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Vadnais Lake Area Water Management Organization <br />March 19, 2008 <br />Page 2 <br />A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal <br />course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a <br />control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, <br />process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a <br />remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or <br />detected by the entity's internal controL We consider the deficiencies listed on the following pages to be significant deficiencies <br />in internal control over financial reporting: <br />Limited Segregation of Duties - Cash Disbursements and Cash Receipts <br />Condition: During our audit we reviewed procedures over cash disbursements and cash receipts and found <br />VLAWMO to have limited segregation of duties related to these procedures. <br />Criteria: There are four general categories of duties: authorization, custody, record keeping and <br />reconciliation. In an ideal system, different employees perform each of these four major functions. <br />In other words, no one person has control of two or more of these responsibilities. <br />Cause: <br />During the first part of 2007, VLAWMO only had one employee involved with the accounting <br />processes and procedures. For the second half of 2007, there were two employees and a <br />contracted bookkeeper involved in the accounting processes and procedures to help with the <br />limited segregation of duties. <br />Effect: The existence of this limited segregation of duties increases the risk of fraud. <br />Recommendation: <br />There was great improvement in segregating the accounting duties during the year. We <br />recommend that VLAWMO add the following compensating control. Have another individual, <br />separate from the Administrator (possibly a board member or the bookkeeper) receive and review <br />the unopened bank statements. The review would consist of scanning for unusual activity, <br />agreeing all disbursements to board approved listings and documenting that the review was done. <br />952.835.9090 • Fax 952.835.3261 <br />www.aemcpaa.com <br />