05-22-2024 Council Packet - Laserfiche WebLink

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2023-001 Limited Segregation of Duties Condition: During our audit we reviewed procedures over cash disbursements, payroll, utility billing, financial reporting, and capital assets and found the City to have limited segregation of duties over those transaction cycles. Criteria: There are four general categories of duties: authorization, custody, record keeping and reconciliation. In an ideal system, different employees perform each of these four major functions. In other words, no one person has control of two or more of these responsibilities. Cause: As a result of the limited number of staff, in the disbursement cycle, the finance director has access to checks, ability to posts to the general ledger, and prepares bank reconciliations. In the payroll cycle, the finance director has control over the payroll system, sets up employee records, posts to the general ledger. In the utility billing cycle, the City Council approves rates but the finance director reconciles the amounts billed and collected in the system and has the ability to post to the general ledger. The majority of the collections of utility payments are now collected electronically, however the Finance director is responsible for all the recording and reconciling. In the financial reporting and capital asset transaction cycles, the Finance director performs all of the duties. Effect: The existence of this limited segregation of duties increases the risk of fraud. Recommendation: While we recognize the number of staff is not large enough to eliminate this deficiency, we recommend that the City evaluate the current procedures and segregate duties where possible and implement any compensating controls. We are aware some compensating controls are in place; however, it is important that the City Council is aware of this cond ition and monitor all financial information. Management Response: Management recognizes that it is not economically feasible to correct this finding, however, is aware of the deficiency and is relying on oversight by management and the City Council to monitor this deficiency. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, and noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit. Also, in accordance wi th the Uniform Guidance, we examined, on a test basis, evidence about the City’s compliance with the types of compliance requirements described in the “U.S. Office of Management and Budget (OMB) Compliance Supplement” applicable to each of its major Federal programs for the purpose of expressing an opinion on the City’s compliance with those requirements and for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. While our audit provides a reasonable basis for our opinion, it does not provide a legal determination on the City’s compliance with those requirements. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported in accordance with the Uniform Guidance, Government Auditing Standards or Minnesota statues. Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements . No new accounting policies were adopted and the application of existing policies were not changed during the year ended December 31, 2023. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. DRAFT 3