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HomeMy Public PortalAbout20010731WCMeeting1 @ @ITEM 2001 -07 -31 City Council Minutes — Workshop 2000 Audit Mayor Walter Parker opened the workshop stating all that would be discussed tonight would be the 2000 audit presented by Chris Lightle of Karp, Ronning, Arkin and Tindol. Council members Jimmy Burke, Jack Youmans, Shirley Sessions, Anne Monaghan and Mallory Pearce were present. Lightle told Council that the State Audit Committee is satisfied with the audit report but that they are asking for a letter from the City manger, Mayor or Finance Director on the correction action plan. Lightle said that this is new. Lightle said that the management letter has 25 suggestions and since the City has a new city manager, fmance director and software that this information could be used as a bench mark to measure the corrections. Lightle said that some of these items could have been done orally but that Tom Cannon wanted everything in writing. Cannon said that he asked fo0r as much detail as necessary so that this could be used as a guide for staff Lightle said that Mayor and Council should be made aware when and what assets of the City are being disposed. The memorandum of Comments and Suggestions are attached and become a part of these minutes. Lightle went over each item and answered questions from the Mayor and Council. Sessions questioned the accountability — match with pay structure. Cannon answered that the administration responsibility is with each department heads and they should expend funds in the proper manner. Sessions asked about a debit card with rules and regulations in order to track purchases? Finance Director King answered that the answer is one person in charge of purchasing. Cannon said that the person who is hired would save double or triple their salary each year. Sessions asked about incentives for the department heads. King answered like a one time bonus for saving like 10% of their budget. Lightle stated that it is not that bad yet but comments could cause problems especially the 6 that were sent off with the audit to the State. Sessions asked that Lightle tell Council the top priority. Lightle said Finding T100 -2 — fixed assets of which King is aware; Finding T -1006 — dealing with the use of purchase orders; and Finding T -1004 — water sewer detail accounts receivable records did not agree with the general ledger control accounts. Lightle said that this is an opportunity for problems. Copy of the 6 findings sent to the State Audit are attached and become a part of these minutes. Youmans said that the City pays a lot of money for the audit and should do what they tell us. Mayor Parker adjourned the meeting. Mayor Walter W. Parker City of Tybee Island, Georgia Schedule of Findings and Questioned Costs December 31, 2000 Finding TI00 -1 Although the small size of the City's office staff limits the extent of separation of duties, we believe certain steps could be taken to separate incompatible duties. The basic premise is that no one employee should have access to both the physical assets and the related accounting records or to all phases of a transaction. One of the most critical areas of separation is cash, where we noted the following: 1. The Finance Director also functions as the cashier. 2. Cashier receives payment, prepares the bank deposit, and has access to the accounts receivable subsidiary ledger. 3. Items returned by the bank (because of insufficient funds, etc.) are delivered to the cashier and investigated by the cashier. The result is the danger that intentional or unintentional errors could be made and not detected. We suggest that management reevaluate the present system and make changes to provide as much separation as possible. Management response: The City's new Finance Director has requested additional staff members in order to separate duties. The Finance and Accounting department will undergo a complete restructuring ind reassignment of duties so that no single employee will have access to both the physical assets and the related accounting records or to all phases of a transaction. New internal controls and financial policy will be implemented and fully enforced. Finding TI00 -2 Detailed fixed asset records were not available. The preparation of detailed property records aids in the accounting for property disposals, substantiate insurance claims for lost or damaged items, and provides controls to safeguard the assets. The City should take appropriate action to establish accounting controls and procedures to provide for maintenance of complete fixed asset records. A written procedure statement could include the following: 1. A detailed property record for each asset. 2. A property identification number to be assigned and affixed to each asset. 3. A capitalization policy under which minor disbursements within a specified dollar amount would be immediately charged to operations. At minimum, the detailed property records should include the following information: 1. Description, asset number, and location. 2. Acquisition cost and date of acquisition. 3. Assigned life and method of depreciation 4. Depreciation taken on an annual basis with the accumulation thereof. Management response: During fiscal year 2000, there were considerable staff limitations. The City has recently upgraded the financial reporting software that includes a fixed asset management module. The module is capable of recording and tracking fixed assets, as well as inventories. Some of the functions of the fixed module include, but are not limited to the following: • Description, asset number, and location. • Acquisition cost and date of acquisition. • Assigned life and method of depreciation. • Accumulated depreciation. • Property identification numbers. 