By Brenda Starkey
The Chronicle

     REPUBLIC - The city's accounting system was a mess in 2007 and 2008.
     The Washington State Auditor's Office issued a finding against the city after auditing books for those two years, according to a report released Feb. 22.
     Before installing new accounting software in September 2008, the city did not post all transactions to the general ledger, the report said.
     When preparing the financial statements for 2007 and 2008, the city did not perform sufficient reconciliations to ensure all transactions were reported on the financial statements before the software conversion, the report said.
     ìFor some time we have known that our accounting system was dysfunctional," Mayor Shirley Couse said in the city's audit response.
     "The city council has taken measures to curb spending as much as possible until we are able to get a complete financial picture,î she said.
     ìIt wasnít until I decided to actually do the budget by myself that I discovered what a complete mess we were in," Couse said. "I do not believe that there was any embezzlement or fraud, just inadequate accounting.î
     The city did not reconcile the balances shown in the financial statements and schedules to the bank statements and accounting records, the report said.
     The clerk/treasurer prepared the financial statements, supplemental schedules and related notes without sufficient independent review, and the governing bodyís review of the financial statements was insufficient to ensure they were complete, accurate and prepared in a timely manner, the audit report said.
     Furthermore, the city has not developed a control process to ensure the receipt and expenditure of state and federal grants are separately tracked.
     The problems were caused when the Republic experienced turnover in the clerk/treasurer position and installed new accounting software in September 2008. The clerk/treasurer relied on financial reports generated by the new system and did not review them for accuracy or completeness, the report said.
     The city has switched clerk/treasurers and hired an independent expert. The current clerk has spent countless hours correcting errors and getting the cityís financial records in order, Couse's response said.
     According to the report, the council's oversight of key financial areas was not sufficient to ensure accurate financial reporting.
     During the audit, it was discovered:
     - Financial statements did not include all of the cityís funds.
     - The city reported federal expenditures incorrectly.
     - The federal report did not include federal grant expenditures of $57,203 and the required notes to the schedule were not prepared.
     - Long-term debt was not reconciled properly. The city made multiple changes to correct the error.
     - The 2008 financial statements did not reconcile with underlying accounting records. The city made multiple revisions, which resulted in four versions of the statements being presented for audit.
     - The city omitted $60,238 of grant activity from the financial statements.
     The audit also discovered unallowable expenditures of hotel/motel funds during the two years, Audit Manager Juan Esparza said.
     Among these were payment of audit costs, payments for accounting software and other items totaling $7,550 in unallowable expenditures, Esparza said.