Loading...
HomeMy WebLinkAbout12 ANN'L FINC'L RPT. 02-05-96NO. 12 2-5-96 .,ATE' JANUARY 31, 1996 TO: FROM: SUBJECT: WILLIAMj~ ~HUSTON, CITY MANAGER RONALD ~T, FINANCE DIRECTOR CONSOLIDATED ANNUAL FINANCIAL REPORT AS OF JUNE 30, 1995 RECOMMENDATION: Receive and File. DISCUSSION: The attached Consolidated Financial Report and the separate Redevelopment Agency RePort have been reviewed and accepted by the City's Audit Committee. They have directed Staff to submit the final report to the City Council. The management letter comments were discussed at the joint meeting of the City Council and Audit Committee held January 15. Staff has prepared a response to each comment and discussed each item with the Committee. The Staff response is also included with the report. We have taken steps to implement the Auditors' recommendations. There were no significant reportable items addressed by the Auditors. RA#4: Agenda1. Jan CERTIFIED PUBLIC ACCOUNTANTS . ,'0 NEWPORT CENTER DRWE SUITE NEWPORT BEACH CALIFOqrqlAg$66C 2!:: PALOMAR AIRPORT ROAD. CARLSBAD, CALIFORNIA 92009 (619'~ ,-:'3 I-8~76 September 15, 1995 To the City Council of the City of Tustin, California .Independent Auditors' Report on the .Internal Control Structure Based on an Audit of General Purpose Financial Statements Performed in Accordance With Government Auditing Standards We have audited the general purpose financial statements of the City of Tustin as of and for the year ended June 30, 1995, and have issued our report thereon dated September 15, 1995. We conducted our audit in accordance with generally accepted auditing standards and .Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statemen/s are free of mater/al misstatement. · The management of the City of Tustin is responsible for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are requ/red to assess the expected benefits and related costs of internal control structure policies and Procedures.. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of general purpose financial statements in accordance with. generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. In planning and performing our audit of the general purpose financial statements of the City of Tustin for the year ended June 30, 1995,' we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements and not to provide-asSurance on the internal control structure. To the City Council c ,e City of Tustin, California September 15, 1995 Page 2 Our consideration of the /nternal control structure would not necessarily, disclose all matters /n the /nternal control structure that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A material weakness is a reportable condition in which the design or operation of one or more of the internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the general purpose financial statements being audited may occur and not be detected w/th/ri a timely period by employees in the normal course of performing the/r assigned functions. We noted no matters involving the internal control structure and its operation that we consider to be material weaknesses as defined above. However, we nOted certain less significant matters involving the internal control structure and its operation which are discussed below. JOURNAL ENTRI~ During our tests of internal controls over journal entries, we noted in two out of ten instances tested that journal entries were not signed to indicate review and approval. We recommend the City take more care to ensure all journal entries are approved as requ/red by City policy. CASH RECEIPTS During our review and testing of internal controls over cash receipts, we noted that'the employee who compares cash receipt records to deposit slips and who is responsible for updating the general ledger, also has access to cash. To strengthen controls over cash receipts, we recommend the City have an individual count cash who is independent of cash receipt reconciliations and general ledger functions.' CASH DISBURSEMENTS During our review of internal controls over cash disbursements, we noted the following: a) There is no indication of Finance Department review and approval of invoices. To strengthen controls over cash disbursements, we recommend an authorized person in the Finance Department sign invoices to adequately document review and approval of invoices for payment. b) Custody of warrants after signature and before marling is handled by an employee who also handles payable, disbursing and general ledger functions. T° provide adequate separation of duties, we recommend custody of warrants be given to an employee independent of payable, disbursing and general ledger functions. To the City Council c z City of Tustin, California September 15, 1995 Page 3 o) The accounts payable proof list is not reviewed by an authorized employee prior to the printing of warrants. To ensure accuracy, of the printed warrants, we recommend the proof list be reviewed by an authorized employee prior to the warrants being printed. PURCHASING During our review of/nternal controls over purchasing, we noted the following: a) It is the City's policy to obtain three informal bids for purchases between $1,000 and $5,000; however, documentation of the bids is not filed in the warrant package. To ensure compliance with City policy, we recommend the City include documentation of the three informal bids for all applicable purchases. b) There is no formal policy with regards to minimum dollar limitations for purchase orders. We recommend the City establish minimum dollar limitations on purchase orders (i.e. purchases greater than $500). PAYROLL During our review of internal controls over payroll, we