JOHNSONBURG MUNICIPAL AUTHORITYLocal Government

2021-1 Significant Deficiency - Preparation of Financial Statements Program Information: Federal Agency: United States Department of Agriculture CFDA Number: 10.760 Program Name: Water and Waste Disposal Systems for Rural Communities Compliance: Reporting Criteria: Statement on Auditing Standards AU-C 265, Communicating Internal Control Related Matters Identified in an Audit, establishes standards and provides guidelines on communicating matters related to an entity?s internal control over financial reporting. Management should have a person with the suitable skill, knowledge, or experience to apply the accounting practices described above in recording the financial transactions and preparing its financial statements and related footnotes. Condition: Management has made a conscious decision to accept the fact that management needs assistance to produce financial statements with full disclosure footnotes in accordance with generally accepted accounting principles. As such, included in the engagement, McKeever Varga & Senko will assist in preparing the annual financial statements with full footnote disclosures, while performing the audit. Cause: Management believes that it is cost prohibitive to have someone on staff to produce such financial statements with full disclosure footnotes. Effect or Potential Effect: Deficiency in the design and/or operation of internal controls as related to financial reporting under the accounting practices described above. Context: This is a continued finding, see ?Cause? above. Recommendation: We recommend that accounting staff receive training in the accrual basis of accounting in order that they better understand the proper recording of transactions. Views of Responsible Officials: The Authority has made a conscious decision to allow McKeever Varga & Senko to continue to assist in preparing the financial statements with full disclosure footnotes.

2021-2 Material Weakness - Procedures not Properly Developed for Software Program Information: Federal Agency: United States Department of Agriculture CFDA Number: 10.760 Program Name: Water and Waste Disposal Systems for Rural Communities Compliance: Reporting Criteria: Compliance requirements note that management should have sufficient internal controls and procedures in place for employees to follow that assist them in properly recording financial transactions. The procedures should be updated when there is any major change, such as, software or personnel changes. Condition: Management has not put in place properly developed procedures and internal controls to catch errors in recording financial transactions. Additional procedures were not put in place during the setup of the RAK software program. Cause: Failure to update policies and procedures during the implementation of the RAK accounting software. Failure to develop proper internal controls to catch errors and record financial transactions. Effect: The lack of procedures and controls resulted in duplicate entries, miscategorized accounts, unreconciled accounts, entries not posted, and misclassification of transactions. Context: In the current year, we noted a continuing lack of proper procedures and internal controls to properly record financial transactions despite the prior year finding. This has been a continuing issue for the past five years. Recommendation: Procedures should be implemented assisting employees to accurately record financial transactions. Management should be reviewing all reconciliations and reports to verify financial reporting is accurate. Views of Responsible Officials: Policies and procedures are continually being implemented to correct the issues noted. Additionally, management has changed accounting software and hired an outside CPA firm to assist with implementation of new software.

2021-3 Material Weakness - Timing and Implementation of Correction Action Plan Program Information: Federal Agency: United States Department of Agriculture CFDA Number: 10.760 Program Name: Water and Waste Disposal Systems for Rural Communities Criteria: 2 CFR 200.508 states that the auditee must follow-up and take corrective action on audit findings, including preparation of corrective action plan. 2 CFR 200.511 requires that the auditee must prepare, in a separate document, a corrective action plan to address each audit finding included in the current year?s auditor?s reports. Condition: The Authority did not implement the corrective action plan and did not meet the target completion date in the corrective action plan from the prior year. Cause: The implementation of the new accounting software and hiring of an outside accounting firm did not assist in catching errors in recording financial transactions and many of the same issues are still present. Effect: The lack of training and implementation of controls resulted in duplicate entries, miscategorized accounts, unreconciled accounts, entries not posted, and misclassification of transactions. Context: In the current year, we noted a continuing lack of proper procedures and internal controls to properly record financial transactions despite the prior year finding. This has been a continuing issue for the past five years. Recommendation: The Authority must prepare a reasonable corrective action plan to address and correct the issues that lead to the finding described in the current year and prior years? audit reports. The corrective action plan must provide planned action to be taken and a reasonable target completion date. Views of Responsible Officials: The original target date was not met due to lack of understanding of the previous software system implementation and any knowledge of this system was lost when employees resigned in June of 2021. QuickBooks and an outside CPA has been implemented.

