VILLAGE OF HOMER

2021-001 PREPARATION OF FINANCIAL STATEMENTS AND SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (SEFA) Material Weakness in Internal Control over Financial Reporting Criteria: Governments are required to prepare financial statements in accordance with generally accepted accounting principles (GAAP) and prepare a report of expenditures made from federal awards listing the federal department from which the funds were drawn. This responsibility rests with the Village of Homer?s management. Preparation of financial statements in accordance with GAAP requires internal controls over (1) recording, processing and summarizing accounting data, and (2) reporting government-wide and fund financial statements, including related note disclosures. Preparation of the SEFA requires that the Village identify federal awards and then organize this information into a single document organized by federal department with identification of pass-through entity and award number. Condition: Over the years, it has been common for smaller governments to rely on the independent auditors to assist in various year-end accruals and other adjustments, the preparation of the government-wide and fund financial statements, as well as the related notes to the financial statements for external reporting purposes and preparation of the SEFA report. Because of this, the government?s ability to prepare financial statements in accordance with GAAP has been based mostly on its reliance on the independent auditors, who cannot by definition be part of the government?s internal controls. Cause: The condition noted above exists with the Village of Homer. The condition exists because it is more cost effective for the Village to outsource the financial statement preparation to the independent auditors than to incur additional time and expenses to train or hire an employee that would possess the expertise required to perform this task. Effect: As a result of this condition, the Village employees and/or management may not possess the necessary qualifications to prepare the year-end accrual entries, financial statements and notes to the financial statements in accordance with GAAP. The Village relies on the independent auditors, in part, for assistance with the preparation of the year-end accrual entries, financial statements and notes to the financial statements in accordance with GAAP. View of Responsible Officials: The Village has evaluated the condition and determined that costs associated with establishing internal controls over the financial statement and schedule of federal awards preparation far outweigh the benefits derived from outsourcing the task to its independent auditors. Management, which consists of the Village Manager and The Village Clerk, will carefully review the draft financial statements and notes prior to approving and accepting responsibility for the content and presentation.

2021-001 - Preparation of Financial Statements and Schedule of Expenditures of Federal Awards (SEFA) Planned Corrective Action: The Village has evaluated the condition and determined that costs associated with establishing internal controls over the financial statement and schedule of federal awards preparation far outweigh the benefits derived from outsourcing the task to its independent auditors. Management and appropriate personnel will carefully review the draft financial statements and notes prior to approving and accepting responsibility for the content and presentation. Management Assessment: We concur with the audit assessment regarding this matter. Responsible Party: Village Manager Art Kale and Village Clerk Teresa Hayes

2020-001

2021-002 MATERIAL AUDIT ADJUSTMENTS Material Weakness in Internal Control over Financial Reporting Criteria: Management is responsible for maintaining its accounting records in accordance with generally accepted accounting principles (GAAP). Condition: During our audit, we identified and proposed material adjustments related to recording fixed assets, infrastructure and depreciation expenditures. In addition, we proposed adjustments to adjust the balances in the bond payable, and construction payables. Cause: The conditions noted above exist with the Village of Homer. The conditions exist because expenditures for fixed assets and infrastructure were classified as professional services or posted in other accounts. Corresponding liabilities were adjusted to actual and payables related to construction projects were recorded. Effect: As a result of this condition, the Village?s financial statements required several material audit entries. SECTION II - FINANCIAL STATEMENT FINDINGS (Continued) 2021-002 MATERIAL AUDIT ADJUSTMENTS (Continued) Material Weakness in Internal Control over Financial Reporting View of Responsible Officials: The Village Manager and the Village Clerk agree with the adjustments proposed by its auditors, and they have been posted in the Village?s records. Transactions related to the infrastructure project will be reviewed and costs that contribute to the construction of new assets will be capitalized and funds borrowed to cover those costs will be recorded as liabilities in the Village?s accounting records.

