ISLAMORADA VILLAGE OF ISLANDS

Subject: Response to Financial Statement Finding 2025-01 We appreciate the opportunity to respond to the financial statement finding titled "2025-01 Material Weakness in Internal Control Over Financial Reporting and the Preparation of the Schedule of Expenditures of Federal Awards" identified in the audit report dated September 30, 2025. Finding Summary: A material weakness was identified in internal control over financial reporting and the preparation of the Schedule of Expenditures of Federal Awards (SEFA). During the audit, a prior period adjustment of $1,821,000 was required to correct beginning net position in the Plantation Yacht Harbor Marina Fund. Additionally, for the fiscal year ended September 30, 2024, certain reimbursable federal grant expenditures were not properly matched with related revenue and receivables and were not included in the SEFA. These issues indicate that controls were not sufficient to ensure all transactions were accurately identified, recorded, and reported in accordance with generally accepted accounting principles and Uniform Guidance requirements. Management Response: Management acknowledges the material weakness in internal control over financial reporting and SEFA preparation. The identified condition resulted from incomplete identification and reconciliation of grant-related activity during fiscal year 2024, which led to the omission of reimbursable expenditures and related revenues from both the financial statements and the SEFA. Upon discovery, management recorded a prior period adjustment of $1,821,000 to correct beginning net position in the Plantation Yacht Harbor Marina Fund. The related grant expenditures have been properly included in the SEFA for the fiscal year ended September 30, 2025. Management agrees with the auditor’s recommendation and recognizes the need to strengthen internal controls surrounding the identification, reconciliation, and reporting of federal grant activity. Corrective Action Plan: To address this finding and strengthen internal controls, the Village has implemented and will continue to implement the following actions: Centralized Grant Tracking The Village has established a comprehensive grant tracking log to monitor all federal and state awards, including expenditures, reimbursement status, and SEFA reporting requirements. Enhanced SEFA Preparation Controls Year-end financial reporting procedures have been strengthened to include a formalized SEFA preparation and review process. This process includes reconciliation of the grant tracking log to the general ledger and a secondary review to ensure completeness and accuracy. Improved Coordination and Training Communication between the Finance Department and grant program managers has been enhanced to ensure timely identification of grant activity. Additional training on Uniform Guidance requirements and SEFA reporting has been provided to relevant staff. These control enhancements are designed to ensure that all reimbursable grant expenditures are properly identified, recorded, and reported in both the financial statements and the SEFA. Conclusion: Management has taken corrective action to address the identified material weakness and has implemented additional controls to improve the accuracy and completeness of financial reporting and SEFA preparation. Management believes these measures will effectively mitigate the risk of similar issues occurring in the future and will continue to monitor and refine these processes to ensure ongoing compliance with applicable accounting and federal reporting requirements