February 16, 2024
Southwestern Virginia Transit Management Company (SVTMC) 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.
3906 Electric Road
Roanoke. VA 24018
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: Segregation of Duties and Management Oversight (Material Weakness)
Cot1dilio11:
Due to st aff turnover, duties handled by the Director of finance included incompatible duties
dur ing the year under audit such as: collection of cash, post receipts to general ledger. and prepare bank deposit s li ps.
Criteria:
A fundamental concept of internal controls is the separation of duties. No one employee should have access to both physical assets and the related accounting records. or to all phases of a transaction . In addition, all significant transactions and controls should involve reconciliations and supervisory, or management level. reviews of those processes. An effective and timely revie w process is intended to prevent and detect both fraud and errors.
Turnover in key positions can result in individuals performing duties that are not appropriately
segregated. In addition, turnover can also create challenges in the oversight or review functio n.
E,ffecr:
Inte rnal co ntro ls are designed to safeguard assets and detect losses from employee's dishonesty or error.
Reco mmemlation:
Steps shou ld be taken to eliminate conflicti ng duties and implement compensating cont ro l<:. where possible.
Greater Roanoke Transit Company
P.O. Box 13247 Roanoke, Virginia 24032 Phone: (540J 982-030S Fax: (540) 982-2703 www.valleymetro.com
2023-001: Segregation of Duties and Management Oversight (Material Weakness)-(Continued)
Corrective Action:
In June 2023, The Director of Finance removed the aforementioned duties from the position. The two Accounting Associates and the Money Room Shift Leader process bus station and accounts receivable rece ipts. Cash fares are counted twice weekly by a minimum of three staff members, not including the Director of Finance. With minimal exceptions , all monies received are kept in a locked safe and transported to the bank by an annored cash handling company. The Director of Finance and the Accounting Supervisor do not process deposits or collect cash, nor do they post the entries to the general ledger. Goal for correction is by close of FY24.
2023-002: Grant Management and Operating Assistance (Material Weakness)
Condition:
During 2023, various functions related to financial management were not perfonned timely resulting in difficulties and delays in completion of the annual audit.
Criteria:
Internal controls related to financial management should be designed to ensure timely reconciliations are performed, including submission of reimbursement requests and reconciling grant and local revenue. Timely and effective reconciliations ensure the financials provided for the annual audit are provided based on the agreed upon schedule with the auditors which allows timely inclusion in the City's financial report as well as to meet federal reporting deadlines. In addition, these reconciliations will ensure that financials do not require adjustments.
Cause:
Turnover in financial positions and increased levels of federal and state grants caused significant delays in perfonnance of and reduction in effectiveness of certain financial duties.
Effect:
Current and prior period audit adjustments were required to prepare the financials in accordance with Generally Accepted Accounting Principles. In addition, there were significant delays in completion of the annual audit.
Recommendation:
We recommend that the Company establish financial management procedures to ensure that timely reconciliations and submissions of reimbursement requests. We would recommend these procedures be perfonned monthly and include tracking and reconciling grant activity by type (federal, state, and loc al).
2023-002: Grant Management and Operating Assistance (Material Weakness) - (Continued)
Corrective Action:
The Director of Finance and Accounting Supervisor is currently in the process of reviewing operating procedures and have created a monthly close checklist to create consistency in the timing and manner of recording financial activities. Beginning in FY2024, staff will be assigned specific monthly closing duties and monthly activity should be fully recorded by the 20th of the subsequent month. Members of the Accounting Team have been receiving financial system training on various topics from the system vendor and management is researching additional outside training opportunities. For this to happen, we must hire additional staff to get caught up and remain so.
2023-003: Bank Reconciliations (Material Weakness)
Condition:
Monthly bank reconciliations were not prepared by an accountant and reviewed and approved by a supervisor in a timely manner.
Criteria:
Monthly bank reconciliations should be performed by the 15 th of next month.
Cause:
Staff shortage and lack of cash flow management.
Effect:
Poor cash flow management resulting in vendor and contractor invoices not being paid in a timely manner.
Recommendation:
We recommend bank reconciliations be prepared by an accountant and reviewed by a supervisor to ensure unreconciled or unusual items, or other matters noted in the reconciliation, are detected and addressed in a timely manner.
Corrective Action:.
The Company agrees and is working towards completing the newly established monthly close checklist each month by the end of FY2024. Specific Team members have been assigned responsibility for reconciling individual bank activity. Staff will receive the required system training and delinquent reconciliations will be completed by June 30, 2024. A new monthly closing checklist has been developed and includes prepardtion and review oof these reconciliations. Beginning in FY2024, all monthly closing items should be completed by the 20th of the subsequent month. This is our plan moving forward, but being caught up must come first.
2023-004: Virginia Public Procurement Act Prompt Payment Requirement
Condition:
The Company did not pay a certain contractor for the construction of the bus transfer station on a timely basis.
Criteria:
Section 2.2-4352 of the Code of Virginia requires that every agency of local government that acquires goods or services shall promptly pay for the completed delivered goods or services by the required payment date. The required payment date shall be either (i) the date on which payment is due under the terms of the contract for the provision of the goods or services or (ii) if a date is not established by contract, not more than forty-five days after goods or services are received or the invoice is rendered.
