INCLINE VILLAGE, Nev. – The Incline Village General Improvement District (IVGID) Board of Trustees faced a dual challenge Wednesday, grappling with a forensic report warning of “high risk of fraud” while simultaneously approving increases to sewer and water rates. 

Certified public accountants and business consultants RubinBrown, LLP, of St. Louis, Missouri, presented a draft forensic due diligence report to the IVGID Board. 

“We see high risk of fraud and abuse until management represents an appropriate tone at the top to develop, maintain and monitor an appropriate internal control environment,” Thomas Zetlmeisl, a partner at RubinBrown said during the presentation. 

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Zetlmeisl and his team presented their high-level walk through of the biggest risks they found in a draft report. 

The Board had less than 24 hours to read the report, Trustee Michaela Tonking said. 

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Board Chair Sara Schmitz asked for a contact person for the Board to reach out to with questions. 

“We welcome questions, observations and thoughts from this group,” said Zetlmeisl. 

In response, Schmitz said, “we’re anxious to hear the findings.” 

A RubinBrown team member said, “overall we concluded there’s a high risk of fraud and abuse … we did not see any outright fraud.” 

“There’s lack of following written policy and procedures, lack of internal controls in general and mismanagement of district funds,” he said. 

The six key high fraud risk areas were Tyler Munis human resources and payroll systems implementation, vendor disbursements, cash, capitalization, procurement cards and other, a RubinBrown team member said. Tyler Munis is an area of improvement.

“Today, its been unsuccessful due to the execution of the implementation,” he said. 

“You’re having trouble getting reporting, consistent reporting,” a RubinBrown team member said. “They’re not always reconciled.” 

A slide presentation during the meeting listed ongoing lack of consistent and timely issuance of financial reporting since implementation. Data reports from the point-of-sale systems have different results than the Tyler Munis system for the same dataset. Issues with paying vendors out of the Tyler Munis system. Tyler Munis is not being used by IVGID staff at full capacity, instead using manual Excel files. 

For example, IVGID staff could not figure how to make payments out of Tyler Munis system until January 2023, so they simultaneously entered invoices into both systems, a RubinBrown team member said. He added he had never seen that before. 

Schmitz asked if IVGID’s takeaway on lessons learned should be that when they have a system conversion, they should hire external resources to do the conversion and not have staff do it while they’re trying to do their regular jobs? 

A RubinBrown team member agreed. 

“Are we finally on solid ground with Tyler Munis?” Schmitz asked. 

“I’m sure it’s in a better spot as of our scope period, but whether its exactly where it needs to be, we don’t know,” said Zetlmeisl. 

Zetlmeisl commented that the finance department had been working diligently on rectifying the issues with Tyler Munis. 

Tonking said the report’s scope includes many of the findings we’ve found in the past. 

A RubinBrown team member said vendor disbursements issues include lack of segregation of duties with disbursement process. Disbursements paid with no documentation from third party and/or no documentation at all. Comprehensive review of user access had not been done since implementing Tyler Munis. 

A chart showed there were 24,182 instances with a disbursement amount of $64,587,682. 

Schmitz said, “$10,000,000 where you have no data available, that’s not comforting at all.” 

“How do you dig into it to say this is OK or it is not?” Schmitz asked. 

“We’re at the mercy of what’s available for us to analyze … this is a concern for sure,” said Zetlmeisl. 

A lot of these disbursements would have happened in the old system as well, Zetlmeisl said. 

A RubinBrown team member said reviewing user access and doing an access review is prudent and recommended. 

Trustee Ray Tulloch asked if there are approval levels programmed into Tyler Munis. The response from the team is that it is possible to program approval levels into the system, but it had not been done when the team was reviewing the system. 

The team agreed to divide the transactions into Tyler Munis and the old system to create a more accurate picture. 

Schmitz said that will show what’s improving and what’s not. 

Another key issue is with cash and the operating bank account. Issues are a lack of timely and/or complete reconciliations. Large unreconciled differences, and lump sum cash entries are posted to the general ledger. 

There were no reconciliations for payroll, Health Reimbursement Account, Flexible Spending Account or holdings bank accounts during the scope period. 

Cash transactions were input into the general ledger bulk rather than individual, which made it hard if not impossible to reconcile, the team said. 

In June 2023, the bank balance was $18 million and the general ledger was $25 million with a difference of $7 million, a team member said referring to the chart shown during the presentation. He said called it “a tremendous difference.” 

Holdings bank account at one point was more than $200,000 that was not applied cash on the general ledger, a team member said. The former controller said that was an “allocated out.” 

This is an area of need for significant discipline moving forward, the team member said. 

Capitalization (CapEx) was cited as another key issue, a RubinBrown team member said. There is limited knowledge on reporting given turnover. They’re unable to reconcile CapEx spreadsheets to financials. It’s a highly manual process to aggregate and sort capital expenditures. Projects relating to repairs and maintenance are capitalized rather than being expensed. Pre-project studies and evaluation expenses are capitalized rather than being expensed. 

There were no questions by the board on capitalization. 

A slide detailed the procurement cards as another issue. There was personal use on procurement cards. There was also insufficient and inappropriate support for procurement cards expense reports that included general ledger transaction report provided as expense report support. There was no support provided for expense reports. Also, there was support provided that does not tie to expense amount. The support does not show invoice by line item to confirm validity of business expense. 

