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1997 � RUNYON ,/'�~ KERSTEEN � OUELLETTE � . CITY OF BANGOR, MAINE Reports Required by Government Auditing Standards and OMB Circular A-133 June 30, 1997 Certified Public Accountants . � CITY OF BANGOR, MAINE Reports Required by Government Auditing Standards and OMB Circular A-133 June 30, 1997 R- eUort Pa�e Report on Compliance and on Internal Control over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 1-2 Report on Compliance with Requirements Applicable to Each Major Program and Internal Control Over Compliance in Accordance with OMB Circular A-133 3-4 Schedule of Expenditures of Federal Awards 5-6 Notes to Schedule of Expenditures of Federal Awards 7 Schedule of Findings and Questioned Costs: Section I - Summary of Auditor's Results 8 Section II -Findings Required to be Reported Under Government Auditing Standards 9-10 Section III -Findings and Questioned Costs for Federal Awards 11 Statement of Assurance and Determination Under 20-A MSRA, §6051 12 RUNYON KERSTEEN OUELLETTE REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED Certified IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS Public Accountants City Council City of Bangor, Maine Glenn S.Kersteen Carl N.Ouellette �le have audited the general purpose financial statements of the City of Bangor as of and for the John j.Sullivan year ended June 30, 1997, and have issued our report thereon dated November 21, 1997. We Kathleen B.Tyson �nducted our audit in accordance with generally accepted auditing standards and the standards Alice M.Harris applicable to financial audits contained in Government Auditing Standards,issued by the Comptroller General of the United States. Alexander M.Runyon ofcar.�er Compliance As part of obtaining reasonable assurance about whether the City of Bangor's financial statements aze free of material misstatement,we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However,providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reportin� In planning and performing our audit, we considered the City's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. However,we noted certain matters involving the internal control over financial reporting and its operation that we consider to be reportable conditions. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgnent, could adversely affect the City of Bangor's ability to record,process, summarize and report financial data consistent with the assertions of management in the financial statements. Reportable conditions are described in the accompanying Schedule of Findings and Questioned Costs as items#1997-1 through#1997-3. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the 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. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, of the reportable conditions described above we consider item#1997-1 to be a material wealrness. 20 Long Creek Drive South Portland,ME 04106 207-773-298G or 1-800-48G-1784 1 FAX 207-7723361 or 1-800-486-1785 http://vvww rko-cpas.com REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS,CONTINUED This report is intended for the information of the City Council, School Board,management and federal awarding agencies and pass-through entities. However,this report is a matter of public record and its distribution is not limited. ��?�,�,c.�`��,�4.�.s�-+.�. November 21, 1997 South Portland, Maine I 2 RUNYON �� KERSTEEN OUELLETTE �pORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN Certified ACCORDANCE WITH OMB CIRCULAR A-133 Public Accountants City Council City of Bangor, Maine Glenn S.Kersteen Carl N.Ouellette Compliance ,]ohn J.Sullivan we have audited the compliance of the City of Bangor with the types of compliance requirements Kathleen B.Tyson described in the U. S. Office of Management and Budget(OMB) Circular A-133 Compliance Alice M.Harris Supplement that are applicable to each of its major federal programs for the year ended June 30, 1997. The City of Bangor's major federal programs are identified in the summary of auditor's Alexander M.Runyon results section of the accompanying schedule of findings and questioned costs. Compliance with the of�u,�e� requirements of laws, regulations,contracts and grants applicable to each of its major federal programs is the responsibility of the City of Bangor's management. Our responsibility is#o express an opinion on the City of Bangor's compliance based on our audit. We conducted our audit of compliance in accordance with generally accepted auditing standards; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City of Bangor's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City of Bangor's compliance with those requirements. In our opinion the City of Bangor complied, in all material respects,with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 1997. Internal Control Over Compliance The management of the City of Bangor is responsible for establishing and maintaining effective intemal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit,we considered the City's internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. 