33 1 City of Tybee Island, Georgia Schedule of Findings and Questioned Costs December 31, 2000 Currently, management is developing policies to establish accounting controls and procedures to provide for fixed asset reporting, as well as for GASB -34 reporting. An additional staff, member would be responsible for the maintenance of fixed asset records. Finding TI00 -3 We noted that the Water and Sewer Fund continued to borrow money from the General Fund to finance various disbursements in the Water and Sewer Fund. At December 31, 1999 the Water and Sewer Fund owed the General Fund $1,077,519. During 2000 the Water and Sewer Fund liability to the General Fund increased by $220,731. The increase in the liability resulted from the following transactions: 1. General Fund cash used to pay Water and Sewer net payroll, Federal withholdings, and FICA liability was $193,403. 2. Garbage charges collected in the Water and Sewer Fund and not remitted to the General Fund were $247,332. 3. Administrative charges to Water and Sewer Fund were $60,000. 4. Net decrease in advance balance at December 31, 1999 was $279,952. 5. Postage and copy charges to the Water and Sewer Fund were $83. We recommend that management develop a plan to immediately establish a method of repayment of the outstanding loan. Management response: The General Fund will no longer loan money to the Water and Sewer Fund. Management is discussing a repayment plan of the Water and Sewer Fund's loan to General Fund with potential implementation beginning in August of 2001. In general, the plan will consist of bi- monthly payments over a three -year period, so that there will not be any sort of financial strain placed on the Water and Sewer Fund. • With the new financial software in place, General Fund will no longer pay the Water and Sewer Fund's net payroll, Federal withholdings, and FICA. • Postage and copy charges to the Water and Sewer Fund will be discussed and will be acted upon during the upcoming internal control study. Finding TI00 -4 At December 31, 2000, the City's water and sewer detailed accounts receivable records did not agree with the general ledger control accounts. Subsidiary ledgers for the water and sewer accounts receivable had not been reconciled to the general ledger control account. This condition could result in errors and omissions in the financial statements not being detected in a timely manner. Management should determine the underlying reason for the difference and should take steps to correct current procedures as deemed necessary. In addition, management should develop procedures to ensure that differences are identified, researched, and resolved on a timely basis. We recommend that the City establish policies and procedures to ensure that all subsidiary ledgers are reconciled to the general ledger control accounts on a monthly basis. These reconciliations should be reviewed and initialed by a responsible employee whose responsibilities do not include the billing and recording of transactions to these accounts. Management response: Management will review policies and procedures to ensure that all subsidiary ledgers are reconciled to the general ledger control account on a monthly basis. The reconciliation will be reviewed and initialed by the Finance Director. When differences are identified, they will be researched and resolved in a timely basis. 34 City of Tybee Island, Georgia Schedule of Findings and Questioned Costs December 31, 2000 Finding TI00 -5 Through our audit of the purchases/accounts payable system, we noted that the accounts payable detail is not reconciled to the general ledger balance on a monthly basis. We recommend that this reconciliation be performed at each month end to ensure that the general ledger balance, and thus the monthly financial statements, reflects the proper accounts payable amount. Management response: New - policies and procedures are being developed for month end reconciliation of accounts payable to the general ledger. The reconciliation and an `open item' report will be performed at each month end to ensure that the general ledger balances, and that the monthly financial statements reflect the proper accounts payable amount. Finding TI00 -6 The city's appropriation ordinance does not require the use of purchase orders. The purpose of a purchase order system is to control spending of the City's resources and to help ensure that the City pays only for items that are actually received. The system should provide for approval of purchases, including establishment of reasonable limitations on approval authority of specific individuals. For example, under the system, purchase of fixed assets in excess of a specified dollar limit might require Mayor and Council action; items purchased relatively infrequently, such as insurance policies and long -term service contracts, would be approved by the City Manager; and materials and supplies would be approved by department heads. A purchase order is usually in writing and is a legal document indicating an offer to buy. For most routine items, a purchase order is used to indicate the offer. A purchase order would be issued to a vendor for a specified item at a certain price to be delivered at or by a designated time. Prices and other terms would be included on purchase orders for use in job cost control and in the payment process. Purchase orders should be matched to vendor invoices to assure that only agreed upon prices are paid. We recommend that management re- evaluate the current appropriations ordinance and consider requiring that purchase orders be utilized in the process of acquiring goods and services. Purchase orders should be: 1. Prenumbered and used in sequence. 