Okarche town trustees received the type of audit report that one consultant called “the worst” as it called into question several practices of the police department during that fiscal year.

“Due to insufficient internal controls, we were unable to obtain supporting data and other information,” said the audit report, which was prepared by Arledge & Associates of Oklahoma City. “Therefore, we were not able to obtain sufficient appropriate audit evidence and misstatements are considered pervasive to the financial statements of the town…” Consequently, the auditors issued a disclaimer of opinion on the town’s financial statements as a whole for Fiscal Year 2022, according to LaDonna Sinning and Kency Duarte, partners at Arledge & Associates who presented the report at the trustees’ meeting Monday night.

A disclaimer of opinion is issued by auditors when they’re unable to obtain enough evidence to form an opinion on an entity’s finances.

“Disclaimers are not good,” said Frank Crawford with Crawford & Associ- ates. “Let’s not sugarcoat it. They’re the worst.”

When asked by a citizen from the audience how often her firm issues disclaimers on audit reports, Sinning replied: “Not very often. It’s very unusual.”

Later in the meeting Sinning said it was the “second time in my career I’ve been in this position.”

Crawford & Associates is an Oklahoma City-based consulting and accounting firm that wasn’t involved in the FY22 audit, but was hired by the Town of Okarche on May 22, 2023, to perform work related to the estimate of needs budget for FY24, the FY23 budget “and any other financial services requested,” according to Okarche Town Clerk Dana Reese.

Arledge & Associates was hired June 27, 2022, to perform the FY22 audit.

Sinning said, when asked, that it takes her firm “about six weeks” to complete an audit “from the time we actually get started.”

“There were reasons why FY22 took as long as it did,” offered Crawford. “Some of those reasons are known; some are not known.”

AUDITOR’S FINDINGS

In the report, auditors listed a “government-wide lack of internal controls.”

Later in the report, auditors said they observed, in reviewing financial statements, that the town “did not adequately enforce internal control procedures across departments.”

The report then listed 10 “deficiencies” which Duarte read aloud during the meeting at the request of Trustee Jason Kroener. The deficiencies listed in the audit report provided to the Times & Free Press were: “1. Inconsistent application of accounting and governing body policies, specifically for the Police Department.

2. Inadequate review and approval processes for financial transactions related to the Police Department.

3. Goods or services, such as vehicles, purchased prior to receiving appropriate approvals per the Town’s purchasing policies by the Police Department.

4. Lack of cooperation by the Police Department. We were unable to conduct fraud inquiries with 4 out of 6 interviews with the department personnel.

5. There is a lack of objective evidence to support cash transactions, specifically personal Venmo accounts used for town-related activities and reconciliation with Police uniform patches sold as a fundraiser. Documentation was not provided in a timely manner. Documents provided to the auditors instead of the finance department were not complete or accurate.

6. The Police Department did not get information to the Finance Department in a timely manner, resulting in the absence of records and preventing an in-depth review.

7. During the capital assets inventory count, several assets were not located and/or lacked supporting documentation for their replacements and/or disposals. The inventory issues primarily related to Police Department assets, including but not limited to, assets typically assigned to officers while on duty.

8. Electronic devices assigned to the Police Department, such as 9 phones and 8 iPads, purchased by the Town with public funds, were not properly traced to authorized government officials for business purposes.

9. The Police Department’s expenses increased significantly, with expenses in 2022 being 219%, or approximately $313,000, higher than the average of similar-sized Towns/Cities in Oklahoma. The police department expenses approximated 72% of the Town’s total sales tax revenue for the year. The increasing budget and portion of sales taxes attributed to the Police Department are not sustainable.

10. There is no stipend/ allowance or miles log for vehicles used beyond the approved miles radius by Police Department employees for commuting or other non-Town use.”

Sinning then read a list of five “causes” for those conditions, which auditors said “appear to be due to a combination of factors, including: 1. The Police Department operates with a degree of autonomy from the Town related to financial activity.

2. Staffing and financial resources allocated to the Finance Department are insufficient to appropriately carry out their duties.

