Lower Macungie Township Financial Statement Presentation

1
Lower Macungie Township Financial Statement
Presentation

• Managements Response
• to the 2008 Audit Findings Recommendations

2
Lower Macungie Township

• A thousand-mile journey begins with the first
  step and can only be taken one step at a time.

3
Lower Macungie Township Review of Audit
Recommendations

• Where were we?
• Assess where we were in order to understand how
  far we have come.
• Where are we?
• Understand where we are so that a sound plan can
  be made for the future.
• Where do we want to go?
• Plan for the future incorporating best
  practices along the way.

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Lower Macungie Township

• Where were we?
• Assessing where we were in order to understand
  how far we have come.
• Review Implemented Changes Resulting from the
  2007 Audit Findings
• Significant Deficiencies and Immaterial Weaknesses

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Changes Implemented as a Result of the 2007
Audit Findings

• Significant Deficiencies Resolved
• There is a review and approval of changes made to
  the master accounts payable vendor file by
  someone other than the accounts payable clerk who
  is making those changes.
• Monthly financial reports reflecting actual and
  budget results in each fund are prepared and
  distributed to the Board of Commissioners.
• There is segregation of duties within functions
  of the utility billing cycle. Any adjustments to
  customer accounts are reviewed by management.

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Changes Implemented as a Result of the 2007
Audit Findings

• Immaterial Weaknesses Resolved
• All adjusting journal entries are reviewed and
  approved by appropriate personnel.
• Delinquent notices for utility bills have been
  sent and the Township is working with the
  solicitor on filing property liens.
• The general ledger code is noted on all invoices
  and purchase orders. Proper classification
  ensures that the correct general ledger account
  is chosen when paying Township bills.

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2007 Immaterial Audit Findings Resolved

• Immaterial Weaknesses Resolved (Continued)
• The Township has budget monitoring procedures in
  place to track expenditures before they exceed
  appropriations and budget amendments or
  resolutions are requested when necessary.
• Developers Escrow activity is no longer only
  recorded at year-end, but is recorded on a
  monthly basis.

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Changes Implemented as a Result of the 2007
Audit Findings

• Immaterial Weaknesses Resolved (Continued)
• Employees are required to enter a unique password
  when logging on to their PC each day and those
  passwords must be changed every 90 days.
• Workstations are automatically password protected
  after a set period of 15 minutes of inactivity.
• Physical security to prevent IT System intrusion
  has been increased. To provide greater physical
  security of the servers, a separate server area
  has been constructed and access is limited to
  necessary personnel.

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Lower Macungie Township

• Where are we?
• Understanding where we are so that a sound plan
  can be made for the future.
• Review 2008 Audit Findings and how the Township
  has addressed these findings
• Significant Deficiencies, Immaterial Weaknesses,
  and Constructive Suggestions

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2008 Audit Findings Significant Deficiency

• Finding Financial Statement Preparation
  Reinsel prepared the township wide financial
  statements and related adjustments. Internal
  accounting personnel prepared the budgetary
  comparison schedules, fund financial statements,
  Management Discussion and Analysis, and the notes
  to the financial statements. However, the
  Township is responsible for the internal control
  over all of the financial reporting.
•  
• Response For the entity wide financial
  statements, most of Reinsels clients take
  advantage their software program that uses trial
  balance detail and accepts adjusting entries to
  create entity wide financial statements.
  However, in the future, internal accounting
  personnel will develop procedures to generate
  entity wide financial statements.

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2008 Audit Finding Significant Deficiency

• Finding Utility Billings There was no monthly
  reconciliation of the sewer and trash accounts
  receivable subsidiary ledgers to the general
  ledger balances.
• Response There was not adequate staffing to
  ensure that all reconciliations could be
  completed and reviewed in a timely manner.
  However, in 2009, an additional person was added
  to the financial staff and now utility billing
  reconciliations are prepared on a monthly basis.

