PALM HARBOR – After noting discrepancies in the balance sheets of the three entities that they oversee, board members of the Palm Harbor Community Services Agency urged the directors to move to accrual accounting.
East Lake Community Library Director Lois Eannel explained to the board June 18 that the agency’s accountant had discovered several inaccuracies in the balance sheets of the East Lake and Palm Harbor libraries as well as that of Palm Harbor Parks and Recreation. She described the entries as “old journal entries that kept coming up,” though they weren’t reflected in the day-to-day budget of the organizations and were already paid in full.
The mistake at the East Lake library amounted to $5,000 worth of expansion expenses that was quickly identified and zeroed out. In Parks and Recreation, it was a $610,000 lighting project from the previous year that was never marked as “paid.”
“A $600,000 error on the balance sheet. And it was never caught,” board member Rob Moore commented.
Another board member noted that the agency’s auditing company, with which board members were already displeased, hadn’t caught the errors either.
The auditors had recommended that the agency convert from cash accounting to accrual. Last month, the three directors met with the accountant Gene Cunningham to discuss the possibility.
“Because we had worked on a cash basis, we’re all very comfortable with it, and it was worked well for the three entities for the past several years,” Eannel explained.
A cash basis of accounting records transactions when the money is actually paid out or received. Accrual accounting, standard for most large organizations, tracks obligations and anticipated revenue regardless of when the actual transactions occur.
“It’s not a simple matter, according to the accountant, of moving to accrual. It would require a lot more bookkeeping and require additional time from all three administrative assistants for retraining, plus loss of time that’s there to complete other responsibilities,” Eannel said.
Cunningham suggested compiling a year-end accrual report for each entity, allowing the directors to continue to work on a cash basis throughout the year,
“The simplest reason was it has not presented a problem in all the time we’ve used a cash basis in our system of accounting. For us, it works well. This was, for us, what we thought was a reasonable compromise,” Eannel said.
Board member Elliot Stern said that he was a “firm believer” in accrual accounting and didn’t think it would take that much more effort to do.
“Minimally, the year-end accrual is necessary to know what we go from current year to the next year and what responsibilities are still out there that have been committed that haven’t been paid for it,” he said. “I’ll go along with it, at least for now.”
Parks and Recreation Director Erica Lynford explained that none of the entities had dedicated or trained bookkeepers, but rather “people we’ve hired that are doing the books” and have a “multitude of other responsibilities.”
“It would take a training curve, and it’s going to take, we estimated, several hours a week away from their other duties, to do accrual,” she said.
The organizations’ biggest expense was personnel, which the entities accommodate with a “guesstimate” of 5 to 10 extra in payroll.
“But all of our bills come in and are paid within seven days,” Lynford said. “We’re all fortunate enough where we don’t run our banking accounts down to $100.”
Lynford and Eannel said they were “very concerned” with the accounting skill level and time availability of their employees in changing the accounting system.
“What this board doesn’t know is that is the first time that we’ve ever requested a balance sheet where that other liability shows up,” Lynford said, explaining that the contracted accountant would only do what he’s asked to do.
Moore said he would like to see the accrual report done more than once a year, suggesting it occur on a quarterly basis.
“I have always thought that we have not had the attention we needed or deserved from our accountant,” he said, though he acknowledged that Cunningham was newly contracted by the agency and not around when the $610,000 error was made. “I’m not saying he hasn’t done what we’ve asked him to do, but those kind of things shouldn’t linger as long as they have.”
Board chair Rex Haslam asked the directors to find out if a quarterly accrual report was possible.
“Sometimes we don’t know what we don’t know,” Moore said.
“The bottom line is that an accrual accounting basis tells us more than a cash basis does. Just plain and simple. So if some learning has to take place, you’ve been given warning,” he said.