Finding 2023-001 – Material Weakness
Condition: There were 42 audit adjustments and closing entries posted during the audit to report the Town’s financial statements in accordance with Generally Accepted Accounting Principles (GAAP). The large number of adjustments identified during the course of the audit indicates that the Town does not have internal controls in place to prevent or detect misstatements on a timely basis. Areas where accounts and transactions were not adequately reconciled and evaluated for proper recording prior to the start of the audit fieldwork and areas that require improvement included in the following:
• Procedures to ensure beginning fund balance/net position roll-forward to prior year audited financial statements.
• Procedures for ensuring revenue received in advance of qualifying expenditures are properly deferred.
• Procedures to ensure retentions payable is properly accrued.
• Procedures for tracking grant expenditures to ensure revenue is accrued to the extent of reimbursable expenditures incurred and evaluation of proper accounting treatment of transactions as earned, unearned, or unavailable revenue.
• Procedures to ensure capital outlay is properly reconciled to capital asset additions.
• Procedures to ensure that building permit fees not earned are properly accounted for as unearned revenue.
• Procedures to ensure all loans issued by the Town are properly recorded in the general ledger.
• Procedures for evaluating when entries should be posted to fund balance and whether fund balance/net position/restrictions and investment in capital assets are properly reflected.
• Procedures to ensure interfund transactions, including due to and from other funds, advances to and from other funds and transfer in and out, excluding those with agency funds, are in balance.
Criteria: Internal controls over financial reporting should exist to ensure the financial statements are prepared in accordance with GAAP and limit the opportunity for errors and fraud occurring.
Cause: The Town’s staff did not have enough time to fully close the Town’s books before the start of the audit, including reconciling grant billings to the general ledger.
Effect: The adjustments and closing entries were required to report the financial statements in accordance with GAAP.
Recommendation: We recommend that management ensure all balance sheet accounts are reviewed for proper cut-off and income statement accounts are reviewed for proper classification during the closing process, including reviewing accounts receivable, grants receivable, loans receivable, accounts payable and related assets, fund balance and net position, government-wide revenue and expense adjustments and the classification of revenues and expenditures.
Views of Responsible Officials and Planned Corrective Action: We agree with the finding and have implemented a new process during fiscal year 2023/24.
Finding 2023-002 – Material Weakness
Federal Grantor: Various
Passed-through: Various
Pass-through Grantor’s No.: Various
Compliance Requirement: Reporting
Condition: The Town submitted its Audited Financial Statements and Single Audit Report to the federal clearinghouse in September 2024, six months after it was due, mostly the result of delays in reconciling grant activity to revenue recorded.
Criteria: The Town was required to submit its Audited Financial Statements and Single Audit Report to the federal audit clearinghouse no later than March 31, 2023, nine months after the fiscal year-end (2 Code of Federal Regulations §200.512).
Effect: Federal awarding agencies may deny future federal awards or subject the Town to additional cash monitoring requirements.
Cause: The Town did not prepare its Audited Financial Statements and Schedule of Expenditures of Federal Awards in a timely manner due to the number of federal awards tested in the current year compared to prior years. In addition, the Town lost its finance director during the financial and single audit process.
Context: The Town has had complete turnover of finance department personnel and has found difficulty in replacing key personnel for its finance department.
Recommendation: The Town should consider contracting with an external accounting firm so that it can close its books and submit its audited financial statements and single audit to the federal audit clearinghouse no later than the statutory reporting deadline.
Views of Responsible Officials and Planned Corrective Action: We agree with the finding and have implemented a new process during fiscal year 2023/24.
Finding 2023-003 – Material Weakness
Award No.: Various
Federal Grantor: Various
Compliance Requirement: Other compliance requirements.
Condition: The Schedule of Expenditures of Federal Awards (SEFA) was not complete, and expenditures reported on the SEFA were revised during the single audit.
Criteria: 2 CFR Part 200, Subpart F (Uniform Guidance) Section 200.502 states, “The auditee should prepare a Schedule of Expenditures of Federal Awards for the period covered by the auditee’s financial statements.” Internal controls over the SEFA should be in place to ensure accrual basis expenses incurred under the federal program are properly reported as expenses on the SEFA and are properly reported as revenue in the financial statements prior to the start of the single audit.
Cause: The SEFA was not fully reconciled and finalized until after the single audit began.
Effect: The expenses included on the SEFA were revised during the single audit, which could have resulted in the auditor not selecting the correct major program or expenses for testing and could have resulted in the single audit not satisfying the requirements of the Uniform Guidance.
Recommendation: We recommend additional review procedures be implemented to ensure the SEFA is complete and accurate when the single audit begins.
