TOWN OF ELKTON
173 W. SPOTSWOOD AVENUE ELKTON, VIRGINIA 22827
P: (540) 298-1951/F: (540) 298-1270 WWW.ELKTONV A.GOV
March 15, 2024
CORRECTIVE ACTION PLAN
Greg Lunsford, Town Manager respectfully submits the following corrective action plan for the year ended June 30, 2023.
Name and address of i...
TOWN OF ELKTON
173 W. SPOTSWOOD AVENUE ELKTON, VIRGINIA 22827
P: (540) 298-1951/F: (540) 298-1270 WWW.ELKTONV A.GOV
March 15, 2024
CORRECTIVE ACTION PLAN
Greg Lunsford, Town Manager respectfully submits the following corrective action plan for the year ended June 30, 2023.
Name and address of independent public accounting firm:
Brown, Edwards & Company, L.L.P. 1909 Financial Drive
Harrisonburg, VA 22801
Audit period: June 30, 2023
The findings from the June 30, 2023 Schedule of Findings and Questioned Costs (the "Schedule") are discussed below. The findings are numbered consistently with the number assigned in the Schedule.
FINDINGS- FINANCIAL STATEMENT AUDIT
2023-001: Material Audit Adjustments (Material Weakness)
Condition:
During the audit, we detected material misstatements in the trial balance. Generally accepted auditing standards dictate that detection of errors in an audit is a strong indicator of a significant deficiency or material weakness. Accordingly, we are required to communicate this finding as such.
Recommendation:
Material audit adjustments indicate that financial information presented to us for the audit was missing or inaccurate. We recommend that management implement processes to ensure accuracy of accounts.
Corrective Action: The Treasurer has implemented a two-step process, which includes one person reviewing the General Ledger for errors and creating a list of correcting journal entries. The proposed list would be presented to Council for review and approval. Once approved, a different individual would input the adjustments.
2023-002:
Segregation of Duties (Material Weakness)
Condition:
Multiple duties in a transaction cycle are performed by the same individual. Consequently, errors or irregularities may occur and not be detected.
Recommendation:
In an ideal system of internal controls, no individual would perform more than one duty in connection with any transaction or series of transactions. While we understand that limited staff can make this difficult, controls should be in place to mitigate the risk. We have suggested specific controls in a separate communication.
Corrective Action: This is a work in progress. The Treasurer has solicited advice/assistance from the Virginia Treasurer's Association for the segregation of duties with a limited number of staff. The requested information and the suggestions submitted by Brown Edwards will be compiled and drafted into a formal process for the Treasurer's Office staff to follow.
2023-003: Journal Entries (Material Weakness)
Condition:
Journal entries were not reviewed and did not have supporting documentation. As a result, improper entries may be made and not detected.
Recommendation:
We recommend all journal entries be reviewed and approved by an individual other than the preparer to ensure accuracy and appropriateness of the entry. Management responsible for posting the journal entry after review should not post an entry that results in unbalanced funds.
Corrective Action: The Treasurer has implemented a process, which consists of journal entries being compiled by one individual (to include supporting documentation for each proposed journal entry) and reviewed/keyed by a different individual in an effort to mitigate inaccuracies, and out of balance entries.
2023-004: Bank Reconciliations (Material Weakness)
Condition:
Bank reconciliations were prepared for each month of the year; however many were performed over a year after the reconciliation month.
Recommendation:
As cash accounts are particularly vulnerable to misappropriation due to their high liquidity and volume, we recommend timely monthly reconciliation of all accounts and review of the completed reconciliations by an individual independent of the preparer.
Corrective Action: The Treasurer has implemented a process for monthly reconciliations of the bank accounts, which consists of one individual performing the reconciliations and a separate individual reviewing/keying the adjustments. This should mitigate the vulnerability for undetected errors.
2023-005: Financial System Data (Material Weakness)
Condition:
Activity was not timely recorded in the financial system by staff; however, activity was recorded during bank reconciliations. Additionally, encumbrances related to open purchase orders are not tracked.
Recommendation:
Activity should be recorded as it is incurred throughout the year while maintaining supporting documentation. Encumbrances should be utilized for budgeting within the financial system and a procurement process with the use of purchase orders should be established.
