Loading...
1979-16 Adopting Internal Account Control Procedures~ Iti RESOLUTION N0. 16-79 A RI;SOLlITION OF THE VILLAGE COUNCIL OF NORT}{ PALM BF.ACI{, FLORIDA, ADOPTING FOR USE BY THE VILLAGE CERTAIN INTERNAL ACCOUNTING CONTROL PROCEDURES RECOMMENDED BY THE VILLAGE AUDITORS, CARPENTER, MAY & BREMER, IN THEIR LETTER DATED JANUARY 26, 1979 ' TO 1'HF, VILLAGE COUNCIL. BE IT RESOLVED BY THE VILLAGE COUNCIL OF NORTH PALM BEACH, FLORIDA: Section 1. The internal accounting control procedures outlined in that certain letter from Carpenter, May & Bremer, Certified Public Accountants, to the Village Council dated January 26, 1979 are hereby adopted for use by the Village of Norti~ Palm Beac}~, excepting there from the last sentence of Paragrap}~ IV. A copy of said letter is attached to this Resolution and by reference made a part hereof. Section 2. This Resolution shall take effect immediately ' upon passage. PASSF,D AND ADOPTF,D THIS 22ND DAY OF FEBRUARY, 1979. /s/ Al Moore MAYOR ATTEST: /s/ Dolores R. Walker Village Clerk h~ ,.. •. • Y CHAgLEE M. CARPE NTf R~GP. A. PAUL DAMON MAY~C. P. A. PAUL C. BREMER~C. P. A. FRANCIS J. McMAHON~ C.P.A. ROBERT J. FLOWCR S, C. P. A. ROBERT E. MOODY, C. P. A. ... - L CAEYENTE R, MAY ~ BREbIER CERTIFIED PUBLIC ACCOUNTANTS 310 OKEECH06EE BOULEVARD WE6T PALDI BEACH, Faoamw 03401 TELE PNON[ bOEJ ESS•ESOO N[MBCRS AMERICAN IN STITUTC Oi CE RTI FIEO PUBLIC ACCOUNTANTS FLORIDA INSTITUTE Of CERTIFIED PUBLIC ACCOUNTANTS January 26, 1979 The Honorable Mayor and Council Village of North Palm Beach Village Hall U. S. Highway O1 North Palm Beach, Florida 33408 Gentlemen: We have examined the financial statements of the Village of North Palm Beach, Florida for the year ended September 30, 1978 and have issued our report thereon dated December 9, 1978. As a part of our examination, we made a study and. evaluation of the, Village's system of internal accounting control to the extent we considered necessary to evaluate the system as required by generally accepted auditing standards. Under these standards, the purposes of such evaluation are to establish a basis for reliance on the system of internal accounting control in determining the nature, timing, and extent of other auditing procedures that are necessary for expressing an opinion on the financial statements and to assist the auditor in planning and performing his examination of the financial statements. The objective of internal accounting control is to provide reasonable, but not absolute, assurance as to the safeguarding of assets against loss from unauthorized use or disposition, and the reliability of financial records for preparing financial statements and maintaining accountability for assets. The concept of reasonable assurance recognizes that the cost of a system of internal accounting control should not exceed the benefits derived and also recognizes that the evaluation of these factors necessarily requires estimates and judg- ments by management. There are inherent limitations that should be recognized in consider- ing the potential effectiveness of any system of internal accounting control. In the performance of most control procedures, errors can result from misunder- standing of instructions, mistakes of judgment, carelessness, or other personal factors. Control procedures whose effectiveness depends upon segregation of duties can be circumvented by collusion. Similarly, control procedures can be circumvented intentionally by management either with respect to the execution and recording of transactions or with respect to the estimates and judgments required in the preparation of financial statements. Further, projection of any evaluation of internal accounting control to future periods is subject to the risk that the procedures may become inadequate because of changes in conditions and that the degree of compliance with the procedures may deteriorate. Tpe Honorable Mayor Page 2 January 26, 1979 and Council Village of North Palm Beach Our examination of the financial statements made in accordance with generally accepted auditing standards, including the study and evaluation of the Village's system of internal accounting control for the year ended September 30, 1978, that was made for the purposes set forth in the first paragraph of this report, would not necessarily disclose all weaknesses in the system because it was based on selective tests of accounting records and related data. However, such study and evaluation disclosed the following conditions that we believe to be material weaknesses. I. Cash Receipts and Disbursements In performing procedures in related areas of cash receiving and disbursing, the following were noted: Custodianship of cash: Responsibility for cash received and petty cash was not always segregated in departments that operate with such accounts. We recommend that whenever feasible, segregation of above mentioned cash duties be established and that s separate custodian be designated for petty cash within that department. Safeguarding of cash receipts and unused checks: -While observing day to day operations, it was noted that in pre- paring cash receipts collected for deposit, access to the area was not limited and in some cases left, for a short time, unattended. We recommend that in preparing cash receipts for deposit, access to the funds be limited to the designated custodian. In addition, we recommend for proper safeguarding, that blank checks be kept under lock and key as they were noted as being in a open area and sometimes unattended. Accountability for checks written: In reviewing the cash disbursement control journal, it was noted that not all checks are accounted for in numerical order. We recommend that the cash disbursement control journal be maintained to provide a complete listing of all checks written by check number, sequentially controlled. Reconciliation of bank statement balances to books: At present it is the policy of the Village to maintain speci- fied minimum balances in its checking accounts and at month end bank statements are reconciled to these balances, regardless of whether these are the balances as reflected in the general ledger. We recommend when reconciling bank statements, for all funds, that the balance per bank be reconciled to the actual balance per the general ledger rather than the specified minimum balance. • .1 • , r • The Honorable Mayor Page 3 January 26, 1979 `and Council Village of North Palm Beach II. Purchasing In testing purchasing procedures the following was noted: Use of purchase orders: