Audit 27042

2022-001 - Material Audit Adjustments and Financial Statement Preparation (repeat finding) Finding Type: Material Weakness in Internal Control Over Financial Reporting Criteria: All governmental units in Michigan are required to prepare financial statements in accordance with generally accepted accounting principles (GAAP). This is the responsibility of the management. The preparation of financial statements in accordance with GAAP requires internal controls over both: 1) recording, processing, and summarizing accounting data (i.e. maintaining internal accounting records), and 2) reporting government-wide and fund financial statements, including the related notes to the financial statements (i.e. external financial reporting). Condition: We identified and proposed material audit adjustments that management reviewed and approved. As is the case with many small and medium-sized governmental units, the Township has historically relied on its independent external auditor to assist with the preparation of the financial statements, the related notes, and the management?s discussion and analysis as part of its external financial reporting process. Accordingly, the Township?s ability to prepare financial statements in accordance with GAAP is based, in part, on its reliance on its external auditor, who cannot, by definition, be considered part of the Township?s internal controls. Having the auditor draft the annual financial statements is allowable under current auditing standards and ethical guidelines and may be the most efficient and effective method for preparation of the Township?s financial statements. However, when an entity (on its own) lacks the ability to produce financial statements that conform to GAAP, or when material audit adjustments are identified by the auditor, auditing standards require that such conditions be communicated in writing as material weaknesses. Cause: This condition was caused by the Township?s decision to outsource the preparation of its annual financial statements to the external auditor rather than incur the costs of obtaining the necessary training and expertise required for the Township to perform this task internally because outsourcing the task is considered more cost effective. Effect: The Township?s accounting records were initially misstated by amounts material to the financial statements. In addition, the Township lacks complete internal controls over the preparation of its financial statements in accordance with GAAP, and, instead, relies, at least in part, on assistance from its external auditor for assistance with this task. Auditor?s Recommendation: We recommend that management continue to monitor the relative costs and benefits of securing the internal or other external resources necessary to develop material adjustments and prepare a draft of the Township?s annual financial statements versus contracting with its auditor for these services. Management Response: Management has made an ongoing evaluation of the respective costs and benefits of obtaining internal or external resources, specifically for the preparation of financial statements, and has determined that the additional benefits derived from implementing such a system would not outweigh the costs incurred to do so. Management will continue to review the draft financial statements and notes prior to approving them and accepting responsibility for their content and presentation.

2022-002 - Written Policies Required by the Uniform Grant Guidance Finding Type: Immaterial noncompliance Program: Water and Waste Disposal Systems for Rural Communities (ALN 10.760) Criteria: The Uniform Guidance requires a non-federal entity that has expended federal awards for a grant awarded on or after December 26, 2014 to have written policies pertaining to financial management (?200.302) and procurement (?200.318). Condition: Although the Township has procedures in place to cover these areas, the formal written policies have not been documented in accordance with the Uniform Guidance. Cause: This condition appear to be the result of a time lag in identifying the requirements an developing a plan for compliance. Effect: As a result of this condition, the Township did not fully comply with the Uniform Guidance applicable to the USDA bond funds. Questioned Costs: No costs have been questioned as a result of this finding. Recommendation: We recommend that the Township ensures that these polices are updated to conform with the Uniform Guidance as soon as practical, but no later than the end of fiscal year 2023. View of Responsible Officials: The Township will review the current policy and get it updated to meet the criteria set out in the Uniform Guidance.

2022-001 - Material Audit Adjustments and Financial Statement Preparation (repeat finding) Finding Type: Material Weakness in Internal Control Over Financial Reporting Criteria: All governmental units in Michigan are required to prepare financial statements in accordance with generally accepted accounting principles (GAAP). This is the responsibility of the management. The preparation of financial statements in accordance with GAAP requires internal controls over both: 1) recording, processing, and summarizing accounting data (i.e. maintaining internal accounting records), and 2) reporting government-wide and fund financial statements, including the related notes to the financial statements (i.e. external financial reporting). Condition: We identified and proposed material audit adjustments that management reviewed and approved. As is the case with many small and medium-sized governmental units, the Township has historically relied on its independent external auditor to assist with the preparation of the financial statements, the related notes, and the management?s discussion and analysis as part of its external financial reporting process. Accordingly, the Township?s ability to prepare financial statements in accordance with GAAP is based, in part, on its reliance on its external auditor, who cannot, by definition, be considered part of the Township?s internal controls. Having the auditor draft the annual financial statements is allowable under current auditing standards and ethical guidelines and may be the most efficient and effective method for preparation of the Township?s financial statements. However, when an entity (on its own) lacks the ability to produce financial statements that conform to GAAP, or when material audit adjustments are identified by the auditor, auditing standards require that such conditions be communicated in writing as material weaknesses. Cause: This condition was caused by the Township?s decision to outsource the preparation of its annual financial statements to the external auditor rather than incur the costs of obtaining the necessary training and expertise required for the Township to perform this task internally because outsourcing the task is considered more cost effective. Effect: The Township?s accounting records were initially misstated by amounts material to the financial statements. In addition, the Township lacks complete internal controls over the preparation of its financial statements in accordance with GAAP, and, instead, relies, at least in part, on assistance from its external auditor for assistance with this task. Auditor?s Recommendation: We recommend that management continue to monitor the relative costs and benefits of securing the internal or other external resources necessary to develop material adjustments and prepare a draft of the Township?s annual financial statements versus contracting with its auditor for these services. Management Response: Management has made an ongoing evaluation of the respective costs and benefits of obtaining internal or external resources, specifically for the preparation of financial statements, and has determined that the additional benefits derived from implementing such a system would not outweigh the costs incurred to do so. Management will continue to review the draft financial statements and notes prior to approving them and accepting responsibility for their content and presentation.

2022-002 - Written Policies Required by the Uniform Grant Guidance Finding Type: Immaterial noncompliance Program: Water and Waste Disposal Systems for Rural Communities (ALN 10.760) Criteria: The Uniform Guidance requires a non-federal entity that has expended federal awards for a grant awarded on or after December 26, 2014 to have written policies pertaining to financial management (?200.302) and procurement (?200.318). Condition: Although the Township has procedures in place to cover these areas, the formal written policies have not been documented in accordance with the Uniform Guidance. Cause: This condition appear to be the result of a time lag in identifying the requirements an developing a plan for compliance. Effect: As a result of this condition, the Township did not fully comply with the Uniform Guidance applicable to the USDA bond funds. Questioned Costs: No costs have been questioned as a result of this finding. Recommendation: We recommend that the Township ensures that these polices are updated to conform with the Uniform Guidance as soon as practical, but no later than the end of fiscal year 2023. View of Responsible Officials: The Township will review the current policy and get it updated to meet the criteria set out in the Uniform Guidance.