Audit of the Southfield Redevelopment Authority Objectives, Scope, and Methodology

An overview of the purpose and process of auditing the Southfield Redevelopment Authority.

Overview

In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor (OSA) has conducted a performance audit of certain activities of the Southfield Redevelopment Authority (SRA) for the period January 1, 2018 through December 31, 2022.

We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Below is a list of our audit objectives, indicating each question we intended our audit to answer; the conclusion we reached regarding each objective; and, if applicable, where each objective is discussed in the audit findings.

Objective	Conclusion
Did SRA take the appropriate corrective actions on audit findings and recommendations from OSA’s prior audit report in the following areas: improving the board of directors’ (BOD’s) oversight of SRA management through the creation of an internal control plan as required by the Office of the Comptroller of the Commonwealth’s (CTR’s) Internal Control Guide; publishing and filing its annual financial audit with OSA as required by Section 31 of Chapter 291 of the Acts of 2014; and creating short- and long-term financial plans to ensure its financial solvency in accordance with the Governmental Accounting Standards Board Statement No. 56 (Codification of Financial and Accounting Reporting) and Section 5B of Chapter 40 of the Massachusetts General Laws?	Not always; see Findings 1, 2, 3, and 4
Did SRA have an employee Settlements and Judgments Policy based on guidelines provided in CTR’s Settlements and Judgments Policy 1779893, including the following: a process to determine the language, review, approval, and reporting of any employee settlement agreements and a process to determine whether a non-disclosure, non-disparagement, non-publication, or confidentiality request clause is appropriate in any employee settlement agreement?	No; see Finding 5

To accomplish our objectives, we gained an understanding of SRA’s internal control environment that we determined to be relevant to our objectives by interviewing SRA management and by reviewing applicable SRA policies and procedures. We evaluated the design and implementation of internal controls related to our objectives. We also tested the operating effectiveness of controls related to the following controls:

• We selected a random sample of 20 bank statement reconciliations for all of SRA’s bank accounts for the audit period. We then obtained the hardcopy bank statement reconciliations and reviewed each sample to determine whether and when each reconciliation had a signatory review5F⁵ by a board member. We then calculated the elapsed time from the bank statement date and the date of the signatory review.
• We randomly selected a sample of 24 months during the audit period and reviewed all accounts payable warrants (23 accounts payable warrants in total) related to those months to determine whether each warrant in our sample had a signatory review by a board member.
• We selected a random sample of 150 hardcopy invoices that were paid during the audit period. We reviewed each invoice to determine whether there was a preliminary approval signature from a separate employee before the invoice was included into an accounts payable warrant.
• We reviewed the respective BOD’s meeting minutes for each annual budget period to determine whether each proposed annual budget was approved.

Our control testing identified issues regarding SRA’s internal controls over its bank reconciliation and invoice signatory review. See Findings 2, 3, and Other Matters for more information.

To obtain sufficient, appropriate evidence to address our audit objectives, we performed the procedures described below.

Corrective Actions

We determined whether SRA took appropriate corrective actions on audit findings and recommendations from OSA’s prior audit report in the following areas:

• improving the BOD’s oversight of SRA management through the creation of an internal control plan as required by CTR’s Internal Control Guide;
• publishing and filing its annual financial audit as required by Section 31 of Chapter 291 of the Acts of 2014;
• creating short- and long-term financial plans to ensure its financial solvency in accordance with Governmental Accounting Standards Board Statement No. 56 (Codification of Financial and Accounting Reporting) and Section 5B of Chapter 40 of the General Laws.

To do this, we took the actions described below.

Internal Control Plan

We inquired of SRA management, who were responsible for creating and maintaining an internal control plan and a policies and procedures manual, whether SRA management was directed by its BOD to create said policies.

See Finding 1 for more information regarding the results of our testing of SRA’s internal control plan.

Financial Audit

To determine whether SRA published and filed its annual financial audit with OSA as required by Section 31 of Chapter 291 of the Acts of 2014, we obtained all 5 annual financial audits of SRA for the audit period and determined whether they were made available to the public by reviewing SRA’s website. We inquired of SRA management whether the annual financial audits were submitted to OSA no later than 120 days after the end of the fiscal year. We then calculated the number of days that may have passed after fiscal year end to when the annual financial audits were submitted to the OSA.

We noted no significant issues in our testing of publishing and filing of SRA’s annual financial audits.

Financial Solvency

To determine whether SRA created short- and long-term financial plans to ensure its financial solvency in accordance with Governmental Accounting Standards Board Statement No. 56 (Codification of Financial and Accounting Reporting) and Section 5B of Chapter 40 of the General Laws, we took the following actions:

• We obtained SRA’s budget projections for fiscal years 2024 through 2029 and calculated the projected percentage changes between each fiscal year.
• We calculated the percentage of projected revenue to expenses through 2029 to determine whether SRA plans to have adequate funding to cover its potential annual operating costs and long-term debt payments.
• We reviewed SRA’s stabilization fund, a dedicated fund that provides SRA the ability to maintain basic services through supplemental funding in the event of financial instability. To determine whether the stabilization fund was sufficiently funded for SRA’s financial needs, we calculated any changes in the ending balance for each fiscal year during the audit period.
• We asked for and obtained from SRA management revenue generation and debt reduction plans and documented how each plan affects its current and future solvency. Using the most recent audited financial statement from the audit period, fiscal year 2022, we compared the stated revenue amounts in the financial statement to each amount in the revenue generation plan. We then compared the revenue against SRA’s total expenditures and, more specifically, against its debt service cost for its three long-term debts. Using SRA’s debt reduction plans, we calculated each plan’s reduction amount and whether the long-term debt balances were actively being reduced.

