Audit 410531

Criteria: Generally, a system of internal control contemplates separation of duties such that no individual has responsibility to execute a transaction, have physical access to the related assets, and have responsibility or authority to record the transaction. Condition: Due to the limited size of the City's business staff, the City has limited segregation of duties. Questioned Costs: N/A Context: The City has informed us that the small size of its business office staff precludes proper separation of duties at this time. Effect: The City is unable to maintain separation of incompatible duties. Cause: Limited number of staff in the business office. Recommendation: We recommend that the City continue to separate incompatible duties as best it can within the limits of what the City considers to be cost beneficial.

Criteria: Generally, a system of internal control includes the ability to understand and prepare the City's financial statements and related disclosures in accordance with accounting principles generally accepted in the United States of America. Condition: Due to the limited size of the City's business staff and related resources available, the City has relied upon the auditor to prepare the financial statements and related disclosures in accordance with GAAP. Questioned Costs: N/A Context: The City has informed us that the small size and resources of its business office staff precludes the City from preparing its own financial statements. Effect: The City is unable to prepare GAAP financial statements. Cause: Limited number and qualifications of staff in the business office. Recommendation: We recommend that the City continue to review the auditor prepared financial statements with the intention of understanding and acceptance of responsibility for reporting under GAAP.

Criteria: A control deficiency exists when the design or operation of a control does not allow management or employees in the normal course of performing their assigned functions, to prevent or detect misstatements of the financial statements on a timely basis. A control deficiency that typically is considered significant is the identification by the auditor of a material misstatement in the financial statements that was not initially identified by the City's internal control. Condition: During our audit, we proposed numerous adjustments that resulted in significant changes to the City's financial statements. Questioned Costs: N/A Context: The City's limited size and training and qualifications of business office personnel have precluded the City from the ability to properly identify and correct financial misstatements. Effect: The City's inability to detect misstatements in the financial statements increases the likelihood that the financial statements may not be fairly presented. Cause: Inadequate internal controls and monitoring of internal controls by qualified City personnel. Recommendation: We recommend that the City review internal controls currently in place, then design and implement procedures to improve internal controls over financial reporting to detect misstatements in the financial statements.

Program: ALN 66.458 Clean Water State Revolving Fund ALN 66.468 Drinking Water State Revolving Fund Criteria: As required by the OMB Uniform Guidance (2 CFR 200.318(a)), a non-federal entity must use its own documented procurement procedures, provided that they conform to Federal law and the standards outlined in the Uniform Guidance. Condition: The City's procurment procedures do not conform to Uniform Guidance requirements. Effect: There is an increased risk of noncompliance with federal awards. Questioned Costs: N/A Cause: The City has not revised procurement procedures for many years. Recommendation: We recommend that the City revise their procurement procedures to conform with Minnesota statutes and Uniform Guidance.