The million dollar question answered

While sitting in the KTA (Knox Transit Authority) meeting last week a startling comment was made. “One million dollars has vanished off the books.” Now, to clarify, nobody was stating the money was stolen.  However, questions were raised by both commission members and members of the community about the complicated accounting practices that led to this scenario.

 

I asked the Director of City Finance, Jim York,  if he could clarify all the questions in writing and on record. Within less than one business day, he responded via email and on  record. Here is his response:

 

“Thank you for seeking clarification on the Inventory Adjustment item discussed at the KAT Board meeting. We appreciate responsible journalism and you seeking clarification is a good example of responsible journalism.  As you have surmised, the issue is confusing to say the least.

 

“The funding of KAT is, needless to say, complicated. KAT funding consists of fare box receipts, charter revenues, other miscellaneous revenue as well as support from Federal, State and Local (City) sources.  In order to maintain audit compliance with the various agencies providing funding, KAT’s accounting structure is broken into numerous components, with numerous transactions among the components. It is this complexity that led to an overstatement of inventory expense in prior years.  While we were in full compliance with the grantor agencies, the erroneous adjustments to the inventory accounts flowed through the City accounts for KAT.

 

“Following past practice, monthly financial reports to KAT’s Board does not reflect grant activity.  When City Finance started to review the monthly financial presentation to the KAT Board with the aim of including all KAT financial activity, the double counting of parts expense surfaced and its impact on inventory.  We have a responsibility to correct an error when discovered and the way to correct this error is a one-time adjustment to the operating accounts as an end of year expense.  This adjustment is in accordance with general accounting practices and not anything caused by changes in accounting methods.

 

“As I was not at the meeting I cannot directly speak to the statements of the (***name withheld by reporter***). I must infer that he/she was referring to the fact that KAT’s actual expenses were below budget by a little over 1 million dollars prior to the adjustment taking place.  The adjustment effectively removes the difference between budgeted expenditures and actual expenditures.  This is the difference but it has no practical effect on operations. It is a one-time accounting adjustment.

 

“To clarify, no inventory or money is missing.  It is strictly an accounting correction which had to be made and City Finance chose to bring it to the Board’s attention at the July meeting. This was our first opportunity after verifying that a correction was required.

 

“In summary, the issue is confusing but please be assured that no actual money or inventory was lost.”

 

Dan Andrews reporting.

 

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