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HomeMy WebLinkAbout1980-1981.AuditReportPage 2 Our study and evaluation of the City's internal accounting control system was not designed for the purpose of expressing an opinion on internal accounting control and it would not necessarily disclose all weaknesses in the system. However, we believe the following comments and recommendations should be given careful consideration. Payroll Custodial Accounts Custodial checking accounts are maintained for payroll withholdings, and act as clearing accounts for items such as federal income tax, employee insurance and savings bonds. The accounts are controlled and reconciled by the payroll clerk ,.. in the collector's office. Internal control over the accounts could be improved YI if the payroll clerk did not have access to the accounts, but convenience and I practical considerations dictate the present arrangement. As as alternative to complete segregation of payroll duties and the handling of checking accounts, we recommend that someone else with no payroll duties be given the responsibility for monthly reconciliation of the custodial checking accounts. Bank statements should be given to the reconciler unopened, and reconciliation should include an examination of endorsements on cancelled checks. Government Grants - Documentation Files are maintained for all correspondence on government grants, and for all financial data pertaining to such grants. The files for financial data are well organized and complete. All reimbursement claims are supported by vouchers and related documentation, and summary sheets of expenditures and receipts are kept on a current basis. However, the files for correspondence are not as well organized. Grant approvals, amendments and related correspondence are not always easily located, and careful attention is not given to the proper filing of documents. Our examination disclosed that a recent notice of approval had been filed in an unrelated folder, and no one was aware the approval had been received. We recommend that the responsibility for maintaining correspondence files be assigned to one person (preferably in the office of the City Manager), and that the filing system be so designed that each giant has its own file and a checklist to assure inclusion of all pertinent documentation. Control - Public Works Department The functions of purchasing, receiving, control and useage of inventory items within the Public Works Department are performed primarily by the parts man. He is permitted to order certain "stock" items without prior approval of the department head. It should be noted, however, that he is prohibited from dealing with new vendors or buying large items without prior approval, and he operates under a system of "informal quotation" Itelephone quotes are obtained from several vendors before stock items are ordered), upon receipt of inventoriable items, the parts man notes their receipt on the supplier's invoice or packing slip and forwards the document to the department head. The parts man controls the inventory in a secure area, and reports useage of parts on a vehicle maintenance report. Perpetual inventory records are not maintained on items in stock. A periodic physical inventory count is not conducted. Page 3 Sound internal control suggests that there should be some separation of duties between those who receive and control stock and those who report its use. Moreover, there should be some method of verifying the proper useage of stock. While personnel limitations may make it economically undesireable to assign some of the duties now performed by the parts man to another employee, a perpetual inventory record system, verified at year-end by a physical inventory, would not be impracticable or prohibitively expensive. Under such a system, each inventoriable item should be given a part number, and a physical count should be conducted to ascertain the beginning quantity on hand. A card system or a computer program could be devised to accumulate data for each part number. The card or computer file should then be posted for purchases and withdrawals from stock. The resulting ending balance can then be verified at the time of the physical count. The card or computer file should record every purchase, and should disclose date, vendor, quantity purchased, and cost (if desired). I1 should identify useage by date, quantity and vehicle number. The perpetual records would thus be auditable by reference to suppliers' invoices and individual vehicle maintenance reports. Motor Fuel Control - Public Works/Sanitation Department The fuel pumps used by Public Works and Sanitation vehicles are unlocked during the day. Drivers fuel their own vehicles. Reports of fuel useage are not required. Locking caps are not used on vehicle fuel tanks. The absence of controls cited above gives rise to the potential for abuse of the City's fuel. However, there is some support for the argument that abuse might not be common. The fuel pumps are located in a highly public area at the side of the public works building, and unauthorized use of the pumps would require a rather brazen attitude on the part of the user. Most vehicles are occupied by more than one person; therefore, the siphoning of fuel from the tanks would require collusion. And many department vehicles use diesel fuel, unuseable by most passenger cars. Control over fuel useage could be controlled in several ways. An attendant could be assigned to the pump, thus assuring that only authorized