Audits of the Valles Caldera Trust released last week revealed the following:
- Despite federal law stipulating that regular audits be performed on the Valles Caldera Trust and submitted to Congress, “Trust has not obtained an audit of its financial statements since its inception in 2000.”
- “Reportable noncompliance with laws and regulations.”
- “Several instances where possible misuse of appropriated funds were identified, including purchase of clothing, food and entertainment, dental and vision insurance for employees and personal use of government vehicles,” according to a story in the Albuquerque Journal on May 28.
- “Material weaknesses in internal control that resulted in ineffective controls over operations, financial reporting and compliance with applicable laws and regulations.”
- “Supporting documentation for journal adjustments and disbursements could not be provided by the Trust.”
- “Trust requirements for bids on procurements over $10,000 was not followed consistently by employees,” and “evidence of proper review and authorization of procurements was not available.”
- “The Trust had no documented policies and procedures in place.”
[The summary letter of the most recent audit report can be read in its entirety by clicking "Continue reading..." at the end of this post]
According to Moss-Adams, the Albuquerque firm that performed the audits, “the trust concurred with the facts and conclusions in this report.”
In response to news of the release of this audit, the Albuquerque Journal editorial board today chided the Trust for the conclusions that the audits reveal.
In the case of the Valles Caldera National Preserve, standard business procedures apply, apparently, except when they don’t.
The latest evidence: the preserve, formed in 2000, has failed since to audit its books. The long overdue review has now taken place, perhaps thanks to current director Gary Bratcher, a former cabinet secretary for economic development under Republican Gov. Gary Johnson…
The Journal has long argued that the preserve’s board of trustees should focus on the recreational and other uses for the land that bring in the most money, to keep the preserve open while not endangering its scenic beauty. The failure to audit — like the trustees’ refusal to consider turning over the grazing leases to environmental groups willing to pay much more for them than cattle growers — is an indication that the board continues to be short-sighted when it comes to “optimizing the generation of income” from the property, as federal law mandates.
Dennis Rino, the Valles Caldera Trust’s Administrative Officer, downplayed the findings of the audit.
“The findings in this report are procedural and do not represent erroneous transactions, malfeasance or ethical misconduct,” Rino stated in a letter attached to the audits.
Valles Caldera Trust Executive Director Gary Bratcher said that “staff has been working closely with Moss-Adams to develop new policies and procedures to address these deficiencies and weaknesses. As a result, our financial systems and controls have improved to the point that we are confident in our ability to comply with policy and law for future audits. We will continue to strengthen our controls and procedures and assure the public that the audit requirement will be fully complied with in the future.”
According to the Journal, “Preserve officials say they’ve corrected the problems. The changes include the hiring of an accountant and the introduction of an integrated financial system.”
The recently-released audits of the Valles Caldera Trust can be downloaded below:
Audit of Valles Caldera Trust for 2004-2005
Audit of Valles Caldera Trust for 2005-2006
Audit of Valles Caldera Trust for 2006-2007
Below is the summary letter of the 2006-2007 audit in its entirety:
To the Board of Directors of
The Valles Caldera Trust
We have audited the accompanying consolidated balance sheets of the Valles Caldera
Trust (the ‘Trust”) as of September 30, 2007 and 2006 and the related consolidated
statements of net cost, changes in net position, and financing, and the combined statements
of budgetary resources for the years then ended (hereinafter referred to as the “financial
statements”). The objective of our audits was to express an opinion on the fair presentation
of these financial statements. In connection with our audits, we also considered the Trust’s
internal control over financial reporting, Required Supplementary Information, Required
Stewardship Information and performance measures and tested the Trust’s compliance
with certain provisions of applicable laws, regulations, contracts, and grant agreements that
could have a direct and material effect on its financial statements.
In our audit of Valles Caldera Trust for fiscal years 2007 and 2006, we found:
- Evidence about Accounts Receivable and Cost of Operations in the financial statements related to the Federal Highway Fund was not available for fiscal year 2006 because of limitations on the scope of our work. In addition, the Trust departed from generally accepted accounting principles by not properly matching expenses to revenue. Otherwise, we found the financial statements are presented fairly in conformity with generally accepted accounting principles,
- Material weaknesses in internal control that resulted in ineffective controls over operations, financial reporting and compliance with applicable laws and regulations,
- The Valles Caldera Trust’s financial management systems did not substantially comply with the requirements of Federal Financial Management Improvement Act (FFMIA),
- Reportable noncompliance with laws and regulations we tested.