20 Long Creek Drive South Portland,ME 04106 207-773-2986 or i-800-486-1784 3 FAX 207-77233G1 or 1-800-48G-1785 ht tp://w w w rko-cpas.com REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133, CONTINUED We noted a matter involving the internal control over compliance and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over compliance that, in our judgment, could adversely affect the City's ability to administer a major federal program in accordance with applicable requirements of laws, regulations, contracts and grants. The reportable condition is described in the accompanying schedule of findings as item#1997-1A. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that noncompliance with applicable requirements of laws, regulations, contracts and grants that would be material in relation to a major federal program being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over compliance would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we consider the reportable condition described above to be a material weakness in relation to a major federal program. Schedule of Expenditures of Federal Awards We have audited the general purpose financial statements of the City of Bangor as of and for the year ended June 30, 1997, and have issued our report thereon dated November 21, 1997. Our audit was performed for the purpose of forming an opinion on the financial statements taken as a whole. T'he accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the general purpose financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the general purpose financial statements taken as a whole. This report is intended for the information of the City Council, School Board, management and federal awarding agencies and pass-through entities. However,this report is a matter of public record and its distribution is not limited. ���..- a�-� November 21, 1997 South Portland, Maine 4 CITY OF BANGOR,MAINE Schedu�e of Expenditures of Federal Awards For year endcd June 30,1997 Pass- Federel through/ CFDA Award granlor Beginning Revenue Ending Federal Awards number amount number balance Federal State Other E:penditures balance Received Directiv Department of Energy,Ins6tu6ona!Conservauon Program 81.XXX $ NJA (1,738) - - 15 024 (16 762) Department of Housing and Urban Development: Community Development B1ock Grants: B-93-MC-23-0004 14.218 1,144,000 N/A 70 - - - 70 - B-94-MC-23-0004 14.218 1,393,074 N/A 55,052 - - - 55,052 - B-95-MC-23-0004 14.218 1,345,000 N/A (209,007) 662,414 - - 453,407 - B-96-MC-23-0004 14.218 1,312,000 N/A 153,896 1,034,795 - 343,605 1,580,775 (48,479) Shelter Plus Caze: ME 06C93-1135 TRA 14.238 740,160 N/A - 163,607 - - 163,607 - ME 06C93-1135 PRA 14.238 558,000 N/A 31 279 - - 31,279 Total Departtnent of Housing and Urban Development 11 1,892,095 - 343 605 2 284 190 (48 479) Department of Justice: Local Law Enforcement Block Grant 16.592 44,826 N/A - 44,826 - 5 307 11,984 38,149 Department of TransportaGon: Airport Improvement Plan: 3-23-0005-18 20.106 844,452 N/A - 175,975 9,776 12,777 198,528 - 3-23-0005-20 20.106 1,440,000 N/A - 40,836 2,269 398,105 441,210 - 3-23-0005-21 20.106 1,270,724 N/A - 1,084,502 60,250 60,250 1,205,002 - 3-23-0005-22 20.106 2,260,800 N/A - 137,305 7,628 7,628 152,561 - Passenger Faciliry Chazges N/A - N/A 594,548 490 OSO - 124 O58 113 976 1 094 710 Total Department of Transportation 594,548 1,928,698 79 923 602 818 2 111 277 1 094 710 Yass Throueh Department of Agxiculture,passed lhrough Maine DepaAment of Human Services: Women,Infant and Children-Admin: WIC 02-96 10.557 383,421 N/A - 103,280 - - 103,348 (68) WIC 02-97 10.557 408,702 N/A - 269,305 - - 269,305 - Women,Infant and Children-Food: _ WIC 02-96 10.557 1,920,744 N/A - 534,037 - - 534,037 - WIC 02-97 10.557 1,967,616 N/A - 1,303,235 - - 1,303,235 - Passed through Maine DepaKment of Educa6on: _ Food Distribution-Food Donation Program 10.550 - 013-6134-OS 14,104 41,633 - - 46,342 9,395 School Breakfast Progam 10.553 - 013-7127-OS - 36,140 - - 36,140 - School Lunch Program 10.555 - 013-7128-OS - 351,008 17,584 - 368,592 - Summer Food Pro�am 10.559 - 013-7130-OS 20 380 20 380 - Total Department of A�culture 14 104 2 659 O18 17 584 2 681 379 9 327 5 CITY OF BANGOR,MAINE