Lubbock City Councilman Victor Hernandez says he has found discrepancies in the city's audit process and a lack of internal controls.
Hernandez issued a statement saying this was discovered through open records request regarding information either provided or not provided by the city to auditors regarding franchise fees and hotel/motel taxes.
Below is part of the statement from Hernandez:
Councilman Hernandez stated, "After speaking to and exchanging multiple e-mails with BKD representatives, I discovered that the City of Lubbock did not notify BKD (in the client planning questionnaire) of the fact that hotel/motel taxes were not being paid or were delinquent to the City of Lubbock, from a number of hoteliers/moteliers. Furthermore, I discovered that the City of Lubbock was lacking with regard to internal controls."
Neither the Lubbock City Council nor the Audit Committee has been informed of all aspects of the audit currently being concluded.
Currently, BKD continues to solicit information from the City of Lubbock to determine whether or not "any receivable [hotel/motel taxes or franchise fees] would be immaterial [or material] to the overall financial presentation"* thus, requiring or not requiring that the 2012 audit approach be altered or the Comprehensive Annual Financial Report (CAFR) be modified. Also, BKD continues to solicit information from the City of Lubbock concerning "implemented controls and controls remaining to be implemented as it relates to franchise fees and hotel/motel taxes."*
Councilman Hernandez continued, "At this time, based on the information I currently have, I cannot vote in favor of Item 6.3 of this week's agenda which is a resolution accepting the Comprehensive Annual Financial Report (CAFR) for fiscal year ended September 30, 2012. It is my hope that other Council members join me in referring this matter back to our Audit Committee in order that they be fully briefed on my findings. It is also my hope that the entire Council be briefed by BKD prior to our vote on this issue."
Hernandez said he estimates the amount of uncollected franchise fees and hotel/motel taxes is at least $2 million.
"If it's taken you all years, meaning the city of Lubbock, to figure out folks owe you money, then what internal controls do you have in place so that you don't wait years?" Hernandez said. "It's my understanding, for example, on the hotel/motel tax, that the reason we found out about that was because one of the hotel/motels that weren't paying, one of their competitors came to the city and said, 'What's going on here? We're paying, we're being charged, but no one's collecting from them.'"
In a written response, the city manager and the director of finance said the city provided work papers to the external auditors that included information on those delinquencies.
Below is part of the statement:
Throughout the audit, City of Lubbock management and staff have worked closely with BKD auditors. This included notifying them of issues of delinquencies on hotel occupancy tax and franchise fees in either the planning phase or during the substantive fieldwork phase. The City of Lubbock prepares a client planning questionnaire, which is a high-level form. Hotel occupancy tax and franchise are self-reported taxes and the controls over cash receipts did not change. The form does not address delinquencies of receivables. The City provided work papers to the external auditors to support the accounting entries for the hotel occupancy tax and franchise fee receivables, including delinquencies and their allowances.
An audit tests the financial and accounting systems, including internal controls for an organization. BKD, LLP is a nationally recognized auditor with a proven record of delivery. They follow auditing standards generally accepted in the United States. The auditors have recently revisited the accounting treatment of hotel occupancy tax and franchise fees, including treatment of the delinquencies, and they did not find any internal control issues nor did they propose any changes to the financials. The auditors have discussed implemented controls and controls remaining to be implemented, as it relates to hotel occupancy tax and franchise fees. The auditors have issued an unqualified audit opinion for each of the eight years they have completed the City’s audit work, including Fiscal Year 2012.
City Council was briefed several times on legal suits, agreements, and other matters in Executive Session. The auditors communicated with the Audit Committee during the planning phase of their engagement. The Independent Accountants’ Report on Financial Statements will be presented at the City Council meeting on March 28.