CITY OF DERBY, CONNECTICUTLocal Government

*24-06 Comingling of Funds Finding: The Board of Education maintains one cash account for operations and grants. The comingling of operational and grant monies makes it difficult if not impossible to reconcile with the City. Criteria: A separate bank account should be maintained for grant income and expenditures to properly track inflows and outflows of grant monies. Assets such as grants receivable and liabilities such as deferred inflows and accounts payable should also be recorded and reconciled monthly. Cause: Improper classification of grant funds. Effect: Significant errors can occur and not be timely detected. Also see findings 24-01, 24-04 to 24-05. Recommendation: We recommend that the Board of Education utilize the accounting system to reconcile cash, accounts receivable, accounts payable, deferred inflows of financial resources in addition to the income and expenditures for educational grants. In addition, we recommend moving the grant accounting from the General Fund to a Special Revenue Fund where it is better classified. Management’s Response: Completed - As of July 1, 2023, the Board of Education separated Operating and Grant check runs to hit the respective bank accounts. This also includes the payroll account. Grant payroll totals are transferred to the payroll account from the Grant account.

*23-08 Comingling of Funds Finding: The Board of Education maintains one cash account for operations and grants. The comingling of operational and grant monies makes it difficult if not impossible to reconcile with the City. Criteria: A separate bank account should be maintained for grant income and expenditures to properly track inflows and outflows of grant monies. Assets such as grants receivable and liabilities such as deferred inflows and accounts payable should also be recorded and reconciled monthly. Cause: Improper classification of grant funds. Effect: Significant errors can occur and not be timely detected. Also see findings 23-01, 23-04 to 23-06. Recommendation: We recommend that the Board of Education utilize the accounting system to reconcile cash, accounts receivable, accounts payable, deferred inflows of financial resources in addition to the income and expenditures for educational grants. In addition, we recommend moving the grant accounting from the General Fund to a Special Revenue Fund where it is better classified. Management’s Response: Completed - As of July 1, 2023, the Board of Education separated Operating and Grant check runs to hit the respective bank accounts. This also includes the payroll account. Grant payroll totals are transferred to the payroll account from the Grant account.

*23-09 Federal and State Single Audit Schedules Finding: The Finance Department did not prepare a schedule of expenditures of federal awards and state financial assistance for the year ended June 30, 2023. These schedules are derived from federal and state grant awards received by the General Government and the Board of Education of the City. The Board of Education grant awards primarily are passed through the State Department of Education, while the City receives their grants primarily through the State Department of Housing and Urban Development, the State Department of Health and Human Resources, the State Department of Agriculture and the Office of Policy and Management. The preparation of these schedules of expenditures has, in the past, been made by the auditors, including decision making concerning the federal CFDA number, the pass-through entity number and the amount of federal and state expenditures incurred by the City for the fiscal year. The auditor then reports on the Schedules of Expenditures of Federal and State Financial Assistance and renders his opinion with respect to the compliance with laws, regulations, contracts and grants and with the City’s internal control over compliance with requirements of the laws, regulations, contracts and grants. Criteria: The schedules of federal awards and state financial assistance are required to be prepared by the City. Cause: Lack of a staff member assigned to identify and obtain grant revenue and prepare the appropriate federal and state financial schedules. Effect: The auditor is preparing these schedules and auditing them. Recommendation: We recommend that the Finance Department and/or the Board of Education annually prepare the Schedule of Expenditures of Federal Awards and State Financial Assistance to be presented to the auditor for audit. The auditor can then render an opinion with respect to compliance with and internal control over compliance with laws, regulations, contracts and grants. This will provide the proper segregation of responsibilities over the preparation of the schedules and the rendering of an opinion of these schedules. Management’s Response: The City and BOE will prepare the Schedules of Expenditures of Federal and State Financial Assistance going forward.

*22-08 Comingling of Funds Finding: The Board of Education maintains one cash account for operations and grants. The comingling of operational and grant monies makes it difficult if not impossible to reconcile with the City. Criteria: A separate bank account should be maintained for grant income and expenditures to properly track inflows and outflows of grant monies. Assets such as grants receivable and liabilities such as deferred inflows and accounts payable should also be recorded and reconciled monthly. Cause: Improper classification of grant funds. Effect: Significant errors can occur and not be timely detected. Also see findings 22-01, 22-04 to 22-06. Recommendation: We recommend that the Board of Education utilize the accounting system to reconcile cash, accounts receivable, accounts payable, deferred inflows of financial resources in addition to the income and expenditures for educational grants. In addition, we recommend moving the grant accounting from the General Fund to a Special Revenue Fund where it is better classified.

*22-09 Federal and State Single Audit Schedules Finding: The Finance Department did not prepare a schedule of expenditures of federal awards and state financial assistance for the year ended June 30, 2022. These schedules are derived from federal and state grant awards received by the General Government and the Board of Education of the City. The Board of Education grant awards primarily are passed through the State Department of Education, while the City receives their grants primarily through the State Department of Housing and Urban Development, the State Department of Health and Human Resources, the State Department of Agriculture and the Office of Policy and Management. The preparation of these schedules of expenditures has, in the past, been made by the auditors, including decision making concerning the federal CFDA number, the pass-through entity number and the amount of federal and state expenditures incurred by the City for the fiscal year. The auditor then reports on the Schedules of Expenditures of Federal and State Financial Assistance and renders his opinion with respect to the compliance with laws, regulations, contracts and grants and with the City?s internal control over compliance with requirements of the laws, regulations, contracts and grants. Criteria: The schedules of federal awards and state financial assistance are required to be prepared by the City. Cause: Lack of a staff member assigned to identify and obtain grant revenue and prepare the appropriate federal and state financial schedules. Effect: The auditor is preparing these schedules and auditing them. Recommendation: We recommend that the Finance Department and/or the Board of Education annually prepare the Schedule of Expenditures of Federal Awards and State Financial Assistance to be presented to the auditor for audit. The auditor can then render an opinion with respect to compliance with and internal control over compliance with laws, regulations, contracts and grants. This will provide the proper segregation of responsibilities over the preparation of the schedules and the rendering of an opinion of these schedules. Management?s Response: The City will create a dedicated fund in the financial system to track grant revenues and expenditures. The BoE has established a grant account. Invoices are being paid out of the operating account. BoE is moving funds from the grant account to cover the grant expenses.

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