12
2008 Audit Finding Significant Deficiency

• Finding Swimming Pool Passes Swimming pool
  passes are not reconciled to cash receipts and
  unsold passes. The reconciliation process should
  be performed monthly by the Recreation Department
  Coordinator and annually by the Director of
  Finance.
•  
• Response Swimming pool pass information is now
  being reconciled on a regular basis. Accounting
  staff met with the Recreation Coordinator as well
  as supervisory pool employees and discussed
  implementation of new procedures, which should
  facilitate proper reconciliations. The Financial
  Analyst is reviewing those reconciliations.

13
2008 Audit Finding Significant Deficiency

• Finding Bank Statement Reconciliations The
  Township bank reconciliations for various
  accounts currently include unresolved and
  unreconciled items. These items should be
  investigated and resolved on a monthly basis.
•  
• Response With the hiring of an additional
  person to the finance staff, outstanding banking
  issues are being followed-up in a timely manner.

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2008 Audit Finding Significant Deficiency

• Finding Developer Fee Fund The Township does
  not have detail for the balance recorded in
  deferred revenue prior to January 1, 2008. Both
  traffic and recreation contributions were made by
  developers to the Township in prior years and
  accounting personnel have not been able to
  identify the source of all these deposits.
•  
• Response Accounting personnel are reviewing
  developer files to trace the source of the funds
  received prior to 2008. Prior to the
  commencement of the audit, 75 of the funds were
  identified with the proper developer. Additional
  research is being performed to properly account
  for the remaining balances.

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2008 Audit FindingImmaterial Deficiency

• Finding General ledger account balances were
  misstated or had unreconciled items in the
  following areas 
•  Accrued payroll was not recorded at December 31,
  2008 and a significant audit adjustment was
  required to reasonably state the balance.
• Recommendation The Township should calculate
  accrued payroll on a monthly basis and post the
  adjustment if the amount is significant. This
  will ensure accurate financial reporting.
• Response Payroll accruals are being performed
  and posted on a monthly basis.

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2008 Audit FindingImmaterial Deficiency

• Finding Amounts due to and due from other funds
  were not properly recorded between funds and an
  audit adjustment was required.
• Recommendation The Township should address
  unreconciled items on a monthly basis.
• Response The due to/due from adjustments were
  partly attributable to the payroll accrual,
  unused Highway Aid Funds, and a reconciliation
  difference between modified accrual and full
  accrual accounting methods used by the General
  Fund and Proprietary Funds, respectively. The
  due to/due from reconciliation will be performed
  on an ongoing basis.

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2008 Audit FindingImmaterial Deficiency

• Finding The accounts payable subsidiary ledger
  did not agree to the general ledger account
  balance in various funds. The amount of the
  differences was immaterial and no audit
  adjustment was required.
• Recommendation The Township should address
  unreconciled items on a monthly basis.
• Response The differences between the accounts
  payable subsidiary ledgers and the general ledger
  result from credit balances not being properly
  reported within the accounting software. These
  credit balances are being tracked on a monthly
  basis and any necessary adjusting entries are
  posted as part of the monthly reconciliation. 

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2008 Audit FindingImmaterial Deficiency

• Finding Escrow activity is recorded in
  Quickbooks and then posted to the Fundations
  Software via a general journal entry. Recording
  activity in this manner could lead to financial
  statement misstatement. Currently, the Township
  is spending extra time in posting these
  transactions and allowing for recording errors.
•  
• Recommendation We recommend posting the escrow
  activity directly into the Fundations Software
  because it is more efficient and mitigates the
  risk of discrepancies that occur when posting the
  activity in duplicate.
•  
• Response Accounting personnel are evaluating
  the best method and timing to migrate escrow
  account activity into another accounting system.
  This will be completed during the first half of
  2010.