2. Prepared on the basis of a purchase requisition approved by a responsible employee, usually a department head. 3. Limited to purchases less than a certain amount (to be determined by the governing body) on their face without prior approval of the governing body. Purchase orders should require independent approval that: 1. An appropriation exists for the purchase 2. A sufficient amount is available in the appropriation account to which the purchase is chargeable. Management response: Management will review and make necessary requests to Council for changes in the appropriation ordinances. The new financial software has a purchasing module that will aid the staff in developing purchasing policies and regulations. Management will also develop enforcement policies with regards to purchasing control. Purchase orders will be utilized and implemented. The purchase orders will be: • Prenumbered and used in sequence. • Prepared on the basis of a purchase requisition approved by a specific employee. • Limited to set amounts before proper and prior approval by Council. 35 1 /A \S =_ Karp, Ronning, Arkin & Tindol ®_� Certified Public Accountants, A Professional Corporation MANAGEMENT LETTER To the Mayor and Council City of Tybee Island, Georgia 123 Abercorn Street Post Office Box 9550 Savannah, Georgia 31412 912- 232 -0475 fax 912- 232 -0478 kra @kracpa.corn Martin L. Karp, CPA Dennis W. Ronning, CPA Steven M. Arkin, CPA Richard D. Tindol, CPA Bradley A. Lucas, CPA A.L. Karp (1925 -1969) In planning and performing our audit of the financial statements of the City of Tybee Island, Georgia for the year ended December 31, 2000, we considered the City's internal control in order to determine our auditing procedures for . the purpose of expressing an opinion on the financial statements and not to provide assurance on internal control. However, during our audit we became aware of several matters that are opportunities for strengthening internal controls and operating efficiency. The memorandum that accompanies this letter summarizes our comments and suggestions regarding those matters. A separate report dated June 14, 2001, contains our report on reportable conditions in the City's internal control. This letter does not affect our report dated June 14, 2001, on the financial statements of the City. We will review the status of these comments during our next audit engagement. We have already discussed these comments and suggestions with the various City personnel, and we will be pleased to discuss it in further detail at your convenience, to perform any additional study of these matters, or to assist you in implementing the recommendations. Sincerely, Karp, Ronning, Arkin & Tindol, P.C. Savannah, Georgia June 14, 2001 . e. 1 1 City of Tybee Island, Georgia Memorandum of Comments and Suggestions December 31, 2000 Review Functions of Bank Accounts At present, the City maintains nine checking accounts. Many of the accounts were established for narrow purposes and have few transactions and small balances. We recommend that management periodically review the functions of all bank accounts to determine whether they are necessary. Only the minimum number of bank accounts consistent with operating requirements should be established. Numerous bank accounts result in complexity and inefficient administration. Time needed to record accounting transactions, as well as time and fees incurred in auditing and accounting services, could be reduced if the City eliminated or combined bank accounts when possible. Maintain an Authorized Check Signer List During our audit, we noted that the authorized check signer list was not available. A current listing of authorized check signers should be maintained to ensure proper authorization of all disbursements. We recommend that a listing be developed and periodically reviewed and updated each time a change in check signers occurs. Have Management Review Bank Statements At present, accounting personnel perform bank reconciliations. We recommend that management open the bank statements and review them for any unusual checks or other transactions before giving them to accounting to perform the reconciliation. Management's review of the bank statement will ensure that unusual items are investigated on a timely basis. Reconcile Bank Accounts on a Timely Basis Bank statements in some instances were accumulated for several months before they were reconciled to the appropriate general ledger controls. Not reconciling the accounts on a monthly basis means errors or other problems might not be recognized and resolved on a timely basis. Also, it is generally easier and less time - consuming to reconcile accounts while transactions are fresh in mind. We recommend that all bank accounts be reconciled each month prior to preparation of the monthly financial statements. Investigate Old Outstanding Checks The City does not have a formal, clearly defined policy for disposition of uncashed checks and as