An outside accounting firm that reviewed the auditing operations of the Erie County Comptroller's Office found a "serious deficiency" in the office's quality control practices. The firm determined that an audit it reviewed not only lacked properly documented evidence, but it was misleadingly corrected after the fact with backdated notations to fix or cover up staff mistakes.
The county's Audit and Control Division "was not operating effectively to provide reasonable assurance of compliance with Government Auditing Standards" for audits and other reports issued from 2015 through 2017, the firm Bonadio & Co. said in a two-page letter last year. The letter cited five substantive deficiencies, one of which it considered serious.
The county hires an outside firm every three years to review the auditing procedures. It's common for some deficiencies to be noted. A review of audit controls when County Executive Mark Poloncarz was comptroller found two noteworthy concerns.
But the deficiencies cited last year proved serious enough to cause the company to withhold its opinion that the Comptroller's Office was complying with accepted auditing standards.
In response, Comptroller Stefan Mychajliw and his chief of staff, Bryan Fiume, said the findings resulted from an "isolated incident" involving a noncontroversial mortgage tax audit completed in 2015.
"We moved quickly to improve the process and make it better," Mychajliw said.
He described his reaction to the peer review findings as "very positive."
Soon after the report was shared, Fiume said, the audit division was reorganized to provide better oversight. Weekly "prevent and detect" meetings also were put in place to follow up on work progress.
He also pointed out the county has won a Certificate of Achievement for Excellence in Financial Reporting every year. Year-end financial statements produced by the Comptroller's Office also have received clean marks from outside auditors.
An attempt by the Comptroller's Office staff to belatedly fix an improperly done audit has happened before. In 2015, the same firm pointed out a similar problem. In that case, the supervising auditor did not appear to be reviewing and signing off on audit paperwork until after the audit was already finished and released.
In both cases, the county violated an auditing standard that requires "supervisory review, before the audit report is issued, of the evidence that supports the findings, conclusions, and recommendations contained in the audit report."
The main difference between the letter issued in 2015 and the one issued in December 2018 is that, in the latter case, the Bonadio firm found the Comptroller's Office improperly backdated notes to make it appear as if evidence was properly reviewed at the time the audit was done. The peer review letter also considered it problematic that an individual outside of the audit's engagement team reviewed the work papers that wound up being backdated.
Mychajliw and Fiume dispute the accounting firm's interpretation of what occurred and laid much of the blame on a patronage hire by Poloncarz.
Fiume said the flagged audit was done by a staffer – an Amherst Democratic committee member and former Amherst town comptroller – who had been hired when Poloncarz was the comptroller.
That staffer released the report without the proper signoffs and had retired by the time the Bonadio firm began conducting its peer review of the county's audit division, Fiume said.
"It’s one guy who made a mistake by writing up an audit report without completing his work papers," Fiume said.
But two other staff accountants also played a role, he acknowledged. One has been a decades-long veteran in the office and another was hired by Mychajliw. Both are civil servants who noticed the audit error when Bonadio was conducting its review.
"They attempted to repair the mistake," Fiume said. "Bonadio disagreed with the way it was repaired."
County auditors knowingly made it look like audit work was done on time when it wasn't, according to the firm.
Fiume pointed out that the failure to properly sign off on underlying audit work did not affect the audit's findings, which concluded that there were no major issues to report. He also said the Comptroller's Office has migrated to an electronic system that would make similar supervisory oversights impossible in the future.