VILLAGE OF FREDERIC

Finding Number: 2021-001 Material Weakness ? Limited segregation of duties Fiscal Year: 2021 Inadequate segregation of duties Criteria: Generally, a system of internal control contemplates separation of duties such that no individual has responsibility to execute a transaction, have physical access to the related assets, and have responsibility or authority to record the transaction. Condition: The limited number of office personnel precludes a segregation of accounting functions that is necessary to ensure adequate internal accounting control. Effect. Lack of segregation of duties could result in a financial statement misstatement, caused by error or fraud that would not be detected or prevented by Village staff. Cause: See condition above. Recommendation: The Village should continue to evaluate its staffing in order to segregate incompatible duties whenever possible. Also, the Village Board should continue its oversight duties consisting of reviewing financial reports, approving major transactions and approving significant contracts at its regular meetings. View of Responsible Official: The Village is aware of this situation and attempts to segregate incompatible duties as much as practical given the size and expertise of available personnel. The Village Board does review and approve disbursements at each regular Board Meeting. Name of Responsible Person: Janice Schott

Finding Number: 2021-002 Material Weakness ? Annual Financial Reporting Under Generally Accepted Accounting Principles (GAAP) Fiscal Year: 2021 Criteria. Management is responsible for establishing internal controls to assure the Village's annual financial reporting is in accordance with GAAP. Condition. The potential exists that a material misstatement of the annual financial statements could occur and not be prevented or detected by the Village's internal controls. Effect. The Village engages the audit firm to prepare drafts of its annual financial statements and related footnote disclosures in accordance with GAAP based on information and trial balances provided by management. Cause: The Village's staff does not possess the technical expertise, or the time required to draft the year end external financial statements. Recommendation: The Village should continue to evaluate its internal staff and expertise to determine if an internal control policy over the annual financial reporting is beneficial. Management should review key disclosures in a checklist and receive additional education. View of Responsible Official. The Village has made a cost/benefit decision to have the audit firm prepare drafts of its annual financial statements in accordance with GAAP. The Village will continue to review the draft of the annual financial statements and raise questions and/or concerns before the statements are released. Name of Responsible Person: Janice Schott

Finding Number: 2021-003 Material Weakness ? Bank Reconciliation Issues Fiscal Year: 2021 Criteria: Management is responsible for reconciling bank accounts. Cash reconciliation is a crucial accounting process that ensures that actual money receive/spent by the bank matches with the accounting records of the Village. Condition: The Village's general checking account didn't reconcile to the bank's records at year end. Effect: When cash accounts aren't reconciled to the bank records there is an increased risk that fraud or error in the Village's cash balances won't be detected. Cause: There were multiple journal entries recording transfers between Workhorse cash accounts that didn't clear the bank. These transfers didn't net to $0 which caused the Village's general fund to not reconcile to the bank. Recommendation: The Village should reconcile all cash accounts to the bank records on a monthly basis. When differences between the bank records and the Village's record are discovered the differences should be resolved immediately. View of Responsible Official: The Village does reconcile monthly and was aware of the problem but could not get the problem resolved. The difference was due to inaccurate auditor corrections in 2020. The Village will resolve any differences immediately in the future. Name of Responsible Person: Janice Schott

Finding Number: 2021-004 Significant Deficiency Related to Federal Award Program ? Uniform Guidance Fiscal Year: 2021 Criteria: The Village has not documented in writing their grant procedures as they relate to federal funds. 2 CFR 200, subpart D, section 200.302 requires the Village to maintain written procedures for determining the allowability of costs in accordance with subpart E, Cost Principles. Subpart D, 200.305 requires written procedures for minimizing time elapsing between the transfer of funds and disbursement to the Village. Condition: The Uniform Grant Guidance requires all subrecipients of federal funds to document grant procedures relating to verifying allowable cost and cost management. Effect: Cities who do not document their federal grant procedures, are not in compliance with Uniform Grant Guidance, subpart D. Cause: The Village was unaware of the requirement to have written grant procedures for federal funds, as it does not regularly have a single audit. Recommendation: We recommend that the Village should consider the need to adopt written policies for federal funds. View of Responsible Official: Village was not aware of the requirement to have these written policies and will review the necessity of adopting a policy in the future. Name of Responsible Person: Janice Schott