VILLAGE OF MORSE BLUFF, NEBRASKALocal Government

Lack of Segregation of Duties Criteria or Specific Requirement: A good system of internal control has the proper segregation of duties between authorization, custody, record keeping and reconciliation so that no one individual handles a transaction from inception to completion. Condition: Our audit disclosed that due to the limited number of personnel within the accounting department, the Village of Morse Bluff, Nebraska?s accounting and administrative staff are precluded from implementing certain internal controls that would be preferred if the office staff were large enough to provide optimum segregation of duties to assure adequate internal controls for financial reporting. Context: The Village Clerk performs all accounting functions, including billing, receipting and depositing of revenue, initiating and approving invoices, writing and signing checks, coding and posting transactions in Quickbooks, and preparation and review of financial reports. There are some mitigating controls including having all checks require two signatures, one of which is the Board Chair. Also, the Board members review financial statements every month. Effect: When one or even two individuals are responsible for all accounting functions on a day to day basis, without adequate oversight: ? Intentional or unintentional errors could be made and not detected. ? Transactions could be coded in the wrong accounts or classes. ? Entries could be made to cover up fraud (fraudulent financial reporting or misappropriation of assets). Cause: The Village has limited staffing resources with skills, experience, and competency to participate in the financial reporting process. Recommendation: We highly recommend the Board and Clerk continue to review, implement and monitor their financial policies and procedures to segregate duties to the extent possible and to implement additional oversight of the Village Clerk?s duties, including maximizing the Board involvement in oversight, questioning transactions and reviewing the general ledger monthly.

Financial Reporting Criteria or Specific Requirement: Management is responsible for establishing and maintaining internal controls that should include the fair presentation of financial statements, including the notes to the financial statements, in conformity with the cash basis of accounting. Condition: The Village doe not have the accounting competencies to provide management with reasonable assurance that the Village?s financial statements and related disclosures are presented in accordance with applicable accounting principles. As such, management has requested that the auditor draft the financial statements and the accompanying notes to the financial statements. Context: Management requested the auditor draft the financial statements and related notes to the financial statements. Cause: The Village has limited staffing resources with skills, experience, and competency to participate in the financial reporting process and has requested the auditors? prepare the financial statements and related notes to the financial statements, in accordance with the basis of accounting in Note 1 to the financial statements. Effect: Errors in the financial statements or disclosures could occur and not be detected by management. Recommendation: The Village should carefully review and approve the proposed auditor adjusting entries, the adequacy of fthe financial statement disclosures prepared by the auditors and understand the information before approving the final financial statements.