Views of Responsible Officials and Planned Corrective Action: We agree with the finding and have implemented a new process during fiscal year 2023/24.
Finding 2023-004 – Significant Deficiency
Award No.: 16.710
Federal Grantor: U.S. Department of Justice
Compliance Requirement: Reporting
Condition: The Federal Financial Reports (SF-425) final report for the reporting period and date of December 31, 2022 was submitted on September 19, 2023. Quarterly federal financial report for the period of January 1, 2023 to March 31, 2023 was submitted on May 8, 2023.
Criteria: According to 2 CFR Part 200.303, the Town is required to establish and maintain effective internal controls over Federal awards that provides reasonable assurance that the Town is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Police Safety Partnership and Community Policing Grant program resolutions require the Town to file financial reports throughout the year. Federal Financial Report (SF-425) final report shall be submitted no later than 120 days after the project or grant period end date. Also, quarterly federal financial reports shall be submitted no later than 30 days after the end of each reporting period.
Cause: The Town experienced turnover and vacancies in key positions responsible for reporting during fiscal year 2022-23.
Effect: The Town was not fully in compliance with reporting requirements.
Recommendation: The Town needs to ensure that reports are complete by the due date.
Views of Responsible Officials and Planned Corrective Action: We concur that the reports were filed late. Additional staff were hired to track reporting requirements.
Finding 2023-005 – Significant Deficiency
Award No.: All
Federal Grantor: All
Compliance Requirement: Reporting
Condition: The expenditure information provided to report the amounts of the SEFA contained totals representing transfers from other funds instead of individual expenditure amounts.
Criteria: Section 202.302 states in part, “… the state's and the other non-Federal entity's financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award.”
Cause: The Town does not have a process in place to ensure separate identification of federal expenditures in the accounting system.
Effect: By not maintaining a separate accounting of individual expenditures of federal funds, it is difficult to determine that funds have been used according to Federal regulations.
Recommendation: The Town should ensure individual expenditure detail for federal award expenditures is prepared in the general ledger, or in supplemental listings.
Views of responsible officials and planned corrective actions: We concur with this finding and have implemented individual expenditure detail.
Finding 2023-001 – Material Weakness
Condition: There were 42 audit adjustments and closing entries posted during the audit to report the Town’s financial statements in accordance with Generally Accepted Accounting Principles (GAAP). The large number of adjustments identified during the course of the audit indicates that the Town does not have internal controls in place to prevent or detect misstatements on a timely basis. Areas where accounts and transactions were not adequately reconciled and evaluated for proper recording prior to the start of the audit fieldwork and areas that require improvement included in the following:
• Procedures to ensure beginning fund balance/net position roll-forward to prior year audited financial statements.
• Procedures for ensuring revenue received in advance of qualifying expenditures are properly deferred.
• Procedures to ensure retentions payable is properly accrued.
• Procedures for tracking grant expenditures to ensure revenue is accrued to the extent of reimbursable expenditures incurred and evaluation of proper accounting treatment of transactions as earned, unearned, or unavailable revenue.
• Procedures to ensure capital outlay is properly reconciled to capital asset additions.
• Procedures to ensure that building permit fees not earned are properly accounted for as unearned revenue.
• Procedures to ensure all loans issued by the Town are properly recorded in the general ledger.
• Procedures for evaluating when entries should be posted to fund balance and whether fund balance/net position/restrictions and investment in capital assets are properly reflected.
• Procedures to ensure interfund transactions, including due to and from other funds, advances to and from other funds and transfer in and out, excluding those with agency funds, are in balance.
Criteria: Internal controls over financial reporting should exist to ensure the financial statements are prepared in accordance with GAAP and limit the opportunity for errors and fraud occurring.
Cause: The Town’s staff did not have enough time to fully close the Town’s books before the start of the audit, including reconciling grant billings to the general ledger.
Effect: The adjustments and closing entries were required to report the financial statements in accordance with GAAP.
Recommendation: We recommend that management ensure all balance sheet accounts are reviewed for proper cut-off and income statement accounts are reviewed for proper classification during the closing process, including reviewing accounts receivable, grants receivable, loans receivable, accounts payable and related assets, fund balance and net position, government-wide revenue and expense adjustments and the classification of revenues and expenditures.
Views of Responsible Officials and Planned Corrective Action: We agree with the finding and have implemented a new process during fiscal year 2023/24.
