VILLAGE OF LAKE ODESSALocal Government

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 Lake Odessa'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 Lake Odessa. 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.

Material weakness in internal control over financial reporting. Criteria: Management is responsible for maintaining its accounting records in accordance with generally accepted accounting principles. 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 Lake Odessa. The conditions exist because expenditures for fixed assets and infrastructure were classified as repair and maintenance 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. 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.

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