2021-7 Material Weakness ? USDA Deferred Revenue Program Information: Federal Agency: United States Department of Agriculture CFDA Number: 10.760 Program Name: Water and Waste Disposal Systems for Rural Communities Compliance: Reporting Criteria: In accordance with GASB 33 ? Nonexchange Transactions, funds received from the USDA are not considered revenue until all requirements are met and the resources are available. Any resources provided before all requirements are met should be recognized as deferred revenue. Condition: Material journal entries were proposed to reclassify amounts recorded to grant revenue to deferred revenue for funds received but not spent. Cause: Management posted all funds received from the USDA to grant revenue even when all the requirements were not met. Effect: Management was not aware that funds received from the USDA for which the related expense requirement was not met must be classified as a deferred revenue. Context: This is a first-year control issue. This is related to the lack of controls around the conversion and the new software implementation Recommendation: That management take steps to ensure the books and records are completed in accordance with GASB 33. Views of Responsible Officials: The Authority has hired an outside CPA firm to assist with proper account, classification, closing and cut off procedures.

2021-8 Material Weakness ? Water Project Expenses Program Information: Federal Agency: United States Department of Agriculture CFDA Number: 10.760 Program Name: Water and Waste Disposal Systems for Rural Communities Compliance: Reporting Criteria: According to Generally Accepted Accounting Principles, all expenses that were incurred in the financial statement period must be recorded in the related period. Condition: Material journal entries were proposed to record water project expenses incurred in December 2021 that were not recorded and to reverse December 2020 expenses incorrectly posted to the current period. Cause: Management did not post a December 2021 invoice in accounts payable at December 31, 2021. Management posted payments on December 2020 bills to expenses in 2021 instead of accounts payable balance from the prior period. Effect: Due to the lack of understanding regarding the accrual basis of account, management was unaware that invoices should be posted to the general ledger in accordance with the service period on the invoice. Context: This is a first-year control issue. There was significant change during the year with new software programs and new employees. Recommendation: That management take steps to ensure the books and records are completed in accordance with Generally Accepted Accounting Principles. Views of Responsible Officials: The Authority has hired an outside CPA firm to assist with proper account, classification, closing and cut off procedures.

2020-1 Preparation of Financial Statements ? Significant Deficiency Program Information: Federal Agency: United States Department of Agriculture CFDA Number: 10.760 Program Name: Water and Waste Disposal Systems for Rural Communities Compliance: Reporting Criteria: Statement on Auditing Standards AU-C 265, Communicating Internal Control Related Matters Identified in an Audit, establishes standards and provides guidelines on communicating matters related to an entity?s internal control over financial reporting. Management should have a person with the suitable skill, knowledge, or experience to apply the accounting practices described above in recording the financial transactions and preparing its financial statements and related footnotes. Condition: Management has made a conscious decision to accept the fact that management needs assistance to produce financial statements with full disclosure footnotes in accordance with generally accepted accounting principles. As such, included in the engagement, McKeever Varga & Senko will assist in preparing the annual financial statements with full footnote disclosures, while performing the audit. Cause: Management believes that it is cost prohibitive to have someone on staff to produce such financial statements with full disclosure footnotes. Effect or Potential Effect: Deficiency in the design and/or operation of internal controls as related to financial reporting under the accounting practices described above. Context: This is a continued finding, see ?Cause? above. Recommendation: We recommend that accounting staff receive training in the accrual basis of accounting in order that they better understand the proper recording of transactions. Views of Responsible Officials: The Authority has made a conscious decision to allow McKeever Varga & Senko to continue to assist in preparing the financial statements with full disclosure footnotes.

2020-2 Procedures not Properly Developed for Software - Material Weakness Program Information: Federal Agency: United States Department of Agriculture CFDA Number: 10.760 Program Name: Water and Waste Disposal Systems for Rural Communities Compliance: Reporting Criteria: Compliance requirements note that management should have sufficient internal controls and procedures in place for employees to follow that assist them in properly recording financial transactions. The procedures should be updated when there is any major change, such as, software or personnel changes. Condition: Management has not put in place properly developed procedures and internal controls to catch errors in recording financial transactions. Additional procedures were not put in place during the setup of the current software program. Cause: Failure to update policies and procedures during the implementation of new accounting software. Failure to develop proper internal controls to catch errors and recorded financial transactions. Effect: The lack of procedures and controls resulted in duplicate entries, miscategorized accounts, unreconciled accounts, entries not posted and misclassification of transactions. Context: In the current year, we noted continuing lack of proper procedures and internal controls to properly record financial transactions despite the prior year finding. This has been a continuing issue for the past four years. Recommendation: Procedures should be implemented assisting employees to accurately record financial transaction. Management should be reviewing all reconciliations and reports to verify financial reporting is accurate. Views of Responsible Officials: Policies and procedures are continually being implemented to correct the issues noted. Additionally, management has changed accounting software and hired an outside CPA firm to assist with implementation of new software.

