MANAGEMENT LETTER. Noncompliance Findings

Transcription

1 MANAGEMENT LETTER Springfield Township 7617 Angola Road Holland, Ohio To the Board of Trustees: We have audited the financial statements of Springfield Township,, (the Township) in accordance with Government Auditing Standards, as of and for the years ended December 31, 2009 and 2008, and have issued our reports thereon dated September 28, Government Auditing Standards require us to report significant internal control deficiencies, fraud, and illegal acts (including noncompliance with laws and regulations), and also abuse and noncompliance with contracts and grant agreements that could directly and materially affect the determination of financial statement amounts. We have issued the required reports dated September 28, 2010, for the years ended December 31, 2009 and We are also submitting the following comments for your consideration regarding the Township s compliance with applicable laws, regulations, grant agreements, contract provisions, and internal control. These comments reflect matters that do not require inclusion in the reports Government Auditing Standards require. Nevertheless, these comments represent matters for which we believe improvements in compliance or internal controls or operational efficiencies might be achieved. Due to the limited nature of our audit, we have not fully assessed the cost-benefit relationship of implementing these recommendations. However, these comments reflect our continuing desire to assist your government. If you have questions or concerns regarding these comments please contact your regional Auditor of State office. 1.* Ohio Revised Code (D) states that no subdivision shall make any contract or give any order involving the expenditure of money unless there is attached thereto a certificate of the fiscal officer of the subdivision. The fiscal officer must certify that the amount required to meet such a commitment has been lawfully appropriated and is in the treasury or in the process of collection to the credit of an appropriate fund free from any previous encumbrance. Further, contracts and orders for expenditures lacking prior certification shall be null and void. One Government Center / Suite 1420 / Toledo, OH Telephone: (419) (800) Fax: (419)

2 Page 2 There are several exceptions to the standard requirement stated above that a fiscal officers certificate must be obtained prior to a subdivision or taxing authority entering into a contract or order involving the expenditure of money. The main exceptions are: then and now certificates, blanket certificates, and super blanket certificates, which are provided for in (D)(1) and (D)(3), respectively, of the Ohio Revised Code. A. Then and Now Certificate If the fiscal officer can certify that both at the time that the contract or order was made ( then ), and at the time that the fiscal officer is completing the certification ( now ), that sufficient funds were available or in the process of collection, to the credit of a proper fund, properly appropriated and free from any previous encumbrance, the Township can authorize the drawing of a warrant for the payment of the amount due. The Township has thirty days from the receipt of the then and now certificate to approve payment by ordinance or resolution. Amounts of less than $3,000 may be paid by the fiscal officer without a resolution or ordinance upon completion of the then and now certificate, provided that the expenditure is otherwise lawful. This does not eliminate any otherwise applicable requirement for approval of expenditures by the Township. B. Blanket Certificate Fiscal officers may prepare blanket certificates for a certain sum of money not in excess of an amount established by resolution or ordinance adopted by a majority of the members of the legislative authority against any specific line item account over a period not running beyond the end of the current fiscal year. The blanket certificates may, but need not, be limited to a specific vendor. Only one blanket certificate may be outstanding at one particular time for any one particular line item appropriation. C. Super Blanket Certificate The Township may also make expenditures and contracts for any amount from a specific line-item appropriation account in a specified fund upon certification of the fiscal officer for most professional services, fuel, oil, food items, and any other specific recurring and reasonably predictable operating expense. This certification is not to extend beyond the current year. More than one super blanket certificate may be outstanding at a particular time for any line item appropriation. Seventeen percent of disbursements tested were not certified by the fiscal officer at the time the commitment was incurred and there was no evidence that the Township followed any of the aforementioned exceptions. Certification is not only required by Ohio law, but is a key control in the disbursement process to assure that purchase commitments receive prior approval, and to help reduce the possibility of the Township funds being over expended or exceeding budgetary spending limitations as set by the Township. 2. Ohio Administrative Code (C)(1) states all local public offices should integrate the budgetary accounts, at the legal level of control or lower, into the financial accounting system. This means designing an accounting system to provide ongoing and timely information on unrealized budgetary receipts and remaining uncommitted balances of appropriations. The Township s budgetary information in the accounting system did not agree to approved Certificates of Estimated Resources or Appropriation Measures.

