County finance manager resigns in wake of audit

County focusing on fixing the issues and ensuring accuracy

By Katherine Nettles

Immediately following a concerning financial audit presentation last month which indicated Gunnison County had failed to reconcile some financial statements in a timely manner, the county’s finance director Perry Solheim resigned from his position just as the 2025 budget process got underway. Solheim had been with the county in that capacity since July 2022. County deputy CFO Ana Canada has been named interim finance director, and according to county manager Matthew Birnie, the county’s finances remain strong but it is taking the audit’s findings seriously and addressing the procedural issues raised while focusing on the current budget process at hand. 

On October 15, representatives from McMahan and Associates LLC, an accounting and consulting firm the county has used for several years, presented its findings in an audit of the county’s 2023 comprehensive financial report. CPA and managing member Paul Backes stated that the county is in good financial standing, but shared that he had found some uncharacteristic issues in this latest audit.

Solheim resigned the following day on October 16, citing personal reasons. “I accepted his resignation on that date as well,” said Birnie.  “That’s really all I have to say on this personnel matter.” Canada, who has been with the county for nine months, is now leading that team, confirmed Birnie. “And we are focused on moving forward positively. We will assess next steps going forward once we get through the 2025 budget process.” 

During the October audit presentation, commissioner chair Jonathan Houck welcomed Backes, noting that the annual audit helps provide perspective on the county’s methodology and best practices. “It’s a third party outside view of the work we’ve done. Paul, we’ve worked with you for a long, long time, and we appreciate the durability of the relationship and you having a keen eye,” he said.

Backes responded that Gunnison County has typically been very prudent in its fund balances and how it manages resources. “So, the financial results of the county looked really good,” said Backes. “There is a letter, though, that we provide, and that letter is in your financial packet. And this is maybe more of recommendations that we have.”

“Procedural errors”

Backes said the main concern he wanted to share was reconciling journal entries in the county’s monthly financial statements. “If we made material journal entries on a fund, we have to disclose those to you,” explained Backes of the process requirements. He described such entries as areas where the firm uploads the county’s data, verifies it and then makes corrections where needed and makes a note of them to get the financial statements materially correct. “And we just had a lot of journal entries this year,” he summarized. “I won’t necessarily go into a lot of detail on each fund. But it was a lot of entries.”

Backes said the primary issue was, “When you guys are doing your budget and you’re looking at financial statements we really want those numbers to be dialed in and reliable before we do our audit. Now, it’s not unusual to have journal entries by any means. But these are maybe more and more significant than historically the county has had.”

Backes said he and his team dug in and got entries reconciled through December 31, 2023. “But at this point we’re nine months behind on those cash reconciliations, and they’re really kind of a primary control to make sure that your financial statements are correct… I think that’s what the county is going to have to work on this next year is getting caught up on those reconciliations.” 

Backes recommended the county have a monthly closing process complete within 45 days of a month’s end, and because it is a complex process there are specialists that could help. 

Another issue was with payroll processing, as the county changed to using a vendor to process payroll last year. “It sounds like the vendor did not do a lot of the basic homework that they probably should have done before they started cutting paychecks, and I think there was just a lot of errors in implementing that payroll software,” said Backes.

In summary, he said, “the good news is, the financial statements are done. They are correct. The bad news is we do have some work to do.” 

Backes also recapped that when his team met with the county staff and showed them the reconciliations, he didn’t get a sense that there was a comprehensive understanding of them, primarily “because they are so different from what maybe any other entity has.” He said that’s why a consultant would have perhaps made more sense.

“And don’t get me wrong. Your staff was great to work with. I think they want numbers right. They are dedicated professionals. It’s just some of this stuff is complicated and we need to get to a monthly close where these reconciliations are being done, and the journal entries are being posted, and we’re not having so many entries that are occurring at the audit,” he concluded.

Reasons…

Houck reiterated that the purpose of such audits is to identify places of best practices and strength, and to identify areas where improvement is needed. “And I will say, as the longest tenured member of the board, we’ve always had some things that show up in our annual report, and a lot of it’s just due to our size. We’re a small county with small work. So, some of the checks and balances stuff kind of falls in that field. But, Matthew, I know you’ve been working on some of this and looking at how we change some pieces here, so we want to give you an opportunity to kind of just lean in.”

Birnie’s response was brief. “I don’t really have a lot for you today, other than to say, especially on the 2024 [statements] I will be working on this issue with Perry and staff to rectify any issues.”

Solheim said he had made progress since the audit and reconciled statements through August 31 of this year, and was implementing a monthly close process. “We’re trying to move that along,” he said. 

Solheim also said it was a matter of staffing with four of his six staffers new to the county audit process and turnover in senior staff. 

Last, Solheim said, “I don’t like to make excuses, but as Paul [Backes] mentioned, we did go through a payroll conversion which has an effect on this. We also have new budgeting software which will actually help us on the other end especially with our reporting… Setting and enforcing deadlines will help us a great deal, and I look forward to working with Matthew on that and getting help from other departments as we endeavor to reach a monthly close.” Solheim said when he had started there were many other issues to handle, including the draft budget for 2025 which he proceeded to present later in that same work session. 

Commissioner Laura Puckett Daniels asked if the audit identified issues that commissioners would need to know about in any particular department’s budget performance. “I’m sure department heads are looking at their budget performance and asking themselves, ‘Am I on track?’” she said. “When the issues with reconciliation were identified, were there gaps that we need to know about in our oversight capacity?”

“Not in my opinion,” Solheim responded. “Most of these reclassifications deal with quite frankly, specific accounting rules where the adjustments come, the reconciliations.”

He reassured her that every single transaction gets looked at and a department head signs off on it with several other steps to the process. “I don’t expect it has had any effects with particular departments.”

Looking forward

Birnie shared with the Crested Butte News this week that the county is transitioning well and in strong financial shape, despite the rough audit this year and Solheim’s immediate resignation.

“With the transition and issues raised in the audit, I have had Ana and her team focusing on fixing the audit issues and ensuring the County budget is accurate,” he said.

Last, Birnie addressed some concerns within the community that the audit may have indicated financial weakness for the county. 

“The issues raised in the audit are important and we take them very seriously, but they are procedural and operational.  They do not point to a weak financial position,” he said. “In fact, the audit shows the opposite. The balance sheet shows the County to be in the strongest financial position it has ever been in.”

Canada also commented to the News this week. “Regarding the issues raised by the auditors, staff has a contract with CBS Accounting to assist with the monthly bank reconciliations. Also, staff has been working diligently to resolve payroll issues brought up after the audit. Despite we are short the CFO position, the finance staff is working hard and preparing for a better and successful audit in 2024,” she said. She also reviewed the upcoming budget meetings with a work session on Tuesday, November 26, a public hearing on Tuesday, December 10 and final adoption Thursday, December 12.