noted the following: a) There is no indication of-review and approval of the preliminary payroll register. We recommend the authorized person in the Finance Department sign the preliminary payroll register to adequately document review and approval. b) The payroll master file changes proof list is not reviewed by another employee. To avoid errors in the payroll system, we recommend the payroll master file changes proof l/st be reviewed by another person authorized employee. INVESTMENTS During our review and testing of internal controls over investments, we noted the following: a) All investment decisions are made by the Finance Director/Treasurer without further review. Also, all investment confirmations are received directly by the Finance Director/Treasurer. We recommend investment decisions be subject to secondary review by another employee or official, and that investment confirmations be received by another employee who is responsible for recording the transaction to ensure adequate separation of duties. To the City Council o, . City of Tustin, California September 15, 1995 Page 4 b) The investment policy requ/res securities transactions to be made on a competitive bid basis whenever practical; however, there is no documentation of such procedure. We recommend the investment policy be amended to include the requ/rement that the competitive bid process be documented. ' c) d) The City's investment report does not spec/fy types of investments by title as defined in the City's investment policy. The report also does not indicate percent of total portfolio by investment type. We recommend the City rev/se its investment report t° specify types of investments and also consider indicating percent of total portfolio by investment type. · Certain bond proceeds held by the City are invested in a mutual fund and in Guaranteed Investment Contracts. These investments, although allowed by the California Government Code, are not included as allowed investments in the City's investment policy. We recommend the City amend its investment policy to authorize these investments. It is our .understanding that the Audit Committee is in the process of amending the investment policy. ACCOUNTING POLICIES AND PROCEDURES MANUAL The City does not maintain a current accounting policies and ,procedures manual. We recommend the City develop and maintain a current accounting policies and procedures manual to provide consistency in accounting procedures followed. It is our understanding that City staff are currently in the process of developing a manual as recommended.. This report is intended for the information of the City Council, the Audit Committee and management of the City of Tustin, and the City's federal oversight agency. However, this report is a matter of public record and its distn'bution is not limited2 In t e r-C o m DATE: DECEMBER 7, 1995 TO: FROM: AL $~{IFBERG-~E~CHER, C~AIRMAN AUDIT COMMITTEE · RO~ALD A. NA NANCE DIRECTOR SUBJECT: STAFF RESPONSE TO AUDITOR MANAGEMENT LETTER During the course of their review of the City's Accounting records the auditors found several less significant items regarding the departments internal controls and have made certain recommendations to the Audit Committee. Staff has reviewed these comments and have initiated changes to implement the auditors recommendations. The auditor's comments and City staff's response follows: JOURNAL ENTRIES During our tests of internal controls over journal entries, we noted in two out of ten instances tested that journal entries were not signed to indicate review and approval. We recommend the City take more care to ensure all journal entries are approved as required by City policy. Response: Comment noted. CASH RECEIPTS During our review and testing of internal controls over cash receipts, we noted the following: a) The employee who compares cash receipt records to deposit slips and who is responsible for updating the general ledger, also has access to cash. To strengthen controls over cash receipts, we recommend the City have an individual count cash who is independent of cash receipt reconciliations and general ledger functions. Response: We are reviewing our current procedures to evaluate the best way to establish this control. We will separate the two functions. Page 2 b) The employee responsible for opening mail does not endorse checks upon receipt. We recommend all checks received be endorsed immediately to prevent misappropriation of funds. Response: We presently use an automated check endorser that MICR our deposits. We are reviewing the system to respond to this comment. CASH DISBURSEMENTS During our review of internal controls over cash disbursements, we noted the following- a) There is no indication of finance department review and approval of invoices. To strengthen controls over cash disbursements, we recommend an authorized person in the Finance Department sign invoices to adequately document review and approval of invoices for payment. Response: Past practice has been that all checks over $3,000 require a manual signature. All documentation and approvals are reviewed, again, before signing. In addition we now require the Accounts payable clerk to initial each package to document their review of authorized signatures and proper documentation. Custody of checks after signature and before mailing is handled by an employee who also handles payable, disbursing and general ledger functions. To provide adequate separation of duties, we recommend custody of checks be given by an employee independent of payable, disbursing and general ledger function. Response: We are changing this procedure, as soon as we are @~full