2020-3 Timing and Implementation of Correction Action Plan Program Information: Federal Agency: United States Department of Agriculture CFDA Number: 10.760 Program Name: Water and Waste Disposal Systems for Rural Communities Criteria: 2 CFR 200.508 states that the auditee must follow-up and take corrective action on audit findings, including preparation of corrective action plan. 2 CFR 200.511 requires that the auditee must prepare in a separate document a corrective action plan to address each audit finding included in the current year?s auditor?s reports. Condition: The Authority did not implement the corrective action plan and did not meet the target completion date in the corrective action plan completed in the prior year. Cause: No trainings or implementation in control procedures to catch errors in recording financial transactions appear to have been put in place as many of the same issues are still present. Effect: The lack of training and implementation of controls resulted in duplicate entries, miscategorized accounts, unreconciled accounts, entries not posted and misclassification of transactions. Context: In the current year, we noted a continuing lack of proper procedures and internal controls to properly record financial transactions despite the prior year finding. This has been a continuing issue for the past four years. Recommendation: The Authority must prepare a reasonable corrective action plan to address and correct the issues that lead to the finding described in the current year and prior years? audit reports. The corrective action plan must provide planned action to be taken and a reasonable target completion date. Views of Responsible Officials: The implementation period of the corrective action plan took longer that originally planned. Additionally the plan was shifted to implement new accounting software and hiring outside assistance from a CPA Firm.

2019-1 Preparation of Financial Statements ? Significant Deficiency Program Information: Federal Agency: United States Department of Agriculture CFDA Number: 10.760 Program Name: Water and Waste Disposal Systems for Rural Communities Compliance: Reporting Criteria: Statement on Auditing Standards AU-C 265, Communicating Internal Control Related Matters Identified in an Audit, establishes standards and provides guidelines on communicating matters related to an entity?s internal control over financial reporting. Management should have a person with the suitable skill, knowledge, or experience to apply the accounting practices described above in recording the financial transactions and preparing its financial statements and related footnotes. Condition: Management has made a conscious decision to accept the fact that management needs assistance to produce financial statements with full disclosure footnotes in accordance with generally accepted accounting principles. As such, included in the engagement, McKeever Varga & Senko will assist in preparing the annual financial statements with full footnote disclosures, while performing the audit. Cause: Management believes that it is cost prohibitive to have someone on staff to produce such financial statements with full disclosure footnotes. Effect or Potential Effect: Deficiency in the design and/or operation of internal controls as related to financial reporting under the accounting practices described above. Context: This is a continued finding, see ?Cause? above. Recommendation: We recommend that accounting staff receive training in the accrual basis of accounting in order that they better understand the proper recording of transactions. Views of Responsible Officials: The Authority has made a conscious decision to allow McKeever Varga & Senko to continue to assist in preparing the financial statements with full disclosure footnotes.

2019-2 Procedures not Properly Developed for Software - Material Weakness Program Information: Federal Agency: United States Department of Agriculture CFDA Number: 10.760 Program Name: Water and Waste Disposal Systems for Rural Communities Compliance: Reporting Criteria: Compliance requirements note that management should have sufficient internal controls and procedures in place for employees to follow that assist them in properly recording financial transactions. The procedures should be updated when there is any major change, such as, software or personnel changes. Condition: Procedures were not properly developed when the new software was put in place. Cause: The failure to update policies and procedures when implementing a new system and a change in personnel. Effect: The lack of procedures resulted in duplicate entries, miscategorized accounts, unreconciled accounts, entries not posted and misclassification of transaction. Context: In the current year, we noted continuing lack of proper procedures to properly record financial transactions despite the prior year finding. Recommendation: Procedures should be implemented allowing employees to accurately record financial transaction. Management should be reviewing all reconciliations. Views of Responsible Officials: Prior errors caused by lack of procedures for the new accounting software have been corrected. Additional implementation of new procedures will continue to be developed and expected to be completed by December 31, 2020.

2019-3 Conflict of Interest Policies Program Information: Federal Agency: United States Department of Agriculture CFDA Number: 10.760 Program Name: Water and Waste Disposal Systems for Rural Communities Compliance: Procurement and Suspension and Debarment Criteria: Procurement requirements note management must obtain written up-to-date conflict of interest forms. The forms should be completed, signed, and filed for each Authority member. Condition: Management could not provide signed conflict of interest forms for all Authority members. Cause: Authority member was absent, and management never followed up to request signed form. Potential Effect: The result of missing conflict of interest forms is a compliance issue that could lead to discontinued funding. Context: During our testing, we found that one conflict of interest form was missing. Recommendation: Management obtain signed conflict of interest policies annually at a specified meeting and to obtain signed forms for any board members absent. Views of Responsible Officials: Missing form was due to an absent board member on the day the policies were signed. Management has since obtained all required conflict of interest forms.

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