Finding 2023-002 – Material Weakness
Federal Grantor: Various
Passed-through: Various
Pass-through Grantor’s No.: Various
Compliance Requirement: Reporting
Condition: The Town submitted its Audited Financial Statements and Single Audit Report to the federal clearinghouse in September 2024, six months after it was due, mostly the result of delays in reconciling grant activity to revenue recorded.
Criteria: The Town was required to submit its Audited Financial Statements and Single Audit Report to the federal audit clearinghouse no later than March 31, 2023, nine months after the fiscal year-end (2 Code of Federal Regulations §200.512).
Effect: Federal awarding agencies may deny future federal awards or subject the Town to additional cash monitoring requirements.
Cause: The Town did not prepare its Audited Financial Statements and Schedule of Expenditures of Federal Awards in a timely manner due to the number of federal awards tested in the current year compared to prior years. In addition, the Town lost its finance director during the financial and single audit process.
Context: The Town has had complete turnover of finance department personnel and has found difficulty in replacing key personnel for its finance department.
Recommendation: The Town should consider contracting with an external accounting firm so that it can close its books and submit its audited financial statements and single audit to the federal audit clearinghouse no later than the statutory reporting deadline.
Views of Responsible Officials and Planned Corrective Action: We agree with the finding and have implemented a new process during fiscal year 2023/24.
Finding 2023-003 – Material Weakness
Award No.: Various
Federal Grantor: Various
Compliance Requirement: Other compliance requirements.
Condition: The Schedule of Expenditures of Federal Awards (SEFA) was not complete, and expenditures reported on the SEFA were revised during the single audit.
Criteria: 2 CFR Part 200, Subpart F (Uniform Guidance) Section 200.502 states, “The auditee should prepare a Schedule of Expenditures of Federal Awards for the period covered by the auditee’s financial statements.” Internal controls over the SEFA should be in place to ensure accrual basis expenses incurred under the federal program are properly reported as expenses on the SEFA and are properly reported as revenue in the financial statements prior to the start of the single audit.
Cause: The SEFA was not fully reconciled and finalized until after the single audit began.
Effect: The expenses included on the SEFA were revised during the single audit, which could have resulted in the auditor not selecting the correct major program or expenses for testing and could have resulted in the single audit not satisfying the requirements of the Uniform Guidance.
Recommendation: We recommend additional review procedures be implemented to ensure the SEFA is complete and accurate when the single audit begins.
Views of Responsible Officials and Planned Corrective Action: We agree with the finding and have implemented a new process during fiscal year 2023/24.
Finding 2023-004 – Significant Deficiency
Award No.: 16.710
Federal Grantor: U.S. Department of Justice
Compliance Requirement: Reporting
Condition: The Federal Financial Reports (SF-425) final report for the reporting period and date of December 31, 2022 was submitted on September 19, 2023. Quarterly federal financial report for the period of January 1, 2023 to March 31, 2023 was submitted on May 8, 2023.
Criteria: According to 2 CFR Part 200.303, the Town is required to establish and maintain effective internal controls over Federal awards that provides reasonable assurance that the Town is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Police Safety Partnership and Community Policing Grant program resolutions require the Town to file financial reports throughout the year. Federal Financial Report (SF-425) final report shall be submitted no later than 120 days after the project or grant period end date. Also, quarterly federal financial reports shall be submitted no later than 30 days after the end of each reporting period.
Cause: The Town experienced turnover and vacancies in key positions responsible for reporting during fiscal year 2022-23.
Effect: The Town was not fully in compliance with reporting requirements.
Recommendation: The Town needs to ensure that reports are complete by the due date.
Views of Responsible Officials and Planned Corrective Action: We concur that the reports were filed late. Additional staff were hired to track reporting requirements.
Finding 2023-005 – Significant Deficiency
Award No.: All
Federal Grantor: All
Compliance Requirement: Reporting
Condition: The expenditure information provided to report the amounts of the SEFA contained totals representing transfers from other funds instead of individual expenditure amounts.
Criteria: Section 202.302 states in part, “… the state's and the other non-Federal entity's financial management systems, including records documenting compliance with Federal statutes, regulations, and the terms and conditions of the Federal award, must be sufficient to permit the preparation of reports required by general and program-specific terms and conditions; and the tracing of funds to a level of expenditures adequate to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award.”
Cause: The Town does not have a process in place to ensure separate identification of federal expenditures in the accounting system.
Effect: By not maintaining a separate accounting of individual expenditures of federal funds, it is difficult to determine that funds have been used according to Federal regulations.
Recommendation: The Town should ensure individual expenditure detail for federal award expenditures is prepared in the general ledger, or in supplemental listings.
Views of responsible officials and planned corrective actions: We concur with this finding and have implemented individual expenditure detail.