Federal Grant Revenue Recognition Repeat Finding: This finding was first reported in 2022 (Finding 2022-001). See Section IV: Prior Year Findings for management’s status update. Criteria: A sound system of internal control over financial reporting includes the recognition of revenues for expenditure-driven grant agreements in the proper reporting period. Condition: During 2023, the District incurred qualified expenditures associated with grant agreements with the U.S. Department of Federal Emergency Management Agency. These agreements are categorized as voluntary nonexchange reimbursement-type or expenditure-driven transactions, requiring the recipient to incur allowable costs and comply with specific grant stipulations in accordance with GASB Statement No. 33. However, the District did not initially recognize certain federal grant receivables and related revenues associated with qualified grant expenditures incurred during the reporting period. Audit adjustments were required to properly accrue federal grant receivables and revenues for the current reporting period. Cause: Turnover of critical staff and understaffing in key accounting functions of the District resulted in a prioritization of operating responsibilities over the valuation of revenue accruals for federal grants. Additionally, the prior year audit report containing recommendations related to this matter was not issued until January 29, 2025, subsequent to the 2023 reporting period; therefore, management did not have the opportunity during the year under audit to implement corrective actions related to this finding. Effect: Material adjustments were required to accrue federal grant receivables and revenues for the current reporting period and to correct prior-period omissions. Recommendation: We recommend the District expand the operational capacity of the finance team with additional accounting personnel possessing an understanding of the reporting and compliance frameworks of the District. The District should also continue utilizing specialized grant compliance and accounting consultants, as necessary, to assist with the timely evaluation and recognition of federal grant activity. Views of Responsible Officials and Planned Corrective Action: Management acknowledges the need to expand the current capacities of the finance team and is in the process of recruiting additional experienced and qualified personnel. To assist with immediate reporting and compliance needs, the District continues to utilize external consultants to provide assistance with grant programs and related accounting procedures.
District Credit Cards Repeat Finding: This finding was first reported in 2022 (Finding 2022-002). See Section IV: Prior Year Findings for management’s status update. Criteria: A sound system of internal control over financial reporting includes a formalized credit card use agreement, which specifies authorized purchases, transactional limits (individually or in the aggregate), policies for providing transactional support and general ledger coding instruction and supervisory review. Condition: During 2023, the District provided and authorized the use of District credit cards to certain employees. The absence of a formalized credit card use policy left the maintenance of authorized users, operational validity if purchases, criteria for properly documented receipts and cost reimbursement to the discretion of the credit card users. Audit procures additionally identified instances in which sales tax was paid on purchases despite the District’s tax-exempt status, one transaction lacking adequate supporting documentation and fuel credit cards maintained within District vehicles rather than assigned to specific employees or administered through a documented checkout process. Cause: The District had not fully established or formally adopted comprehensive policies and procedures governing credit card usage and monitoring controls. Additionally, the prior year audit report containing recommendations related to this matter was not issued until January 29, 2025, subsequent to the 2023 reporting period; therefore, management did not have the opportunity during the year under audit to implement corrective actions related to this finding. Effect: During 2023, one credit card transaction totaling $42.94 was identified as personal in nature and was subsequently reimbursed to the District. Audit procedures also identified transactions in which sales tax totaling $74.14 was paid on otherwise exempt purchases and one transaction for which adequate documentation was not maintained. Inadequate controls over credit card activity increase the risk of unauthorized, unsupported or personal expenditures not being identified timely. Recommendation: We recommend the establishment and adoption of a formal credit card use and review policy. This policy should include clear guidelines for approved uses of credit cards, transactional limits, required documentation, supervisory review and approval procedures, reimbursement requirements, tax-exempt purchasing procedures and accountability controls over fuel credit cards. Views of Responsible Officials and Planned Corrective Action: Management acknowledges the need to strengthen internal controls surrounding the use of District credit cards. In 2024, the District implemented a requirement for the Harbor Master to review all credit card transactions prior to fulfillment of the combined credit card bill. Management is currently evaluating the form and function of a formalized credit card use agreement and related monitoring procedures.
