HomeMy WebLinkAboutBudget/Finance Committee Minutes 03.20.2000 MINUTES
BUDGET/FINANCE COMMITTEE
MARCH 20, 2000 7:00 P.M.
CITY HALL CONFERENCE ROOM
MEMBERS PRESENT:
Chairman Bud Johnson
Chuck Rodgers
Gay Easton
OTHERS PRESENT:
Larry McCann
Mary Embleton
Jean Kerr
Brent Olness
Brent Otness of Olness and Associates, the auditing firm, conducted a preliminary exit
conference regarding their recently completed audit of the city's financial records for FY 98-
99. The audit was originally scheduled for November 1999, but due to the computer system
conversion and other scheduling conflicts, it was postponed to January 2000 and completed in
March 2000. Mr. Olness briefly reviewed the audit process and stated that the city received
an unqualified opinion in that the financial statements fairly presented the financial position of
the city.
The committee was informed by Mr. 01ness that the Airport Authority is not a component
unit as was previously reported by prior audits. Instead, it is a related organization and needs
to be accounted for as an agency fund. He explained that the Airport Authority is a separate
entity, and the city's only functions are to levy mills and collect taxes in the same manner that
the ceunty does for the city.
There was a Schedule of Findings and Questioned Costs (copy attached), which was reviewed
and discussed, especially:
99-3: Reconcile ambulance accounts receivable monthly and establish clear
guidelines for write-offs.
99-5: The city court will work w/th the clerk-treasurer's office to account for the
time payments to the coutt.
99-8: The city attorney will be consulted as to the wage payment issue for the fire
department volunteers.
99-9: Mr. Olness stated that in today's financial environment, using local banks does
not necessarily mean that the investments stay local.
99-11: The administrative charges that the Enterprise Funds pay to the General Fund
need to be based on actual costs and not budget.
99-17: The clerk-treasurer was instructed to review this finding with the fire chief.
Budget/Finance Committee minutes of March 20, 2000
99-18: The city will apply the 50% cash reserve limitation to all funds during the
upcoming budgeting process.
Mr. Olness credited former clerk-treasurer Don Hackmann for doing an excellent job on the
city's books. He also stated that the majority of the auditor's adjusting entries were needed
due to the fact that the ABS computer system simply was not compatible to handling those
entries. He was happy to see the city switch to the more flexible Black Mountain Software
system.
The committee thanked Mr. Olness for a very informative presentation. He will address the
Council of the Whole on April 4th.
Mary told the committee that she was recently informed by Liz Pratt of the MMIA that the
city's overall property value will be increasing from approximately $9 million to
approximately $20 million. The increase is mainly due to the water plant and reservoirs,
which had been undervalued before (for most cities and towns).
The increase can be future valued over three years: $14 million, $17 million and $20 million.
This will allow for the premium increase to be spread over three years rather than going from
a $10,000 premium to approximately $23,000 in one year. The committee recommends the
three-year option.
Mary showed the committee a demo CD Rom for LaserFiche Software. This program has the
ability to scan documents, convert them to text, and search any word on that document. When
Gary, Gay and Mary first saw this product at the League Convention last fall, they thought
this would be an excellent program to replace the existing Clerk's Index system. However,
LaserFiche could be used in all departments for all kinds of document storage and retrieval
uses. The committee instructed Mary to come back with a proposal on how to fund the
purchase of the multi-user option for $11,020.00.
The committee reviewed and approved the following purchase requisitions:
WATER FUND:
Phase II and V water monitoring
Repair and replace 14" raw water meter
$ 631.88
1,132.98
SEWER FUND:
Purchase welder
Splash guards for screw pumps
504.62
960.00
SOLD WASTE FUND:
February dumping fees
7,094.40
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Budget/Finance Committee minutes of March 20, 2000
The committee reviewed the comp/OT hours for PPE 3/5/2000. They also reviewed and
approved the payroll register for the same pay period, comparing it to the payroll check
register as per the auditor's recommendation.