Described below are significant matters considered in performing our audit and forming our conclusions. In addition, the following sections discuss in more detail (1) these conclusions and our conclusions on Management’s Discussion and Analysis and other supplementary information and (2) the scope of our audit.
Significant Matters:
The Trust could not locate supporting journal entries relating to transfers of expenses from the Trust’s fund X1106 to X8083 for highway construction expenses. Finding for these expenses was provided from Federal Highway Administration monies. As a result, the Trust was unable to support which year these expenses and revenue should be recorded. During fiscal year 2006 the Trust recognized $286,833 in highway construction expenses and offsetting recipient funding.
Internal Control
Our consideration of internal control over financial reporting, Required Supplementary Information, Required Supplementary Stewardship Information and performance measures resulted in the following conditions being identified as material weaknesses:
- Trust has not obtained an audit of its financial statements since its inception in 2000 (Finding 07-14)
- The Trust had no documented policies and procedures in place (Finding 07-08)
- The Trust does not have a single integrated financial management system which processes and records financial transactions effectively and efficiently (Finding 07-05).
- The Trust was not performing necessary monitoring and reconciliation of transactions to ensure completeness and accuracy of the transactions (Findinf 07-06) and did not have a process in place to ensure timely reconciliation of Fund Balance with Treasury (Finding 07-18).
- Supporting documentation for journal adjustments and disbursements could not be provided by the Trust (Finding 07-22).
- Evidence of proper review and authorization of procurements was not available (Finding 07-10). In addition, Trust personnel in charge of processing and approving payments were not ensuring all were allowable, either due to oversight or lack of training (Finding 07-13).
- When the Trust transferred financial accounting from NFC to NBC, it failed to correctly post prior period balances to the general ledger including assets, liabilities and beginning net position amounts (Finding 06-17).
- Adequate controls were not in place to ensure consistent recording of expenditures/disbursements to the correct budgetary and proprietary accounting periods by the applicable Budget Object Classification, Program/Project and Activity Codes. In addition, Trust personnel were not obligating funds in Oracle when the control/purchase order was awarded (Finding 07-11).
- Trust did not post property, plant and equipment (PP&E) resulting from purchase of the Preserve to the general ledger as assets. In addition, purchases not meeting the PP&E capitalization requirements were booked as assets (Finding 07-16).
- The Trust’s technology systems were not substantially in compliance with FISMA (Finding 07-21).
- The Trust has not established procedures for tracking and reporting Federal Highway Fund expenditures according to the requirements of the Federal Highway Administration (Finding 07-25)
These deficiencies in internal control may adversely affect any decision by management that is based, in whole or in part, on information that is inaccurate because of the deficiencies.
In addition to the material weaknesses identified above, we identified the following additional significant deficiencies considered to be significant matters that should be communicated to the entity head, OMB and the Congress:
- Cash and check payments were not processed timely and according to the requirements of Title 31, section 3302 (Finding 07-01).
- Cash, checks or credit cards were accepted without obtaining legal evidence of receipts of products or services by the customer and without a mechanism to ensure all sales are recorded(Finding 07-02).
- The Trust did not have established procedures requiring timely collection of receipts from the Visitor Center for deposit with Treasury (Finding 07-03).
- There is no established procedure for billing individuals for facility rentals, grazing or contracts. Trust is not currently using an accounts receivable ledger and is not using the Federal Bill for Collections documents to track customer receivables (Finding 07-04).
- Trust requirements for bids on procurements over $10,000 was not followed consistently by employees (Finding 07-04)
- The Trust did not provide ethics training to Board members or executive management (Finding 07-19)
- Procedures and key controls were not put in place to provide proper monitoring and record keeping controls over the tracking and reporting of RSI and RSSI (Finding 07-23).
- The Trust has not developed a strategic plan and performance goals that comply with the Government Performance and Results Act (Finding 07-24).
Management did not perform an evaluation of internal controls in FY2007 and provided no assurance on compliance with the Federal Manager’s Financial Integrity Act (FMFIA) objectives. Therefore, the above significant deficiencies, including material weaknesses, were not identified and reported by management in the summary of FMFIA reports.
Financial Management System’s Substantial Compliance with FFMIA Requirements
Our tests of compliance with the Federal Financial Management Improvement Act resulted
in the following instances of financial management system non-compliance with federal
financial management systems requirements, federal accounting standards, or the Standard
General Ledger (SGL) at the transaction level. (Note: Instances involving significant
control deficiencies were also included in the internal control section above.)
- The Trust is lacking a formal, written disaster recovery plan and it does not appear
that regular restoration testing is performed or that backup tapes are rotated offsite
(Finding 07-21).
