05.02 - 2012 Audit - Laserfiche WebLink

Home Browse Search

Honora6le Mayor and City Councii Members City of Pequot Lakes Page 3 Management consultations with other independent accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a"second opinion" on certain situations. If a consultation involves application of an accounting principle to the entity's financial statements or a determination of the type of auditors' opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Significant issues discussed with management prior to engagement We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to engagement as the entity's auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our engagement. Other audit findings or issues The following describes findings or issues arising from the audit that are, in our professional judgment, significant and relevant to your oversight of the financial reporting process: • Limited Segregation of Duties — The City has limited employees with primary responsibility for all of the accounting and financial duties and receipting of utility billings. As a result, many of those aspects of internal accounting control which rely upon an adequate segregation of duties are, for all practical purposes, not available in this staffing scenario. We recognize that the City's cost/benefit analysis has concluded the employment of additional persons for the purpose of segregating duties is not practicable from a financial standpoint, but we are required, under our professional responsibilities, to call the situation to your attention. The City should continue to utilize the City Council's oversight of the budgeting, cash reconciling, and receipts and disbursements process to the maximum extent possible to mitigate the absence of segregation of duties. This condition increases the possibility that errors or irregularities may occur and not be detected on a timely basis • Material Audit Adjustments — As part of the audit, we proposed audit entries, including cash to accrual basis entries, recording some capital assets, and reclassifying transactions to the proper accounts. The absence of a complete control procedure or process in this area is considered a material weakness because the potential exists that a material misstatement of the financial statements could occur and not be prevented or detected by the City's internal control process. The design of the internal controls over recording cash to accrual entries and depreciation expense, could affect the organization's ability to detect or prevent a misappropriation of assets or fraudulent activity. • Oversight of the Financial Reporting Process — Management is responsible for establishing and maintaining internal controls for the fair presentation of the financial position, results of operations, cash flows, and disclosures in the financial statements, in conformity with U.S. generally accepted accounting principles (GAAP). The City does not have a system of internal controls that would enable management to conclude the financial statements and related disclosures are complete and presented in accordance with GAAP. As such, management requested us to prepare a draft of the financial statements, including the related footnote disclosures. The outsourcing of these services is not unusual in organization of your size and is a result of management's cost/benefit decision to rely on our accounting expertise rather than incurring this internal resource cost. The design of internal controls over the financial reporting process affects the ability of the organization to report their financial data consistently with the assertions of management in the financial statements.