The committee reviewed the February financial statements, Mary explained that these
statements reflect the adjusting entries made by the auditors, and the corrections to the
accounting numbers to comply with BARS. The committee recommends council approval.
The meeting adjourned at 9:50 p.m. The next meeting will be April 3rd at 7:00 p.m.
Respectfully submitted,
Mary K. Embleton
Clerk-Treasurer
CITY OF LAUREL
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
Year Ended June 30, 1999
SUMMARY OF AUDIT RESULTS
FINANCIAL STATEMENTS:
Type of auditor's report issued: unqualified
Internal control over financial reporting:
Material weakness(es) identified?
X yes no
yes X none reported
yes
Reportable condition(s) identified that are not
considered to be material weaknesses?
Noncompliance material to the general puipose
financial statements noted?
FEDERAL AWARDS:
Internal control over major programs:
Material weakness(es) identified?
yes X no
,/es X none reported
Reportable condition(s) identified that are not
considered to be material weaknesses?
Type of auditor's report issued on compliance for major programs: unqualified
Any audit findings disclosed that are required to be
reported in accordance with section 510(a) of Circular
A-1337
Identification of major programs:
CFDA Number
66.468
yes X no
Name of Federal Program or Cltater
Water Revolving Funds
Dollar threshold used to distinguish between type A
and type B programs: $300,000
Auditee qualified as low-risk auditee? yes X no
FINDINGS - FINANCIAL STATEMENT AUDIT
REPORTABLE CONDITIONS:
99-1. Segregation of Dnties
The size of the City's accounting staff precludes certain internal controls that would provide for optimum
segregation of duties. This situation dictates the Mayor, Council and Budget/Finance Committee remain
actively involved in the day to day operations of the City. To strengthen internal controls, we recommend
the following:
The Clerk/Treasurer should account for the numerical sequence of payroll checks issued and compare
the totals reported on the "payroll summary" report to the totals reported on the payroll check register.
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CITY OF LAUREL
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
Year Ended June 30, 1999. "~':~ ~:~ . "~:
Journal vouchers prepared by the accounting staff should be supported by adequate documentation and
reviewed and approved by the Clerk/Treasurer prior to posting. After posting, the manual journal
vouchers should be compared to the voucher register for accuracy of mounts and account coding.
Journal vouchers prepared by the Clerk/Treasurer should be reviewed and approved by the
Budget/Finance Committee.
Quarterly payroll tax reports should be reviewed for accuracy and agreed to the payroll records by the
Clerk/Treasurer.
The Clerk/Treasurer should control the key to the blank check stock. An extra key should be provided
to the Mayor for emergency purposes.
Cancelled or voided checks should be retained and filed for future ref6rence.
99-2. Computer Controls
Password protection with the current accounting software does not restrict employee access levels. We
recommend the City develop password protection to limit access to the different accounting modules.
Posted transactions can be changed or deleted from the accounting system. We recommend the City contact
the software vendor and request a software update that will prohibit City personnel from changing or
deleting posted transactions.
Current procedures require daily and weekly system backups of the accounting system and data. We
recommend backups be stored off-site. Additionally, periodic tests should be performed to verify backup
data is recoverable.
99-3. Ambulance Accounts Receivable
While obtaining an understanding of the ambulance billing, collection and accounts receivable procedures,
we noted the following items:
Field reports and billing invoices are not prenumbered and accounted for. We recommend field reports
and billing invoices be prenumbered and accounted for by the ambulance clerk. The ambulance clerk
should reconcile charges posted to the general ledger to the charges assigned on the field reports.
Detail subsidiary receivable ledgers are not reconciledto the general ledger on a monthly basis. Detail
subsidiary ledgers should be reconciled to the general ledger on a monthly basis. The reconciliation
should be presented to the Clerk/Treasurer for review and approval.
Write-offof delinquent accounts and contractual adjustments are not subject to independent review and
approval. We recommend write-off of delinquent accounts and contractual adjustments be subject to
independent review and approval..
