VILLAGE OF PEPIN

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 meeting and will continue to do budget comparisons on a regular basis and will raise appropriate questions as needed to clarify expenditures.

Annual Financial Reporting Under Generally Accepted Accounting Principles (GAAP) 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.

Material Audit Adjustments Criteria: The Village should have controls in place to prevent or detect material misstatements from occurring in the financial statements. Condition: The audit firm proposed and the Village posted to its general ledger accounts journal entries correcting certain misstatements. The journal entries were considered to be material for the fair presentation of the Village?s financial statements. Effect: The financial statements of the Village may include material misstatements not detected or prevented by the Village?s internal control system. This may result in additional costs necessary to provide accounting services necessary to adjust these accounts. Cause: The Village has established limited controls to ensure that all accounts are adjusted to their appropriate year end balances in accordance with Generally Accepted Accounting Principles (GAAP). We also noted that activity in the fire department and TID checking was not being recorded until the bank statements were received in the following month. Recommendation: The Village should continue to evaluate its internal control processes to determine if additional internal control procedures should be implemented to ensure that accounts are adjusted to their appropriate year end balances in accordance with GAAP. Activity in all accounts should be recorded when the transaction occurs, not when it shows up in the following month?s bank statement. View of Responsible Official: Because our annual budget is based on actual income and expenditures during the year, we do not post income or expenses until the month they are received or to be paid. To set up two sets of books (using different basis of accounting) to reflect actual and accrued income and expenses would not be feasible with our small office staff. The worksheets provided by the Auditors will be utilized to the best of our understanding and time allowed to assist with the audit preparation. The fire department and TID checking will be recorded timely and reconciled regularly.

Utility Accounts Receivable Criteria: The Village should have controls in place to reconcile the accounts receivable, billings, late fees and adjustments as shown in the billing software to the amounts recorded in the water and sewer utilities. Condition: Several audit adjustments were proposed and accepted by management relative to the utility accounts receivable and related revenues. Effect: The financial statements of the utilities are misstated. Cause: In the past the detailed listing of accounts receivable in the billing software was not reconciled with the general ledger accounting software. Recommendation: We recommend that the detailed listing of accounts receivable be reconciled to the general ledger accounting software quarterly by the Village?s accounting department to verify that all billings, adjustments and payments are being properly reflected in the general ledger after each quarterly billing. This will also allow management to place reliance on the aging reports; to be used in its review of older accounts with overdue balances for collections and amounts to be placed on the tax roll. View of Responsible Official: In 2021 the Village implemented a municipal accounting software that integrates utility billing with the general ledger. The Village?s accounting department will attempt to reconcile the detailed listing of accounts with the general ledger accounting software.

Criteria: The Village should have a procurement policy as designated by compliance requirement ?Procurement, Suspension, and Debarment.? Condition: The Village entered an agreement that required a procurement policy. Effect: The Village is not in compliance with this requirement. Cause: The Village was unaware of the requirement to have and follow a procurement policy, as it does not regularly have a single audit. Recommendation: The Village should draft and approve a procurement policy. View of Responsible Official: The Village will draft and implement a procurement policy in 2022.