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Vadnais Lake Area Water Management Organization <br />March 24, 2010 <br />Page 2 <br />A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less <br />severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the <br />deficiencies presented as findings 2009-1 and 2009-2 below to be significant deficiencies in internal control over financial <br />reporting. <br />2009-1 Limited Segregation of Duties - Cash Disbursements and Cash Receipts <br />Condition: During our audit we reviewed procedures over cash disbursements and cash receipts and <br />found the Organization to have limited segregation of duties related to these procedures. <br />Criteria: <br />Cause: <br />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 <br />functions. In other words, no one person has control of two or more of these responsibilities. <br />As a result of the limited number of staf the Organization is not able to completely segregate <br />all accounting functions. For both transaction cycles, one person is performing two or more of <br />the major functions described above. <br />Effect: The, existence of this limited segregation of duties increases the risk of fraud and errors. <br />Recommendation: While we recognize the current staff is not large enough to eliminate this deficiency, we <br />recommend the following compensating controls be implemented by the Organization. For <br />cash disbursements, we suggest that the Administrator be removed as an authorized signatory. <br />For cash receipts, we suggest that someone other than the Administrator either prepare the <br />deposit slip or take it to the bank. <br />Management Response: Efforts have been made to increase the internal control available by segregating duties. A <br />part-time bookkeeper reconciles bank statements, prepares checks and monthly financial <br />reports. The program coordinator or water resource technician opens and initials bank <br />statements. The administrator reviews payments and reports, makes deposits and can be one <br />of two required signatures on checks. Monthly expenditures within budget are authorized by <br />the Technical Commission at their monthly meeting. The Board officers are check signers and <br />the Board must approve any changes to budgeted expenses. <br />For now, the Organization accepts the degree of risk associated with any further segregation of <br />duties. <br />952.835.9090 • Fax 952.835.3261 <br />www.aemcpas.com <br />