HomeMy Public PortalAboutFY 2010 Management Letter TOWN OF WATERTOWN, MASSACHUSETTS
Management Letter
For the Year Ended June 30, 2010
TABLE OF CONTENTS
PAGE
INTRODUCTORY LETTER 1
STATUS OF PRIOR YEAR RECOMMENDATIONS:
1. Improve Compensated Absences Accounting 3
2. Establish Receivable Write-Off Policy 3
3. Improve Accounting and Monitor Activity over the Police
Detail Agency Fund 4
CURRENT YEAR RECOMMENDATIONS:
4. Improve Receipt Classification 4
5. Prepare for New Accounting Standard 5
MELANSON HEATH & COMPANY, PC
CERTIFIED PUBLIC ACCOUNTANTS
MANAGEMENT ADVISORS
10 New England Business Center Drive • Suite 107
Andover, MA 01810-1096
(978) 749-0005 • Fax(978) 749-0006
www.melamonheath.com
To the Town Manager and Town Council
Town of Watertown
Watertown, Massachusetts
In planning and performing our audit of the financial statements of the Town of
Watertown, Massachusetts as of and for the year ended June 30, 2010, in accord-
ance with auditing standards generally accepted in the United States of America,
we considered the Town of Watertown's internal accounting control over financial
reporting (internal control) as a basis for designing our auditing procedures for the
purpose of expressing our opinion on the financial statements, but not for the pur-
pose of expressing an opinion on the effectiveness of the Town's internal control.
Accordingly, we do not express an opinion on the effectiveness of the Town's
internal control.
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 combination of deficiencies in internal
control, such that there is a reasonable possibility that a material misstatement 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 deficiencies, significant deficiencies, or material weaknesses. In addi-
tion, because of the inherent limitation in internal control, including the possibility of
management's override of controls, misstatements due to error or fraud may occur
and not be detected by such controls. We did not identify any deficiencies in internal
control that we consider to be material weaknesses.
Additional Offices:
Greenfield,MA• Ellsworth,ME• Nashua,NH• Manchester,NH
During our audit we became aware of several other matters that we believe repre-
sent opportunities for strengthening internal controls and operating efficiency. The
recommendations that accompany this letter summarize our comments and sugges-
tions 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.
After you have had an opportunity to consider our comments and recommendations,
we would be pleased to discuss them with you.
Andover, Massachusetts
June 8, 2011
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STATUS OF PRIOR YEAR RECOMMENDATIONS:
1. Improve Compensated Absences Accountinq,
Prior Year Issue:
In prior years, we recommended that the Town centralize and automate the
accounting for employee compensated absences.
Current Year Status:
The Town and School Department continue to maintain compensated
absence records on separate systems that are not integrated with the
Town's payroll systems. This has contributed to delays in completing
the annual audit.
Further Action Needed:
We continue to recommend that the Town and School Department integrate
the accounting for employee compensated absences in the MUNIS System
in order to increase efficiency, provide improved controls, and create a better
audit trail.
2. Establish Receivable Write-Off Policv
Prior Year Issue:
In prior years, we recommended that the Town develop a formal write-off
policy for all departmental receivables. This would result in more standard-
ized practices throughout the Town.
Current Year Status:
This recommendation has not been implemented.
Further Action Needed:
We continue to recommend that the Town implement a policy for the write-off
of uncollectible ice rink, police detail, and other miscellaneous receivables.
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3. Improve Accountinq and Monitor Activitv over the Police Detail
Aqencv Fund
Prior Year Issue:
In the prior year, we recommended the Town establish a police detail receiv-
able account in the general ledger and reconcile it to the Police Department
records. The cash deficit balance should be added to the collectable receiv-
able amounts to determine whether a true fund deficit exists. If a true deficit
exists, an analysis should be performed to identify the cause and determine
a corrective action plan.
Current Year Status:
No receivable account was established in the general ledger.
Further Action Needed:
We continue to recommend that a receivable account be established in the
general ledger and that it be reconciled to the Police Department.
CURRENT YEAR RECOMMENDATIONS:
4. Improve Receipt Classification
In fiscal year 2010 the School Department was named a beneficiary of a new
memorial educational scholarship, and received two partial payments totaling
$ 180,000. The first payment was initially recorded as an expendable schol-
arship trust, and the second as a revolving fund. Both expendable trust funds
and revolving funds permit the spending of the principal corpus. Upon further
research of the accompanying document, the City Auditor determined that
this was in fact a nonexpendable trust fund that only permitted the drawdown
of principal in specific limited situations. The Town subsequently reclassified
these receipts to the Town's nonexpendable trust funds.
We recommend all departments that are recipients of any gifts, contributions,
or endowments obtain copies of applicable legal documents to ensure the
receipts are reported in the proper general ledger fund, and in accordance
with the legal provision of the contributor. This will minimize the risk that
receipts are reported or expended improperly.
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5. Prepare for New Accountinq Standard
Beginning in fiscal year 2011, the Town will need to implement a new
accounting standard, called the Governmental Accounting Standards Board
(GASB) Statement 54 — Fund Balance Reporting and Governmental Fund
Type Definitions, which establishes new criteria of special revenue funds, and
new classifications of governmental fund balances. Certain Town-established
funds, such as stabilization, will no longer be reported separately, but instead
be reported in the general fund for the year end audited financial statements.
In addition, the classifications of reserved, designated and unreserved fund
balances will be replaced with new classifications of nonspendable, restricted,
committed, assigned, and unassigned fund balances.
We recommend the Town begin planning for the implementation of GASB 54,
which includes gaining an understanding of the new requirements, possible
chart of accounts revisions, and training to internal users of the audited
financial statements. We could provide the Town with training resources on
GASB 54, if requested.
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