A forensic audit of the Nevada Northern Railway revealed a need for more policies to regulate procedures for handling finances.    (Garrett Estrada photo)

A forensic audit of the Nevada Northern Railway revealed a need for more policies to regulate procedures for handling finances.
(Garrett Estrada photo)

The long awaited city-ordered forensic audit of the Nevada Northern Railway’s finances and operations was released in a special meeting put on by the railroad trustees on March 5 inside the armory. The 69-page document, which was distributed at the meeting but can also be found on the city’s website, details the current financial status of the railroad and includes recommendations in areas the auditing firm of Larry Bertsch, CPA & Associates LLP found lacking. Bertsch, along with fellow auditor Nick Miller, gave a presentation to both the Railroad Board of Trustees and the Railroad Management Board, presenting their findings and analysis of the way the NNRY has been operated through Nov. 17, 2014, which is the end date of the findings from the report.

When asked by City Councilman and Railroad Trustee Sam Hansen how Bertsch would categorize the railroad’s current financial situation, the auditor replied that unless changes are made, the railroad is on a “going out of business curve.”

“If the things that we found continue and if you do not take the opportunity to go through some strategic planning, you are going to have an insolvent company very shortly,” Bertsch answered.

Yet despite his answer, the auditor stressed that things don’t have to go down that path. He offered the trustees an analogy to try and give them the proper perspective with how to handle the report’s findings.

“When you drive your car down the road, if you are only looking in the rear view mirror, you are going to have an accident. You need to look forward and work on this together  so we never end up in this situation ever again,” Bertsch continued.

The situation he referred to is one of having everyone working towards the same goal of keeping the railroad afloat while simultaneously never being on the same page. Several of the reports recommendations included having the Railroad Board of Trustees, Management Board and Executive Director work together to come up with a slew of new policies so that there are more rules in place going forward. Miller provided an example of one such policy that is recommended in the report, opening a separate account for grant money so it will never get confused and spent improperly. Also included in the report’s three and a half pages of recommendations were policies for whistle blowing, conflict of interest, having the trustees and management board review the annual form 990 exemption from income tax prior to it being filed, stopping the practice of disbursing funds for payments without enough money to cover the disbursements and more. According to Miller, each of the firm’s recommendations came from a finding in the report where things had room for improvement.

Another issue that was brought up by Hansen’s questioning was whether or not the railroad was currently in debt. Miller pointed to the software used by the railroad to track their finances QuickBooks and reported that as of Nov. 17, 2014 the railroad had a balance of $271,186.53 owed to the First National Bank of Ely from loans and promissory notes. The report cites four individual loans or notes, with the first note dating back to August of 2005. Since then, the railroad foundation has paid $64,589.76 in interest, according to the audit findings.

In addition, Bersch warned that the debt could actually be more if restricted funds were used to pay for things handled by unrestricted funds. The auditors recommended that the trustees should create a committee to come up with a plan on how to manage or restructure the debt currently held by the foundation so as not to let it sink the foundation. Another issue he had with the loans was that they were never brought to either the management board of the trustees for approval before they were signed.

Management Board President and Owner of First National Bank of Ely John Gianoli said he felt some of the statements made by the auditors about the handling of the loans lacked an understanding of why things were done that way and that the bank has never done anything inappropriate regarding its financial handling with the foundation.

“They didn’t have a good grasp of why the loans were done the way they were,” Gianoli said. “You can’t even have the perception of wrong doing here.”

Much had been made about the trustees ordering the forensic audit in the first place due to the word “forensic.” Many found the word to mean that the auditors were searching for criminal activity, of which none was found.  According to Bersch, he found little evidence of any “wrong doing” on the behalf of Executive Director Mark Bassett, his wife Joan Bassett, or anyone on the management board. Instead, he determined that each party didn’t have enough policies in place to ensure best practices were being followed and that by following the recommendations that are laid out in the audit, the railroad should be able to right it’s course.