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City Audit Finds 'Significant Deficiency' in Water, Sewer Services Balances
Johnson City finance director says department is working to correct inventory tracking issue that led to underreported costs.
Feb. 4, 2026 at 7:07pm
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A city audit in Johnson City, Tennessee found a "significant deficiency" in the water and sewer fund inventory reports, with the detail inventory balances not matching the general ledger balances. The finance director attributed this to a system issue that reported historical averages rather than actual costs, making the inventory costs appear lower than they really were. The city is working with consultants to correct the problem, which is expected to be resolved by the end of the month.
Why it matters
Accurate accounting of water and sewer fund inventory is crucial for a city's financial health and transparency. This deficiency could have implications for budgeting, rate-setting, and long-term infrastructure planning if the true costs of operating the water and sewer systems were underreported.
The details
The independent auditor, Blackburn, Childers & Steagall, found the significant deficiency in the city's water and sewer inventory reports. The issue was caused by a system that reported historical averages rather than actual costs for inventory items, making the inventory costs appear lower than reality. The city implemented a new accounting software system in 2022 that included an inventory tracking module, which is what the finance director attributed the problem to. The city is working with external consultants to correct the setup issues and get the inventory reporting accurate.
- The city's fiscal year 2025 audit found the significant deficiency.
- The city implemented a new accounting software system in 2022 that included the inventory tracking module.
- The finance director says the city anticipates the correction will be complete by the end of the current month.
The players
Blackburn, Childers & Steagall
The independent auditor that found the significant deficiency in the city's water and sewer inventory reports.
Stephanie Laos
The Johnson City Director of Finance who prepared the city's comprehensive financial report and acknowledged the issue, stating the department is working with consultants to correct it.
What they’re saying
“We are aware that there's an issue and we're working with our outside consultants. We have been for a few months to try to get that corrected.”
— Stephanie Laos, Johnson City Director of Finance
“We acknowledge and we concur that there is an issue and that we are working very closely with the consultants trying to get it corrected. We feel the same way that the auditors do, that it needs to be corrected to move forward.”
— Stephanie Laos, Johnson City Director of Finance
What’s next
Representatives from Blackburn, Childers & Steagall will present the audit findings at Thursday's city commission meeting.
The takeaway
This audit finding highlights the importance of accurate accounting and inventory tracking, especially for critical municipal services like water and sewer. The city's proactive approach to working with consultants to resolve the issue is a positive step, but it will be important to monitor the progress and ensure the problem is fully corrected.