99-4. Cemetery
While obtaining an understanding of cemetery lot sales and opening and closing collection procedures, we
noted the following items:
Deeds for the sale of lots are not prenumbered and accounted for and copies of the deeds were not
retained at City Hall. We recommend lot sale deeds be prenumbered and accounted for by the cemetery
clerk. A copy of the deed should be retained at City Hall for accounting purposes.
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CITY OF LAUREL
SCHEDULE OF FINDINGS AND QUESTIONED cQsTs
Year Ended June 30, 1999 '
Formal billing and collection procedures have not been established and a list of accounts receivable is
not maintained. Prenumhered billing invoices should be used to bill for lot sales and grave openings
and closings. At the end of each month, an aged accounts receivable list should be prepared and
reconciled to the accounts receivable control account in the general ledger.
99-5. City Court
While obtaining an understanding of the City Court, we noted City Court time-pay accounts are not recorded
in the City's general ledger. Internal control would be strengthened if the outstanding balances were
recorded in the City's accounting records and reconciled monthly to the time-pay subsidiary cards.
Additionally, current procedures do not provide for a reconciliation of monthly time-pay activity to the
beginning and ending balances. We recommend the City Court secretary reconcile time pay activity to the
beginning and ending balances monthly. Once completed, the reconciliation should be reviewed and
approved by the City Judge.
Bonds on pending cases and partial restitution are recorded as revenue. We recommend bonds on pending
cases and partial restitution be recorded in a liability account until the case is closed out.
The City does not have procedures in place to reconcile the pending case account balance, as recorded in
the general ledger, to the pending case list. We recommend the pending case list maintained by the Court
secretary be reconciled to the balance in the general ledger. The monthly reannciliation should be submirted
to the City Judge for review and approval.
99-6. Outside and Miscellaneous Collections
During our review and testwork over the City's miscellaneous revenue collection points, we noted the
following:
Pool The City pool manager utilizes a reconciliation ledgar to account for pool collections. However, the
reconciliation ledger was not retained by the pool manager. We recommend, at the end of the pool season,
the reconciliation ledger be forwarded to the City accounting office and filed for future reference.
Planning Office Building permits and business licenses issued by the City planning office are not
prenumbered. We recommend the building permits and business licenses be prenumbered and accounted for
by someone independent of the accounting office. Additionally, the fees for permits and business licenses
are collected by the planning office. Internal controls would be strengthened if the fees were remitted
directly to the City accounting office.
Police Collections and evidence are receipted in on a prenumbered receipt; however, the receipts are not
accounted for by someone independent of the Police Department. We recommend the City's accounting
office account for the sequence of receipts issued and reconcile the City receipt i~sued for collections to the
Police Department receipts.
Bulk Water The City's bulk water station presently has a meter that records gallons disbursed in thousand
gallon increments. However, bulk water is disbursed in 75 gallon increments. We recommend the water
meter be updated to record gallons disbursed in 75 gallon increments. Once updated, procedures should be
developed that will provide for a reconciliation of collections made to gallons disbursed.
99-7. Payroll Reconciliation
During our review of payroll, we noted wages and benefits as recorded in the general ledger are not
reconciled to federal and state payroll reports. We recommend procedures be developed to reconcile wages
and benefits as recorded in the general ledger to federal and state payroll reports. Also, the City should
develop procedures that will provide for a reconciliation between the various wage bases (state
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99-8,
OTHER
99-9.
CITY OF LAUREL
SCHEDULE OF FINDINGS AND QUESTIONED, COSTS
Year Ended June 30, 1999 :
unemployment wages, social security wages and federal wages) as reported on the federal and state payroll
reports.
Payroll
During our testwork over payroll, we noted volunteer firemen and m~ib,,lo,,.e },,.,~cnme~l were paid as
independent contractors. We are not aware of any provision in employment laws that exclude volunteer
firemen~ fi.om payroll tax withholdings. We recommend volunteer firemen ~
sml,~a,~l be paid as employees of the City and be subject to applicable payroll taxes and
withholdings.
