City of Hudson

Internal Controls Over Credit Cards, Travel and Expense Reimbursements - Executive Summary

The City of Hudson (City) is governed by the Common Council (Council), which comprises 10 elected members. The Council is responsible for the general management and control of the City’s financial affairs. This responsibility includes the establishment of effective internal controls over financial transactions. The Mayor is the chief executive officer of the City and is responsible, along with other administrative staff, for the day-to-day management of the City under the direction of the Council.

The City Charter empowers the Council to approve claims against City departments where commissioners do not exist. The Council created a Finance Committee (Committee) to audit these claims. The Charter designates the responsibility for approving claims against those City departments where commissioners do exist to the Mayor and respective Commissioner. These commissioner-run departments include the Fire, Police, Youth and Public Works Departments.

City officials contacted our Office in August 2006 to request an audit of the City’s use of credit cards. The City uses numerous credit and charge cards to procure goods and services. In January 2007, the Columbia County District Attorney’s Office arrested City Alderman Quintin Cross for inappropriate use of City-issued credit cards.

Scope and Objective

The objective of our audit was to determine if internal controls over selected financial activities were appropriately designed and operating effectively for the period January 1, 2005 to September 11, 2006. Our audit addressed the following related question:

• Has the City established adequate internal controls over the use of credit cards and travel and expense reimbursements to protect City assets against loss, waste, and misuse, and are those controls operating effectively?

Audit Results

The City’s internal controls over credit cards are seriously deficient which has resulted in numerous claims auditing deficiencies and questionable credit card charges totaling more than $19,000. ¹ Because the Council failed to establish written policies and procedures over the monitoring and use of credit cards and because the Council has not adequately implemented internal controls over the audit, processing, and payment of credit and charge card claims, City personnel were able to use City-issued credit cards for questionable purposes, including $977 for purchases from grocery and clothing stores, and $205 for Internet dating services. Claims for credit card purchases were not properly itemized, did not contain department head signatures, did not contain signed receipts acknowledging the City received the goods or services, and were not properly audited by the Committee, the Mayor, and department commissioners.

In addition, we discovered eight Exxon Mobil gas cards that the Treasurer did not know existed, which Fire Department personnel purportedly used to charge more than $5,000 in gasoline purchases without providing sufficient documentation to support the purchases.

The City’s Youth Department used charge cards to purchase $3,535 in shopping and gift cards that the Department used as “appreciation gifts” for Youth Department volunteers. There is virtually no control over what these shopping/gift cards are used for once they are purchased and distributed, and the process used by the Youth Department to purchase and use these cards circumvented purchasing and claims audit internal controls.

Because the Council has not established adequate internal controls over travel and expense reimbursement claims and because the Council has not adequately implemented internal controls over the audit, processing, and payment of claims, the City paid $3,090 for travel and expense reimbursements that were not reasonable or for proper City purposes. For example, the City reimbursed employees for a $148 stereo and $25 fruit basket, and paid $30 for dry cleaning, $114 for funeral-related food costs, and $199 per night² for lodging for a City Alderman to attend a political caucus.

Comments of Local Officials

The results of our audit and recommendations have been discussed with City officials and their comments, which appear in Appendix B, have been considered in preparing this report. Except as specified in Appendix B, City officials generally agreed with our recommendations and indicated they planned to take corrective action. Appendix C includes our comments on the issues raised in the City’s response letter.
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¹ Refer to Appendix A for further information.

² The Federal Continental United States (CONUS) rate for lodging in Albany, NY was $94 per night at the time that the Alderman incurred this lodging expense. The $199 per night rate paid by the City is more than double this amount.