HomeMy Public PortalAboutFiscal Year 2015 Management Letter TOWN OF WATERTOWN, MASSACHUSETTS
Management Letter
For the Year Ended June 30, 2015
TABLE OF CONTENTS
PAGE
INTRODUCTORY LETTER 1
STATUS OF PRIOR YEAR RECOMMENDATIONS:
1. Improve Compensated Absences Accounting 3
2. Develop a More Formal Risk Assessment Process 3
MELANSON
ACCOUNTANTS•AUDITORS
10 New England Business
Center Dr.•Suite 107
Andover,MA 01810
(978)749-0005
melansonheath.com
Additional Offices:
Nashua,NH
Manchester,NH
Greenfield,MA
To the Town Manager and Town Council Ellsworth,ME
Town of Watertown, Massachusetts
In planning and performing our audit of the basic financial statements of the Town of
Watertown, Massachusetts as of and for the year ended June 30, 2015, in accordance
with auditing standards generally accepted in the United States of America, we con-
sidered the Town's internal control over financial reporting (internal control) as a basis
for designing our auditing procedures for the purpose of expressing our opinions on
the financial statements, but not for the purpose of expressing an opinion on the effec-
tiveness of the Town's internal control. Accordingly, we do not express an opinion on
the effectiveness of the Town's internal control over financial reporting.
A deficiency in internal control exists when the design or operation of a control
does not allow management or employees, in the normal course of performing their
assigned functions, to prevent, or detect and correct misstatements on a timely
basis. A material weakness is a deficiency, or a combination of deficiencies, in
internal control, such that there is a reasonable possibility that a material misstate-
ment of the entity's financial statements will not be prevented, or detected and
corrected on a timely basis.
Our consideration of internal control was for the limited purpose described in the
first paragraph and was not designed to identify all deficiencies in internal control
that might be material weaknesses. Given these limitations, during our audit we
did not identify any deficiencies in internal control that we consider to be material
weaknesses. However, material weaknesses may exist that have not been identified.
During our audit we became aware of other matters that we believe represent oppor-
tunities for strengthening internal controls and operating efficiency. The recommen-
dations that accompany this letter summarize our comments and suggestions
concerning those matters.
This communication is intended solely for the information and use of management,
Town Manager and Town Council, others within the organization, and is not intended
to be, and should not be, used by anyone other than these specified parties.
The purpose of this communication, which is an integral part of our audit, is to
describe for management and those charged with governance, including those
overseeing the financial reporting process, the scope of our testing of internal
control and the results of that testing. Accordingly, this communication is not
intended to be and should not be used for any other purpose.
November 15, 2016
2
STATUS OF PRIOR YEAR RECOMMENDATIONS:
1. Improve Compensated Absences Accountinq
Prior Year Issue:
In the prior year, we recommended that the Town centralize and automate the
accounting for employee compensated absences.
Current Year Status:
We understand that the Town contracted with a consultant to automate the
compensated absence accounting in the Town's MUNIS accounting system.
However, this project was incomplete in fiscal 2014 and 2015, resulting in an
estimated liability amount being recorded in both the June 30, 2014 and 2015
financial statements.
Further Action Needed:
Upon completion of the new automated system, we recommend the Town
monitor and test the new automated compensated absence records during
fiscal 2016 to help ensure an accurate liability amount is reported in the 2016
financial statements.
2. Develop a More Formal Risk Assessment Process
The Town informally performs its own risk assessment for possible fraud or
material misstatement through various policies and procedures and regular
reviews of trends in the financial statements. Risk assessment is a manage-
ment function designed to identify where an organization may be vulnerable
to errors and/or irregularities. A complete risk assessment process involves a
written description of risk areas identified by those charged with governance
(management and elected officials) and a description of how the organization
intends on responding to the risks.
We recommend that the Town implement a more formal risk assessment
process that includes internal audits and written identification of areas where
potential fraud or material misstatements to the basic financial statements
may occur. Regular department head meetings could be used as a starting
point for documenting risk assessment discussions and assessments.
In evaluating risk areas, particular consideration should be given to situations
where a single employee is responsible for performing most or all accounting
responsibilities, since this could create opportunities for fraud to occur and go
undetected. The Town should evaluate major transactional cycles in all appli-
cable departments to ensure an adequate segregation of duties exists. If
staffing levels do not permit an adequate segregation of duties, the Town
should provide additional oversight, which should include review and
documented sign-off of the key accounting records.
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We also recommend the Town establish a formal employee fraud policy to
provide staff with guidance in the event they observe or suspect fraud in the
work place.
4