City awarded an unqualified audit; changes came under Ellen Barnes leadership

PIONEER FILE PHOTO - photo illustration

West Linn-based accounting firm Merina and Company LLP completed an independent audit of the city of Molalla's finances for fiscal year 2015-16 and awarded the city with the highest possible rating — an unqualified audit.

The American Institute of Certified Public Accountants defines an unqualified audit as a report in which the auditors conclude that the subject's financial statements are "clean." In contrast, the AICPA says a qualified audit is one in which the auditor finds that "most matters have been dealt with adequately," but assumptions had to be made in some instances where records were not clear.

Tonya Moffitt, partner and owner at Merina and Company, said the term unqualified audit sounds like something is wrong, and she said "It took me a long time to wrap my head around it, too."

"What it basically means is we didn't find any material misstatements that we believe would have any direct implication on the financial statements," Moffett said. "It's the best opinion we can give."

The city of Molalla was racked with financial issues in the past.

When City Manager Dan Huff accepted his position in the fall of 2012, he wrestled with a city that had recorded and projected general fund deficits for several years running, including a $400,000 deficit for fiscal year 2011-12.

Changes to the culture in city hall began when Ellen Barnes, Molalla's city manager previous to Huff, discovered inflated balances, excluded expenses that totaled hundreds of thousands of dollars, and bank reconciliation errors that she traced back as far as 2004. Under Barnes' leadership, the city hired a forensic auditing firm, the Vancouver-based Acuity Group, which promptly discovered four straight years of negative general fund balances, as well as $2.5 million in development charges that were misspent between 2004 and 2008, public records show.

Barnes stepped down from her position in October 2012, just one year after taking the job and moving her husband and two children to Molalla from Gold Beach, telling the Pioneer at the time that cuts she made to the budget, including laying off four city staffers, were necessary to pull the city out of its $400,000 deficit, but those decisions were not met with the approval of a previous city council.

Huff did not respond to requests for comment, but Mayor Jimmy Thompson said he didn't expect there to be any issues with the Merina and Company audit, the second year the firm has completed one for Molalla, because current Finance Director Chaunee Seifried and previous director Heather Penni, who stepped down as the city's finance director last year only to return about six months later, are "spot on."

"They are both great at what they do and we have both of them now in our finance department," Thompson said. "If I have a question, or if any of the councilors have questions, we can call them and get a direct, informed answer. I had no concerns like myself and others have had in the past."

Moffitt echoed Thompson's opinion, saying there is nothing at all concerning about the city's financial statement.

"It's important for (Molalla citizens) to understand that governmental financial statements are a little different than a standard business statement," she said. "For those (citizens) who want to read it, one of the items to look at is the section with management's discussion and analysis. The nice thing about that particular statement is that it has a two-year comparison of fiscal years 2014-15 and 2015-16. That's always a great place for citizens to look and it also has information about what's coming up — economic factors influencing next year's budget are in there as well. You can compare those two years at a very high level."

That section of the audit, found on page four, says the city's assets totaled $37.75 million as of June 30, 2016 — government fiscal years annually run from July 1 to June 30 — and those assets consisted of $12.1 million in cash and cash equivalents; $754,414 in accounts receivable and other assets, and about $24.9 million in capital assets.

Cash equivalents refers to the city of Molalla's position in the Local Government Investment Pool (LGIP), in which almost all city, county and state agencies are participants. THE LGIP, administered by the state treasury, are funds secured by the state that provide a higher rate of return than simply letting cash sit in an account, Moffitt said.

"The LGIP is essentially like a checking account — they can transfer funds in and out of it — but it has investments in it," Moffitt said. "For instance, all property taxes are deposited into the LGIP."

"Other assets" refers to property taxes receivable and funds due from other governments, which typically is cash the county already has collected through property taxes but has yet to remit to any city. "It usually takes 30 days or so for the county to release those funds," Moffitt said.

The city's net position was $28.88 million on June 30, 2016 compared to $29.4 million on June 30, 2015 and that relatively-slight decrease primarily occurred due to capital asset additions, utility rate increases, the early payoff of bonds and an increase in the collection on accounts receivable. Additionally, the city had $8 million in outstanding bonds, accrued compensated absences and notes payable, the audit says.

"Like equity (in a business's financial statement), assets minus liability equals equity," Moffitt said. "The city is in a strong position with $28 million more than liability, and the main reason for that net pension liability is PERS (the state's Public Employees Retirement System). If you look at page seven (of the audit), it shows net pension assets of $339,000 and a net pension liability of $951,000. That's something that all government entities in the state of Oregon are dealing with because a recent court case determined a change in the way PERS is being calculated."

As long as the city is making statutorily-required contributions, and that number is zero or negative, then they are meeting those obligations, Moffitt said. The audit shows that for the previous three fiscal years the city of Molalla met its required contributions of $764,158, $733,439 and $320,569, respectively.

Thompson noted that the city will start fiscal year 2017-18 with $1.5 million in the general fund and that it began fiscal year 2016-17 with more than $900,000 in that fund. He said it's not a surplus because the city's primary revenue source is property taxes, so it has to have cash to "hold you over until November" when the city annually receives that influx of cash.

"It's more of a reserve or carryover than we've had in the past many, many years," Thompson said. "In 2012, we were $400,000 in the hole. To go from there to where we are today, completely turning things around and making sure we are fiscally conscious about what's happening, that puts us in a position where we can start to look at long-term investments and better things instead of worrying about paying our bills."

Thompson said there will be a discussion about the audit at the next city council meeting (7 p.m. on April 26 at the Molalla Adult Center).

To read the audit in its entirety visit the city's website at

Contract Publishing

Go to top
Template by JoomlaShine