Schedule af Expenditures of Federal Awards For year ended June 30,1997 Pass- Federal through/ CFDA Award grantor Beginning Revenue Ending Federal Awards number amount number balance Federal State Other Expenditures balance Pass Throueh,Continued Environmental Protection Agency,passed ihrough the State Revolving Loan Fund Program Combined Sewer Overflow 66.458 S N/A 232 709 304 465 537 174 Department of Health&Human Servicea,passed tivough Bureau of Health: Lead Poisoning and Prevention 93.197 32,000 BH 95-55 - 32,000 - - 28,954 3,046 Bangor Children's Dental Clinic 13.994 32,000 DH 94-78 - 16,000 - 142,036 ]58,036 - STD/HIV Clwcal and Epidemiologic Services 13.977 , 48,450 BH 96-OS - 48,450 - 8,123 62,911 (6,338) STD/HIV Clinical and Epidemiologic Services 13.977 106,900 BH 96-36 , - 53,450 - 6,544 63,280 (3,286) Fie►d Representauve 13.268 50,000 BH 96-25 - 25,000 - - 30,278 (5,278) Immunization Program Nursing 13.268 68,970 IIH 96-23 - 34,485 - 8,000 36,505 5,980 Heallh Education Outreach 13.268 61,535 BH 95-33 14,003 24,759 - - 34,053 4,709 Immunizalion Program Nursing 13.268 81,470 BH 95-34 9,816 46,485 - (8,000) 42,951 5,850 Department of Health&Human Services,passed through the Maine Department of Education: HIV/A[DS Prevention Ed Grant(94-95) 93.938 - 013-OSA-3169-15 1 384 - 1 384 Total DeparUnent of Health&Human Services 25 203 281 129 156 703 456 968 6 067 DeparGnent of Education,passed through the Maine Department of Educalion: Dwight D.Eisenhower Act(94-95) 84.164A - 013-OSA-4165-10 9,414 - - - 9,414 - Adult Esteem Machine(95-96) 84.255 25,193 013-OSA-1591-51 4,277 25,193 - - 16,485 12,985 Adult Homeless(95-96) 84.192 - 013-OSA-2509-17 5,862 - - - 9 5,853 Chapter UfiUe I Disadvantaged(95-96) 84.010 686,920 013-OSA-2717-13 - 686,920 - - 680,616 6,304 Chapter I/'fitle I Migrant(95-96) 84.011 48,401 013-OSA-2719-13 12,962 48,401 - - 43,244 18,I 19 Chapter?JTitle N LEA Grants(95-96) 84.298 35,280 015-OSA-1680-02 1,551 35,280 - - 33,768 3,063 Lisenhower Elementary and Secondary(95-96) 84.281 13,865 013-OSA-4167-10 18,500 13,865 - - 12,610 19,755 Special Ed Local ENitlement TiUe VA EHA(95-96) 84.027 213 245 013-OSA-2702-12 - 213 245 - - 214 324 (1 079) Total Depazunent of Education 52 566 1 022 904 - - 1 010 470 65 000 Urban Mass Transportation Assistance,passed through Maine Depactmcnt of Transportauon: Operating 20.507 153,072 ME-90-X091 - 153,072 36,490 605,542 795,104 - Capital 20.507 8,402 ME-90-X092 - 8,402 - 2,100 10,502 - Capital 20.507 2,420 ME-90-X080 - 2 420 - 608 3 028 - Total Urban Mass TranspoAation Assistance - 163 894 36 490 608 250 808 634 - Total Federal Awards $ 684,694 8,225,273 133,997 2,021,148 9,917,100 1,148,012 6 CITY OF BANGOR, MAINE Notes to Schedule of Expenditures of Federal Awards June 30, 1997 PURPOSE OF THE SCHEDULE Office of Management and Budget(OMB) Circular A-133, Audits of States, Local Govemments and Non-profit Organizations, requires a Schedule of Expenditures of Federal Awards showing total expenditures for each federal award program as identified in the Catalog of Federal Domestic Assistance(CFDA). SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity-The accompanying schedule includes all federal award programs of the City of Bangor for the fiscal year ended June 30, 1997. The reporting entity is defined in Notes to Financial Statements of the City of Bangor. B. Basis of Presentation-The information in the accompanying Schedule of Expenditures of Federal Awards is presented in accordance with OMB Circular A-133. 1. Pursuant to OMB Circular A-133, federal awards are defined as assistance provided by a federal agency, either directly or indirectly, in the form of grants, contracts, cooperative agreements, loans, loan guarantees, property, interest subsidies, insurance or direct appropriations. 2. Major and Nonmajor Programs -OMB Circular A-133 establishes the level of expenditures or expenses to be used in defining major and nonmajor federal award programs. Major programs for the City of Bangor are identified in the summary of auditor's results in the Schedule of Findings and Questioned Costs. C. Basis of Accounting -The information presented in the Schedule of Expenditures of Federal Awards is presented on the modified accrual basis of accounting,which is consistent with the reporting in the City's financial statements. 