2021-002 - Material Audit Adjustments Planned Corrective Action: We have worked with our accountant to try to understand the adjustments. Going forward we correctly classify expenditures for fixed assets per our capital outlay policy. To do this we will need to work closely with our auditors and rely on their help for expenditures for which we are unsure of the classification. Management Assessment: We concur with the audit assessment regarding this matter. Responsible Party: Clerk Teresa Hayes Date of Planned Corrective Action: July 2022

2020-002

2021-003 WRITTEN POLICES REQUIRED BY UNIFORM GUIDANCE Significant Deficiencies in Internal Control over Compliance Criteria: Uniform Guidance requires grantees to have written procedures in place over certain transactions. While the Village currently has informal operating practices in place, this is no longer sufficient to meet federal regulations. We recommend that the Village prepare a comprehensive policies and procedures manual. At a minimum, written policies should be prepared over the key area explicitly required by the uniform guidance. Condition: The Village did not have written policies in place required by the Uniform guidance. Cause: The conditions noted above exist with the Village of Homer. The Village did not believe that it would be subject to a single audit in the current year and thus did not adopted the necessary written policies. Effect: Noncompliance with the Uniform Guidance could jeopardize future federal funding. View of Responsible Officials: The Village manager agrees and will prepare required policies and present them to the Village council for approval.

2021-003 - Written policies required by Uniform Guidance Planned Corrective Action: We recognize that certain written policies are required by Uniform Guidance and we will prepare them. Management Assessment: We concur with the audit assessment regarding this matter Responsible Party: Village Manager Art Kale and Village Council Date of Planned Corrective Action: September 2022

2020-005

2020-001 PREPARATION OF FINANCIAL STATEMENTS AND SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (SEFA) Material Weakness in Internal Control over Financial Reporting Criteria: Governments are required to prepare financial statements in accordance with generally accepted accounting principles (GAAP) and prepare a report of expenditures made from federal awards listing the federal department from which the funds were drawn. This responsibility rests with the Village of Homer?s management. Preparation of financial statements in accordance with GAAP requires internal controls over (1) recording, processing and summarizing accounting data, and (2) reporting government-wide and fund financial statements, including related note disclosures. Preparation of the SEFA requires that the Village identify federal awards and then organize this information into a single document organized by federal department with identification of pass-through entity and award number. Condition: Over the years, it has been common for smaller governments to rely on the independent auditors to assist in various year-end accruals and other adjustments, the preparation of the government-wide and fund financial statements, as well as the related notes to the financial statements for external reporting purposes and preparation of the SEFA report. Because of this, the government?s ability to prepare financial statements in accordance with GAAP has been based mostly on its reliance on the independent auditors, who cannot by definition be part of the government?s internal controls. Cause: The condition noted above exists with the Village of Homer. The condition exists because it is more cost effective for the Village to outsource the financial statement preparation to the independent auditors than to incur additional time and expenses to train or hire an employee that would possess the expertise required to perform this task. Effect: As a result of this condition, the Village employees and/or management may not possess the necessary qualifications to prepare the year-end accrual entries, financial statements and notes to the financial statements in accordance with GAAP. The Village relies on the independent auditors, in part, for assistance with the preparation of the year-end accrual entries, financial statements and notes to the financial statements in accordance with GAAP. View of Responsible Officials: The Village has evaluated the condition and determined that costs associated with establishing internal controls over the financial statement and schedule of federal awards preparation far outweigh the benefits derived from outsourcing the task to its independent auditors. Management and appropriate personnel will carefully review the draft financial statements and notes prior to approving and accepting responsibility for the content and presentation.

2020-001 - Preparation of Financial Statements and Schedule of Expenditures of Federal Awards (SEFA) Planned Corrective Action: The Village has evaluated the condition and determined that costs associated with establishing internal controls over the financial statement and schedule of federal awards preparation far outweigh the benefits derived from outsourcing the task to its independent auditors. Management and appropriate personnel will carefully review the draft financial statements and notes prior to approving and accepting responsibility for the content and presentation. Management Assessment: We concur with the audit assessment regarding this matter.

2020-002 MATERIAL AUDIT ADJUSTMENTS Material Weakness in Internal Control over Financial Reporting Criteria: Management is responsible for maintaining its accounting records in accordance with generally accepted accounting principles (GAAP). Condition: During our audit, we identified and proposed material adjustments related to recording fixed assets, infrastructure and depreciation expenditures. In addition, we proposed adjustments to adjust the balances in the bond payable, and construction payables. Cause: The conditions noted above exist with the Village of Homer. The conditions exist because expenditures for fixed assets and infrastructure were classified as professional services or posted in other accounts. Corresponding liabilities were adjusted to actual and payables related to construction projects were recorded. Effect: As a result of this condition, the Village?s financial statements required several material audit entries. Material Weakness in Internal Control over Financial Reporting View of Responsible Officials: Management agrees with the adjustments proposed by its auditors, and they have been posted in the Village?s records. Transactions related to the infrastructure project will be reviewed and costs that contribute to the construction of new assets will be capitalized and funds borrowed to cover those costs will be recorded as liabilities in the Village?s accounting records.