staff, effective Jan. 1. c) The accounts payable proof list is not reviewed by an authorized employee prior to the printing of Warrants. To ensure accuracy of the printed warrants, we recommend the proof list be reviewed by an' authorized employee prior to the warrants being printed. Response: Implemented. Page 3 PURCHASING During our review of internal controls over purchasing, we noted the following- a) It is the City's policy t° obtain three informal bids for purchases between $1,000 and $5,000; however, documentation of the bids is not filed in the warrant package. To ensure compliance with City policy, we recommend the City include documentation of the three informal bids for all applicable purchases. Response: In the past we have required departments to maintain their own purchasing files to support their compliance with the City's policy. We will implement the Auditors recommendations. b) There is no formal policy with regards to minimum dollar limitations for purchase orders. We recommend the City establish minimum dollar limitations on purchase orders (i.e. purchases greater than $500). Response: We are working with each department to encourage the proper use of purchase orders. PAYROLL During our review of internal controls over payroll, we noted the following: a) There is no indication of review and approval of the preliminary payroll register. We recommend the authorized person in the Finance. Department sign the preliminary payroll register to. adequately document review and approval. b) The payroll master file changes proof list is not reviewed by another employee. To avoid errors in the payroll system, we recommend the payroll master file changes proof list be reviewed by another person authorized employee. Response: Both have been implemented. Page 4 INVESTMENTS During our review and testing of internal controls over investments, we noted the following: a) b) Ail investment decisions are made by the Finance Director/Treasurer without further approval. Also, all investment confirmations are received directly by the Finance Director/Treasurer. We recommend investment decisions be subject to dual approval by another employee or official, and that investment confirmations be received by another employee who is responsible for recording to ensure adequate separation of duties. The investment policy requires Securities transactions to be made on a competitive bid basis whenever practical; however, there is no documentation of such procedure. We recommend the investment policy be amended.to include the requirement that the competitive bid process be documented. c) The City's investment report does not specify types of investments by title as defined in the City's investment policy. The report also does not indicate percent of total portfolio by investment type. We recommend the City revise its investment report to specify types of investments and also consider indicating percent of total portfolio by investment type. d) Certain bond proceeds held by the City are invested in a mutual fund and in Guaranteed Investment Contracts. These investments, although allowed by the California Government Code, are not included as allowed investments in the City's investment policy. We recommend the City amend its investment policy to authorize these investment. Response: The Audit Committee has been reviewing the Treasury function and has made curtain recommendations to the City Council including the appointment of an independent Treasurer. The creation of this new position will address the immediate concerns in these comments. The new Treasurer and the Audit Committee will 'finalize the implementation of the balance of the comments as they move forward. Page ACCOUNTING POLICIES AND PROCEDURES MANUAL The City does not maintain a current accounting policies and procedures manual. We recommend the City develop and maintain a current accounting procedures manual to provide consistency in accounting procedures followed. It is our understanding that City staff are currently in the process of developing a manual as recommended. Response: As is indicated we are currently developing our policies and procedures manual. Aud. 1 a:Staff, res m CERTIFIED PUBLIC ACCOUNTANTS September 15, 1995 610 NEWPORT CENTER DRIVE, SLIITE 840 NEWPORT BEACh, CALIFORNIA 92660 (714) 760-9785 211"i PALOMAR AIRPORT ROAD, SUITE 150 CARLSBAD. CALIFORNIA 92009 (619) 431-8476 To the City Council of the City of Tustin, California: We have applied the procedures enumerated below to the accompanying Appropriations Limit worksheet #6 of the City of Tustin for the year ended June 30, 1995. These procedures, which were agreed to by the League of California Cities and presented in their Article XIIIB Appropriations Limitation Uniform Guidelines, were performed solely to assist you in meeting the requirements of Section 1.5 'of article XIIIB of the California Constitution. This report is intended for the information of management and the City Council. This restriction is not intended to limit the distribution of this report, which is a matter of public record. The procedures performed and our findings were as follows: We obtained the completed worksheets (# 1 through #7) presented in the Article XIIIB Appropriations Limitation Uniform Guidelines (or other alternative computations), and determined that the limit and annual adjustment factors were adopted by resolution of the City Council. We also determined that the population and inflation options were selected by a recorded vote of the City Council. 