7 CITY OF BANGOR,MAINE Schedule of Findings and Questioned Costs June 30, 1997 Section I-Summary of Auditor's Results Financial Statements Type of auditor's report issued: Unqualified Internal control over financial reporting: Material weaknesses identified? yes Reportable conditions identified not considered to be a material weakness? yes Noncompliance material to financial statements noted? no Federal Awards Internal Control over major programs: Material weaknesses identified? yes Reportable conditions identified not considered to be material wealrnesses? no Type of auditor's report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section .510(a)? yes Identification of major programs: CFDA Numbers Name of Federal Pro�ram or Cluster 10.553, 10.555, 10.556 and 10.559 School Lunch Cluster 84.010 Title lA . 14.218 CDBG 20.106 Airport Im�rovement Plan 10.557 WIC 66.458 EPA Revolvinu Loan Dollar threshold used to distinguish between Type A and Type B programs: $300,000 Auditee qualified as low-risk auditee? no 8 CITY OF BANGOR, MAINE Schedule of Findings and Questioned Costs, Continued Section II - Findings Required to be Reported Under Government Auditing Standards #1997-1 - School DeQartment Accountin�System The School Department general ledger is not being utilized to its full capacity. The School's financial management is relying on spreadsheets to reconcile its general ledger information to the City's general ledger. In addition,the reconciliation is including only revenues and expenses, excluding balance sheet accounts. In doing so,the overall financial condition of the School Department is omitted. In prior years the School encountered many problems during the year that could have been identified and addressed sooner if the School had reviewed the general ledger more closely and performed various reconciliations to the general ledger on a monthly basis. These problems compounded each other making it more difficult to correct the situation. Significant adjustments were required to be made in the current year to resolve these problems. Adjustments from prior years were posted to the spreadsheets and not to the general ledger. Therefore not only did the general ledger current year activity not reconcile to the City's records, but beginning balances disagreed as well. The spreadsheets being used by the School Department are redundant to the task that the general ledger should be performing. To ensure the accuracy of recorded transactions, periodic reviews and/or reconciliation of general ledger balances must be performed. The following procedures should be performed on a monthly basis and the Director of Business Services should be charged with the responsibility of ensuring that each task is performed by the deadline established. Although we noted that monthly procedures are being performed, we suggest that a monthly check-off list be developed to assure that all necessary procedures are being performed and any problems identified are resolved in a timely manner. A monthly check-off list for stated procedures might include: • Reconciliation of accounts receivable and accounts payable subsidiary ledgers to trial balances. • Reconcile cash accounts to the City cash reconciliation for commingled cash. • Reconciliation of amounts due to-from other funds as recorded in the School general fund with amounts due to- from the school general fund in other School funds. • Deternunation of the accuracy of withholding accounts recorded on the general ledger to subsequent payroll tax returns and other reports. • Reconciliation of revenue control accounts on the general ledger to the revenue control report. . • Reconciliation of expenditure control accounts on the general ledger to the expenditure control report. � Ensure that each trial balance is in balance. • Fund balance accounts should be reviewed to ensure no entries have been posted to them during the year. Fund balance should always tie to last year's audit ending balance. • Analytical review of each revenue and each expenditure account to identify misclassifications or enors. • The trial balances should include no suspense accounts and any amounts posted to them should be reclassified to the account they belong. • Each month the School Department cash, accounts receivable, grants receivable, inventory, accounts payable, accrued expenses, fund balances, and revenue and expense accounts should be compared with those same accounts on the City's general ledger. In addition we identified some transactions that were not posted correctly or that should not have been posted at a11. Some of the entries included: 9 CITY OF BANGOR,MAINE Schedule of Findings and Questioned Costs, Continued • Encumbrances are posted as actual expenses. Encumbrances represent a designation of fund balance and have no effect on fund balance. This practice should be corrected. • An adjustment was posted to reclassify fund balance to revenue. This is an entry that could be made for budgetary purposes but should not be posted