MATTERS:
Cash and Investments
We believe the City could benefit from closing the accounts located at the credit unions and Security Bank.
The interest rate on these accounts was approximately two percent less than what could have been earned
by investing the money in certificates of deposit. Potential intel:est earnings forfeited during the year were
approximately $6,000. Effective cash management would increase the return on the City's cash resources.
99-10. Fixed Asset Accunnting
Certain fixed asset accounting envies in the General Fixed Asset Account Group and Enterprise funds were
not properly recorded. For example, scuba equipment was recorded at the cash price paid, which was net
of the trade-in allowance. We recommend fixed asset purchases be recorded at historical cost as required
bygenerallyacceptedaccountingprinciples. Additiunally, agarhage truckwas soldand removed from the
City's fixed assets records, but the proceeds fi`om the sale were not received until after year-end. The
appropriate adjustments have been made to the Citfs financial statements.
We also noted fixed asset additions were not reconciled to the capital outlay expenditure accounts. For
example, infrastructure projects, such as chip seal and curb and gutter work, were coded to capital outlay.
The City's capitalization policy does not include infrastructure. Further, we noted fire equipment and
library books were coded to supplies, but added to the fixed asset records. We recommend fixed asset
additions be reconciled to capital outlay expenditures on an annual basis.
99-11. Administrative Expenses
The City's general fund charges the enterprise funds for administrative expenses. The charges to the
enterprise funds are based on a percentage of budgeted operating expenditures/expenses less capital outlay.
For the year ended June 30, 1999, the total charges to the enterprise funds were $304,618. Administrative
costs should be based on actual costs incurred, rather than anticipated budget amounts. Costs charged to the
enterprise funds should be documented by time sheets and/or invoices.
99-12. Accounting Policies and Procedures
Accounting policies and procedures are not presently formalized. Formalized accounting policies and
procedures would be beneficial in the event of employee turnover. We recommend accounting policies and
procedures be reduced to writing.
99-13. Accounting Records
During our review of the City's accounting records and annual report, we noted the following:
The 1999 annual report did not agree to the City's accounting records. Examples noted include operating
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CITY OF LAUREL
SCHEDULE OF FINDINGS AND QUESTIONED~COSTS ~,
Year Ended June 30, 1999 ....
transfers, a donation from the Lion's Club and debt service expenditures posted directly to fund balance.
The appropriate adjustments have been made to the City's financiaI statements.
Revenues and expenditures were recordedin the accounting records for the Firemen's Relief Association
fund. The City is acting only as a pass-through agency for the Association. We recommend the
Association be accounted fur as an agency fund in the accounting records. The appropriate adjustments
have been made to the City's financial statements.
Effective July I, 1997, the State of Montana contributes 29.37% to the MPORS plan on behalf of the
City. Generally acceptedaccountingprinciples require on-behalf contributious be recorded in the City's
accounting records. The appropriate adjustments have been made to the City's financial statements.
Current policy allows employees to accrue comp time in lieu of overtime pay. However, as of June 30,
1999, the comp time owed was not recorded as part of the compensated absences liability. We
recommend comp time accrued be included as part of the City's compensated absences liability.
A copier was ordered and paid for in June 1999, but received subsequent to year-end. Generally accepted
accounting principles require items not receivedbefore year-end, but paid for to be recorded as a prepaid
expenditure. The appropriate adjustments have been made to the City's financial statements.
The City's volunteer fire department provides contracted services to other rural fire districts and the
Yellowstone Treatment Center. Procedures have not been established to ensure each contract is billed
for and the related revenues collected in a timely manner. The appropriate adjustments were made to
the City's financial statements. We recommend the accounting office develop procedures to ensure each
fire contract is billed for and the related revenues collected in a timely manner.
Deferred revenue was recorded in the enterprise funds as an offset to taxes/assessments receivable. The
appropriate adjustments have been made to the City's financial statements.
