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HomeMy WebLinkAbout09-31-1989 1a~SjyXf Iil~~kddPPP MJ mnte Y CITY OF DENTON, TEXAS " r S' Re~Ar~'. Tt~ Mans ~ta~~E ' .ox . Tt~~ f ' . Xe~x~ 1~tSc9ed,.5bip~s~ber, ~8~~ `1g89- i; i t 11j 4 t r - ! 2 e t r i~• r "t i r Haskins-Sells r9 801 cherry street, Sulto 2340 Fort Worth, Toxas 76102.6801 (817) 338.2631 Motto: 654.2777 CnblO 6EHANUS I The Honorable Mayor and City Council and City Manager December 1, 1989 City of Denton 215 1;. McKinney Denton, Texas 76201 Dear Mayor, Council Members and City Managers f f In planning and performing our audit of the financial iy statements of the City of Denton, Texas ("Citep") for the year ended September 300 1,989, we con81Qered its internal control structure in order to determine our auditing procedures for the purpose of expressing an opinion on the financial statements and not to provide assurance on the internal control structure, Such consideration would not necessarily disclose all matters in the internal control structure that might be material weaknesses under standards ' established by the American Institute of Certified public Accountants, A material weakness is a condition in which the design or operation of the specific internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts 0 that would be material in relation to the financial statements being audited may ocour and not be detected within a timely period by employees in the normal course of performing their assigned functions, However, we noted no matters involving the internal control structure and its . operation that we consider to be material weaknesses as defined above. A description of the responsibility of management for establishing and maintaining the internal control structure, and the objectives of and inherent.limitsations :r in such a sstructtire, is met for the in the attached ' M Appendix, and should be read in conjunction with this ' EI letter, t We did note other matters related to the internal control structure and certain administrative and operating matters, Theoe recommendations resulted from our observations made in connection with our audit of the , City's financial statements for the year ended September 30, 1989, 1 i This report is intended solely for the use of the City ! Council and management and should not be used for any other purpose, We will be pleased to discuss these recommendations with you further and to assist you in implementing them. Yours truly, , ~ f v~ a t j t . k W Z t r t _ • r, r 5fa xkk ( f, r TAgi . OF ~ONm~N r Pfl ~1it UTILITY FUNDi Return on Investment Utility Sillinq System 4 4 MUNICIPAL AIRPORTS Audita of Fg0's Interdepartmental Coordination 5 5 INVESTMENT POLICY INTERNAL AUDIT* i 6 ACCOUNTING PROCEDURES AND ISScJES Fired Assets Inventory* 7 APPENDIX *Noted in prior year 1 f ~ i rs a ; 41 'It 3 )at ,t 41 q r iS t a. } UTILITY Fj-J-Nn ' ~ ~a,II`1n.wLL rn ~O,II-YYn V9fi f'mn 4 The City charter requires the Utility Fund to on investment "Ror" Pay a retu ) to the ROT is computed based on the totalaeasetdbalanc~eeoflthethe Utility Fund. During the year ended September 301989, ' the City was required to capitalize the water storage rights of Lakti Ray Roberts, The debt associated with the storage rights was 0180 recorded, The result was a significant increase in the total assets of the Utility Fund with a potential corresponding increase in the ROT, The ROT represents a theoretical return on funds advanced to the Utility Fund by the General Fund, the storage rights of Lake Ray Roberts, thensithe gnit ~e of increine in the total assets of the Utility Fund was not related to any, additional investment of the General Fund, Therefore the ROT could be computed based on the net assets of the Utility Fund as this amount would more alosoly ' resemble the investment of the General Fund in the Utility Fund, An alternative approach would be to continue computing the ROT on total assets of the Utility Fund but exclude "intangible assets, such as water storaga rights, from total assets, f ~ ?a ReoO m9adation The City should obtain a legal opinion interpreting the intent of the City charter in f application of ROI on General Fundr nvestmentpinpthe Utility Fund, 1Ltility 8i Dina svg,~gpl sc~.p,ian L_ i When testing the "Dusk to Dawn" rate aomputaty ,h, an error s, in the system's computation logic was identif'i0,,, Although immaterial, the error identifies a potential w4at%1tss in the review process of utility rate programs, i t, 4 r o , _ w-.auNa ` ti 4 L_ ~ $~.Qmmendetioll r~ All rate tables should be reviewed and test rates run on the system to ensure that all rate tables are aorrectly computed. ~Nt 7PA . AIRPORT "f Audits of ~'gb,s Obaerva .ion The Finance Department has the contractual right to conduct financial audits of the two fir•.Ra base operators ("pB4's") currently authorized to provide eNiation related services at Dentan Municipal Airport. This aontraatual'provision - wes apperenbilr designed to allow the Fi.nanoe bepartment to verify that a11'ravenues due'to the City from the FB0's for fuel flowage Eees, hangar rentals, sales percentages, eta, are correctly determfned and remitted, ~ ~ ' &~mmendatiion C ~ The finance nepartment.