Audit 407886

Criteria: Management is responsible for establishing and maintaining internal controls and for the fair presentation of the financial position, results of operations and disclosures in the financial statements, in conformity with generally accepted accounting principles. Condition: The City does not have a system of internal controls that would enable management to conclude the financial statements and related disclosures are complete and presented in accordance with the generally accepted accounting principles which could lead to material errors that may not be identified and corrected by the City. As such, management requested me to prepare a draft of the financial statements, including the related footnote disclosures. Cause: Due to cost and other considerations, the City requested we draft the financial statements. Effect: The control deficiency could result in a misstatement of the financial statements that would not be prevented or detected. Recommendation: The outsourcing of these services is not unusual in entities of your size and is a result of management's cost benefit decision to rely on my accounting expertise rather than incurring this internal resource cost. It is the responsibility of management and those charged with governance to make the decision whether to accept the degree of risk associated with this condition because of cost of other considerations. Views of Responsible Officials: The City has elected to have the auditors draft the financial statements and related notes, as they do not believe the risk of material misstatement outweighs the cost of implementing additional controls.

Criteria: An effective system of internal controls depends on an adequate segregation of duties with respect to the execution and recording of transactions, as well as the custody of an entity’s assets. Accordingly, an effective system of internal control will be designed such that these functions are performed by different employees, so that no one individual handles a transaction from its inception to its completion. Condition: The City has a limited number of office personnel, which prevents an ideal segregation of duties for controls over financial reporting. Cause: Management oversight is done on an information basis. Effect: The lack of segregation of duties increases the risk of fraud related to misappropriation of assets, financial statement misstatement, or both. Recommendation: Management, the Mayor and the City Council should continually be aware of the financial accounting and reporting requirements of the City. Under this situation, the most effective control is the City Council’s oversight and knowledge of matters relating to the operations of the City. Views of Responsible Officials: The Mayor and City Council performed various oversight roles throughout the year but is aware of the risk relating to limited staff performing the daily activities and they do not believe the risk of material misstatement outweighs the cost of hiring additional staff.