Finding Text
• CONDITION: During the calendar year 2021, the City did not utilize a formal general ledger system of accounting to track the financial activity (financial position and results of operations) for several ‘Funds’ held at the City. The activity of these funds is either 1) maintained in spreadsheet fashion similar to a checkbook used in personal finances, 2) recorded partially (expenses only with no revenue), or 3) not tracked at all. As these funds are not maintained using the City’s accounting software package, management does not have the ability to efficiently generate financial reports necessary to provide management with the proper fiscal oversight. This condition included the American Rescue Plan Act (ARPA) funding known as the Coronavirus State and Local Fiscal Recovery Fund. However, it should be noted that City personnel were able to prepare spreadsheets to document which expenditures were utilized to prepare the necessary quarterly reporting requirements to the Department of Treasury.
CRITERIA: Prudent internal control procedures in the areas of general ledger management and financial reporting include maintaining a formal general ledger system of accounting to track the activity of all ‘Funds’ maintained by the City. In specific as it relates to federal programs, Section 2 CFR 200.403(g) of the Uniform Guidance requires that federal costs must be adequately documented which would include the maintaining of a formal general ledger system of accounting for all ‘Funds’ of the City.
EFFECT: The lack of procedures in place for maintaining a formal general ledger system of accounting for all ‘Funds’ of the City 1) reduces the City’s internal control over the financial reporting processes, 2) exposes the City to inaccurate financial reporting to management for decision-making purposes, and 3) increases the potential for irregularities that may result (unintentional or otherwise) that are not detected in a timely manner. As a result, the City is not incompliance with Section 2 CFR 200.403(g) of the Uniform Guidance which requires federal costs to be adequately documented in the applicable general ledgers of the City.
CAUSE: The City began the process during calendar year 2019 of creating general ledgers on the computer accounting software system for all funds of the City, however due to changes in business office personnel, and other workload responsibilities, the City has not been able to fully complete this process.
RECOMMENDATION: I am recommending that the City continue the process of making sure the financial activity for all funds individually is entered into the software accounting system. It is anticipated that additional training will be required for in-house personnel to perform this function, or the City may want to consider contracting these services to a third-party professional with the expertise to perform these functions for the City on a monthly or quarterly basis throughout the year. These procedures should significantly enhance the internal control over the financial accounting and reporting process relative to the City’s general ledgers for each Fund.
VIEWS OF RESPONSIBLE OFFICIALS: The City concurs with the above noted finding and addresses this issue in the ‘Corrective Action Plan’ included within this report.