2. For the accompanying Appropriations Limit worksheet # 6, we added line A, last year's limit, to line E, total adjustments, and agreed the resulting amount to line F, tiffs year's limit. . We agreed the current year information presented in the accompanying Appropriations Limit worksheet #6 to the other worksheets described in #1 above. o We agreed the pr/or year appropriations limit presented in the accompanying Appropriations Limit worksheet #6 to the prior year appropriations limit adopted by the City Council during the prior year. These agreed upon procedures are substantially less in scope than an audit, the objective of which is the expression of an opinion on the accompanying Appropriations Limit worksheet #6. Accordingly, we do not express such an opinion. Based on the application of the procedures referred to above, nothing came to our attention that caused us to believe that the accompanying Appropriations Limit _.oOrksheet #6 was not computed in accordance with Article XIIIB of the 'California nstitutio.n. Had we performed additional procedures or had we made an audit of the accompanying Appropriations Limit worksheet #6 and the other completed worksheets described in #1 above, matters might have come to our attention that w°uld have been reported to you. '-'~'/~'~-~-~ 1~ CITY OF TUSTIN APPROPRIATIONS LIMIT WORKSHEET #6 FY 1994-95 BUDGET A. LAST YEAR'S LIMIT B~ ADJUSTMENT FACTORS 1. Population % 2. Inflation % Total Adjustment % D. OTHER ADJUSTMENTS: Assumed Responsibility (Lost Respons?aility) (Transfer to Private) (Transfer to Fees) Sub -total E. TOTAL ADJUSTMENTS Fe AMOUNT l $24,152,039 ] l. .0071 .0415 .0489 $1,181,311] l - 1 f $1,1813n] [ $25,333,350 ] m CERTIFIED PUBLIC ACCOUNTANTS 6~3 NEWPOq? CENTER DRIVE. SLIITE 8.40 NE",'~.'PC)R'T BEAC.~ CALIFORNIA 92662 t71~'; 760-9785 2:" PALOMAR AIRPORT ROAD. SLIITE 150 t~ , ~AR~SBAD. CALI'-ORNIA 92009 (6!9~ 431-8~76 September 15, 1995 To the Audit Committee of the City of Tustin, Califorrda Communication With the Audit Committee SAS 61 We have audited the general purpose financial statements of the City of Tustin, California for the year ended June 30, 1995, and have issued our report thereon dated September 15, 1995. Under generally accepted auditing standards, we are proViding you the attached information related to the conduct of our audit. Our resPonsibility under generally accepted auditing standards is to express an opinion on the financial statements of the City based on our audit. In carrying .out this responsibility, we assessed the risk that the financial statements may contain a mater/al misstatement, either intentional or unintentional, and designed and conducted our audit to provide reasonable, but not absolute, assurance that misstatements mater/al to the financial statements would be detected. In addition, we considered the internal control structure of the City to ga/n a basic.understanding of the internal control policies and procedures in order to design an effective and efficient audit approach, not for the purpose of providing 'assurance on the internal control structure. Si~ificant Accounting PoliCies The significant accounting policies of the City are described in note I to the general purpose financial statements. No new accounting policies were adopted and the application of existing policies was not changed during the year with the exception of required implementation of GASB Statement No. 22, which changes the current standards regarding revenues suscepu'ble to accrual. We noted no significant, unusual transactions during the year, or transactions for which there is a lack of authoritative guidance or consensus. Mana ement Jud ents and Accountin ]Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based upon management's current judgments. We noted that the City's significant account balances are not dependent upon management's estimates. To the Audit Commi~ of the City of Tustin, California September 15, 1995 Page 2 Significant Audit Adjustments As a result of our audit related testwork, we proposed no corrections to the financial statements that, in our judgment, either individually or in the aggregate, had a significant effect on the City's financial reporting process. Other Information in Documents Containing Audited Financial Statements Our responsibility for other information in documents containing the City's general purpose financial statements and our report thereon does not extend beyond financial information identified in our report, and we have no obligation to perform any procedures to corroborate other information contained in these documents. We have, however, read the other information included in the City's comprehensive annual financial report; and no matters came to our attention that cause us to believe that such information, or its manner of presentation, is mater/ally inconsistent with the information, or its manner of presentation, appearing in the financial statements. Disa_m'eements With Management There were no disagreements with management on financial accounting and reporting matters that, if not satisfactorily resolved, would have caused a modification to our report on the City's 1995 financial statements. ..Consultation With Other Accountants We are not aware of any instances where management has consulted with or obtained opinions, written or oral, from other independent accountants during the past year that were subject to the requirements of Statement on Auditing Standards No. 50, Reports on the Application of Accounting Princ¢le~. This information is intended solely for the use of the City Council, the Audit Committee, and the management of the City of Tustin and should not be used for any other purpose. However, we understand that this document may be public information.