- There are no policies and procedures for information technology systems and
supporting processes (Finding 07-21).
- Technology administration duties are not segregated amongst the current IT staff
(Finding 07-20).
- An independent information security consultant has not reviewed the Trust’s
external network connections in the past year (Finding 07-21).
- The screening process for prospective technology employees does not include
credit and criminal background checks (Finding 07-21).
- IT staff are not provided training to use, support and maintain the technology
systems (Finding 07-21).
- The Trust does not have a single integrated financial management system which
processes and records financial events effectively and efficiently (Finding 07-05).
- Items purchased for resale were expensed to the Operating Expenses/Program
Costs account rather than being maintained as inventory and included as cost of
goods sold upon sale or upon use in the provision of a service (Finding 07-IS ).
- Trust did not post PP&E resulting from purchase of the Preserve to the general ledger as assets. In addition, purchases not meeting the PP&E capitalization requirements were booked as assets (Finding 07-16).
- When Trust transferred financial accounting from NFC to NBC, it failed to correctly post prior period balances to the general ledger including assets, liabilities and beginning net position amounts (Finding 07-17).
- The Trust did not have procedures and key controls in place to provide proper
monitoring and record keeping over the compilation and tracking of RSI and RSSI
(Finding 07-23).
- Adequate controls were not in place to ensure consistent recording of
expenditures/disbursements to the correct budgetary and proprietary accounting
periods by the applicable Budget Object Classification, Program/Project and
Activity Codes. In addition, Trust personnel were not obligating funds in Oracle
when the control/purchase order was awarded (Finding 07-11).
Compliance with Laws and Regulations
The results of our tests of compliance with certain provisions of laws, regulations,
contracts, and grant agreements disclosed the following instances of noncompliance or
other matters that are required to be reported herein under Government Auditing Standards,
issued by the Comptroller General of the United States, and Office of Management and
Budget (OMB) Bulletin No. 01-02, Audit Requirements for Federal Financial Statements:
- Management did not test and certify compliance with Federal Manager’s Financial
Integrity Act of 1982 (FMFIA) (Finding 07-20).
- The Trust did not consistently obligate transactions as required by Appropriations
Law (Finding 07-II).
- The Trust did not have controls in place to ensure transactions were recorded to the
correct fund/appropriation (Finding 07-11).
- The Trust has not developed a strategic plan and performance goals that comply
with the Government Performance and Results Act as required by the Valles
Caldera Preservation Act of 2000 (Finding 07-24).
- The Trust personnel in charge of processing payments were not processing
payments according to Prompt Payment Act requirements (Finding 07-12).
Management did not perform an evaluation of its systems and provided no assurance of
compliance with objectives of FMFIA. Therefore, the above instances of non-compliance
were not identified and reported by management in the summary ofFMFIA reports.
Opinion on Financial Statements
Because of the limitation on the scope of our work described in the Financial Statements
section above, we cannot determine if the financial statements’ presentation of highway
construction expenses and offsetting recipient funding and the related transfers of expenses
between funds XI I06 to X8083 in fiscal year 2006 is free of material misstatement.
Otherwise, except for the departure from U.S. generally accepted accounting principles
described above, the financial statements including the accompanying notes present fairly,
in all material respect s, in conformity with U.S. generally accepted accounting principles,
Valles Caldera Trust’ s assets, liabilities, and net position; net costs; changes in net
position; budgetary resources; reconciliation of net costs to budgetary obligations as of
September 20, 2007 and 2006 and for the years then ended.
Consideration on Internal Control
In planning and performing our audit, we considered the Trust’s internal control over
financial reporting and compliance. We do not express an opinion on internal control over
financial reporting and compliance because the purpose of our work was to determine our
procedures for auditing the financial statements and to comply with OMB audit guidance,
not to express an opinion on internal control. However our work identified the need to
improve certain internal contr ls as described above. A control deficiency exists when the
design or operation of a control does not allow management or employees, in the normal
course of performing their assigned functions, to prevent or detect misstatements on a
timely basis. A significant deficiency is a control deficiency, or combination of control
deficiencies, that adversely affects the Trust’s ability to initiate, authorize, record, process,
or report financial data reliably in accordance with U.S. generally accepted accounting
principles such that there is more than a remote likelihood that a misstatement of the
Trust’s financial statements that is more than inconsequential will not be prevented or
detected by the Trust’s internal control over financial reporting. Of these weaknesses we
found 12 that we consider material weaknesses. A material weakness is a significant
deficiency, or combination of significant deficiencies , that results in more than a remote
likelihood that a material misstatement of the financial statements will not be prevented or
detected by the Trust’s internal control. Our internal control work would not necessarily
disclose all material weaknesses.