There were 93 active procurement cards with expenses totaling $1,490,000 over the scope period. There was limited review of procurement card activity outside of the initial approval of a submitted expense report. 

“We do not find the approval and monitoring of the program to be adequate,” a RubinBrown team member said. 

Schmitz cited page 10 in the report. Two employees, A and B, between the two have had no approvals for $900,000 each the other is created and approved by the same individual for $520,000 and $900,000. 

“Are things being followed up with management and HR to take corrective action?” Schmitz asked. “Please don’t share names,” she said. 

“You’ve found some things that are quite remarkable and my question is, is this information being shared with HR or the general manager?” Schmitz asked. 

Nothing with HR directly, but have talked to GM on an ongoing basis, a RubinBrown team member said. 

“If there’s issues that need to be followed up on management needs to be made aware,” Schmitz said. 

A RubinBrown team member said there are four other types of high-risk observations. Contracts awarded may exceed Board of Trustees funding approval. 

For example, the Board approved $200,000 in fiscal year 2021 for the replacement of ski equipment. However, the vendor was awarded $264,000. 

Physical inventory observations and reconciliations are not performed across IVGID locations including Public Works and food/beverage. 

A RubinBrown team member gave an example. IVGID employees do not always have a unique user name rather they have shared user accounts. The risk is they do not allow for individual tracking. There’s inappropriate user access in point-of-sale systems. They don’t know which employees have access to the shared accounts. They found usernames unlocked and active for employees who no longer work at IVGID. 

Green fee pricing schedules are not consistently followed, according to the report. 

Tulloch said there’s no tracking on food and beverage. He said inventory control is critical since there’s a slim profit margin. 

A RubinBrown team member said agreed there’s no tracking. 

Tonking asked why the golf courses were scrutinized and other IVGID areas were not. 

A RubinBrown team member said it was an expressed concern funneled to them through the general manager. 

“I just think this is a disservice if you found this at one venue not to see if it is an issue across venues,” Tonking said. 

This summarizes IVGID’s key high risk areas, a team member said. 

“It’s a little bit harsh, but it’s what we saw,” Zetlmeisl said. 

This is a summary of the report. 

IVGID needs appropriate internal control environment to transition from loose internal control culture to efficient and effective finance and accounting departments that provide transparency and clear communications to the board and the general public, the report said. 

Recommendations: 

• Improve internal control environment and tone at the top 
• Ensure proper implementation and controls in Tyler Munis system 
• Implement proper segregation of duties and approvals for disbursements 
• Perform timely bank reconciliations 
• Improve controls and oversight of procurement card usage 
• Implement proper inventory tracking and counts 
• Improve user access controls in point-of-sale systems 
• Ensure Board approval obtained before incurring project expenses 
• Formalize processes for grants/donations and report to Board 

“This report is very detailed,” said IVGID Chair Sara Schmitz. 

Schmitz then arranged for the RubinBrown representatives to return at a future date to answer questions once the board have time to examine the findings. 

The Board also opened a public hearing and accepted a motion to adopt a resolution approving amendments to sewer and water rates, as well as a one-time household hazardous waste fee of $14.74. 

Tulloch asked why the hazardous waste shed suddenly appears as a charge and wasn’t in budget. “Does this mean … is this a normal practice to put something back in and then stick an extra charge on it and add it to the bill?” 

Director of Public Works Kate Nelson said the infrastructure is structurally unsound. So the Board needs to come up with a way to pay for the hazardous storage. 

This $14.74 a year charge would be removed after this year, Nelson said. The charge is just to fund the hazardous waste shed. 

Three residents spoke during public comment and each called out the unfairness of how rates are distributed. 

“There’s hesitation to implement rates that would collect the $2,000,000 to make up the deficit in one year,” said Trustee Dave Noble. “The alternative that came from staff demonstrated there was a potential to collect an additional $532,000.” 

Noble implored his colleagues “to get something more than that up to a $1,000,000 at least … That would be my recommendation.” 

Tulloch said he wants to keep rates at “what’s actually doable for the community … I think we need to make sure we keep our rates at a reasonable level.” 

Trustee Matthew Dent said, “the fees we’re charging are going to create a $1,500,000 shortfall approximately from what we need (dipping into fund balance) … we’re seeing a water increase of nearly 16% and a sewer increase of 8% with the proposed rates. If we were to increase it further we’re talking about another 18% increase on top of what we’re already doing just to break even.” 

He supports alternative number 2 and he can’t image passing along these huge rate increases to the users. “It’s not sustainable,” Dent said. 

Alternative number 2: 

• Increase in sewage drop-off rate from $85 to $90 per 1,000 gallons 
• Changes to service call rates: $50 per half hour during business hours, $100 per half hour outside business hours 
• Increase in water waste penalty from $100 to $250 a day 
• Increases in meter rental charges and deposits 
• Increase in bulk water for construction rate from $2.02 to $2.22 per 1,000 gallons 

New fees introduced: 

• Waste Management bad debt fee of $25 
• Compliance appointment no-show fee of $20 
• Some fees remained unchanged, such as inspection fees, violation of air-gap on truck fill-up, returned check fee, and posting service charge. 

The new rates and fees become effective on Friday, July 19.