UPPER MONTGOMERY JOINT AUTHORITY

2020-1 Accounts Payable Error Criteria: During our audit of the accounts payable and debt of the Authority, we noted that the May, 2020 payments on the new USDA bond issues totaling $603,982 had been posted to accounts payable with a date of December 31, 2019. Consequently, your accounts payable balance was overstated and your bonds payable balances were understated by this amount for the period December 31, 2019 through April 30, 2020. In addition, these amounts were charged entirely against the bonds payable balances, instead of splitting out the respective interest portions of the payments and charging them to the proper expense account. Given the fact that the payments on the USDA bonds are to be directly debited out of the debt service bank account, the proper procedure would have been to record the transfer of funds into the debt service account at the time it was done and then properly recording the subsequent withdrawals made by USDA for the debt payments at the time they were done. Condition: Bond payments due in the next fiscal year were improperly recorded and posted to accounts payable. Effect: Accounts payable was overstated and bonds payable were understated at April 30, 2020. Cause: Bond payments due the next fiscal year were recorded and posted to accounts payable. Recommendation: We recommend the Authority follow the procedure outlined above for the processing of the transactions involved with the funding of the debt service account and USDA's automatic withdrawal of funds. In the course of performing our audit procedures relating to debt, we noted that USDA does not appear to be automatically providing the Authority with the interest and principal breakdowns of the bi-annual payments. Based on our discussions with USDA personnel during the course of our audit, it may be necessary to initially estimate this breakdown via amortization schedules and then make any necessary revisions after USDA has posted the payments. Views of responsible officials and planned corrective actions: The Authority agrees with this finding and will adhere to the corrective action plan on page 43-44 in this report.

2020-2 QNB Construction Account Overdraft Criteria: During out audit of the Authority's cash, we noted that the QNB construction account was showing an overdraft balance of $188,726.93 as of the end of the year. This occurred as a result of the Authority having cut checks for payment of the invoices associated with Requisition #52, which was not funded by USDA until after the close of the Authority's fiscal year. Due to this funding delay, which we suspect was probably influenced by issues associated with COVID-19, the Authority was forced to hold these checks pending receipt of the draw from USDA. Condition: Checks for payment of the sewer plant upgrade were issued before the corresponding requisition for reimbursement from the USDA was received. Effect: The Authority?s QNB Construction account was overdrawn Cause: Checks for payment of the sewer plant upgrade were issued before the corresponding requisition for reimbursement from the USDA was received. Recommendation: In our opinion, checks should not be processed and then held pending the receipt of funds, and we would encourage the Authority to adopt this procedure going forward. In order to maintain the recording of the expenses in the proper period, an adjustment was made to reclassify these expenditures as part of the accounts payable balance as of April 30, 2020. Views of responsible officials and planned corrective actions: The Authority agrees with this finding and will adhere to the corrective action plan on page 43-44 in this audit report.

2020-3 Accrued Wages and Accrued Sick and Vacation Time Criteria: During our audit of the accrued wages and accrued sick and vacation time, we noted that the reversal of the prior year recording of these amounts as of April 30, 2019 was done incorrectly and that the April 30, 2020 recording of the accrued wages and accrued sick and vacation time was also in error. Audit adjustments were required to correct the reversal and correctly record the activity for 2020. Condition: Accrued wages and accrued sick and vacation time were initially incorrect as of April 30, 2020. Effect: Accrued wages and accrued sick and vacation time recorded in error. Both, the liabilities and wage expense accounts were incorrect. Cause: The reversal of the prior year accrued wages and accrued sick and vacation time was done incorrectly and the current year recording of the accrued wages and accrued sick and vacation time was also done in error. Recommendation: We recommend that accounting staff be more diligent in reversing and recording accrued wages and accrued sick and vacation time going forward. Views of responsible officials and planned corrective actions: The Authority agrees with this finding and will adhere to the corrective action plan on page 43-44 in this audit report.

2020-4 Loan Requisitions Criteria: During our audit of the loan and bond requisitions for the sewer plant construction during the year, we noted issues with staff being able to locate the requisitions and proper backup documentation for the requisitions after the change in accounting personnel which occurred in early January, 2020. After much time and effort expended by both Authority staff and ourselves, all requisitions and documentation were eventually located. Condition: Issues locating loan requisitions and proper backup documentation. Effect: Significant amount of Authority staff and auditor time spent locating documents. Cause: Improper filing of loan requisitions and backup documentation. Recommendation: We recommend that accounting staff be more diligent and take more time to maintain and file all loan and bond requisitions properly along with the backup documentation. Views of responsible officials and planned corrective actions: The Authority agrees with this finding and will adhere to the corrective action plan on page 43-44 in this audit report.

2020-5 Bond R and I Funds Criteria: During our audit of the cash and expense activity of the Authority, we noted that accounting personnel were taking funds from the bond redemption and improvement fund instead of the revenue fund to provide for the payment of bills for operating expenses. This procedure does not follow how the flow of funds is supposed to occur per the bond resolution adopted by the Board in conjunction with the issuance of the USDA bonds. Funds are supposed to flow from the revenue fund to the operating checking account to pay bills during the year, and at the end of the year excess funds are to be moved to the bond redemption and improvement fund for future use for capital improvements or debt reduction. Condition: Bond resolution not being followed. Effect: The Bond R and I Fund has less cash as of April 30, 2020 than what would be required under the terms of the bond resolution. Cause: The Authority staff was not properly processing cash activity per the bond resolution. Recommendation: We recommend that the flow of funds be processed per the bond resolution in going forward.

2020-6 Escrows Criteria: During our audit of the escrow activity, we noted that the handling of the accounting and documenting of escrow arrangements and activity had deteriorated significantly since the departure of the prior bookkeeper. Below lists the issues we had with the escrows: (1) In order to reconcile the Escrow Liability balance shown in the Authority?s QuickBooks file to that which we arrived at through our review of the individual escrow deposit accounts, the engineering and legal charges, and the individual escrow files, we noted a number of issues. These issues included two instances in which entries were not made in QuickBooks to account for amounts which had been reimbursed back to the Authority for either work done or paid directly by the Authority and a number of instances of charges for professional services appliable to various escrow arrangements that were posted to general ledger accounts other than the escrow liability account. (2) We noted that it appeared as though the Authority had not transferred funds out of two individual escrow to reimburse the Authority for engineering invoices which it had paid out of its General Checking account. (3) It was noted that the Authority began changing the way it was posting interest earned by the various individual escrow bank accounts beginning with the quarter ending 3/31/20 (posting to interest income instead of escrow liability). Authority staff did not have an explanation for why their outside bookkeeping service began doing this. We also noted that some of the interest credits applicable to one arrangement had been misdated back into the prior fiscal year. Condition: Escrow liabilities recorded incorrectly. Effect: The Authority?s escrow cash and corresponding escrow liability were incorrect. Cause: Authority staff errors in recording escrow activity. Recommendation: We recommend that accounting staff take more time and be more diligent in processing the escrow activity to make sure that the escrow balances and your accounts are in order. Views of responsible officials and planned corrective actions: The Authority agrees with this finding and will adhere to the corrective action plan on page 43-44 in this audit report.

2020-7 The United States Department of Agriculture?s resolution regarding their funding of the sewer plant upgrade requires a Depreciation Reserve cash account be established and funded. The Authority properly established this account in conjunction with the USDA bond issue closing, but then only funded one of the required monthly reserve amounts prior to the commencement of our fieldwork for the audit. The remaining portion of the reserve was then funded after fieldwork began.

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