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State audit discloses Ferndale underbilled 52 utility customers a total of $231,419 over 15 years

FERNDALE, Wash. — In May, City of Ferndale officials announced a recent annual audit by the Office of the Washington State Auditor discovered they had underbilled about 120 members of a water association by a total of $57,027. In addition, according to the state auditors’ report (PDF), the city had previously determined it had also underbilled 52 other utility customer accounts for a total of $231,419 between 2007 and 2021.

The City provides water, sanitary sewer, and storm sewer utility services to about 8,456 accounts.

For fiscal years 2020 and 2021, the City receipted utility revenues of $8,962,230 and $10,271,937, respectively.

The City reviewed its utility accounts and determined it underbilled 52 of them for a total of $231,419 between 2007 and 2021. Of this amount, the City wrote off $35,754 as uncollectable. The remaining amount has been collected or has been contracted through payment plans to be collected over time.

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Our audit specifically identified an additional account that the City did not bill in agreement with its contract. The City estimates it underbilled this account $57,027 between 2012 and 2022. Office of the Washington State Auditor accountability report – City of Ferndale (June 8, 2023)

The state auditors made the following recommendations in response to their findings.

  • Performing independent, timely review of all utility billing adjustments
  • Ensuring reviewers are printing the utility adjustment reports to confirm that all parameters are included, and no modifications have been made
  • Performing a complete inventory of all meters to ensure all customers are billed for their usage
  • Implementing compensating controls to ensure applicable elements for utilities are included for all customer accounts
  • Reviewing utility contracts to ensure customers are billed in agreement with their contracts

City officials’ response to the state auditors’ findings was included in the auditors’ report as follows.

The City has completed a comprehensive review of utility accounts and supports the Auditor’s findings and recommended actions. Upon recognizing these potential risks in Summer 2021, the City self-reported concerns to the Washington State Auditor’s Office and initiated internal reviews of its processes and procedures. Subsequently the City established a variety of internal controls intended to improve the City’s processes, including revised policies and the planned introduction of new financial software. The City Finance Department, in coordination with the City Administrator, IT, and other departments, will develop procedures to ensure that all State Auditor recommendations are thoroughly reviewed, and that additional internal controls associated with utility billing are implemented by the end of Q4 2023. The City Council has authorized the acquisition of new or upgraded financial software, including utility billing modules, and this software is expected to be integrated by the end of Q4 2023 as well.

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The state auditors said they will review the corrective action taken by the city during their next regular annual audit.

When announcing the underbilling of the water association members in May, a city official noted underbilled amounts must be collected.

According to state law, when a utility discovers it has undercharged a customer, it generally must collect the amount of the undercharge for at least two reasons. First, to do otherwise could be considered an improper gift of public funds. Second, waiving or foregoing collection of utility undercharges may violate the public policy against rate preferences as stated in Housing Authority v. NE Lake Washington Sewer & Water Dist. 784 P.2d 1284, 1288 (1990). City of Ferndale Spokesperson Riley Sweeney (May 9, 2023)

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