vehicles are fueled there. (The position would very likely be full-time, according to Mr. McDowell). Locking caps could be placed on all vehicle tanks to prevent siphoning. A master key could be retained by the pump attendant (the drivers would not have keys). Fuel useage reports could be required for all vehicles so that excessive use could be detected and investigated. Electronic pumps, activated by cards and capable of registering fuel useage by vehicle (or card) could be installed. Pumps could be locked during the day, and drivers could be required to check out a key for refueling. Unfortunately, each control entails some element of cost, either in dollars or in time. The pump attendant or the electronic pumps would be expensive. Fuel useage reports would create a good deal of paperwork, both in preparation and in analysis of the reports. A system of checking out a key before refueling could result in bottlenecks at the pump during hours of peak useage. Therefore, the implementation of controls should be preceeded by a cost -to -benefit analysis. Page 4 Receipt of Inventory Items - Park and Recreation Department Formal receiving reports are not prepared upon receipt of resale merchandise and inventory items. The packing slip is compared with the items received and any discrepancies are noted. The department office is then verbally notified of the receipt of goods so that payment vouchers can be prepared. To tighten control over the receipt of such items, and to preclude the possibility of payment for items which were not received, we recommend that the employee charged with responsibility for receiving goods be required to sign the packing slip to signify its accuracy. The packing slip should then be forwarded to the department office where it should be matched with the appropriate invoice and purchase order. Distribution of Payroll Checks jrlb. As a practical matter, payroll checks to their employees. We recommend that observe) the distribution of checks on Y This is a common control, designed to I Vehicle Maintenance are given to foremen for further distribution department heads directly supervise (or an unannounced basis at least once each year. detect bogus employees. All maintenance performed at the city garage is recorded on vehicle maintenance reports. These individual reports are summarized on monthly computer printouts of maintenance by department. The printouts are then made available to department heads for their review and evaluation. However, with the exception of major overhauls, the cost of vehicle maintenance and repair is not charged to the user departments, but is absorbed by Public Works. This is interesting, inasmuch as the department which absorbs the cost has the least control over it. It might be worth considering the City's policy in this regard, with a view to reducing vehicle maintenance costs. On the other hand, if departments were charged with vehicle maintenance, certain minor repairs and preventive maintenance procedures might be avoided to the long-term detriment of the vehicle, resulting in even greater repair cost later. Compliance With Legal and Regulatory Requirments - Re Government Grants Our examination included a review of legal and regulatory requirements covering grant monies received by the City. We found no instance of noncompliance in the areas of eligibility, coverage of services, or matching funds. Our tests of the financial transactions of the City included examination of documentation supporting claims for advances or reimbursements submitted by the City. We found the claims and supporting documentation to be accurate and in good order. Although the City does not have a current central information file for fixed assets, the individual departments maintain such information for insurance and infernal control purposes. Federal Shared Revenue Funds Our examination disclosed no material weaknesses in the internal accounting control over receipt and disbursement of federal revenue sharing monies. Library Funds Our examination disclosed no material weaknesses in the library's system of internal accounting control. Page h It has been our pleasure to again serve the City of Cape Girardeau as independent auditors. We extend our thanks to the City Collector and the employees of the City whose courteous assistance so greatly faciliated our examination. If we may be of further service during the coming year, or if you have questions concerning matters contained in this letter of any aspect of our audit, we will be pleased to discuss them with you at your convenience. Very truly yours, ROBERT J. EARLEY & COMPANY Terry L. Deck, Partner M --4 l && &- CERTIFIED PUBLIC ACCOUNTANTS 3103 THEMIS STREET e ✓te a.. eea.k 63701 �a��..