Cause:
Due to a lack of cash flow and grant management, insufficient funds were available to pay a certain contractor in a timely ma nne r.
Effect:
The contractor was not paid timely as required by the Code of Virginia. Recommendation:
All vendors are to be paid in a timely manner as defined by the Code of Virginia.
Corrective Action:.
Due to technical issues, staff were unable to submit grant draw requests to the Federal Transit Authority through their Electronic Clearing House Operation [ECHO] system, significantly affecting the company's cash flow. This system access issue was resolved during FY2023, and grant drawdowns started back in March of 2023. Additionally, detailed spreadsheets tracking grant activity have been developed, which will allow staff members to better monitor reimbursement requests and ensure vendors are paid timely moving forward.
2023-00S: Parts Inventory (Material Weakness)
Condition:
There were several instances where the quantity and value of items did not agree between the supplied inventory listing and the physical inventory counted during the inventory observation.
Criteria:
The inventory management system and the general ledger should be reconciled on a periodic basis and annual inventory counts should be performed.
Cause:
Significant staff turnover during the year and a general staff shortage.
2023-005: Parts Inventory (Material Weakness)- (Continued)
Effect:
Untimely reconciliations could result in discrepancies between the inventory management system and the general ledger. In addition, inventory that has been used could be erroneously counted in the inventory management system with the absence of an annual inventory count.
Recommendation:
We recommend that management perfonn annual inventory counts, reconcile inventory amounts on a periodic basis between the inventory management system and the general ledger, and that obsolete or otherwise outdated inventory items be disposed of.
Corrective Action:
Management is in agreement and plans to perfonn monthly counts of parts to ensure all parts are counted within the fiscal year. Spot counts will be perfonned each month and reconciled to the inventory management system. Once input into the inventory management system, updated inventory values will be provided to Finance so they can reconcile the general ledger to the inventory system. In addition, management plans on disposing obsolete inventory items through public auction.
2023-006: Paid Time Off (Material Weakness)
Condition:
The Company did not reconcile third-party reports used to calculate year-end Paid Time Off (PTO) accruals and expenses are not reconciled to internal Human Resources records used to track each employee's earned PTO. In addition, these third-party reports were not retained by the Company's staff for reference and the Company's PTO accrual and expense were only recorded once at year-end.
Criteria:
Third-party reports should be reconciled to internal records, third-party reports used to calculate PTO accruals and expenses should be retained for reference, and PTO expense and accruals should be periodically recorded and recognized.
Cause:
Significant staff turnover during the year and a general staff shortage.
Effect:
Not reconciling third-party PTO reports to internal Human Resources records could lead to PTO inconsistencies between internal and external records - leading to employees having two different amounts of available PTO during the year, depending on which system they are using. This could also lead to a discrepancy between the amount of PTO accrued at year-end and the actual amount of PTO the Company is actually obligated to pay out.
2023-006: Paid Time Off (Material Weakness) - (Continued)
Recommendation:
We recommend that management perform periodic reconciliations between the third-party PTO reports and the internal Human Resources records to ensure that the third-party reports are accurate and complete. If there are discrepancies, the Company can resolve them quickly. We also recommend that the client retain each third-party report for reference and for inspection.
Corrective Action:
Management is in agreement. Management is aware of the importance of inter-departmental communication between Human Resources and Finance and is currently working to establish a standard operating procedure regarding PTO accruals. The Company will seek to retain third party reports for easy inspection and periodically reconcile these reports to internal Human Resources records moving forward.
FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAM AUDIT
2023-007: Federal Transit Cluster - Assistance Listing #20.507, Cash Management - Material Noncompliance/Material Weakness in Controls over Compliance
Condition:
A lack of cash flow and grant management oversight resulted in contractors and vendors not being paid timely for the construction of the bus transfer station and construction of bus shelters.
Criteria:
All grant activities should include management level oversight to ensure timeliness, accuracy, and compliance with specified grant requirements.
Cause:
A Jack of proactive cash flow and grant management occurred when invoices were received.
Effect:
Contractors were not paid for over 30 days after receipt of invoice. Repeated delays in payments could result in work stoppage and project delays.
Recommendation:
A designated management level individual should have oversight to require timely drawdowns of capital grants and timely payment of invoices.
Repeat Finding:
Yes
Recommendation:
A designated management level individual should have oversight to require timely drawdowns of capital grants and timely payment of invoices.
Corrective Action:
Due to technical issues, staff were unable to submit grant draw requests to the Federal Transit Authority through their Electronic Clearing House Operation [ECHO] system, significantly affecting the company's cash flow. This system access issue was resolved during FY2023, and grant drawdowns started back in March of 2023. Additionally, detailed spreadsheets tracking grant activity have been developed, which will allow staff members to better monitor reimbursement requests and ensure vendors are paid timely moving forward.
If the Federal Audit Clearmghouse has questions regarding th is plan, please call Kevin Pric_c . General Managg_ru 540-982-0305.