SOAP LAKE - State auditors estimated Soap Lake failed to collect as much as $515,000 in utility revenue during the past five years.

The state issued the finding as part of its 2008 and 2009 audit of the city. The state conducts regular audits of governmental agencies, examining financial reports, accountability and compliance with state laws.

Mayor Wayne Hovde declined to provide additional comments about the finding.

The state found when city employees reviewed customer accounts in 2010, they discovered 27 water and sewer accounts were in the wrong classification, according to the report. The city categorized the connections as residential, commercial-residential and commercial.

"The city corrected these account classifications in October 2010, when the city passed new water and sewer service system ordinances," according to the finding.

The finding stated the city may have not collected as much as $103,000 a year, according to the state.

"During the five years these accounts were misclassified, the city may have lost as much as $515,000 in utility revenue," according to the finding.

After the audit, the city administrators feel confident the accounts are being classified correctly, according to the city's response in the finding, adding the previous ordinance was difficult to interpret making it hard to classify properties correctly.

"While we may agree there is a possibility of uncollected revenue, there was no misappropriation of funds, nor was there intent to misclassify customers," according to the auditor. "Upon discovery and verification of the potential of misclassification, the issue was addressed by the city council and immediate steps were taken to rectify the situation."

The response continues, stating city staff notified affected property owners and allowed them to offer comments at several council meetings. They created the new ordinance based on the comments.

The auditors noted limitations in billing system preventing city staff from tracking customer account adjustments. They estimated the city potentially has $303,900 in "untracked adjustments or unsupported variances," according to the finding.

The auditors reviewed 26 adjustments made in 2008 and 2009. None of them had supporting documentation other than brief comments, according to the finding.

"Nine adjustments did not appear reasonable based on our review of the account history. Unsupported adjustments increase the risk of misappropriation and inaccurate billings," according to the auditor. "Customer bills can be deleted from the system without a record of the deletion. The previous utility meter reading in the current bill can be altered and this change is not reviewed, tracked or reported."

The auditors pointed out adjustments, such as voided payments, are not reviewed, increasing the risk inappropriate adjustments will not be identified, according to the finding.

City administrators stated the audit alerted them to problems in the utility billing system, according to the city's response in the finding. City officials contacted the system's provider and expressed concerns about the "inadequate report capabilities."

"The city agrees with the recommendations. Prior to the audit we had already adopted steps that we feel will allow sufficient documentation to support adjustments," according to the auditor.

City officials created logs to document why adjustments were made, according to the state.