a result there are many old outstanding checks, some over one year old, currently being carried on monthly cash reconciliations. This causes additional time to be spent by personnel to reconcile the bank accounts each month. If any of these checks should be voided, this eliminates the possibility of using those funds. We recommend that management develop and communicate a formal and clearly defined policy for the disposition of uncashed checks. We also recommend that all checks over one year old be investigated and removed from the bank reconciliation and the original transaction should be reversed. Research should be done periodically to eliminate large numbers of old items being carried from month to month. Investigate Unreconciled Amounts in Bank Accounts Monthly bank account reconciliations are the primary internal control procedure relating to the City's cash accounts. During fiscal year 2000, bank account reconciliations were prepared, however, the general fund checking account was not completely reconciled. As of December 31, 2000 there was an unreconciled amount of $5,042 in the general fund checking account. Although this amount may appear not to be material to the overall financial position of the City, it may obscure significant but offsetting items (such as bank errors or improperly recorded transactions) that would be a cause for investigation if the items were apparent. Unreconciled amounts should be investigated and not be allowed to carry over from month to month. Prepare an Aged Trial Balance of Accounts Receivable We recommend that an aged trial balance of the water and sewer accounts receivable be prepared each month. Any balance over ninety days old should be listed on a supplementary schedule with a complete explanation of the reason why the balance has not been collected. Both these schedules should be given to the finance director, as well as, the city manager for review. In this way, balances which are past due can be monitored and perhaps collected before age makes collection impossible. City of Tybee Island, Georgia Memorandum of Comments and Suggestions December 31, 2000 Use Written Credit Memo Forms We noted that written credit memo forms are not used to issue credits to all water and sewer customers. We recommend that a standard credit memo form should be used to ensure that credit is properly issued and recorded for accounting purposes, and that a responsible person approve the credit memo form before credit is given to the customer. Review the Allowance For Doubtful Accounts The allowance for doubtful accounts is not being analyzed periodically. We recommend that management prepare an analysis of uncollectible accounts at least quarterly. Management should adjust the allowance for doubtful accounts after reviewing the analysis of uncollectible accounts and making appropriate collection efforts, in order to collect as much as possible and to ensure that the estimated loss from uncollectible accounts receivable is reflected on the balance sheet. Update Customer Addresses Promptly We observed a number of water and sewer customers complaining that they did not receive a bill for water and sewer charges. We recommend that the City institute a program to expedite the updating of customer addresses in the billing system in order to avoid delays in the receipt of customer payments. Establish Perpetual Records for Certain Items We recommend that a perpetual inventory system be established to control selected inventory items in the Water and Sewer Department and the Public Works Department that are readily convertible to personal use and items with high unit costs. Periodic physical counts should be made of these items in order to detect pilferage or usage not charged to jobs, and the physical count should be reconciled to the perpetual records. Retire and Dispose of Assets That Are No Longer in Use During our review of the plant and equipment, we noted that efforts have been made to retire assets no longer in use and/or obsolete. However, there still appears to be a number of assets on the books that should be retired. We recommend that the City continue to review the property accounts and retire any assets that are not in use or are deemed obsolete. Removing the assets from the records will reduce the bookkeeping tasks related to fixed assets. Maintain a Long -term Payable Register We recommend establishing a long -terse payable register and maintaining it on a current basis. The register would include pertinent data about each open long -term payable, such as date, amount, payee, maturity dates, interest rate, collateral, and payment history with respect to principal and interest. As a. control factor, unpaid principal amounts per the register should be reconciled on a periodic basis to the general ledger. Correctly Code Expenditures During our testwork of certain expenditure accounts, we noted numerous errors and some inconsistencies in account coding of expenses. The errors were not material; nevertheless, to make the monthly financial statements a meaningful analysis tool, care should be taken to properly and consistently classify expenditures. The correct coding of all expenditures and voided checks is essential for accurate and useful financial statements. Clearly Specify Reimbursement Rules To better control travel costs, we recommend that the City determine and communicate to employees in writing exactly what costs will and will not be reimbursed. Such a communication would be