Finding 1165802 (2024-001)

Finding 2024-001 – Material Weakness Condition: There were 72 audit adjustments and closing entries posted during the audit to report the Town’s financial statements in accordance with Generally Accepted Accounting Principles (GAAP). The large number of adjustments identified during the course of the audit indicates that the Town does not have internal controls in place to prevent or detect misstatements on a timely basis. Areas where accounts and transactions were not adequately reconciled and evaluated for proper recording prior to the start of the audit fieldwork and areas that require improvement included in the following: - Procedures to ensure beginning fund balance/net position roll-forward to prior year audited financial statements. - Procedures for ensuring revenue received in advance of qualifying expenditures are properly deferred. - Procedures to ensure retentions payable are properly accrued. - Procedures to ensure accounts payable are properly accrued. - Procedures to ensure compensated absences and payroll accruals are prepared accurately and on a timely basis. - Procedures to ensure that pension and other post-retirement entries are calculated and prepared accurately. - Procedures for tracking grant expenditures to ensure revenue is accrued to the extent of reimbursable expenditures incurred and evaluation of proper accounting treatment of transactions as earned, unearned, or unavailable revenue. - Procedures to ensure capital outlay is properly reconciled to capital asset additions. - Procedures to ensure all loans issued by the Town are properly recorded in the general ledger. - Procedures for evaluating when entries should be posted to fund balance and whether fund balance/net position/restrictions and investment in capital assets are properly reflected. - Procedures to ensure that Town Council approved assigned fund balance are properly recorded in the general ledger and that prior assigned fund balances are properly removed from the general ledger. - Procedures to ensure interfund transactions resulting from short-term interfund borrowings and interfund transfers, excluding those with agency funds, are in balance and properly reconciled, recorded and a supporting schedule is accurately prepared. - Procedures to ensure that all grant billings are properly reconciled and are accurately reflected in the general ledger. Criteria: Internal controls over financial reporting should exist to ensure the financial statements are prepared in accordance with GAAP and limit the opportunity for errors and fraud occurring. Cause: The Town’s Finance Department did not have procedures in place to fully close the Town’s books before the start of the audit. Effect: The adjustments and closing entries were required to report the financial statements in accordance with GAAP. Recommendation: We recommend that management ensure all balance sheet accounts are reviewed for proper cut-off and income statement accounts are reviewed for proper classification during the closing process, including reviewing accounts receivable, grants receivable, loans receivable, accounts payable and related assets, fund balance and net position, government-wide revenue and expense adjustments and the classification of revenues and expenditures. Views of Responsible Officials and Planned Corrective Action: We agree with the finding and are actively seeking additional consultants to support staff training, provide technical guidance, and assist with strengthening financial reporting procedures.