· A separate cash account for a workers comp deposit was recorded. However, the City's workers
compensation carrier had no record of the deposit. The apprupfiate adjustments have been made to the
City's financial statements.
Year-end accounts payable were not recorded for the water system improvement and CTEP projects.
This condition arose because there are no formal procedures in place to identify and record accounts
payable at year-end. Generally accepted accounting principles require expenditures/expenses to be
recognized when the liability is incurred. The appropriate adjustments have been made to the City's
financial statements. We recommend management develop year-end expenditure cutoff procedures that
will provide for accounts payable to be recorded in accordance with generally accepted accounting
principles.
· The deferred assessmentsreceivable account for SID No. 110 was not adjusted to agree to the subsidiary
ledger cards. The appropriate adjustments were made to the City's f'mancial statements. We recommend
the deferred assessments receivable account for SID No. 110 be reconciled to the subsidiary ledger cards
on an annual basis.
Taxes/assessmentsreceivable for the City's "specials" did not agreeto the County Treusurer trial balance
at year-end. We recommend taxes/assessments receivable be reconciled to the County Treasurer trial
balance at year-end.
Current and long-term portion of bonds payable in the enterprise funds were recorded at year-end.
Generally accepted accounting principles allow for the reporting of the current portion only if a
"classified" balance sheet is reported.
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CITY OF LAUREL
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
Year Ended June 30, 1999 .q:
The current portion of general long-term debt was recorded within the governmental funds. Generally
accepted accounting principles allows for reporting the current portion only if prineipaI and interest are
due early the following year.
99-14. Section 457 Plan
Section 457 of the Internal Revenue Code, as amended on August 26, 1996, required 457 plan assets to be
held in trust for the exclusive benefit of participants and their beneficiaries. The amendment required the
trust to be established January 1, 1999. As of June 30, I999, the trust had not been established for the
City's Section 457 Plan. We recommend the City establish the trust for the Section 457 plan assets.
99-15. Related Organizations
During the evaluation of potential component units of the City, we noted the Laurel Municipal Airport
Authority (a related organization) uses the City of Laurel's employer identification number. We recommend
the Airport Authority obtain ira own employer identification number.
99-16. Pledged Securities
As of June 30, 1999, deposits with Security Bank that were in excess of federally insured limits were
secured with first mortgages on real property held by the bank. We do not believe these are an appropriate
pledge. We recommend the City consider obtaining pledges from Security Bank that are similar in nature
to pledges offered by other financial institutions in Montana.
99-17.
Procurement and Bid Letting
During fiscal year 1999, the City purchased ::Ss~equipment fo~ the fire department totaling $29,084 less
a trade-in allowance of $9,100. This purchase was not bid in accordancewith the provisions of Section 7-5-
4302(1), MCA. We recommend the City review procurement and bid letting procedures to ensure
compliance with state statutes.
99-18. Budgets
During our budget testwork, the following conditions were noted:
The Parking and SID Revolving funds were not included on the tax levy requirement schedule. A
portion of the SID Revolving fund was included in the detail of the budget document. We recommend
all funds be included on the tax levy requirement schedule and the detail of the budget document.
Cash available on the fiscal year I999 tax levy requirements schedule did not agree to the I998 cash
balances less current liabilities for the Generai, Gas Tax and Police Training funds. Cash available from
the preceding year is one of the factors used in determining the number of mills levied for each fund.
Cash reserves on the tax levy requirements schedule exceeded 50 pement of the appropriations for the
SID No. 110 fund and the light, street and sweeping maintenance funds. Care should be exercised to
ensure cash reserves are within state statutes.
FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AWARD PROGRAMS AUDIT
There were no findings and questioned costs related to federal award programs.
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CITY OF LAUREL
PRIOR YEAR AUDIT FINDINGS - FINANCIAL STATEMENT AUDIT
Year Ended June 30 1998" 3:i-::I ,)'~, i'
Prior Year Audit Findings
Finding Number 1 Revenue i997
Finding Number 2 Minutes 1998
Status
Implemented
Implemented
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