In a number of situations, purchase orders were prepared after the goods or services were received and, in some cases, never posted to the accounting records. We recommend that, in all cases, as required by Village policy, a purchase order be approved, created and posted to the accounting records in a timely fashion. Payments: Many items submitted to Finance for payment did not contain evidence of approval to pay or proper approval indicating receipt of goods or services. We recommend that all invoices submitted to Finance for payment have evidence of approval for payment and, when applicable, evidence that the goods or services were received. In addition, all support documentation should be marked "Paid" after payment is made. III. General Bookkeeping Procedures In reviewing the record keeping procedures, it was noted a great number of journal entries were made throughout the year. We recommend, to alle- viate the amount of time required to prepare these entries, that procedures be established whereby changes in inventories, allocation of expenses and transfers among bank accounts or funds be entered directly into the accounting records as they occur. Control of transfer documentation: Transfers between bank accounts and funds were not always documented in the accounting records. We recommend that documents authorizing transferring of funds, either between bank accounts or funds be accounted for, bound and cross indexed to posting entries. Agreement of corresponding due to/due from fund accounts: In reviewing interfund activity it was noted that in some cases a transaction between funds was only accounted for in one fund. We recommend the establishment of procedures to ensure posting of the entries in all affected funds. Identification of posting sources: In reviewing the Village`s general ledger cards it was noted that many entries on these cards did not indicate the date of entry or posting source. To ensure greater control over postings to the accounting records, we recommend that all entries indi- cate their date of entry and posting source.. Tie Honorable Mayor Page 4 January 26, 1979 'and Council Village of North Palm Beach IV. Fixed Assets The Village does not account for fixed assets in accordance with Chapter 273 of the Florida Statutes. To comply with the state statute, we recommend that for all items classified as capital expenditures, records be generated indicating description, identification number, cost of property, date acquired, location, designated custodian, date of physical inspection, condition and, when necessary, disposition of the item. In addition, to comply with generally accepted accounting principles, we recommend that fixed assets pur- chased by the Country Club Revenue Fund be capitalized and depreciation be computed based on the economic useful life of the item and. deducted as an operating expense. Labor expense allocation to self constructed fixed assets: Certain capital expenditures required use of the Village's labor force for either construction or installation. How- ever, it was noted that the cost of this labor was not added to the cost of the related fixed asset. We recommend that a policy of allocating wages and related expenses to fixed assets constructed or installed by Village personnel be established. V. Inventory As a result of the unexplained fluctuations that occurred during fiscal year ended September 30, 1978 in the food inventory at the country club, we recommend that the procedure be established of documenting monthly physical inventory item counts on preprinted forms, thereby indicating the type and quantity of items on hand. In addition, a perpetual inventory system should be established for both food and bar and monthly reconciliations of physical count to book should be made and reviewed for explanations of any differences. VI. Allocation of Investment Interest Income Due to the Village's policy of pooling cash from all funds for invest- ment with the state it is essential that the amount invested by each fund be recorded so that proper allocation of interest earned by the pool can be made to the proper fund. It was noted in our review of this area that the amount invested from certain funds was not properly recorded. We recommend that a log be maintained, indicating the amount each fund has invested in the pooling of funds for investment, to facilitate the proper allocation of interest earned by the pool to the proper fund. VII. Record Retention In performing our test of compliance we were unable to complete certain procedures due to the loss of certain country club records. '~ Tie Honorable Mayor Page 5 January 26, 1979 and Council Village of North Palm Beach We recommend the establishment of a record retention system to account for, index and preserve all Village records. VIII. Accounting for Returned Checks - Country Club It was noted during a review of country club receivables that there is no established procedure for accounting for bad checks received as payments on accounts. We recommend that procedures be established whereby all returned checks previously received as payment on a country club member's account should be charged back to that account. IX. Physical Cancellation of Bonds and Coupons It was noted during our review of paid bonds and coupons returned to the Village that some had not be cancelled. We recommend that procedures and policies be established to ensure that all paid bonds and coupons are physically cancelled. X. Centralization of Non-Country Club Receivables It was noted during our review of miscellaneous receipts that certain departments have been preparing and mailing bills for goods or services. As a result of this, Finance is not always aware of .the Village's outstanding receiv- ables. We recommend that for all instances where a department, other than the country club, is to bill an outside party for either goods or services rendered, a request for billing should be submitted to Finance, which then will bill the party. In establishing this procedure, Finance will then be able to document, control and follow up on collecting such receivables. The foregoing conditions are considered in determining the nature, timing, and extent of audit tests to be applied in our examination of the finan- cial statements, and this report of such conditions does not modify our report dated December 9, 1978, on such financial statements. Very truly yours, CARPENTER, MAY 6 BREMER BY ~~ ~ I!~ PCB/bc 17! taE C:ERi;'S OFFICE J~1;i2 91979 ~•- ~~ ~C'_~~.-~-~--c.. ~/ >/may ~ :~~%