Corrective Action: The Treasurer has implemented a process for the timely recordation of transactions which will be in harmony with the monthly bank reconciliations.
2023-006: Capital Assets and Construction in Progress (Material Weakness)
Condition:
Construction in progress expenditures are not tracked per project. Consequently, expenditures were not recorded appropriately, resulting in material audit entries.
Recommendation:
Management should track projects to ensure accurate recordkeeping and that projects are within budget. Upon completion of each project, the balance of expenditures should be placed in service as a capital asset and depreciated.
Corrective Action: The Treasurer has implemented a process for tracking separate capital projects and managing expenditures within the project. This will aid in appropriately recording transactions as they occur. In addition, the Town has purchased new software to aid in the management of capital assets and capital construction projects.
2023-007: Annual and Monthly Close Process (Material Weakness)
Condition:
The Town does not have a complete monthly or annual close process in place. Monthly and annual close processes have been implemented; however accrual entries are still not being recorded.
Recommendation:
We recommend the Town improve a monthly and annual close process to ensure financial records are accurate and complete.
Corrective Action: The Treasurer is currently drafting a monthly close process to ensure completion and accuracy of the Town's financial records. The annual close process currently consists of physically closing the Treasurer's Office on June 30th to input all utility/tax payments received by noon and then final reports for the fiscal year are printed. The actual fiscal year closure does not happen until the formal audit is completed.
2023-008: Grant Awards (Significant Deficiency)
Condition:
No formal process is in place to track grant expenditures or monitor compliance with federal and state grant requirements. As a result, compliance requirements may not be met. Federal awards are subject to the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and require a single audit if expenditures exceed $750,000. The Town is also responsible to maintain compliance with federal and state grant requirements.
Recommendation:
Expenditures must be documented and monitored to ensure compliance requirements are
met. Additionally, should a single audit be required, expenditure information for all federal grant programs is necessary to prepare a Schedule of Expenditure of Federal Awards. All federal program awards should be immediately communicated to the Treasurer or designated employee prior to expenditure.
Corrective Action: The Treasurer has implemented a process for recording and maintaining all grant expenditures to include: establishing a spreadsheet for each project based on the award document; the requirements for the grant, the amount of the award, and the tracking of approved expenditures as they occur.
FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAM AUDIT
2023-009: Water and Waste Disposal Systems for Rural Communities-AL# 10.760, Late Filing of Data Collection Form
Condition:
The Town did not file the data collection forms for the years ended June 30, 2022 and June 30, 2020 timely.
Criteria:
Under the requirements in the Uniform Guidance and the Office of Management and Budget (0MB), all entities are required to file the annual data collection form with the Federal Audit Clearinghouse the earlier of either 30 days after the issuance of the entity's annual audit or twelve months after the entity ' s fiscal year end (June 30th for the Town of Elkton).
Cause:
Management did not complete and certify auditee portion of the form before the deadline. The form was not completed for either years ended June 30, 2022 and June 30, 2020.
Effect:
The Town's form was not submitted to the Federal Audit Clearinghouse.
Recommendation:
Management should take steps to ensure that the form is filed timely.
Corrective Action: The Treasurer is aware that an annual audit needs to be completed for all major federal awards and will work with the auditing firm to provide the necessary information for compilation of the report by the stated deadline
2023-010: Federal Procurement Policies
Condition:
There are no written procurement policies specific to the federal awards cost principle requirements under Uniform Grant Guidance. Existing procurement policies are minimal and do not meet federal requirements.
Criteria:
Federal award recipients must have written policies, procedures, and standards of conduct as required by 2 CFR 200, Subparts D and E.
Cause:
Certain required policies under 2 CFR 200, Subparts D and E are not present.
Effect:
Lack of required policies may create noncompliance with regulations as stated requirements may not be followed.
Recommendation:
Develop procurement policies and financial policies that meet federal standards.
Corrective Action: The Treasurer has drafted a Procurement Policy for Council to review and approve for implementation.
If the Federal Audit Clearinghouse has questions regarding this plan, please call Donna Curry, Treasurer at 540-298-1951.
Sincerely yours,
Greg Lunsford Town Manager
Town of Elkton, Virginia