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HomeMy WebLinkAboutReport on Internal Control, Compliance & Other MattersTautges Redpath, Ltd. Certified Public Accountants and Consultants REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GO VERNMENT A UDITING STANDARDS To the Honorable Mayor and Members of the City Council City of Oak Park Heights, Minnesota We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Oak Park Heights, Minnesota as of and for the year ended December 31, 2009, which collectively comprise the City of Oak Park Heights, Minnesota's basic financial statements and have issued our report thereon dated March 15, 2010. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City of Oak Park Heights, Minnesota's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City of Oak Park Heights, Minnesota's internal control over financial reporting. Accordingly, we do not express an opinion of the effectiveness of the City of Oak Park Heights, Minnesota's internal control over financial reporting. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. 4810 White Bear Parkway White Bear Lake, Minnesota 55110 I 651 426 7000 651 426 5004 Fax I www.hlbtr.com HLB Tautges Bedpath, Ltd. is a member of M International, a world -wide organization of accounting firms and business advisors. I Equal Opportunity Employer Report on Internal Control over Financial Reporting and on Compliance and Other Matters Page 2 However, we identified certain deficiencies in internal control over financial reporting, described in the accompanying schedule of findings and responses as items 2009 -1 through 2009 -3 that we consider to be significant deficiencies in internal control over financial reporting. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Oak Park Heights, Minnesota's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of the City of Oak Park Heights, Minnesota in a separate letter dated March 15, 2010. The City of Oak Park Heights, Minnesota's responses to the findings identified in our audit are described in the accompanying schedule of findings and responses. We did not audit the City of Oak Park Heights, Minnesota's responses and, accordingly, we express no opinion on them. This report is intended solely for the information and use of the City of Oak Park Heights, Minnesota's City Council and management and is not intended to be, and should not be, used by anyone other than these specified parties. ca HLB TAUTGES REDPATH, LTD. White Bear Lake, Minnesota March 15, 2010 CITY OF OAK PARK HEIGHTS, MINNESOTA SCHEDULE OF FINDINGS AND RESPONSES For The Year Ended December 31, 2009 2009 -1 Financial Statement Preparation Criteria: Management is responsible for establishing and maintaining effective internal controls. These controls include the responsibility for preparation, or oversight of the preparation of the financial statements in accordance with generally accepted accounting principles. Condition: Like many similarly sized organizations, the City has requested assistance from us, the auditors, with drafting financial statements and related notes. This is a common practice and an allowable nonaudit service under the AICPA Ethics Interpretation 101 -3. However, other than relying on the auditors, City staff does not perform sufficient procedures to detect if there were misstatements or omission of disclosures to the financial statements. Cause: The City has not established procedures to detect misstatements or omissions of disclosures in the draft financial statements prepared by the auditors. Effect: By not having such controls, there is an increased risk that errors or omissions in draft financial statements prepared by the auditors would not be detected by City management. Recommendation: We recommend the City review this matter and determine a course of action. Any change would need to be viewed from a cost/benefit perspective. Options for the City include: 1. Remain aware of the situation, however due to the increased cost, make the choice to make no changes to current procedures. 2. Implement internal procedures as determined practical. Such procedures could include completing a disclosure checklist, tracing various trial balance accounts to the draft financial statements, and reviewing GASB 34 conversion entries. 3. Hiring additional internal or 3` party resources to assist with the financial statement process. Management Response: The City is aware of the condition, but a cost/benefit analysis of the issue does not support the allocation of additional employees or resources at this time. Certain other safeguards are successfully maintained (Council oversight, Finance Director review of the draft financial statements) which provide satisfactory mitigation of the issue. CITY OF OAK PARK HEIGHTS, MINNESOTA SCHEDULE OF FINDINGS AND RESPONSES For The Year Ended December 31, 2009 2009 -2 Audit Adjustments Criteria: A City's controls should allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. Condition: During the course of our audit, we identified adjustments to prepaid expenses and intergovernmental revenue. Neither adjustment was material to the financial statements. Cause: The transactions which resulted in adjustments (making down payments for City Hall items and receiving noncash grant revenue) both occur infrequently at the City. Effect: There is an increased risk that financial statement misstatements may occur. Recommendation: In our viewpoint, the guidance provided by audit standards regarding financial statement adjustments combined with the complexity of governmental accounting will result in most local governments receiving a finding in this regard. Management response: City staff rely on the expertise of the audit firm to ensure that infrequent transactions are presented in accordance with generally accepted accounting principles. CITY OF OAK PARK HEIGHTS, MINNESOTA SCHEDULE OF FINDINGS AND RESPONSES For The Year Ended December 31, 2009 2009 -3 Approval of Timesheets Criteria: The City's payroll/timekeeping policy states "department head timesheets shall be submitted to the City Administrator for approval. The department head and Administrator must sign the timesheet attesting to the actual hours /days the employee worked." Condition: One department head was not submitting his timesheet to the City Administrator for approval. Only the department's signature appeared on the timesheet. Cause: The employee was not aware of this policy. Effect: The employee is salaried, so the effect on the employee's regular wage is minimal. However, vacation and sick time, as recorded on the employee's timesheet, was not approved by the City Administrator. This subjects the City's liability for unused vacation and severance to an increased risk of errors or fraud. Recommendation: We recommend the City Administrator approve the timesheets for all department heads. Management response: The department head is now aware of the City's policy and effective December 2009, the City Administrator is reviewing the timecards of all department heads.