The URL can be used to link to this page

Home My WebLink About09-30-1990 ,a a a k¢ Delolfte & a buche 6 s j CITY OF DENTON. TEXAS RePOrt to liMAS&Wat for the t ' Yeer'BnAC4 Septbaber 300-1090 ' f ' E ~ t t k F i t i r Menibet DRTlnternational Deloitte & _ __Touc~e 801 Cherry Strrel, Su h 23Fort Worth, fexas 76102-6601 MCtro 021 654-2777 Telephone, ~917) 347-3:300 December 5, 1990 The Honorable Mayor and City Council and City Manager City of Denton 215 E, McKinney Denton, Texas 76201 Drier Mayor, Council Members and City Manager: i In planning and performing our audit of the general purpose financial statements of the City of Denton, Texas ("City") for the year ended September 309 19901 we considered Its internal control structure in order to determine our auditing procedures for the purpose of expressing an opinion on the general purpose financial statements and not to provide assurance on the internal control structure. Our consideration would not necessarily disclose i 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 l ' that would be material in relation to the general purpose financial statements being audited may occur and not be detected d within a timely period by employeea in the normal course of performing their assigned functions. i However, we noted no matters involving the internal control otructure and its ! operation that we co'asider to be material weaknesses as defined above. } A description of the responsibility of management for establishing and maintaining the interrnal control structure, and the objectives of and inherent I limitations in such a structure, is set forth in the attached Appendix, and j should be read in conjunction with this letter. i We did note other matters related to the internal control struct,ire and 'j certain administrative and operating matters. These recommendations resulted from our observations made in connection with our audit of the city's general purpose financial statements for the year ended September 30, 1990. r This report in intended solely for the use of the City Council and management and should not be usnd for any other purpose. We will be pleased to 61scuse these recommendations with you further and to assist you in implementing them. °j Yours truly, i ~~rlrterrational -74 .f } i i E P4 7 "F TABLE OF CONTENT; w J if W UTILITY FUND - ue Sanitation Operations M, i ! ACCOUNTING PROCEDURES AND ISSUES; 9 ' Documentation of Internal Accounting Control Procedures Notification of Employee Terminations 3 Federal and State Grants j Pi=ed Assets Inventory g 4 INTERNAL AUDIT 4 APPENDIX 4 } - I ~ j 1 f4l r. • j. r UTILITY FUND Sanitation Operations Observation: A review of the operating results for sanitation operations for the 1990 fiscal year reveals a net loss for the year of $194,900. This loss increased the deficit in retained earnings by 93% to $404,500 for the Sanitation Fund from September 30, 1989. It appears that the current sanitation rates do not adequately reflect the City's costs in delivery of sanitation services. Recommendation: Conduct a study to determine the rates necessary to cover operating and nonoperating expenses and transfers associated with sanitation Ma operations. The study might also include consideration of contracting with private entities as a means to deliver economical sanitation services. s ACCOMITING PROCEDURES AND ISSUES ` j Documentation of Internal Accounting Control Procedures i j ; Observation: The City does not maintain documentation of internal accounting control procedures. While it appears that control procedures are adequate, documentation of these procedures$ with timely updates, would provide additional f assurance that all procedures are being followed. Documentation would also .,l assist in delegating accounting responsibilities and detailing the necessary procedures for meeting those responsibilities. Recommendation: Consider preparing an accounting policies and procedures € manual. The manual would document internal accounting control procedures and j assign responsibilities within the Accounting Department. Personnel in the Department should bo given responsibility for maintaining the manual end ( I~ ' providing for periodic update. 1 J Notification of Emnlovee Termination f Observation: The current policy related to employee resignations (Policy No. 112.01) requires employees to submit a termination form to their supervisors i who, in turn, submit the form to the Personnel Department. No procedures exist to ensure that the supervisors actually submit the termination form. situation could allow an employee to remain on the City's Such ive payroll for an extended period of time after the effective date ofrtheir resignation. Recommendations In addition to Informing their supervisors of their I } resignation, employees should submit the required termination form directly to the Personnel Department. 1 t a vE t ryj 3 i Faderal and State Grants Observation: During the year a federal grant awarded to a City department was not reported to the Accounting Department in a timely manner. The grant allowed the city to match funds with in-kind services and donationa. However, incomplete documentation was maintained to support the in-kind services provided to match the grant funds received. Recommendation: Develop procedures for monitoring the preparation and l~ submission of grant applicatons as well as documentation requirement necessary I to comply with grant conditions. The review process would ensure consideration of any cost-benefit evaluation and timely notification of the Accounting Department to maintain adequate accounting records. i Fired Assets Inventor s ? Observation: The City has performed periodic physical inventories of fixed assets purchased with federal funds. However, a complete physical inventory 4 has not been performed in several years for all City fired assets. Recommon: perform a complete City-wide fixed asset physical inventory to ensure that fixed assets continue to be accurately reflected in the financial statements. Periodic physical inventories establish additional control over the City's fired assets and assist in evaluating the City's insurance needs. j INTERNAL AUDIT Observation: Currently, the City relies on its system of internal accounting control and the annual independent audit to provide assurance that the financial statements are fairly presented. While this +relfance is adequate, an internal audit function would provide an additional control level and establish a system which would better monitor operations and the accounting 1 system of the City. f Recommendation: Consider establishing an internal audit function. Internal audito'rs' duties and responsibilities -ary widely among cities. Frequently, internal projects The internal auditor should have no authority over nor res activities examined. In order for objectivity to be waintained# wetsuggest he i -2 that tho individual performing this function report directly to the City manager and reporrt semiannually to the Audit Committee of the City Council. This type of arrtingement should provide a level of internal control through segregation of responsibility and give the internal auditor the authority t required to operate across departmental lines to best perform the job. i c f r_ fE APPENDIX MANAGEMENT'S RESPONSIBILITY FOR, AND THE OBJECTIVES AND LIMITATIONS OF, THE INTERNAL CONTROL STRUCTURE The following comments concerning management's responsibility for internal accounting control, the objectives of and the inherent limitations in a system of internal accounting control are excerpts from Statements on Auditing Standards of the American Institute of Certified Public Accountants. Management's Responaibility Management is responsible for establishing and maintaining a system of internal accounting control. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of { control procedures. Objectives The objectives of a system are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against lose from unauthorized i use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of Einancial statements in accordance with generally accepted accounting i principles. limitations t LJ Because of inherent limitations in any system of internal control, errors or Y irregularities nevertheless may occur and not be detected. Also, projection of any evaluation of the structure co future periods is subject to the riak that procedures may become inadequate because of changes in conditions or that the degree of compliance with the procedures may deteriorate. .a l ~.1 i j s. i i Ra i r; FIL h