2020-002 - Material Audit Adjustments Planned Corrective Action: We have worked with our accountant to try to understand the adjustments. Going forward we correctly classify expenditures for fixed assets per our capital outlay policy. To do this we will need to work closely with our auditors and rely on their help for expenditures for which we are unsure of the classification. Responsible Party: Clerk Date of Planned Corrective Action: August 2021 Management Assessment: We concur with the audit assessment regarding this matter.

2020-003 PRIOR PERIOD ADJUSTMENT Material Weakness in Internal Control over Financial Reporting Criteria: Management is responsible for accurate recognition, measurement, presentation, and disclosure in the financial statements. Condition: During our audit, we identified an error from the prior fiscal year in recording water and sewer revenue and receivables that were material to the financial statements. Cause: The conditions noted above exist with the Village of Homer. The conditions exist because an inaccurate report was used at the prior year end to record the receivables for water and sewer services. Effect: As a result of this condition, the Village?s prior year financial statements overstated the fund balance for both of the Sewer fund and the Water fund. View of Responsible Officials: Management agrees with the prior period adjustment proposed by its auditors, and they have been posted in the Village?s records. The Village provided the correct sewer and water report for the prior year end the prior year receivables and fund balances have been adjusted to the correct report.

2020-003 - Prior Period Adjustment Planned Corrective Action: We recognize that an inaccurate report was produced in the prior year and used for audit testing that resulted in material misstatements on the prior year financial statement. Reports will be reviewed for accuracy to verify balance before they are given to auditors. Responsible Party: Clerk Date of Planned Corrective Action: August 2021 Management Assessment: We concur with the audit assessment regarding this matter.

2020-004 GRANT DRAWS IN EXCESS OF IMMEDIATE CASH NEEDS Material Noncompliance/Material Weakness in Internal Control over Compliance Criteria: Uniform Guidance requires grantees to request funds under reimbursement-based grants in order to minimize the amount of time between receipt of funds and disbursement to the related vendors, contractors, and/or sub recipients. As a general rule, three days is considered to be a reasonable period of time to hold advance cash draws. Condition: The Village made seven reimbursement requests related to 2020 fiscal year under the federal award. One draw for $48,649.50 was not paid out until after 4 business days from its receipt. Another draw of $151,016.58 was not paid out until after 5 business days. The remaining five draws were made in accordance with applicable guidelines. Cause: The conditions noted above exist with the Village of Homer. The conditions exist because of miscommunications between the construction firm compiling and submitting reimbursement requests and the Village department responsible to approve payment of project invoices. Effect: As a result of this condition, the Village was, at times, in possession of federal funds in excess of its immediate cash needs. View of Responsible Officials: Management will review the process whereby it requests its draw down of federal money to ensure that funds are disbursed in a timely fashion within three days.

2020-004 - Grant Draws in Excess of Immediate Cash Needs Planned Corrective Action: We recognize that payment to vendors and contractors must be made within three days of receiving federal money to pay for those invoices. Care will be taken to ensure that federal money is disbursed within three business days or receipt Responsible Party: Clerk Date of Planned Corrective Action: August 2021 Management Assessment: We concur with the audit assessment regarding this matter.

2020-005 WRITTEN POLICES REQUIRED BY UNIFORM GUIDANCE Significant Deficiencies in Internal Control over Compliance Criteria: Uniform Guidance requires grantees to have written procedures in place over certain transactions. While the Village currently has informal operating practices in place, this is no longer sufficient to meet federal regulations. We recommend that the Village prepare a comprehensive policies and procedures manual. At a minimum, written policies should be prepared over the key area explicitly required by the uniform guidance. Condition: The Village did not have written policies in place required by the Uniform guidance. Cause: The conditions noted above exist with the Village of Homer. The Village has never been subject to a Single Audit based on funds procured and was not aware written policies were needed. Effect: Noncompliance with the Uniform Guidance could jeopardize future federal funding. View of Responsible Officials: Management agrees and will prepare required policies.

2020-005 - Written policies required by Uniform Guidance Planned Corrective Action: We recognize that certain written policies are required by Uniform Guidance and we will prepare them. Responsible Party: Clerk Date of Planned Corrective Action: September 2021 Management Assessment: We concur with the audit assessment regarding this matter