Louisiana audit shows Melville town officials owe federal government for payroll taxes

(The Center Square) — The town of Melville, La. is in financial trouble, but the extent of the problems are unknown because officials could not provide the records and other evidence required for an independent audit.

The Louisiana Legislative Auditor released an independent auditor’s report on Melville’s finances last week that highlighted “substantial doubt about the town’s ability to continue as a growing concern.”

Certified public accountants at Kolder, Slaven & Company identified 10 findings for the fiscal year ending September 30, 2020, including five repeated from prior audits, which raise concerns about the town’s continued operations.

The issues involve payroll taxes owed to the U.S. Internal Revenue Service for several years, large outstanding accounts payable, and an inability to comply with bond covenant requirements.

Auditors also found the town lacked adequate segregation of duties for accounting functions, lacked internal controls and policies for financial operations, and could not provide documentation for expenditures.

In addition, town officials have not tracked capital assets, lacked funds to pay its utility customer deposit liability, failed to collect on overdue utility accounts, failed to keep meeting minutes, failed to deposit funds for reserve accounts and failed to file financial statements with the LLA, as required.

“The town’s lack of internal controls, policies and procedures, and accounting practices has contributed to a variety of problems, including documentation being unavailable, large overdue balances in accounts payable, finance charges and late fees for non-payment of accounts payable, and management’s inability to properly evaluate financial decisions because of a lack of timely and accurate information,” according to the report.

The audit contends town records reflected a liability related to customer deposits of $24,452, while the amount restricted for deposits at fiscal year end was $13,089, and the actual liability based on number of customers should be about $74,050.

“The town is not reconciling the customer deposit subsidiary ledger to the cash account,” auditors wrote. “In addition, the town has used monies to pay outstanding tax liabilities owed to the IRS.”

The town also may have violated state law by “allowing customers and board members the use of public utilities without payment,” according to the report.

The town’s failure to comply with debt covenants stems from previously issued sewer revenue bonds and an unfulfilled obligation to deposit $635 and $884 per month into a reserve account and contingency and depreciation accounts, as required by the U.S. Department of Agriculture.

“In addition, the town’s financials do not report the assets, liabilities, revenues and expenses separated by utility system as per USDA requirements,” auditors wrote.

Melville Clerk Thomas Jung responded to the independent auditor’s report in an undated letter that explained a corrective action plan for each of the 10 findings. The town hired an assistant clerk to help with segregation of duties, and will use the town’s governing board “where considered necessary to have adequate separation,” the letter read.

Melville officials will also “be implementing monitoring and training activities to ensure that financial reporting is properly performed,” Jung wrote.

The clerk also promised to implement written policies and procedures for documenting expenses, and to print and reconcile monthly water and gas deposits. Payroll taxes are now remitted electronically by the town accountant, and management is working with town departments to record capital assets, the letter said.

Melville is also “in the process to collect aged accounts and has submitted old disconnected accounts … for collection,” and is now maintaining written minutes for all town board meetings. In addition, town officials are implementing other “corrective actions” to rectify debt covenant and reporting obligations, according to the letter.

Jung promised “the town will take the necessary steps to ensure that all financial records are accurate and make available to the town’s auditors in a timely manner.”