useful to travelers and a helpful expenditure reduction aid. City of Tybee Island, Georgia Memorandum of Comments and Suggestions December 31, 2004 Use Automated Time Cards We recommend that the City consider using an automated time card system, which would calculate hours on a daily basis -and accumulate pay cycle totals that could be reviewed before sending the data to the payroll department. A review of daily hours would allow management to correct mistakes and review overtime, sick, holiday and vacation time as it occurs. Automation would eliminate the redundant keying now being done to accumulate total hours by employee, thus saving time and reducing the potential for errors. Use a "Tickler File" During our audit, we noted that income tax and other tax payments or returns were not always made on time. We recommend that the City use a "tickler file" system or similar system to identify relevant due dates for tax payments so that they can be paid on time. Such a file would consist of a section for all the normal due dates for the various payments or filings in a chronological order. The file would be scanned periodically, such as each Monday morning, to identify upcoming due dates. Adopt a Records Retention Policy A significant volume of paper and records are processed, maintained, and stored in departments throughout the City. We recommend that a careful review be made of record retention requirements and that a City- wide policy for record retention be adopted that maintains records for specified periods and provides for their destruction after the specified period. The retention dates should be appropriate for the various types of records. For instance, some records should be retained permanently, others for the tax statute of limitations, etc. A reasonable retention policy does the following: • Provides for legal protection. • Affords convenience and aids in records retrieval • Maximizes the use of limited storage space. Study the Layout of the Accounting Department We noted that the Finance Director is located in a high- traffic area within the accounting department and appears to be subject to numerous interruptions. We recommend that a study be made of the accounting work area layout with the idea of moving the Finance Director to a lower- traffic area. Liabilities Paid at Proper Amount and in the Proper Period During our audit we noted instances of bills not being paid at the proper amounts or in the proper period. Overpayment of liabilities results in bookkeeping inefficiency due to time and effort required to research overpayment and then to request and record a refund. We recommend that checks submitted for signature be compared to invoice amount by a responsible reviewer before signing. Internally prepared invoices such as payroll tax form 941 should be prepared from available payroll reports and compared to the general ledger withholding accounts to verify accuracy before payment. Timely Payment of Invoices We recommend that the city observe and adhere to due dates of invoices to avoid late charges or legal action. Also, payroll related liabilities should not be paid in advance of the withholding to avoid unnecessary costs that may not be recouped by the City, and to provide a proper matching of costs within each reporting period. Proper Withholding of Employee Payroll Deductions Amounts withheld for supplemental insurance that is entirely funded through employee deductions should be periodically compared to amount invoiced to the City to insure proper withholding. Also, payroll deductions for uniforms and hospitalization should be compared to invoice and City policy for amount to be provided by employee. This will help to eliminate refunds due employees for erroneous withholding and also eliminate unnecessary costs to the City. 1 City of Tybee Island, Georgia Memorandum of Comments and Suggestions December 31, 2000 Credit Card Usage We were unable to locate supporting documentation for charges appearing the City's credit card account. Reasonable controls over credit card - purchases require that underlying documentation for purchases be maintained to provide evidence that the expenditure was authorized, goods and services received and correctly recorded in the books and records of the City. We recommend that underlying documentation for credit card charges be obtained, compared to the charge appearing on the credit card statement and maintained in the appropriate files to support charges appearing on credit card statements. Public Works Software Purchase We noted that the City invested $5,000 in software to automate the work order system in the Public Works Department. At the time of our audit work, the department was not utilizing the software. We recommend that management take advantage of the benefits to be derived from the implementation and utilization of the computer software. Re- establishment of Water Service During our testwork, we noted that to re- establish water service to customers who have had their water cut off for non - payment, client personnel simply place a radio call to the water department and give verbal authorization to re- establish the customer's water service. We recommend that work orders be prepared to document authorization to re- establish water service. The work order could contain information on whether or not a fee was collected, and if not, the reason for waiving the fee. Amounts reported on individual work orders could be traced to daily cash collection reports.