3 Page 3 The failure to have approved budgetary data input into the Township s accounting system could result in appropriations exceeding estimated resources and inadequate budgetary monitoring. We recommend the Township ensure that all budgetary data input into its accounting system agree with the most current, approved Certificate of Estimated Resources and Appropriation Measure. 3. Ohio Attorney General Opinion requires that interest earned on money derived from a motor vehicle license or fuel tax (including local motor vehicle license tax) must be paid into the fund to which the principal belongs. All other interest earned should be credited to the general fund. The Township s method for allocating interest to funds other than the general fund are not reasonable because of the following: Township includes general fund investment balance to calculate fund balance percentages. The general fund investment fund should not include the investment account balance because investment balances earns interest income from the investment account not the checking account. The Fund status report used to calculate percentages of fund balance does not include all funds. Additionally, the Township used the Fire District and EMS fund balances to determine the amount of interest to be posted to the Motor Vehicle Fund. Failure to properly allocate interest to the proper fund could result in findings for adjustment. We recommend the Township establish policies and procedures to ensure interest is properly posted to the correct fund in accordance with Ohio Attorney General Opinion Ohio Revised Code requires every agency that maintains a personal information system to: (A) (B) Appoint one individual to be directly responsible for the system; Adopt and implement rules that provide for the operation of the system; (C) Inform each of its responsible employees of all rules adopted in accordance with this section; (D) Specify disciplinary measures for unauthorized use of information contained in the system;

4 Page 4 (E) Inform a person supplying personal information if it is legally required, or if they may refuse; (F) Develop procedures for purposes of monitoring the accuracy, relevance, timeliness, and completeness of the personal information in this system; (G) Take reasonable precautions to protect personal information in the system from unauthorized modification, destruction, use, or disclosure; (H) Collect, maintain, and use only personal information that is necessary and relevant to the functions that the agency is required or authorized to perform, and eliminate personal information from the system when it is no longer necessary and relevant to those functions. The Township has not established a personal information system or policy. The Township is entrusted with the duty of collecting sensitive and private information, and should ensure the necessary processes and procedures are in place to safeguard the personal data citizens entrust to them. We recommend the Township establish a comprehensive policy to establish controls and monitoring of personal information. 5. Ohio Revised Code requires every public authority authorized to contract for or construct with its own forces a public improvement, before advertising for bids or undertaking such construction with its own forces, shall have the State director of Commerce determine the prevailing rates of wages of mechanics and laborers in accordance with section of the Rev. Code for the class of work called for by the public improvement, in the locality where the work is to be performed. Such schedule of wages shall be attached to and made part of the specifications for the work, and shall be printed on the bidding blanks where the work is done by contract. The Township failed to obtain and incorporate the prevailing wage rates into the specifications for the Harvest Ditch Maintenance contract in fiscal year We recommend management implement procedures to ensure prevailing wage rates determined by the State Director of Commerce are obtained and attached to or made part of the specifications for all required contracts. Recommendations 1. Investment Balance Reconciliation The Township reports on the cash basis of accounting therefore the Township should be reporting its investments at cost. The Township has not established formal policies and procedures for reconciling investment balances, at cost, from the accounting system to investment reports received from their investment manager.

