HomeMy Public PortalAboutFY2009 Management Letter TOWN OF WATERTOWN, MASSACHUSETTS
Management Letter
For the Year Ended June 30, 2009
TABLE OF CONTENTS
PAGE
INTRODUCTORY LETTER 1
FOLLOW-UP ON PRIOR YEAR RECOMMENDATIONS:
1. Formalize and Accelerate the Year-End Closing Process 3
2. Establish Formal Departmental Receipt Procedures 3
3. Improve Compensated Absences Accounting 3
4. Formalize Controls over Petty Cash 4
5. Establish Administrative Regulations 4
6. Establish Receivable Write-Off Policy 5
7. Improve Accounting and Monitor Activity over the Police
Detail Agency Fund 5
8. Evaluate Unsupported Encumbrance Balances 6
9. Monitor Collateralization of Cash Balances 6
10. Establish FTC "Red Flag" Security Documentation 6
CURRENT YEAR RECOMMENDATION:
11. Consider Audit of Student Activity Funds 7
I
MELANSON HEATH & COMPANY, PC
CekrtFiED Punrtc AccouNtnxrs
MANAUEMENr Amsofts
10 New England Business Center Dtive • Suite 107
Andover,MA 018104096
(978)749-0005 • Fax(978) 749-0006
avow.ntela nsonhen tit.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, 2009, 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 control deficiency exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned func-
tions, to prevent or detect misstatements on a timely basis. A significant deficiency
is a control deficiency, or combination of control deficiencies, that adversely affects
the entity's ability to initiate, authorize, record, process, or report financial data reli-
ably in accordance with generally accepted accounting principles such that there is
more than a remote likelihood that a misstatement of the entity's financial statements
that is more than inconsequential will not be prevented or detected by the entity's
internal control.
A material weakness is a significant deficiency, or combination of significant deficien-
cies, that results in more than a remote likelihood that a material misstatement of the
financial statements will not be prevented or detected by the entity's internal control.
Our consideration of internal control was for the limited purpose described in the first
paragraph and would not necessarily identify all deficiencies in internal control that
Addit,onal q1 ces:
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might be significant deficiencies or material weaknesses. We did not identify any
deficiencies in internal control that we consider to be material weaknesses, as
defined above.
However, during our audit we became aware of several matters that are opportunities
for strengthening internal controls and operating efficiency. The recommendations
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.
After you have had an opportunity to consider our comments and recommendations,
we would be pleased to discuss them with you.
Andover, Massachusetts
November 8, 2010
2
FOLLOW-UP ON PRIOR YEAR RECOMMENDATIONS.:
1. Formalize and Accelerate the Year-End Closina Process
Prior Year Issue:
In the prior year, the year-end closing and financial reporting process was
substantially delayed.
Current Year Status:
During fiscal year 2009, the year-end closing process was again delayed.
Further Action Needed:
We continue to recommend that the Town develop formal closing proce-
dures, which should include a checklist documenting who will perform each
procedure, when completion of each procedure is due, and when it is actually
accomplished. This will help ensure that the year-end closing process pro-
ceeds more timely and efficiently.
2. Establish Formal Departmental Recelpt Procedures.
Prior Year Issue:
In prior years, we recommended that the Town establish formal policies and
procedures for handling departmental receipts.
Current Year Status:
We understand this issue was addressed in fiscal year 2010.
Further Action Needed:
None
3. Improve Compensated Absences Accountinq
Prior Year Issue:
In prior years, we recommended that the Town centralize and automate the
accounting for employee compensated absences.
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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.
4. Formalize Controls over Pettv Cash
Prior Year Issue:
In the prior year, we recommended that the Town prepare formal policies and
procedures for the administration of petty cash funds. We further recom-
mended the Town formally authorize fixed amounts to be maintained for each
departmental petty cash fund, and for the maximum amount of any single
petty cash disbursement.
Current Year Status:
We understand this issue was addressed in fiscal year 2010.
Further Action Needed:
None.
5. Establish Administrative Reaulations
Prior Year Issue:
In prior years, we recommended that the Town develop formal regulations to
provide current guidance over administrative policies and procedures. This
would result in improved Town-wide consistency over many routine adminis-
trative procedures, such as travel and expense reimbursement, use of muni-
cipal vehicles, and insurance requirements on personal vehicles.
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Current Year Status:
We understand this issue was resolved in fiscal year 2010.
Further Action Needed:
None.
6. 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.
7. Improve Accountina and Monitor Activitv over the Police Detail
Aaencv Fund
Prior Year Issue:
In the prior year, we recommended the Town establish a police detail
receivable account in the general ledger and reconcile it to the Police
Department records. The cash deficit balance should be added to the
receivable 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.
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8. Evaluate Unsupported Encumbrance Balances
Prior Year Issue:
In the prior year, we recommended the Town research all encumbered
balances to determine if an actual commitment exists. If no commitment
exists for encumbered funds, they should be unencumbered, thereby
becoming available to the Town for future use.
Current Year Status:
In fiscal 2009, most prior year encumbrances were either expended or closed
out.
Further Action Needed:
We recommend the Town continue to monitor encumbered balances at year
end.
9. Monitor Collateralization of Cash Balances,
Prior Year Issue:
In the prior year, we recommended the Town consider increasing collateralk
zation of major cash balances.
Current Year Status:
The Town still has major cash balances that are uncollateralized; however,
we understand the Town monitors the financial strength of applicable financial
institutions.
Further Action Needed:
We recommend the Town continue to monitor the financial strength of
applicable financial institutions.
10. Establish FTC "Red Flaa" Security Documentation
Prior Year Issue:
In the prior year, we recommended the Town establish the Red Flag
documentation to assure compliance with the Federal Trade Commission
Security requirements.
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The rules can be found at:
www.ftc.00v/osffedrea/2007/november/071109redflaas.i)df
Current Year Status:
This issue was not resolved in 2009.
Further Action Needed:
We continue to recommend the Town establish the new required Red Flag
security policies.
CURRENT YEAR RECOMMENDATION:
11, Consider Audit of Student Activitv Funds
The accounting records of the School Department's student activity funds
have not been audited in several years. This increases the risk that errors
or irregularities could occur and not be detected.
We recommend the School Committee consider contracting for a formal
audit of the student activity funds on an annual basis, and also perform
periodic internal audits of those records. This will improve oversight and
accountability and reduce the risk of errors or irregularities occurring and
going undetected.
We understand the School Committee has contracted for an audit to be
performed in fiscal year 2011, and that additional training will be provided
to applicable student activity advisors and administrative personnel.
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