Audit 376639

Finding 2024-001 – Material Weakness Condition: There were 72 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 are properly accrued. - Procedures to ensure accounts payable are properly accrued. - Procedures to ensure compensated absences and payroll accruals are prepared accurately and on a timely basis. - Procedures to ensure that pension and other post-retirement entries are calculated and prepared accurately. - 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 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 that Town Council approved assigned fund balance are properly recorded in the general ledger and that prior assigned fund balances are properly removed from the general ledger. - Procedures to ensure interfund transactions resulting from short-term interfund borrowings and interfund transfers, excluding those with agency funds, are in balance and properly reconciled, recorded and a supporting schedule is accurately prepared. - Procedures to ensure that all grant billings are properly reconciled and are accurately reflected in the general ledger. 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 Finance Department did not have procedures in place to fully close the Town’s books before the start of the audit. 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 are actively seeking additional consultants to support staff training, provide technical guidance, and assist with strengthening financial reporting procedures.

Finding 2024-002 – Material Weakness Condition: During the audit of capital assets, it was noted that the Town did not establish a complete reconciliation process between (1) governmental fund capital outlay postings, (2) government-wide fixed-asset adjustments, and (3) the detailed construction in progress and capital assets tracking schedules. - Prior-year audit adjustments related to capital assets were not fully recorded in the Town’s books, which caused beginning balances and current-year additions not to agree to prior audited amounts. - Several governmental fund and government-wide adjustments were required during the current audit to correct these variances, including entries to recognize completed projects, true up construction in progress and capital asset balances, correct capital asset classifications and record depreciation expense. - Finance Department does not reconcile capital outlay expenditures to project tracking information from other departments and the amounts recorded as construction in progress on the capital assets schedule. The Town did not complete the capital asset reconciliation to the general ledger until fourteen months after the fiscal year-end. Criteria: U.S. generally accepted accounting principles (GAAP) require that capital assets be recorded when acquired or constructed and depreciated once placed into service. Internal controls should ensure that additions, disposals, and depreciation are accurately captured in the general ledger and that detailed capital asset records reconcile to financial statement balances. Government-wide and fund-level reporting should be supported by timely and complete reconciliations between the general ledger, construction-in-progress schedules, and fixed-asset tracking reports maintained by departments. Cause: The Town lacks a documented and coordinated reconciliation process between the fixed asset system and the general ledger. Current internal control structure does not require periodic reconciliation to ensure that construction in progress and capital assets schedules agree and capital assts adjustments are incorporated into current-year balances. Effect: The absence of an effective reconciliation and monitoring process resulted in material misstatements of capital asset and construction in progress balances that required audit-proposed adjustments to conform to GAAP. This weakness increases the risk that capital assets, accumulated depreciation, and related expenses may be misstated in future financial statements without detection. Recommendation: We recommend that the Town implement formal policies and procedures requiring regular (at least quarterly) reconciliations between the general ledger and the detailed fixedasset tracking schedules. Project information maintained by the Public Works Department should be used to ensure construction in process expenditures are properly recorded in the general ledger. Management should ensure that prior-year audit adjustments are reviewed and incorporated at the start of each fiscal year and that all completed projects are timely transferred from construction in progress to capital assets in service. Views of Responsible Officials and Planned Corrective Action: We agree with the finding and will implement a formalized, multi-layer reconciliation process that ensures capital activity is consistently captured, reviewed, and aligned across all reporting levels.

Finding 2024-003 – 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 December 2025, nine 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, 2025, 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. Context: The Town lacks a documented and reconciliation process to accurately prepare the Schedule of Expenditures of Federal Awards in a timely manner. 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 the Town is implementing a comprehensive corrective action plan focused on stabilizing Finance staffing, improving processes, and strengthening internal controls to ensure the Town can prepare accurate financial statements and the SEFA in a timely manner and meet all federal reporting deadlines going forward.

Finding 2024-004 – 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 and that the schedule is reconciled to the revenue recorded in the general ledger. Views of Responsible Officials and Planned Corrective Action: We agree with the finding and the Town is implementing a comprehensive corrective action plan focused on stabilizing Finance staffing, improving processes, and strengthening internal controls to ensure the Town can prepare accurate financial statements and the SEFA in a timely manner and meet all federal reporting deadlines going forward.