Systems’ Compliance with FFMIA Requirements
Our work disclosed instances, as described above, in which the Trust’s financial
management systems did not substantially comply with federal financial management
systems requirements, federal accounting standards and the U.S. Government Standard
General Ledger at the transaction level.
Compliance with Laws and Regulations
Except as noted above, our tests for compliance with selected provisions of laws and
regulations disclosed no other instances of noncompliance that would be reportable under
U.S. generally accepted government auditing standards or OMB audit guidance. However,
the objective of our audit was not to provide an opinion on overall compliance with laws
and regulations. Accordingly, we do not express such an opinion.
Consistency of Other Information
Management’s Discussion and Analysis, required supplementary information (including
stewardship information), and other accompanying information contain a wide range of
data, some of which are not directly related to the financial statements. We do not express
an opinion on this information. However, we compared this information for consistency
with the financial statements and discussed the methods of measurement and presentation
with the Trust’s officials. Based on this limited work, we found no material
inconsistencies with the financial statements or nonconformance with OMB guidance.
Objectives, Scope, and Methodology
Management is responsible for (1) preparing the financial statements in conformity with
generally accepted accounting principles, (2) establishing, maintaining, and assessing
internal control to provide reasonable assurance that the broad control objectives of Federal
Manager’s Financial Integrity Act are met, (3) ensuring the Trust ‘s financial management
systems substantially comply with FFMIA requirements, and (4) complying with
applicable laws and regulations.
We are responsible for obtaining reasonable assurance about whether the financial
statements are presented fairly, in all material respects, in conformity with generally
accepted accounting principles. We are also responsible for (I) obtaining a sufficient
understanding of internal control over financial reporting and compliance to plan the audit,
(2) testing whether the Trust’s financial management systems substantially comply with
the three FFMIA requirements, (3) testing compliance with selected provisions of laws and
regulations that have a direct and material effect on the financial statements and laws for
which OMB audit guidance requires testing, and (4) performing limited procedures with
respect to certain other information appearing in the Accountability Report.
In order to fulfill these responsibilities, we (I) examined, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, (2) assessed the
accounting principles used and significant estimates made by management, (3) evaluated
the overall presentation of the financial statements, (4) obtained an understanding of
internal control related to financial reporting (including safeguarding assets), compliance
with laws and regulations (including execution of transactions in accordance with budget
authority), and performance measures reported in Management’s Discussion and Analysis
of the Accountability Report , (5) tested relevant internal controls over financial reporting,
and compliance, and evaluated the design and operating effectiveness of internal control,
(6) considered the process for evaluating and reporting on internal control and financial
management systems under the Federal Managers’ Financial Integrity Act, (7) tested
whether the Trust ‘s financial management systems substantially complied with the three
FFMIA requirements, and (8) tested compliance with selected provisions of the following
laws and regulations:
- Valles Caldera Preservation Act of 2000
- Antideficiency Act – 31 U.S.C. 1341,1342, 1514,15 17
- Prompt Payment Act, 31 U.S.C 3901 et seq.
We did not evaluate all internal controls relevant to operating objectives as broadly defined
by the Federal Managers’ Financial Integrity Act, such as those controls relevant to
preparing statistical reports and ensuring efficient operations. We limited our internal
control testing to controls over financial reporting and compliance. Because of inherent
limitations in internal control, misstatements due to error or fraud, losses, or
noncompliance may nevertheless occur and not be detected. We also caution that
projecting our evaluation to future periods is subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance with controls
may deteriorate. In addition, we caution that our internal control testing may not be
sufficient for other purposes.
We did not test compliance with all laws and regulations applicable to the Trust. We
limited our tests of compliance to those laws and regulations required by OMB audit
guidance that we deemed applicable to the financial statements for the fiscal years ended
September 30, 2007 and 2006. We caution that noncompliance may occur and not be
detected by these tests and that such testing may not be sufficient for other purposes.
Our work on FFMIA would not necessarily disclose all instances of lack of substantial
compliance with FFMIA requirements.
We performed our work in accordance with U.S. generally accepted government auditing
standards and OMB audit guidance. We considered the limitation on the scope of our
work in formin g our conclusions.
Agency Comments and Our Evaluation
In commenting on a draft of this report, the Trust concurred with the facts and conclusions
in our report.
Moss-Adams LLP
Albuquerque, New Mexico
April 19, 2009
