CHARITON MUNICIPAL WATERWORKS

CFDA Number 10.760: Water and Waste Disposal System for Rural Communities Federal Award Year: 2018 Prior Year Finding Number: N/A U.S. Department of Agriculture III-A-19 Segregation of Duties (2019-001) Criteria ? Management is responsible for establishing and maintaining internal control. A good system of internal control provides for adequate segregation of duties so no one individual handles a transaction from its inception to completion. In order to maintain proper internal control, duties should be segregated so the authorization, custody and recording of transactions are not under the control of the same employee. This segregation of duties helps prevent losses from employee error or dishonesty and maximizes the accuracy of the Chariton Municipal Waterworks (Waterworks) financial statement. Condition ? Generally, one or two individuals in the Waterworks has control over cash receipts listings, bank deposits and posting cash receipts to the cash receipts journal. Cause ? The Waterworks has a limited number of employees and procedures have not been designed to adequately segregate duties or provide compensating controls through additional oversight of transactions and processes. Effect ? Inadequate segregation of duties could adversely affect the Waterworks ability to prevent or detect and correct misstatements, errors or misappropriation on a timely basis by employees in the normal course of performing their assigned functions. Recommendation ? The Waterworks should review its control activities to obtain the maximum internal control possible under the circumstances utilizing currently available staff, including elected officials, to provide additional control through review of financial transactions, reconciliations and reports. Response and Corrective Action Planned ? We will evaluate this and attempt to segregate duties as much as possible. Conclusion ? Response acknowledged.

CFDA Number 10.760: Water and Waste Disposal System for Rural Communities Federal Award Year: 2018 Prior Year Finding Number: N/A U.S. Department of Agriculture III-B-19 Preparation of Schedule of Federal Awards (2019-002) Criteria ? Management is responsible for the preparation and completion of the Schedule of Expenditures of Federal Awards (SEFA). Condition ? The Waterworks has not prepared the SEFA. Cause ? The Waterworks was unaware of their responsibilities. Effect ? The effect of this condition is that the year-end financial reporting is prepared by a party outside of the Waterworks. The outside party does not have the constant contact with ongoing financial transactions. Recommendation ? We recommend the Waterworks create a process and designate an individual to track and accurately report all information required to be included on the SEFA. Response and Corrective Action Planned ? We will attempt to implement this recommendation. Conclusion ? Response acknowledged.

CFDA Number 10.760: Water and Waste Disposal System for Rural Communities Federal Award Year: 2018 Prior Year Finding Number: N/A U.S. Department of Agriculture III-C-19 Federal Disbursements (2019-003) Criteria ? The Waterworks is required to follow the State of Iowa requirements in relation to disbursement procedures and requirements. Condition ? For disbursements charged to the United States Department of Agriculture (USDA) federal funds, the Board of Trustees (Board) did not approve of the disbursements at the time the payment was made, and the related disbursements were not published in the newspaper, as required by Chapter 388.4(4) of the Code of Iowa. Cause ? Procedures have not been designed and implemented to ensure disbursements charged to federal funds are approved by the Board and are published in accordance with the requirements of the Code of Iowa. Effect ? The Waterworks is not in compliance with Chapter 388.4(4) of the Code of Iowa. Recommendation ? All disbursements charged to federal funds should be approved by the Board at the time the payment is made, and published in the newspaper, as required by Chapter 388.4(4) of the Code of Iowa. Response and Corrective Action Planned ? We will implement this recommendation. Conclusion ? Response acknowledged.

CFDA Number 10.760: Water and Waste Disposal System for Rural Communities Federal Award Year: 2018 Prior Year Finding Number: N/A U.S. Department of Agriculture III-D-19 United States Department of Agriculture Loan Agreement (2019-004) Criteria - The provisions of the USDA loan agreement require the Waterworks to establish and maintain a reserve account, a sinking account and a short-lived asset account. Condition ? Both a sinking account and a short-lived asset account were not established and maintained by the Waterworks. In addition, the reserve account was not backed by cash. Cause ? The Waterworks did not adequately review the USDA loan agreement requirements. Effect ? The Waterworks is not in compliance with the provisions of the USDA loan agreement. Recommendation ? The Waterworks should ensure compliance with the provisions of the USDA loan agreement. Specifically, the Waterworks should establish and maintain a sinking account and a short-lived asset account in accordance with the USDA loan agreement. In addition, the Waterworks should ensure the reserve account balance is backed by cash. Response and Corrective Action Planned ? We will attempt to implement the various aspects of this recommendation. Conclusion ? Response acknowledged

CFDA Number 10.760: Water and Waste Disposal System for Rural Communities Federal Award Year: 2018 Prior Year Finding Number: N/A U.S. Department of Agriculture III-E-19 Depository Resolution (2019-005) Criteria - The provisions of the USDA loan agreement require the Waterworks to secure the funds in accordance with Chapter 12C of the Code of Iowa. Condition ? As a result of federal funds received from the USDA, the cash in the bank exceeded the depository resolution amount. Chapter 12C.2 of the Code of Iowa requires the Waterworks to approve a resolution which specifies the maximum amount which may be kept on deposit in each depository. Cause ? Procedures have not been established to ensure compliance with Chapter 12C.2 of the Code of Iowa. Effect ? The Waterworks is not in compliance with Chapter 12C.2 of the Code of Iowa. As a result, these funds were not secured by federal depository insurance or by the State Sinking Fund. Recommendation ? The Waterworks should implement procedures to ensure all monies in the bank are insured by federal depository insurance or by the State Sinking Fund as required by Chapter 12C.2 of the Code of Iowa. Response and Corrective Action Planned ? We will implement this recommendation in the future should it ever happen again. Conclusion ? Response acknowledged.