Whatcom County Fire Protection District No. 13
February 1, 2003 through October 15, 2003
1. The Districts made inadequately supported payments and lent District assets to North Whatcom Fire and Rescue Services.
Background
In June 2001, Whatcom County Fire Protection Districts Nos. 3, 5 and 13 entered into an interlocal agreement forming North Whatcom Fire and Rescue Services. The Agency is a non-profit organization created to allow the Districts to share fire protection and administrative services. The Agency employs fire protection and administrative staff and operates a fire engine repair shop. Each District is governed by a Board of three elected Commissioners. The Agency is governed by a six-member Board consisting of two of the three commissioners from each member District.
Description of Condition
Our audit found:
· The Districts made multiple payments to and on behalf of the Agency. The payments were not supported by documentation identifying the benefit provided to the individual Districts. The payments were made for payroll expenditures.
We also found:
· District 13 loaned an estimated $140,000 to the Agency. The terms and conditions of the loan, including a repayment schedule, were not put in writing. The verbal arrangements requiring monthly payments of $1,000 have not been consistently followed.
· District 13’s assets were used to secure lease agreements for equipment and software. The agreements were signed by an employee of the Agency and were not authorized by the Districts’ Boards of Commissioners. The lease payments required in the agreements total $186,456.
· District 3 did not receive shop space lease payments from the Agency, as required in the lease agreement. The Agency is $51,592 in arrears on the payments.
· District 13 pledged its assets to finance a $150,000 line of credit for the Agency. A portion of the line of credit was used to make payments on the leases discussed above.
Cause of Condition
District officials did not establish adequate controls over the use of individual District assets. In addition, the interlocal agreement does not clearly identify the financial obligations of and benefits received by the Districts and by the Agency.
Effect of Condition
It cannot be determined that the Districts are receiving appropriate benefit in return for expenditures made by the Districts to or on behalf of the Agency.
Whatcom County Fire Protection Districts 3 and 13 did not receive all revenues due to them from the Agency.
Recommendations
We recommend the Districts:
· Clarify the arrangement within the interlocal agreement or, by Board action, define the Agency’s responsibilities and the benefits to be received by each District.
· Determine a fair and equitable method of allocating individual District assets.
· Ensure all past and future obligations of the Agency are paid to the appropriate District in a timely manner.
· Ensure all future Agency activities are legally authorized by individual Districts and comply with the interlocal agreement.
District Response
· Payroll Expenditures: We recognize that North Whatcom Fire and Rescue Services had a complicated system of allocating various salaries to the various fire Districts. The system was designed to match each District’s expenditure with the benefit that District received and to ensure a fair and equitable allocation. The budget process for the 2004 budget will address these issues by providing more detail and adoption of specific resolutions to clarify these issues.
· The District 13 Loan: The loan payments to District 13 are current and the understanding between North Whatcom Fire and Rescue Services and District 13 will be put in writing.
· Pledge of District 13 Assets: District 13 never pledged its assets for the purchase of equipment and software for North Whatcom Fire and Rescue Services. A former employee signed the lease forms without authority. We recognize that these two leases were unauthorized and therefore not an obligation of the District or the Agency.
· District 3 Shop Payments: District 3 has been paid current on the shop lease payments. The arrearages were caused by a misunderstanding by a former employee.
· Line of Credit: We note that the payments on the line of credit are current and that next year’s budget process will address the line of credit.
· Adequate Controls: We agree that the former employees did not provide accurate or timely information, which impaired the control the Board of Directors must exercise over the affairs of North Whatcom Fire and Rescue Services. We have replaced key personnel with a professional staff, which has or is in the process of implementing many of the controls you noted. The Board recognizes its ultimate responsibility for insuring adequate controls.
· Adequate Benefit: We are committed to creating a more detailed and documented budget, which will address the issues raised herein.
The recommendations contained in the report are all well placed and either have been or are currently in the process of being implemented. The assistance of the Washington State Auditor’s Office has been very helpful in this regard. The Board of Directors will improve the budget process to implement a method to fairly and equitably allocate individual District assets to the extent required by law.
Again, the Board of Directors appreciates the thorough and complete work done by your Office. We recognize that although no public funds were found to be missing, North Whatcom Fire and Rescue Services needs to continue to do a better job of accounting for funds and the transfer of funds between the Districts and itself. We are confident that the professional team that was recently put in place will be able to implement all the recommendations.
Auditor’s Remarks
We thank District officials and staff for their assistance and cooperation during the course of the audit. We will review the status of the finding during the next audit.
Applicable Laws and Regulations
Revised Code of Washington (RCW) 43.09.200 Local government accounting-Uniform system of accounting states in part:
The accounts shall show the receipt, use, and disposition of all public property, and the income, if any, derived therefrom; all sources of public income, and the amounts due and received from each source; all receipts, vouchers, and other documents kept, or required to be kept, necessary to isolate and prove the validity of every transaction . . . .
RCW 43.09.210 Local government accounting--Separate accounts for each fund or activity--Exemption for agency surplus personal property states in part:
Separate accounts shall be kept for every appropriation or fund of a taxing or legislative body showing date and manner of each payment made therefrom, the name, address, and vocation of each person, organization, corporation, or association to whom paid, and for what purpose paid.
Separate accounts shall be kept for each department, public improvement, undertaking, institution, and public service industry under the jurisdiction of every taxing body.
All service rendered by, or property transferred from, one department, public improvement, undertaking, institution, or public service industry to another, shall be paid for at its true and full value by the department, public improvement, undertaking, institution, or public service industry receiving the same, and no department, public improvement, undertaking, institution, or public service industry shall benefit in any financial manner whatever by an appropriation or fund made for the support of another.
The North Whatcom Fire and Rescue Services Interlocal Agreement states in part:
Section I, Part 1.1-
Initial Formation Expenses- District 13 shall submit the expenses incurred in the formation to NWFRS for reimbursement, and such expenses shall be borne equally by all Districts.
Section II, Part 6-
. . . each District shall set an internal budget that includes the NWFRS budget. The contribution from the Districts shall be an obligation of each District and shall be due and payable in equal installments on April 30th and September 30th of each year.
Section III, Part 11-
. . . the Board of Directors of NWFRS shall approve an annual funding allocation for each District, subject to the approval of each District.