Utility employees, working to repair a water line break. Social media allegations of corruption have had a negative impact on employee morale – something new CEO Jeff Crigler hopes will improve after the release of a recently conducted forensic audit report. South Santa Rosa News file photo.
Holley-Navarre Water System paid around $40,000 for a forensic audit, which was performed by the Carr, Riggs & Ingram CPA firm.
In a September 20 letter and report to HNWS CEO Jeff Crigler, the firm reported the scope of the investigation was January 1, 2022 through June 30, 2022 and included an analysis of general ledgers, selected transactions, related supporting documentation and financial activities directly related to the CEO.
During subsequent employee interviews, it was consistently noted that there was employee turnover within the administration/management of HNWS over the last several years. Interviewees indicated that the HNWS finance and procurement department changed its processes and procedures throughout the last few years and lacked consistency.
Each year the utility undergoes an annual audit. There were no communicated internal control deficiencies related to the 2021 annual audit. However, the 2022 audit indicated deficiencies in HNWS’ internal controlst. These deficiencies included, but were not necessary limited to, purchasing approvals, expense classifications, year‐end close processes, segregation of duties and standardized accounting procedures.
Per the report, HNWS had various internal control deficiencies during the review period (January‐June 2022). This internal control deficiencies were in part due to the lack of formal accounting policies and procedures and a lack of awareness regarding certain policies and procedures. Holley‐Navarre did not adequately comply with its stated and understood procurement policies and procedures. It also appears that (former CEO Dr. Dallas) Peavey knowingly overrode Holley‐Navarre’s procurement policies and procedures related to one formal solicitation.
A review of Peavey’s credit card usage showed a recurred charge for gym membership; however, payroll reports indicate the charges were subsequently deducted from his paycheck – except for $236.25. The audit report states, “It is possible that Dr. Peavey’s gym membership charges related to other HNWS employee gym memberships.”
The report states HNWS’ current management has made informal efforts to improve its processes. This has included acquiring a new accounting/payroll system and requiring more in‐depth background checks for incoming key employees. There are additional areas of improvement needed in HNWS’ policies and procedures, training and documentation.
Crigler expressed hope that moving forward the community will judge the utility on its future performance, not past allegations, and that the conclusion of the audit should enable HNWS to focus on its mission of providing clean, safe water and treating wastewater for its more than 14,000 members.
To help further improve HNWS’ internal controls, we recommend that Holley‐Navarre consider implementing the above 15 recommendations
Following are the resulting 15 recommendations to improve internal controls:
1. Documentation of Accounting Policies and Procedures
- Finding: Various accounting policies and procedures for HNWS are not appropriately
documented or approved. - Effect: Employees may be unaware of the proper policies and procedures. Policies and
procedures may not be complied with, and policies and procedures may not be updated as
needed. - Recommendation: HNWS should require that all accounting policies and procedures be
documented and approved by the Finance Director and CEO. A central depository for these
policies and procedures should be established as well. HNWS should also implement a
regular review of its policies and procedures for adequacy and relevance.
2. Mandatory Purchase Order Approvals
- Finding: HNWS’ stated policies and procedures do not require that purchase orders be
approved by the appropriate manager and/or CEO prior to purchasing the good or service. - Effect: HNWS may purchase goods or services that have not been approved/reviewed by the
appropriate manager and/or CEO. - Recommendation: HNWS should implement a written policy and require that purchase
orders be approved and signed by the appropriate manager and/or CEO prior to purchasing
the requested goods or services.
3. Lack of Awareness and Understanding regarding Procurement Policies and Procedures
- Finding: HNWS employees appeared to have limited knowledge of HNWS procurement
policies and procedures. - Effect: Employees may be unaware of the proper procurement policies and procedures.
Employees may not comply with the proper procurement policies and procedures. - Recommendation: HNWS should provide training regarding its procurement policies and
procedures to relevant personnel on a regular basis.
4. Board Approval of Solicited Contracts
- Finding: HNWS’ procurement policies and procedures surrounding formal solicitations and
Board involvement are contradictory and do not outline a formal process for evaluating
solicitation responses.Effect: HNWS may purchase goods or services that were not properly approved by the
Board. - Recommendation: HNWS should consider clarifying its current procurement policies and
procedures for formal solicitations. HNWS should also consider implementing formal bid
review policies and procedures for transparency and effective bid rating.
5. Internal Vendor Management
- Finding: HNWS did not comply with its stated procurement policies and procedures for
obtaining insurance/bond documentation from the applicable vendors. HNWS does not
regularly update its master vendor list. - Effect: HNWS may not be in compliance with its own policies and procedures. Vendors may
not be insured/bonded as required. - Recommendation: HNWS should consider developing policies and procedures regarding
management of vendor files including the master vendor list and insurance documentation.
