in finding a potential missing money of up to $14,164. However, credit card receipts during that year showed higher collections than processing reports data, suggesting $2,415 of the shortage could have been from this reporting discrepancy.

Records also showed problems in personnel expenditures. A sampling of 109 invoices showed employees who clocked in before 8 a.m. didn’t receive $691 in pay.

Board President Anderson said work at the water association begins at 8 a.m. and employees who punched their time sheet earlier “understand that it was for their convenience.”

Anderson responded in writing Thursday to more than a dozen questions from the Daily Journal related to audit findings. He said some of the issues reported resulted from staff and board members not understanding what information they needed to retain and provide to the auditor.

The audit found that billing records during the year were not properly prepared, maintained or archived; Anderson said board members believe billing statements were correct and maintained properly.

Past problems

Rust-colored water and frequent boil notices have been part of North Lee’s water quality problems for years. In October 2011, all board members resigned amid allegations of misconduct and falsifying water reports. Former North Lee manager Dan Durham pleaded guilty in federal court in 2012 to falsifying the water reports and received probation.

In late 2011, association members elected all new board members, who adopted new bylaws.

Currently, North Lee and the city of Tupelo are in negotiations related to the water association transferring service to 508 customers – roughly 10 percent of its customer base – in areas annexed by the city to Tupelo Water & Light.

The North Lee board hired the Tupelo accounting firm Franks, Franks, and Jarrell to help untangle the water association’s finances after mismanagement issues surfaced in 2011. Anderson said the board has remained actively involved in financial oversight and “intend(s) to fully comply with all federal regulations.” The board has adopted a corrective action plan to address issues cited in the audit.

Rural Development officials will not discuss information related to specific loan, requiring formal Freedom of Information Act requests. The Daily Journal has pending FOIA requests related to both of North Lee’s Rural Development loans.

Anderson said water association members should feel confident in current board members’ oversight and operations at North Lee despite the audit findings.

“It is our opinion, that never in its history has the Association had more accountability and transparency,” he said. “We will continue to work with the auditor, an outside accounting firm, our Board Attorney and others to address each issue mentioned in the audit report.”

Audit fiscal year 2013 of North Lee County Water Association

Click yellow highlighted areas to read Daily Journal notes to specific audit sections.

Full responses from North Lee board President Terry Anderson to Daily Journal questions about the audit

Click yellow highlighted sections for related Daily Journal notes.