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 Hawthorne’s latest financial audit revealed a handful of issues, some of which the city has already corrected and others it continues to work on, said City Manager Ed Smyth.

The fiscal year 2009 audit showed that the city had met at least one of the conditions that might result in a financial emergency.

That one condition was a high unreserved negative fund balance. The audit, conducted by Sexton and Schnoll, certified public accountants, found that the city had an unreserved negative fund balance of about $100,000, as of Sept. 30, 2009.

Smyth said the commission has already set in place new reserve and transfer policies to prevent such a high unreserved negative fund balance in the future.

The audit also showed that the city had two conditions that together comprised “deteriorating financial conditions.”

The two conditions that comprised the designation of “deteriorating financial conditions” are that expenditures exceeded revenues in the general fund and that the enterprise funds showed a net loss of about $220,000.

Smyth said the city addressed this issue in the budget process by separating out the three enterprise funds, i.e., water, wastewater and sanitation, into distinct fund accounts.

He said one of his major challenges as city manager has been separating out the city’s finances to make the enterprise funds and general fund self-sustaining.

Smyth described the previous financial methods as a clump of Play-Doh with all the colors mixed together. He said his goal has been to separate out all of the colors to make the city’s finances easier to follow and understand.

Another major finding in the audit was that the city needed to diversify its deposits and not keep all of its money in one bank. Smyth said the city is working on finding a second bank or credit union to shift some of the money.

The audit also revealed that the city had insufficient policies to control its assets. Smyth said the city is working to get the issue fixed and that it won’t be a problem in the next audit.