We noted no issues in our testing regarding SRA’s creation of both short- and long-term financial plans to ensure its financial solvency.

Employee Settlement Agreements

We determined whether SRA had an employee Settlements and Judgments Policy based on guidelines provided in CTR’s Settlements and Judgments Policy 1779893, including the following:

• a process to determine the language, review, approval, and reporting of any employee settlement agreements and       
• a process to determine whether a non-disclosure, non-disparagement, non-publication, or confidentiality request clause is appropriate in any employee settlement agreement.

To accomplish this, we took the following actions.

We inquired of SRA management and SRA legal counsel regarding any use of settlements and judgments for current or past SRA employees. We also asked SRA management whether SRA has a Settlements and Judgments Policy as part of its internal control plan. We then reviewed all 19 human resource files of past and current employees and board members to determine whether there were any settlements, judgments, non-disclosure agreements, or any other documentation that would appear to be related to settlements, judgments, or non-disclosure agreements. We obtained the minutes for all 81 board meetings that took place during the audit period, and reviewed each write-up, looking for references to any employee settlement agreements.

We used SRA’s Bank Register Report, Paid Warrant Report, and General Ledger Reports from the audit period to compile a population of all 58 expenses, totaling $105,053, for legal counsel services during the audit period. We then judgmentally selected the top 20 largest expensed payments, totaling $78,672, and reviewed each invoice payee name, amount, date, and purpose to determine whether those payments were indicative of any type of employee settlement agreement. Further, we compiled a summary of all paid legal services for each fiscal year during the audit period and calculated a trend in the expensed amount between each fiscal year, to determine whether there was any indication of employee settlement agreement payments.

See Finding 5 for more information regarding the results of our testing of SRA’s employee Settlements and Judgments Policy. 

Data Reliability Assessment

To determine the reliability of the data (Bank Register Report, Paid Warrant Report, and General Ledgers) obtained from SRA’s information systems, we tested the following information system controls: security management, configuration management, segregation of duties, contingency planning, and access controls. Our assessment identified issues regarding certain information system general controls over SRA’s computer network system. See Finding 4 for more information.

Bank Register Report

To determine the reliability of the Bank Register Report, we interviewed SRA management who were knowledgeable about the data and observed SRA’s finance director query SRA’s finance system and extract 1,115 transactions that were made during the audit period. The finance director then provided these 1,115 transactions to us in an Excel spreadsheet. We ensured that the total number of transactions we observed within the finance system matched the total number of transactions in the Excel spreadsheet. We inspected the transaction data for embedded data, hidden names, rows, columns, workbooks, and invisible content. We also inspected the data for duplicates, identifying whether a check number appeared more than once within the data.

To determine the accuracy of the population of the 1,115 transactions, we used a randomly selected sample of 20 transactions listed on the Bank Register Report and compared the check numbers, amounts, dates of transactions, and names of payees to the corresponding hardcopy invoices and canceled checks. To determine the completeness of this population, we judgmentally selected a sample of 20 hardcopy invoices and compared the invoice amounts, dates of transactions, and payee names to the information listed in the Bank Register Report, canceled check stubs, and general ledgers. 

Paid Warrant Report

To determine the reliability of the Paid Warrant Report, we interviewed SRA management who were knowledgeable about the data and observed SRA’s finance director print a previously compiled paid warrant report containing 217 transactions from a now defunct financial software program. The finance director then provided the report to us in a PDF document. We ensured that the total balances for each account we observed on the computer screen matched the total balances for each account on the PDF document. We reviewed the data and documented the beginning and ending check numbers and identified whether a check number appeared more than once within the data or were missing from consecutive count.

To determine the accuracy of the population of 217 transactions, we used a randomly selected sample of 10 transactions listed on the Paid Warrant Report and compared the check numbers, amounts, dates of transactions, and names of payees to the corresponding hardcopy invoices and canceled checks. To determine the completeness of this population, we judgmentally selected a sample of 10 hardcopy invoices and compared the invoice amounts, dates of transactions, and names of payees to the information listed in the Paid Warrant Report, canceled check stubs, and general ledgers. 

General Ledgers

To determine the reliability of the General Ledger Reports, we interviewed SRA management who were knowledgeable about the reports and the data within. We ensured that the total balances for each account we observed on the computer screen matched the total balances for each account on the PDF document that SRA provided to us.

To determine the accuracy of the General Ledger Reports, we selected a judgmental sample of 12 months of all bank accounts listed in the general ledgers and compared the bank account names and amounts to the corresponding hardcopy bank statements and reconciliation forms. To determine the completeness of the General Ledger Reports, we judgmentally selected a sample of 12 months of all bank account hardcopy forms and compared the bank account names and amounts to the corresponding general ledger accounts and reconciliation forms.

Based on the results of our data reliability assessment procedures detailed above, we determined that the information obtained for the audit period was sufficiently reliable for the purposes of our audit.

5.    This review is when a dedicated board member provides their signature and date of review on each monthly bank reconciliation.

Date published:	December 20, 2024