as an actual entry. • Entries were posted to a suspense account during the year and by year-end over$2,000,000 had accumulated in this account. These entries probably should have affected the cash accounts for the School but an evaluation of each entry would need to be made as to each posting to identify what account should have been affected. It is our belief that no entries should be posted to this suspense account in the future. Finally,the City commingles its cash accounts. For all other funds beside the School fiznds, a reconciliation is performed to tie those cash balances from the reconciliation to the amounts reported as cash within the fund on its general ledger. We believe that the School commingled cash accounts should be identified and taken out of the City's general fund commingled cash. This would allow the school to further test the accuracy of its balances by reconciling out to a cash account. In order for this to be accomplished the School may need to be set up with its own funds on the City financial records. #1997-2 -Extra Cash Drawer The City Treasury mainta.ins an eactra(fourth) cash drawer that is used and cashed up by several different clerks and supervisors. We understand the practical need for this cash drawer, however management should be aware that ideal controls are abrogated with this extra drawer. #1997-3 - Sewer Svstem Controls Controls at the sewer utility are potentially endangered because of the utility's relationship with the Bangor Water District, which is a separate, non-City entity. The problem arises because the water and sewer utilities share many aspects of billing and collection. Specifically, sewer bills are based upon water usage data, as provided by the water districts; water and sewer bills are mailed together; sewer payments may be made at, among other places,the water district; and the water district's billing and payment soflware, which is incompatible with the City's general accounting software, is also employed by the sewer utility. As a result, a number of problems arise. First, where payments are made at the water district, City funds remain outside the City control for the period of time between their receipt from customers and the forwarding of payment to the City. This, combined with the increased handling of the City assets introduces the potential for diversion of City property by non-City employees. Second,the flow of funds between the two utilities and their timing often results in the"float"of relatively large amounts due the City. Third,the incompatibility of systems between the sewer utility and the rest of City govemment makes timely tracking of sewer utility performance difficult. Further, it makes reconcilement increasingly important and time consuming. We recommend the City review its relationship with the water utility to correct these cash handling and accounting deficiencies. l0 CITY OF BANGOR, MAINE Schedule of Findings and Questioned Costs, Continued Section III-Findings and Questioned Costs For Federal Awards � #1997- lA All Federal Programs- See Schedule of Expenditures of Federal Awards for program names and CFDA#'s,page 5. Criteria- School Departments'general ledger is not being utilized to its full capacity and is not reconciled to the City's general ledger. Condition Found,Effects and Recommendations- Please see item#1997- 1 on page 9. Questioned Costs- None. 11 RUNYON KERSTEEN OUELLETTE Certif ied Public Accountants Glenn S.Kersteen Carl N.Ouellette John J.Sullivan Kathleen B.Tyson Alice M.Harris Statement of Assurance and Determination Under 20-A MRSA, §6051 Alexander M.Runyon OjCounsel . City CounCil City of Bangor, Maine: We have audited the financial statements of the City of Bangor including the Bangor School Department as of and for the year ended June 30, 1997, in accordance with applicable State laws relating to financial and compliance audits. In connection with the audit: . We determined that proper budgetary controls were in effect. . We reviewed the annual financial report(Form EF-M-45)submitted to the State of Maine Department of Education. Based on our review,we are not aware of any material modifications that should be made to the EF-M-45. . We determined that the School Department has complied with the applicable provisions of the Maine School Finance Act. This report is issued as a supplement to our report dated November 21, 1997 on the City of Bangor financial statements, and does not affect or modify that report. ,T'.��,�,.�-- 6��G��. November 21, 1997 South Portland,Maine 20 Long Creek Drive South Portland,ME 04106 207-773-2986 or 1-800-486-1784 �2 FAX 207-7723361 or 1-800-486-1785 http://wvvw rko-cpas.com