3. There has been a lack of proper training and oversight related to fiscal responsibility.

4. The Police Department was not following the appropriate purchasing policy and committed the Town to purchases prior to receiving appropriate approvals.

5. There is a lack of Board oversight to provide objective assessments and recommendations for improving governance and control practices. This ineffective tone at the top fails to set a strong example for the rest of the organization, leading to lapses in compliance and control.”

Sinning interrupted herself during the reading of the causes to note: “These are causes as of June 30, 2022.”

Auditors allowed the town a “management response” to be included in the audit.

Crawford said the response was prepared by himself, Reese, Town Treasurer Brian Schieber and Town Attorney Daniel G. Webber “on behalf of management to the town.”

That response was also read during the meeting and is included in the audit report: “We concur and agree with the substance of the findings. It is apparent from the detail of these findings that the majority of them relate to how the Town’s police department was managed, operated and overseen.

“Since fiscal year 2022, a significant number of changes have occurred in how the Town is operated, managed, and overseen, including the operations of the police department. First, there has been personnel changes made to the leadership of the police department, changes which we believe will improve the operation and management and cooperation of the department. Second, recognizing the potential for a lack of oversight, in FY 2024 the Town enlarged their governing body from three Trustees to five Trustees, and the Town elected two new additional Trustees.

“In addition, in FY 2023, one of the original three Trustees that were in office in FY 2022 was changed via the election process.

“We feel that the enlargement of the governing body, along with new representation within the governing body, will provide the additional needed oversight that was cited as missing by the auditor.

“In addition, the governing body may consider modifi cation of its procedures in oversight of individual departments. Third, in FY 2023, the Town engaged a CPA firm to assist the Town in an effort to strengthen its internal controls, improve management processes and provide even further oversight of financial policies and procedures.

“We feel that these three changes, along with other more detailed responses by management related to inventory processes, purchasing processes and fundraising efforts, will significantly improve the Town’s ability to manage and oversee all of the Town’s operations as they relate to accountability, transparency, and oversight.”

Sinning was asked by a trustee if she agreed with the management response.

“I believe the response is appropriate, yes,” replied Sinning.

BACKGROUND TO MANAGEMENT RESPONSE Forrest Smith was the town’s police chief during the period of the audit.

( Ed. note: See related story for Smith’s response to the audit.)

He was hired in May 2018, but trustees voted in April to terminate his employment.

The move was made with a 4-1 vote after a threehour executive session. Voting for the termination were Jon Alig, Jeff Brueggen, Jason Kroener and J.D. Mueggenborg.

Mayor Jeff Sadler cast the dissenting vote.

Sgt. Chris Sadler (no relation to Jeff Sadler) was named the acting chief.

In a special election in September 2023, Okarche voters passed a proposal to expand the town board from three trustees to five.

Sadler, Brueggen and Kroener were on the board at the time. Alig and Mueggenborg have since been added.

Reese asked Sinning near the end of Sinning’s presentation if she had any concerns “or feel any lack of cooperation with the finance department, which is going to be myself and the treasurer?”

Replied Sinning: “No we did not other than the comment that we made about being understaffed and/or underfunded, which I think you’ve addressed with the Crawford firm. The amount of work that’s required to keep all this together is really more than one person can do.”

MORE AUDITS

Sinning said the firm will soon begin work on the FY23 audit. Reese said all of the necessary records are ready for that review.

The FY24 audit - that fiscal year just ended June 30 - will come after that.

Kroener asked Sinning if the town can hope for “a different outcome” for the FY23 audit.

“I don’t see a way that you get anything other than a disclaimer for 2023, either,” Sinning said. “I think it’s June 30, 2024, when we would expect to start seeing some opinions in here and say ‘OK, these things are good.’” In stating that the disclaimer of opinion wasn’t favorable, Crawford also said it’s important to look forward.

“My focus is really FY2024. I would say hold on and let the auditors do their thing for ‘23, but don’t get your expectations up too high,” he said. “I wasn’t around in ‘22, but I can tell you that the environment here is different now than it was.

“If it’s not obvious to everybody, it’s obvious to me. I hope that’s a good thing, but we’ll see.”