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HomeMy WebLinkAbout09-30-1993 I REPORT TO MANAGEMENT SEPTEMBER 30, 1993 M ®eloitte & buche CITY OF DE IQ?! TEXAS Report to Management for the Year Ended September 30,199:; I D* thTKCI* T*Ift t 1,. l Deloitte & buche - - - - ~ Suil© 2340 Telephone (E317) 347.3300 801 Cherry Street Facsimile: (817) 336-2013 Fort Worth, Texas 76102.5801 j December 17, 1993 The Honorable Mayor and City Council and City Manager City of Denton 215 E. McKinney Denton, Texas 7620! Dear Mayor, Council Members and City Manager: In planning and performing our audit of the general purpose financial statements of the City of Denton, Texas ("City"), for the year ended September 30, 1993, (on which we issued our report dated December 17, 1993), 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 all matters in the Internal control stntcture that might be material weaknesses tinder 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 rlsk that errors or Irregularities In amounts that would be material in relation to the general purpose financial statements being audited may occur 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 limitations In such a structure,, Is sel forth in the attached Appendix, and should be read In conjunction with this letter, We did note other matters related to the internal control structure and certain admbnislradve 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, 1993, This report Is intended solely for the use of the City Council and management a,nd 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, yo-ors truly, DoWNTouche bhtrtahw IntarnatttMal TABLE OF CONTENTS Pic CASH AND INVESTMENTS 3 CONTRIBUTED CAPITAL 9 INVENTORY PROCEDURES 3 INTERNAL AUDIT q DATA PROCESSING q APPENDIX 3 1 E` t I i, i E. i,~ won" I CASK AND INVESTMENTS Observation: Recent court interpretations have questioned the right of a governmental enlity.s security interest In pledged collateral in the event of the bankruptcy of the designated depository institution. These interpretations appear to grant significant power to the Federal Depository Insurance Corporation I (under the Financial Institutions Reform, Recovery and Enforcement Act) to disallow governmental claims that assets which are collateralized are secured claims in bankruptcy proceedings. Under these interpretations, if the governmental entity does not have a written agreement executed by the depository's id board of directors or loan committee (and reflected in the board or committee minutes) approving both the depository contract and, on an ongoing basis, pledged collateral levels, the government's funds may be at risk if bankruptcy occurs, _ 1 v Recommendation; Consult with the City's legal counsel to determine If the City's policies and depository agreement regarding the maintenance of pledged collateral are adequate to ensure. appropriate security of City assets. CON'T'RIBUTED CAPITAL i Observation: The City received significant capital contributions from developers during fiscal yenr 1993. I In order to record contributed capital, the engineering department evaluates the value of the developer contributions and forwards its report to the accountiug department. A similar evaluation was performed r a by engineering on City-funded capital projects as well. For 1993, the City-funded capital projects were E, recorded twice; once based on engineering's evaluation and once based on payment of contractor invoices. This resulted In significant overstatement of City-funded capital contributions. Recommendatlow no accounting department should establish periodic communication with the i engineering department to ensure that the methodology and responsibility for recording contributed capital Is clearly defined, INVENTORY PROCEDURES Observation: The final September 30 Inventory compilation report (11440 report) was not Updated based upon the results of the physical inventory taken at year-end, According to Information systI-ms personnel, a posting report was not prepared to record the actual counts to the inventory compilation report. A final IN40 report was not requested by the purchasing department for verlficatlon purposes, As a result, the IN40 report used by accounting personnel did not include adjustments for the physical cou.a c: inventory, Recommendation: To ensure that the inventory is properly reported, the purchasing department should verify all nvenlory reports for accuracy, In addition, the accoun0.tg department should compare the IN40 report received to a report on physical inventory counts (IN70 report) to ensure proper recording of yr,,ir.end Inventory. y t t Ij ( ~ I u INTERNAL AUDIT 1a Observation; The Cliy's internal audit work plan and (}te results of the audits performed were reviewed in the course of assessing the effectiveness of the internal audit position. 1 -4 The City is commended for the development and use of the internal audit position in accomplishing key I projects which included: 1) audit of hotel occupancy tax collec(ions; Z) audit of hotel occupancy tax recipients; and 3) fire department overtime resources analysis, ' Recommendation; Internal auditor should continue to focus on projects which can provide the City with cost savings through direct financial recovery or savings for the City as well as identifying savings through improved workflow and reduced manpower, Continue identification of areas for financial and j operational review that will result in additional savings to the City in the future or will provide essential j t safeguards and control of City assets. ` DATA PROCESSING Observation: The City has several mainframe applications which could be more fully utillzed, 'these Include: fleet mangement, human resources and inventory software, f Recommendation: Investigate the potential uses of current systems to reduce paper flow and increase f efflclency Once opportunhles are Identified, City employees should be trained to effectively use the software. I i a 4 i r APPENDIX MANAGEMENT'S RESPONSIBILITY FOR, AND THI+; OBJECTIVES AND MUTATIONS OF, THE INTERNAL CONTROL STRUCTURE The following comments concerning management's responsibility for the brternal control structure and the objectives of, and the inherent limitations in, the internal control structure are adapted from the Statements on Auditing Staudards of the American Institute of Certified Public Accountants. M"anagement's Responsibility lb vagement is responslble for establishing and mefntalning an Internal control structurc. In fuifiliing this j resp;msibill ly, eslimaler and Judgments by managewent are required to assess the expected benefits and rehuod costs of inlern:.1l control structure policies and pro: edures, Objectives The objectives ol'an Internal control structure are to provide niwiagement with reasonable, but not 4b Mute, assurance that atisels tire safeguarded against loss from unauthorized mm or disposition, and that transactions am executed in occordance with management's authorization and recorded properly to permit the preparadosr of financlal statements in accordance with generally accepted accounting principles, Limitations 13eeause of inherent limilali ins In any Internal coutrnl strum -ire, errors or irregularities nevertheless may occur anti not be detected. Also, prajcctfon of any evaluation of the structure to future periods is subject to the risk that procedures nrly bo4ome inadequate because of changas In conditions or that !ire effectiveness of the design acid oporation of policiesi and procedures way deteriorate. J J t` y AND O F Fi LE