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2008 Audit FindingImmaterial Deficiency

• Finding Sewer Allocation Fees Completion of
  an application for Wastewater Treatment
  Allocation requires the requestor to remit two
  separate checks. One check is payable to Lehigh
  County Authority (LCA) and maintained in a file
  in the Director of Finances office until it is
  physically delivered to LCA on the 15th and 30th
  of each month.
•  
• Recommendation Payments to LCA should be
  remitted directly to LCA and not held by the
  Township. This lessens the likelihood that
  checks could be lost or stolen before being
  turned over to LCA. Additionally, a procedure
  will need to be put in place, whereby LCA
  notifies the Township upon receipt of payment and
  Township personnel must identify on which
  application payment was received.
• Response The Township currently does not accept
  LCA checks. Wastewater Treatment Allocation
  requestors must deliver their payments to Lehigh
  County Authority (LCA). LCA notifies the
  Township when they receive payment.
•  

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2008 Audit FindingImmaterial Deficiency

• Finding Wastewater Treatment Allocation
  Applications The Township uses pre-printed
  application forms that require the calculation of
  fees owed based upon the property type and
  expected usage. The current application forms do
  not include a pre-printed sequential number.
  Also, there is no process in place to reconcile
  usage application forms with cash received and
  unused or missing applications.
•  
• Recommendation The Township should revise the
  current application to include a pre-printed
  sequential number and reconcile to cash received
  on a monthly basis by the Permit Department
  Coordinator and annually by the Director of
  Finance.
•   
• Response Lehigh County Authority (LCA) provides
  the application forms and upon LCA approval, they
  are assigned a unique number. The Township
  segregates the duties between collecting payments
  and receiving LCA notifications of approval.
  Payments are reconciled on a regular basis.
  Additional collection procedures will be
  implemented when the position of cashier is
  filled.

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2008 AuditConstructive Suggestions

• Finding Audit procedures in the cash area
  disclosed that there were old outstanding checks
  on various bank reconciliations that were in
  excess of a year old. The Township does not have
  a formal defined policy for disposition of
  uncashed checks.
• Recommendation A timetable for investigating old
  outstanding checks should be established and any
  resulting adjustment should be booked, as an
  escheat liability, in a timely manner.
• Response Previously, the Township had an
  inconsistent policy of following up on
  outstanding checks in some bank accounts, but not
  others. This procedure was changed prior to the
  commencement of the audit. Pennsylvania escheat
  law requires remittance to the state after an
  item remains unclaimed for five years. None of
  the outstanding items were eligible for
  remittance to the state. However, a liability
  account has been established to record these
  unclaimed checks.

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2008 AuditConstructive Suggestions

• Finding Audit Procedures in the area of capital
  assets disclosed that the Township has not
  implemented the capital asset module of its
  accounting software. Information concerning
  historical cost and depreciation is maintained in
  a Microsoft Access Database which allows
  information to become susceptible to misstatement
  due to potential errors in calculating formulas
  that may go undetected.
• Recommendation During managements search for
  new accounting software, management should
  consider selecting software which includes a
  capital asset module integrated with the general
  ledger.
• Response During the preparation for the audit,
  it was discovered that the current accounting
  software could not accurately calculate fixed
  asset depreciation. This caused significant
  delays in ensuring that all assets were properly
  accounted for and depreciated. The Township is
  currently investigating new accounting software
  that includes a capital asset module. Use of
  this new software should occur during the first
  half of 2010.

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Lower Macungie Township

• Where do we want to go?
• Planning for the future and incorporating best
  practices along the way.
• Complete the evaluation of new accounting
  software
• Evaluate and create written policies and
  procedures

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Future Accounting Software

• We currently use Fundations Accounting Software
• We have had continuous problems receiving
  adequate software support and accounting reports
  generated using this software have raised
  questions about data integrity.
• We are in the process of evaluating other
  software products.
• Implementation of new software should occur in
  2010.

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Formalized Written Policies and Procedures

• The Township has started the process of updating
  and formalizing written policies and procedures.
• On a monthly basis, written policies and
  procedures are being developed and submitted to
  the Township Manager for review. Upon his
  approval, the updated, written format will be
  added to the procedural manual.

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Formalized Written Policies and Procedures

• Examples
• In the month of September, we have created new
  forms and and are finalizing written procedures
  for submitting travel expense reports, payroll
  changes, medical opt-out authorizations, and
  enrollment of members on boards and commissions
  into direct deposit.
• In the month of October, we will be creating new
  forms and written procedures for a new hires
  checklist, cashier procedures for handling
  wastewater allocations, and recording and
  remittance procedures for handling unclaimed
  property.

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Lower Macungie Township

• Questions
• Answers