CITY OF FENNIMORELocal Government

Finding #2019-001- Segregation of Duties (Prior Year Finding #2018-001) Criteria: Segregation of duties is an aspect of internal control intended to prevent or decrease opportunities of intentional and unintentional errors and fraud. Duties and responsibilities are properly segregated if no single individual either has control over all phases of a transaction or can both make and conceal an error, whether such error is intentional or unintentional. Condition: A properly designed system of internal control includes adequate staffing, policies, and procedures to properly segregate duties. This includes systems that are designed to limit access or control of any one individual to your government?s assets, and to achieve a higher likelihood that errors or irregularities in your processes would be discovered by your staff. There are key controls related to significant transaction cycles that are important in reducing the risk of errors or irregularities. Currently, the City does not have the following controls in place: -Persons processing accounts payable have the ability to print and sign checks. -Persons initiating electronic fund transfers are not separate from those authorizing, confirming, or reconciling the transactions. -There are no procedures in place for review and approval of new vendors. -Persons preparing the payroll also maintain employee records, change employee rates, and change data in the payroll system. -Account reconciliations are not performed by someone independent of the processing of transactions in the account. Effect: Errors or intentional fraud could occur and not be detected timely by other employees in the normal course of their responsibilities because of the lack of segregation of duties. Cause: Limited number of personnel. Recommendation: We recommend that the City consider the benefits of implementing additional policies and procedures to address key controls related to its significant transaction cycles as noted. Response: We agree with this finding but do not believe it is cost effective to increase personnel to bring about a more effective segregation of duties. The Mayor and City Council approve monthly bank reconciliations, vendor checks and payroll checks. The City Council, Clerk/Treasurer, Deputy Clerk/Treasurer, Utility Clerk and department supervisors will continue to monitor transactions of the City. Contact Person: Debi Heisner, Clerk/Treasurer Anticipated Completion: Not Applicable

2018-001

Finding #2019-003- Material Adjustments (Prior Year Finding #2018-003) Criteria: Material adjusting journal entries not prepared by the City before the audit are considered an internal control weakness. Condition: Johnson Block and Company, Inc. proposed numerous adjusting journal entries during the audit process. We deem these entries to be material in relation to the financial statements. Since the City did not make these adjustments in its accounting system prior to the audit, a material weakness exists in the City?s internal controls. Effect: This means that the proper recording and reporting of financial information may not occur within a timely manner. Cause: The City does not have policies and procedures in place to ensure that all transactions are properly recorded on the general ledger prior to the audit. Recommendation: Policies and procedures should be implemented to ensure account balances are properly recorded in a timely manner. Response: The City will work to establish policies and procedures to reduce the number of adjusting journal entries proposed by the auditor. Contact Person: Debi Heisner, Clerk/Treasurer Anticipated Completion: Not Applicable

2018-003

Finding #2019-004- Lack of Financial Close Process Criteria: Cash, inventory, prepaid, accounts receivable, and accounts payable balances in the general ledger should be reconciled to the subsidiary accounts receivable and accounts payable listings during the close of the monthly financial statements. Condition: Audit journal entries were required to adjust inventory, prepaids, accounts receivable, and accounts payable general ledger balances. Cash had an unreconciled difference as of December 31, 2019. Effect: Financial statements could be materially misstated. Cause: The City does not have procedures in place to ensure that all transactions are properly recorded on the general ledger prior to the audit. Recommendation: The City should develop procedures to reconcile cash, inventory, prepaid, accounts receivable, and accounts payable accounts on a monthly basis. The reconciliations should be reviewed by someone other than the person preparing the reconciliations. The reviewer should initial and date the reconciliations when the review is complete. Response: The City will work to establish procedures to reconcile accounts on a monthly basis. Contact Person: Debi Heisner, Clerk/Treasurer Anticipated Completion: December 31, 2020

Finding #2019-005- Preparation of Schedules of Federal and State Awards Criteria: Uniform Guidance and the State Single Audit Guidelines require the City to prepare the schedules of expenditures of federal and state awards. Having staff with expertise in federal and state single audit reporting is an internal control intended to prevent, detect and correct a potential misstatement in the schedules of expenditures of federal and state awards. Condition: While the current staff of the City maintains financial records supporting amounts reported in the schedules of expenditures of federal and state awards, the City contracts with its auditor to compile the data from these records and prepare the single audit report and schedules of expenditures for the City. Effect: Without involvement of the independent auditors, the City may not be able to completely prepare the single audit report and schedules of expenditures. Cause: The City does not prepare the single audit report and schedules of expenditures. The additional cost associated with hiring staff sufficiently experienced to prepare the City?s single audit report, including the additional training time, outweigh the derived benefits. Recommendation: City personnel should continue reviewing the City?s single audit report prepared by its auditor. While it may not be cost beneficial to hire additional staff to prepare these items, a thorough review of this information by appropriate staff of the City is necessary to ensure the schedules of expenditures are properly reported in the City?s single audit. Response: Management and the Council will continue to designate competent staff to oversee and review the single audit report, including the schedules of expenditures of federal and state awards, and approve them before issuance. However, they continue to believe it is not feasible or cost effective to add staff to achieve the competence to prepare these reports. Contact Person: Debi Heisner, Clerk/Treasurer Anticipated Completion: Not Applicable

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2017-001

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2017-003

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