Audit 410364

Adjusting Journal Entries, Required Disclosures and Draft Financial Statements Condition and Criteria: During the current year, adjusting journal entries, along with disclosures were drafted by the auditors and accepted by the Borough to properly reflect the financial statements. The inability of the Borough to prepare financial statements with full disclosures is a material weakness in the entity’s internal control over financial reporting. Without this assistance, the Borough is exposed to the potential risk that the financial statements contain a material misstatement that would go undetected. Cause and Effect: AU-C Section 265 entitled Communicating Internal Control Related Matters Identified in an Audit, issued by the American Institute of Certified Public Accountants (AICPA) considers the need for significant adjusting journal entries and assistance when preparing the financial statements to be indicative of an internal control deficiency. Without this assistance, the potential exists of the Borough’s financial statements not confirming with the basis of accounting as described in Note 1. Auditor’s Recommendation: Although auditors may continue to provide such assistance both now and, in the future, under the pronouncement, the Borough should continue to review and accept both proposed adjusting journal entries and footnote disclosures, along with the draft financial statements. Borough’s Response: The Borough has received, reviewed and accepted all journal entries, footnote disclosures and draft financial statements proposed for the current year audit and will continue to review similar information in future years. Further, the Borough believes it has a thorough understanding of these financial statements and the ability to make informed judgments based on these financial statements. Lastly, the Borough considers such assistance provided by the auditors to be the most cost-effective manner to prepare such information. The Borough will also ensure that in the future all transactions will be properly reflected in the accounting software.

Segregation of Duties - Conditions and Criteria: The Borough is a small office with only a few employees. In such an environment, it is difficult, if not impossible to segregate duties of the general accounting from custody and control over assets such as cash. Cause and Effect: A fundamental element of an effective internal control system is the proper segregation of duties. Proper segregation of duties provides for a system of checks and balances and entails assigning responsibilities of authorizing and recording transactions among different people in the Borough. Generally, assigning different individuals the responsibilities of authorizing transactions, recording transactions, and maintaining custody of the related assets reduces the opportunities for any individual to both perpetrate and conceal errors or fraud in the normal course of business. A lack of segregation of duties increases the potential risk of misappropriation of assets due to fraud. Auditor’s recommendation: We recognize the Borough has attempted to segregate duties to the best of its ability. The Borough should continue to seek opportunities to segregate duties including involvement from Council Members. Borough’s Response: Because of the limited number of personnel in the office, the Borough recognizes the limitations with regards to segregation of duties and therefore will consider mitigating controls. The Borough will continue to seek involvement from the Borough Council in terms of reviewing financial information.