CITY OF BAD AXE

2019-001 Material Audit Adjustments Criteria. Management is responsible to maintaining its accounting records in accordance with generally accepted accounting principles (GAAP). Condition. During our audit, we identified and proposed material adjustments (which were approved and recorded by management) to adjust the City?s general fund, special revenue street funds and utility funds revenue, expenditures and capital assets. Cause. This condition was the result of dependence on external auditors, who by definition cannot be a part of the Client?s internal control, to make adjustments to the general ledger and reconcile certain balance sheet accounts to their underlying detail. Effect. As a result of this condition, the financial information was initially misstated by amounts that were deemed to be material to the general fund, special revenue street funds and utility funds. Correcting entries were subsequently posted by management to the City?s records and the appropriate balances are presented in the audited financial statements. Recommendation. Management has already taken appropriate corrective action by posting correcting journal entries. However, we recommend that the City assess controls in place over financial reporting to maintain the City?s books and records (as a whole) in accordance with GAAP. View of Responsible Officials. We understand that year-end reconciling and accrual entries are needed for the fiscal year in which the work was done rather than when the project was completed. In subsequent years, we will strive to record all transactions in the appropriate period.