Audit 398080

CONDITION: During the calendar year 2023, the City did not record the necessary adjustments to the various ‘Fund’ general ledgers of the City to properly reconcile certain balance sheet accounts, such as interfund receivables and payables, and payroll-related liabilities to the underlying supporting documentation available at the City. This included the City’s Community Development Block Grant (CDBG) Program. As a result, the financial position and results of operations as shown throughout the calendar year were inaccurately stated. CRITERIA: Prudent internal control procedures in the areas of general ledger management and financial reporting include the reconciliation of all general ledger account balances to underlying supporting documentation monthly with independent oversight and approval as part of the process. In specific as it relates to federal programs, Section 2 CFR 200.403(g) of the Uniform Guidance requires that federal costs must be adequately documented which would include the City’s Federal Programs general ledger which accounts for the financial activity of the City’s Community Development Block Grant Program. EFFECT: The lack of procedures in place for reconciling balance sheet accounts throughout the calendar year, with independent oversight, 1) reduces the City’s internal control over the financial reporting processes, 2) exposes the City to inaccurate financial reporting to management for decision-making purposes, and 3) increases the potential for irregularities that may result (unintentional or otherwise) that are not detected in a timely manner. Had these reconciliations been performed, inaccurate postings to the City’s various general ledgers could have been detected and corrected in a timely manner to enhance internal controls and financial reporting in this important area of financial management. As a result, the City is not incompliance with Section 2 CFR 200.403(g) of the Uniform Guidance which requires federal costs to be adequately documented in the applicable general ledgers of the City. CAUSE: During calendar year 2023, the City does not employ an in-house accountant with the requisite skills necessary to manage and reconcile the various interfund receivables and payables, and payroll-related liabilities to the underlying supporting documentation available at the City.RECOMMENDATION: I am recommending that the management of the City establish written procedures for all accounting functions, but most notably for recording the necessary adjustments to the City’s general ledgers throughout the calendar year (monthly) to ensure that all balance sheet account balances are supported by the underlying documentation available at the City. It is anticipated that additional training will be required for in-house personnel to perform this function, or the City may want to consider contracting these services to a third-party professional with the expertise to perform these functions for the City on a monthly or quarterly basis throughout the year. These procedures should significantly enhance the internal control over the financial accounting and reporting process relative to the City’s general ledgers for each Fund. VIEWS OF RESPONSIBLE OFFICIALS: The City concurs with the above noted finding and addresses this issue in the ‘Corrective Action Plan’ included within this report.