Timeliness of Monthly Bank Reconciliations Repeat Finding: This finding was first reported in 2022 (Finding 2022-003). See Section IV: Prior Year Findings for management’s status update. Criteria: A sound system of internal control over financial reporting includes the timely (monthly) reconciliation of bank accounts. Timely reconciliation of the operating account helps maintain accurate financial reporting, ensures transactional discrepancies are identified and corrected promptly and upholds the District’s fiduciary responsibility to taxpayers. Condition: The District’s operating account is reconciled to the corresponding balance in the general ledger. In the absence of formalized policies, this reconciliation is performed when time allows, which during 2023 resulted in delays in the preparation of reconciliation. The District also maintains significant startup cash balances for beach and office tills and processes a high volume of cash receipts as s part of daily operations. Cause: Turnover of critical staff and understaffing in key accounting functions of the District resulted in a prioritization of operating responsibilities over a systematic and timely approach to the reconciliation of the operating account. Additionally, the prior year audit report containing recommendations related to this matter was note issued until January 29, 2025, subsequent to the 2023 reporting period; therefore management did not have the opportunity during the year under audit to implement corrective actions related to this finding. Effect: Although the December 31, 2023 operating account reconciliation was ultimately performed effectively, untimely reconciliations increase the risk that errors, omissions or irregularities in cash transactions may not be identified timely and may result in inaccuracies in financial reporting and incomplete internal financial information. Recommendation: We recommend the District expand the operational capacity of the finance team with additional accounting personnel possessing an understanding of the reporting and compliance frameworks of the District. The District should also strengthen procedures surrounding the timely preparation and review of monthly bank reconciliations and evaluate opportunities to expand noncash payment methods where operationally feasible. Views of Responsible Officials and Planned Corrective Action: Management acknowledges the need to expand the current capacities of the finance team and improve the timeliness of monthly bank reconciliations. The District is in the process of recruiting additional experienced and qualified personnel and implementing procedures to support more timely completion and review of monthly reconciliations.
Texas County & District Retirement System (TCDRS) Contribution Calculations Criteria: A sound system of internal control over payroll and pension reporting includes accurate calculation and reporting of employee and employer retirement contributions in accordance with plan requirements. Condition: During audit procedures, we noted inconsistencies in the determination of gross compensation used to calculate employee and employer contributions to the TCDRS pension plan. Specifically, certain components of compensation, such as vehicle and cell phone allowances, were inconsistently included in eligible wages reported to TCDRS. Of 24 payroll items tested seven instances were identified in which amounts reported to TCDRS did not agree to underlying payroll records. Of those exceptions, one employee contribution was calculated above the required contribution rate and six employee contributions were calculated below the required contribution rate. Cause: The condition resulted from insufficient review procedures and inconsistent application of eligible compensation definitions used in calculating TRS contributions. Effect: Inaccurate determination and reporting of eligible compensation may result in incorrect employee and employer retirement contributions, required corrections and potential noncompliance with TCDRS reporting requirements. Recommendation: We recommend the District strengthen internal controls over payroll processing and TCDRS contribution calculations by establishing a clearly defined and consistently applied methodology for determining eligible compensation. for TCDRS purposes. We also recommend implementing a secondary review process to reconcile payroll records to amounts reported to TCDRS prior to submission. Views of Responsible Officials and Planned Corrective Action: Management acknowledges the need to strengthen internal controls over the calculation and reporting of TCDRS contributions. The District will implement enhanced review procedures to ensure consistency in the definition and application of eligible compensation and will improve reconciliation processes between payroll records and TCDRS reporting.
Check Signing and Authorization Criteria: A sound system of internal control over cash disbursements includes appropriate segregation of duties and independent authorization of payments. Condition: The District requires dual signatures for authorization of disbursements; however, one authorized signer is the Harbor Master, and the second authorized signer is a staff member subordinate to the Harbor Master. As a result, both signatories operate within the same reporting hierarchy, limiting independent oversight within the authorization process. Cause: The current authorization structure has not been formally evaluated to ensure adequate segregation of duties and governance-level oversight. Effect: Although dual signatures provide a control mechanism, assigning both signatories within the same reporting hierarchy reduces the effectiveness of the control and limits independent review of expenditures, particularly higher-dollar transactions. Recommendation: We recommend the District re-evaluate its check signing and disbursement authorization structure to strengthen segregation of duties and independent oversight. Specifically, we recommend retaining one operational signer within management while assigning the second approving authority to a governance-level position, such as a member of the Board of Commissioners. The District should also consider implementing approval thresholds requiring additional oversight for higher-dollar disbursements. Views of Responsible Officials and Planned Corrective Action: Management acknowledges the need to evaluate the current check signing and disbursement authorization structure and will consider incorporating governance-level participation and tiered approval thresholds to strengthen oversight.
System Access Controls and Principle of Least Privilege Criteria: A sound system of internal control over financial reporting includes restricting user access within financial systems based on job responsibilities and the principle of least privilege. Condition: During our audit procedures, we noted instances in which cash activity was inadvertently recorded to a prior period, indicating that users beyond the senior accountant had the ability to post transactions to closed accounting periods. We also noted certain users had broader system access than necessary to perform their assigned duties. Cause: The condition resulted from insufficient review of user access roles and system permissions and the absence of a formally documented least-privilege access framework. Effect: Excessive or inappropriate system access increases the risk of unauthorized or unintended financial reporting activity, including prior-period postings, inappropriate adjustments and reduced accountability over financial transactions. Recommendation: We recommend the District formally implement a least-privilege access framework within its accounting and financial reporting systems. This should include restricting prior-period posting access to designated personnel, aligning user permissions with assigned job responsibilities and performing periodic reviews of user access rights. Views of Responsible Officials and Planned Corrective Action: Management acknowledges the need to strengthen system access controls and will review existing user roles and permissions, implement more restrictive controls over prior-period postings and establish periodic reviews of user access rights.