HNWS should establish a central depository for these files as well.
6. Management Override and Lack of Compliance with Procurement Policies and Procedures
- Finding: Dr. Peavey overrode HNWS’ internal controls related to procurement for a formal
solicitation. HNWS did not comply with its own procurement policies and procedures for
solicitations and purchase order approvals. - Effect: HNWS may not be in compliance with its own policies and procedures. Goods and/or
services may be procured without proper authorization. - Recommendation: HNWS should consider strengthening its procurement policies and
procedures.
7. Procurement Cost Analyses
- Finding: HNWS does not adequately perform or document its cost/vendor comparisons for
formal solicitations. - Effect: HNWS may not adequately analyze its formal solicitations, which may lead to
increased costs. - Recommendation: HNWS should consider developing a formalized process for the
evaluation and comparison of vendor bids/costs.
8. Background Checks for Key Financial Services Employees and Other Key Employees
- Finding: HNWS does not have written policies and procedures surrounding the level of background checks to be performed for potential Board members, key financial services employees and other key employees.
- Effect: Employees may have financial situations or past criminal history not notated in a
basic background check that may cause pressure to circumvent HNWS’ internal controls. - Recommendation: HNWS should implement regular financial background checks for
potential Board members, key employees that supervise the financial process or exercise
significant control over HNWS operations. If concerns are raised in these background checks,
appropriate actions or safeguards should be implemented and documented.
9. Bank Reconciliations
- Finding: HNWS does not require that bank reconciliations be completed within a designated
time period after the end of the month, and bank reconciliations were not always timely
competed. The bank reconciliations were also being completed manually. - Effect: Bank reconciliations may not be completed on a timely basis, and any differences
between the book and bank balances may not be investigated in a timely manner. Bank
reconciliations may be prone to error or manipulation during a manual process. - Recommendation: HNWS should require that all bank reconciliations be completed within a
designated time period after the end of the month, and any exceptions should be
immediately reported to the CEO for appropriate action. HNWS should evaluate processes
related to the manual bank reconciliations to increase oversight related to potential errors
or manipulations.
10. Conflict of Interest Disclosure Statement
- Finding: HNWS does not require annual conflict of interest disclosures for key HNWS
personnel, HNWS Board members or individuals serving on bid evaluation committees. - Effect: There may be a conflict of interest for key HNWS personnel, HNWS Board members
or between a bid rater and the bidding organization that is not disclosed to HNWS. - Recommendation: HNWS should require that key personnel and Board members complete
an annual conflict of interest disclosure statement. Individuals serving on a bid evaluation
committee should sign a conflict of interest disclosure statement as well.
11. Fraud Hotline
- Finding: HNWS whistleblower program is limited as there is no audit committee or internal
control function to handle/investigate complaints, etc. - Effect: Employees may not report information that could prevent or detect fraud or other
misconduct that would be detrimental to HNWS. An employee may not report suspicions or
knowledge of fraud or misconduct if he/she does not know to whom to report, especially if
the misconduct allegation is management. - Recommendation: HNWS should consider strengthening its whistleblower program as well
as implement the use of a fraud hotline. Hotline tips should be directed to an independent
body other than management; such as, the Board of Directors.
12. Fraud Awareness Training
- Finding: HNWS does not currently provide fraud awareness training to its employees.
- Effect: Employees may not notice or report certain behaviors or red flags of fraud, waste or
abuse. - Recommendation: HNWS should provide fraud awareness training to all employees on a
regular basis.
13. Credit Card Policies and Procedures
- Finding: HNWS has not developed substantive credit card policies and procedures.
- Effect: Credit cards may not be used effectively or appropriately.
- Recommendation: HNWS should develop credit card policies and procedures and ensure
that all policies and procedures are developed in a timely manner.
14. Review of Fuel Cards
- Finding: HNWS’ fuel card purchases are not formally reviewed and approved.
- Effect: Employees may charge personal or unauthorized fuel purchases to HNWS.
- Recommendation: HNWS should provide each department with the department’s fuel usage
by employee and approve of the fuel use on a monthly basis. HNWS could also implement
random audits of HNWS vehicle GPS locations that correspond with HNWS fuel purchases.
15. Review of Payroll Entries
- Finding: There is no proper segregation of duties regarding changes to the payroll system
including compensation and new employees. - Effect: Lack of proper segregation of duties regarding the payroll process could lead to
incorrect or improper compensation for employees. - Recommendation: HNWS should implement additional controls over payroll, including
routine reviews of detailed payroll reports.
READ THE ENTIRE REPORT:
2023 Final Forensic Examination Report – Holley-Navarre Water System (Redacted)
