Finding 1075931 (2023-002)

Material Weakness
Requirement
L
Questioned Costs
-
Year
2023
Accepted
2024-09-30
Audit: 322330
Organization: City of Sturgis (SD)

AI Summary

  • Core Issue: Significant audit adjustments were needed due to weaknesses in the City’s internal controls, risking material misstatements in financial statements.
  • Impacted Requirements: Compliance with reporting standards, particularly for federal programs like Disaster Grants, was not met, leading to incorrect financial reporting.
  • Recommended Follow-Up: Management should enhance internal controls, ensure accurate postings, and regularly review financial entries to prevent future discrepancies.

Finding Text

Finding No. 2023-002: Audit Adjustments and SEFA Adjustments Federal Program Affected: Disaster Grants - Public Assistance (Presidentially Declared Disasters) Compliance Requirement: Reporting Questioned Costs: None Condition and Cause: During the course of our engagement, we proposed material audit adjustments that were approved and recorded. Significant audit adjustments included the following: - An entry to rollforward fund balances from the previous year - Entries to adjust capital asset activity, including several adjustments for construction in process and tax increment financing activity - An entry to adjust long-term debt related to Dolan Creek TIF #12 and the First Interstate Bank interim loan - An entry to reclassify a misposting between Advance To/From and Due To/From other funds - An entry to adjust property tax receivable and deferral - We assisted with calculating SDRS pension activity in accordance with GASB 68, Pensions - An entry to adjust the allowance for doubtful accounts in the ambulance fund - An entry to record the due from federal and state government related to Federal Emergency Management Agency funding. Additionally, the City incorrectly reported the federal expenditures under the Highway Planning and Construction program (ALN #20.205) - An entry to record Due from State Government for Liquor Tax Reversion and Local Highway and Bridge revenues - An entry to adjust the accrued leave balances for all funds - We assisted with calculating adjusting entries related to GASB87, Leases - An entry to reverse an incorrectly posted amount for prepaid health insurance In addition, there were other audit adjustments that were either insignificant or had no effect on reported change in fund balance/net position so they are not individually identified above. Furthermore, entries were proposed as a part of the audit, but were not recorded due to the overall insignificance on the financial statements. Criteria and Effect: These adjustments would not have been identified as a result of the City’s existing internal controls, and therefore, could have resulted in a material misstatement of the City’s financial statements. Repeat Finding from Prior Year: Yes, prior year finding 2022-002. Recommendation: Management should consider the following: - Do not post activity directly to fund balance/net position accounts - Capital assets should be reviewed to make sure all additions and disposals are properly reflected, including the activity within TIF Funds - Work with lenders to verify year-end long-term debt balances, including interest, and adjust balances accordingly - Reconcile interfund advance to/from and due to/from other funds at year end - Adjust property tax receivable and deferrals to actual at year-end - Management should continue to review and approve pension entries - Analyze and adjust, if necessary, ambulance allowance for doubtful accounts - For reimbursement-based grants, such as FEMA, the due from other government portion should be recorded and the expenditures should be tracked under the correct Assistance Listing Number (ALN). - Accrued leave/compensated absences should adjusted at year end - City management should continue to review and approve entries related to leasing activity. Additionally, management should document existing leases, including lease terms, payments, renewal dates, purchase options, etc. - Prepaid expenses should only be recorded if a cash expenditure is made in a period prior to the dates of service Response/Corrective Action Plan: The City agrees with the above finding. See Corrective Action Plan.

Categories

Cash Management Reporting Procurement, Suspension & Debarment Matching / Level of Effort / Earmarking

Other Findings in this Audit

  • 499488 2023-001
    Material Weakness
  • 499489 2023-002
    Material Weakness
  • 1075930 2023-001
    Material Weakness

Programs in Audit

ALN Program Name Expenditures
97.036 Disaster Grants - Public Assistance (presidentially Declared Disasters) $1.03M
20.106 Airport Improvement Program $261,280
16.710 Public Safety Partnership and Community Policing Grants $61,354
20.600 State and Community Highway Safety $16,552
97.067 Homeland Security Grant Program $2,833