�. .... November II, 1981 1�•�•••_••• Honorable Mayor and City Council City of Cape Girardeau, Missouri Gentlemen: As a part of our examination of the financial statements of the City of Cape Girardeau for the year ended June 30, 1981 we reviewed and tested the City's system of internal accounting control to the extent we considered necessary to evaluate the system as required by generally accepted auditing standards. Under these standards, the purpose of such evaluation is to establish a basis for reliance thereon in determining the nature, timing, and extent of other auditing procedures that are necessary for expressing an opinion on the financial statements. The objective of internal accounting control is to provide reasonable, but not absolute, assurance as to the safeguarding of assets against loss from unauthorized use or disposition, and the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that the cost of a system of internal accounting control should not exceed the benefits derived and also recognizes that the evaluation of these factors necessarily requires estimates and judgments by management. There are inherent limitations that should be recognized in considering the potential effectiveness of any system of internal accounting control. In the performance of most control procedures, errors can result from misunderstanding of instructions, mistakes of judgment, carelessness, or other personal factors. Control procedures whose effectiveness depends upon segregation of duties can be circumvented by collusion. Similarly, control procedures can be circumvented intentionally by management with respect either to the execution and recording of transactions or with respect to the estimates and judgments required in the preparation of financial statements. Further, projection of any evaluation of internal accounting control to future periods is subject to the risk that the procedures may become inadequate because of changes in conditions, and that the degree of compliance with the procedures may deteriorate. Accordingly, Internal controls must be continually monitored by the City's personnel to assure that existing controls remain effective or that new controls are instituted when procedural Changes occur. �I i LUf J� u C CITY OF CAPE GIRARDEAU, MISSOURI AUDITORS' REPORT REVENUE SHARING FUNDS June 30, 1980 (26 2 016 001) TABLE OF CONTENTS Auditors' Report on Compliance and Supplemental Data . . . . . . . . . . Statement of Changes in Available Funds for the Year Ended June 30, 1980 Statement of Obligations Incurred for the Year Ended June 30, 1980 Page . 2 . 3 n mi l &7�4 & CERTIFIED PUBLIC ACCOUNTANTS 2108 THEMIS STREET ROBERT J. EARLEY. C.P.A. TELEPHONE JOHN R. JANSSEN. C.P.A. (314) 334.2545 TERRY R. BEGLEY. C.P.A. GARY G. STANLEY, C.P.A. To the Honorable Mayor and City Council City of Cape Girardeau, Missouri We have examined the financial statements of the various funds and account groups of the City of Cape Girardeau, Missouri for the year ended June 30, 1980, and have issued our report thereon dated August 1.9, 1980. Our examination was made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In connection with our examination, we also performed tests of compliance with the Revenue Sharing and Antirecession Fiscal Assistance Acts and regulations as required by Sections II.C.3 and III.C.3 of the "Audit Guide and Standards for Revenue Sharing and Antirecession Fiscal Assistance Fund Recipients (Guide)" issued by the Office of Revenue Sharing, U. S. Department of the Treasury. Comparison of the financial data which is to be included on the Bureau of Census form RS -9 for the year ended June 30, 1980 was not possible because the forms were not available to the City at the audit date. However, the Bureau of Census Form RS -9 for the year ended June 30, 1979 ® was compared with the audit report for that period, and no material differences were discovered. A copy of the annual report filed with the Equal Employment Opportunity Commission as of June 30, 1979 was not available for our review. However, we did examine the annual report for June 30, 1980. The accompanying statements of changes in available funds and obligations incurred for the year ended June 30, 1980 are submitted as supplemental information. Although they are not considered necessary for fair presentation of the City's financial statements, they have been subjected to the tests and other auditing procedures applied in the examination of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statement taken as a whole. Respectfully submitted, ROBER J. EARLEY &(COMPANY Certified Public Accountants August 19, 1980 CITY OF CAPE GIRARDEAU, MISSOURI REVENUE SHARING FUNDS STATEMENT OF CHANGES IN AVAILABLE FUNDS For the Year Ended June 30, 1980 (26 0 016 001) Available Funds, Beginning of Year: Balance per June 30, 1979 Audit Report Add: Funds Encumbered June 30, 1979, But Paid From General Revenue Fund Total Add Revenue: Entitlement Payments Interest Available for Obligation During Year Less: Current Expenditures Encumbrances Total Obligations Incurred Unencumbered Balance, End of Year Per Books and Audit $ 498,964.45 173.09 $ 499,137.54 635,692.00 48,115.03 $1,182,944.57 $ 963,526.81 22,582.20 $ 986,109.01 $ 196,835.56 Footnote I: The City maintains its accounts on the cash basis. Encumbrances have been applied to the account figures to obtain the figures for obligations incurred during the period. -2- CITY OF CAPE GIRARDEAU, MISSOURI REVENUE SHARING FUNDS STATEMENT OF OBLIGATIONS INCURRED For the Year Ended June 30, 1980 (26 2 016 001) Operating/maintenance expenditures: Environmental protection (Waste disposal) Financial Administration (Revenue Sharing Funds) Park Total Operating/Maintenance Capital Expenditures: Fire Station #1 Park Total Capital Expenditures Total Obligations Incurred Expenditures Revenue Allocable to Sharing Total Other Funds Funds $ 643,931.64 $ 202,251.64 $ 441,680.00 1,076.28 --- 1,076.28 393,685.98 389,393.76 4,292.22 $1,038,693.90 $ 591,645.40 $ 447,048.50 $ 479,910.37 $ --- $ 479,910.37 101,015.51 41,865.37 59,150.14 $ 580,925.88 $ 41,865.37 $ 539,060.51 $1.619,619.78 $ 633,510.77 $ 986,109.01 Note: The City maintains its accounts on the cash basis. Encumbrances have been applied to the account figures to obtain the expenditures per books during the period -3-