~houldcan~uct periodic audits of ~ the FBO~s to provide assurance reTating'to revenues ; JJ generated and compliance with contractual agreements. I ~ ~ i + Tnterdenar mental ~oordi.t~tion f ~ 1 1 ~.?~.6.rvatien r,, The coozdination of certain ach:ivities and ~unations between the Airport snd the Engineering bepartment has not ' been effective. f'or example, the Airpport Manager was not aware oP servines renderod by the A;ngineering Department ' end chargeL{ tea the Airport budget, Additionally, the f Airport Manages was not aware aE a retainage amount held by ~ I the Engineering.:Depar~ment for a +~r~~jeet funded by an i~AA grant which'could have resulted in a loss'of'grant funds, ~sS.~1.Qn Communications and coordination between the t~ngineerd:ng Department and Airport should be strettsed by administration, Tmplementetion of pra9ebt staru~s meetings or use of pra~ect memos would be benef3.aial, r ~ i ' ~ 5 t' -,,u.. ` r 4;,r J ~ _ r INVE,4.TMENT PC3Tr?CY ~ Obae'cvation Several recommendations made by DH&S in the prior year regarding repurchase agreements, cash transfers, and safekeeping reports have been implemented. However these new procedures have not been documented in an updated investment policy. B_e~mmend a n o n All changes made in policy and procedures; should be documented through updated and approved policy and procedures statements and incorporated into the City's investment policy, I~ Observe .ion Currently, the City relies on its system of internal accounting control and the annual independent audit to r provide assurance that the financial statements ire fairly fI presented, While this reliance is adequate, an internal E`a audit function would provide an additional control level and establish a system which would better monitor operations and the accounting system of the City. gsastmmeas? I f t,a Consider establishing an internal audit function, internal I auditors' duties and responsibilities vary widely among cities, Frequently, internal auditors are involved with I operational reviews and special projects as contrasted with I the traditional role of financial auditing, The internal auditor should have oo authority over nor responsibility for the a objectivity to be maintained twessugggestethatzthoerder for individual" performing this function report directly to the City Manager and report semiannually to the Audit Committee of the Board, This type of<arrangement should provide a level of internal control through segregation of responsibility and give the internal auditor the authority required to operate across departmental lines to bast perform the job. 'M •r •I Y , rr~~, f 4 K.§vShR~ Y 84Y Tf4t-~?Ci llnikltyY r ~ ~ ACCOUNTING PRO • .D tR C AND ISM `Fyn ~n Fized Assets Inv,en o v 4bserva-ion The City has performed periodic physical inventories of fixed aseets,puroh~iaed with federal funds, However, a complete phyaicgl inventory has not been performed within the last several years for all City fixed asses, Recommendat,j~~ perform a complete Citywide Fined asset physical Ynventory, ~ , ~y E t ti i , f t~1 q ~ 5 ~ 'Ck . t. . ; [ sf I 1~ ' ~ r~ ~!}t , i ~y' `i r~. ~ 7 1' r., ti r.., u. o,.' a t R, , a1.3Yi~c4~.., : r' ~ - r ~ tr. 1 n A +~~r, ~ .`Y; r) a.,r_;.. } APPENDIX 7 MANACEMENT'S RESPONSIBILITY FOR, AND THE OBCECTIVES AND LIMITATIONS OF, THE INTERNAL CONTROL STRUCTURE The following Comments concerning management's responsibilM ity for the internal control structure and, the objectives of, and the inherent limitations in, the internal control structure are adapted from the Statements on Auditing Standards of the American Institute of Certified Public Accountants. Managgment's Responsibility Management is responsible for establishing and maintaining the internal control structure: In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costa of control procedures, i Obleatives The objectives of the structure are to 'provide management with ressonabie, but not absolute, assurance that the specific entity objectives will be eohieved, These specific objoctives, as they relate to an audit, include the establishment of policies and procedures that provide reasonable assurance that the entity has recorded, E processed, summarized and reported financial data that is I Consistent with management's assertions that are embodied in the financial statements, In addition, the structure provides management with reasonable assurance that assets lk are soreqquarded against loss from unauthorized use or dispo;-4tion, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. { ~ Limitations i Because of inherent limitations in any internal control structure, errors or irregularities nevertheless may occur and not be detected. Also, protection of any evaluation of ! the structure to future periods is subject to the risk that procedures may become inadoquate because of changes in conditions or that the effectiveness of design and operation of the policies and procedures may deteriorate, t ,E i t N c~ EE t4 E) i i } F 4 '1 , { 4 I Lm IH 112.1.