5 Page 5 Recommendations Without proper reconciliation, the Township risks improperly reporting their interest receipts and investment balances. We recommend the Township establish formal procedures for periodically reconciling investment balances, at cost, from the accounting system to the investment reports received from their investment manager Recording Appropriations for On Behalf Grants In 2009 the Township was the beneficiary of $277,971 of State Ohio Public Works money sent directly to the vendor, of which $78,395 was recorded on the Township s financial statements by the fiscal officer. The remaining receipts and expenditure activity for this grant were not recorded on the Township s financial statements by the Fiscal Officer. In 2008 the Township was the beneficiary of $128,508 of State Ohio Public Works money sent directly to the vendor. None of these receipts were recorded on the Township s financial statements by the Fiscal Officer In addition, the fiscal officer did not record an appropriation on the ledgers for this activity. Ohio Revised Code deems the funds appropriated, eliminating the need for the Township to approve a formal appropriation for these monies, however, this section does require the Township to record the appropriation. Since the Township is required to record the appropriation they should also request the amount be included on the certificate of estimated resources received from the county budget commission to enhance the Township s monitoring of financial activity. To account for the appropriations for the Ohio Public Works funds we recommend the Township record the appropriation on the appropriations ledger and request the amount be included on the certificate of estimated resources. 3. Establishing Separate Funds for each OPWC Project In 2009 and 2008 the Township was the beneficiary of State Ohio Public Works money in the form of both grants and loans for various projects. In accordance with Auditor of State Bulletin , all local governments participating in Issue 2 Funds (single or multi-project grant) must, for each project awarded, establish a capital projects fund to account for both the Issue 2 monies and local matching funds. The purpose of the fund is to account for the related revenues and expenditures to the extent the local government has received benefit from the project. For 2008 and 2009, the Township failed to establish separate funds for each OPWC project. To account for the project receipts and expenditures we recommend the Township establish separate capital project funds for each project.

6 Page 6 Recommendations 4.* Payroll SAS 70 The Township currently has a contract with Payroll Select to administer the Township s payroll. This contract does not require Payroll Select to provide the Township with an annual report on the Processing of Transactions by the Service Organization prepared in accordance with Statement of Accounting Standards 70 and 88 (SAS-70/88). There are two types of SAS-70/88 reports; Tier I Report on Controls Placed in Operation, and Tier II Report on Controls Placed in Operation and Tests of Operating Effectiveness. When a user organization uses a service organization, transactions that affect the user organizations financial statements are subjected to controls that are, at least in part, physically and operationally separate from the user organization. Further, when the service organization executes the user organization s transactions and maintains the related accountability, there is a lower degree of interaction between the controls at the service organization and those at the user organization. We recommend the Township obtain a Tier II report from Payroll Select. In addition, we recommend that a requirement to provide a Tier II report be incorporated in all future contracts with any service organizations. 5. Advances Advances must be approved by a formal resolution of the taxing authority of the subdivision which must include a specific statement that the transaction is an advance of cash, and an indication of the money (fund) from which it is expected that repayment will be made. If, after an advance is made, the taxing authority determines that the transaction should, in fact, be treated as a transfer (repayment is no longer expected) the following procedures should be followed: The necessary formal procedures for approval of the transfer should be completed including, if necessary, approval of the commissioner of tax equalization and of the court of common pleas (see ORC , and ); The transfer should be formally recorded on the records of the subdivision; and The entries recording the cash advance should be reversed The Township advanced monies between funds during the year and the Board did not formally approve all advances and indicate which fund the repayment was expected to be made. Additionally, the Township has not repaid various advances made during 2007, 2008, and Failure to have proper Board approval of each advance, including the fund from which the advance will be repaid could result in unauthorized advances and/or conversion of advances to transfers that are illegal. We recommend the Township Board approve each advance, including the fund with which the repayment will be made. Additionally, we recommend the Township review any unpaid advances to determine if they will be converted to transfers.

7 Page 7 We intend this report for the information and use of the Board of Trustees, audit committee, and management. Mary Taylor, CPA Auditor of State September 28, 2010 * - This comment was also made in our audit of the 2006 and 2007 financial statements.