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More on the audit letters

The Chron asks some outside experts to go over those recently released audit letters.


Houston leaders appeared to have ignored the significance of recurring accounting and management problems or did not have the resources to fix them, according to accounting experts who reviewed 11 years’ worth of audit letters released by the mayor’s office last week.

“It really affects the ability of the government to manage its activities well,” said Douglas Carmichael, a professor at New York’s Baruch College with decades of experience as a CPA and writing accounting standards. “There seem to be errors permitted that a good system would prevent or detect.”

Carmichael and others noted, however, the number of weaknesses that could lead to inaccurate record-keeping or fraud had decreased in recent years.

The public release of the audit letters comes as the city’s Finance Department is readying a proposal to analyze accounting and financial procedures throughout every city department with an eye toward resolving persistent problems and preventing new ones.

The goal, Finance Director Kelly Dowe said, is to get department directors to consider financial transparency and accurate bookkeeping as important as the community services they provide.


The letters by the city’s outside auditor, Deloite & Touche, identified bookkeeping problems and areas with little oversight that could be tempting targets for fraud.

They noted millions of dollars’ of inaccuracies in financial statements that needed to be corrected before the city could issue its annual financial report. The auditors found that although money did not appear lost, it sometimes was not moved to the correct account on time, or financial statements did not reflect the true balance after a review of debits and credits. The auditors attributed some of those problems to inadequate communication from departments and a limited finance staff.

The letters also highlighted management deficiencies, such as failing to adequately track inventory or failing to require a collections contractor to provide documentation that it had properly billed for its services.

Some years, auditors suggested dozens of fixes, and some problems were identified repeatedly over the years before being addressed.

“It sounds like they just tossed it to the auditor and said, ‘You fix it,’‚ÄČ” said Tarrant County Judge Glen Whitley, founder of a firm that performs the same kind of audits.

Whitley and other auditing professionals noted that Deloitte confirmed the financial statements as “clean” every year, despite the problems found. They said it also was promising that the most recent letter listed just four deficiencies, two of which were “significant,” rather than dozens.

The auditors probably would not have OK’d the revised financial statements if they had found actual wrongdoing or grave errors rather than just the potential for them, said Jacqueline Reck, past president American Accounting Association’s Government and Nonprofit Section.

See here for the background. Again, it doesn’t look like there was anything major in these letters. The bigger problem was in the city’s inability to address the issues in a timely fashion, though clearly progress was made. The bigger question is why City Controller Ronald Green thought they shouldn’t have been released. He had an AG opinion saying they didn’t have to be released, but against that there was the standard practice of other cities to release them, and the lack of any apparent cause for concern. He hasn’t had anything to say about it so far, which is too bad because I’d really like to understand his thinking. I hope he breaks his silence and tells us why he did what he did.

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One Comment

  1. Ross says:

    At my employer, any department that gets this sort of audit report on a repeat basis sees the immediate departure of the responsible managers. Perhaps the City ought to spend less time on a few frills (building hotels comes to mind), and more time on actually doing their jobs.