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1993City of Bangor, Maine MANAGEMENT LETTER Year ended June 30, 1993 Certified Public Accountants City of Bangor, Maine MANAGEMENT LETTER Year ended June 30, 1993 BRANTNER THIBODEAU & ASSOCIATES Certified Public Accountants CONTENTS Independent auditor's letter Reportable conditions considered to be material weaknesses Other reportable conditions Other recommendations BRANTNER THIBODEAU & ASSOCIATES Certified Public Accountants Page 3-4 6 7-9 BRANTNER THIBODEAU & ASSOCIATES Certified Public Accountants Key Plaza • 23 Water Street Post Office Box 864 Bangor, ME 04402-0864 (207) 947-3325 March 4, 1994 To Honorable Mayor and City Council City of Bangor, Maine In planning and performing our audit of the financial statements of the City of Bangor, Maine for the year ended June 30, 1993, we considered its internal control structure 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 structure. However, we noted certain matters involving the internal control structure and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that, in our judgment, could adversely affect the City's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. Those matters that we consider to be reportable conditions are described on the following pages. A material weakness is a reportable condition in which the design or operation of one or more of the internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities 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 structure would not necessarily disclose all matters in the internal control structure that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses as defined above. However, we noted reportable conditions that we believe to be material weaknesses which are identified in the following pages. In addition to the above, we became aware of several matters that are opportunities for strengthening internal controls and operating efficiency. Our comments and suggestions regarding those matters are as described in the following pages. 3 To Honorable Mayor and City Council March 4, 1994 Generally, we found the City's' accounting records to be improved and we received excellent cooperation from the Finance Department and other staff. We would be pleased to discuss the above matters at your convenience, to perform any additional study, or to assist you in implementing the recommendations. This report is intended solely for the information and use of the finance committee, City Council, management and the federal cognizant agency. Yours truly, BRANTNER, THIBODEAU & ASSOCIATES Gerald E. Thibodeau, CPA 4 BRANTNER THIBODEAU & ASSOCIATES Certified Public Accountants REPORTABLE CONDITIONS CONSIDERED TO BE MATERIAL WEAKNESSES Bass Park - State Fair and Harness Racine We noted that the supporting documentation for the 1992 State Fair gate receipts and the 1992 Harness Racing Meets' admissions, program sales and concessions had been discarded or could not be located. As a result, it was not possible to verify the completeness of these deposits. We recommend that the City review its procedures for controlling the cash receipts at the State Fair and during Harness Racing Meets, and that documentation supporting such receipts be retained. Auditee Response: The City has since implemented record retention procedures for the 1993 Harness Racing Meets' admissions, program sales and concessions revenue. The City also implemented record retention procedures for the 1993 State Fair. 5 BRANTNER THIBODEAU & ASSOCIATES Certified Public Accountants OTHER REPORTABLE CONDITIONS Accounts Receivable During our audit, we noted that the general fund accounts receivable is not being reconciled timely between the general ledger and the subsidiary ledger. As a result, discrepancies between the general ledger and the subsidiary ledger apparently caused by timing differences are not corrected on a timely basis. We recommend that reconciliations be done monthly for all accounts receivable and that discrepancies be identified and resolved on a timely basis. Auditee Response: Accounts receivable reconciliations are being performed during fiscal year 94. It is anticipated that with the acquisition of new hardware and software, reconciliations will be easier to accomplish. The largest user of the accounts receivable program is the Airport, which has reconciled it's balances monthly for two years. Taxes Receivable At June 30, 1993, we noted that differences still exist between the subsidiary ledger (master file) and the general ledger in amounts ranging from $100 to $23,000. All real property, personal property, and tax lien receivables should be reconciled between the general ledger and the master file on a monthly basis. We recommend that reconciliations be performed on a monthly basis and discrepancies be identified and resolved. Auditee Response: Taxes receivable reconciliations are being performed during fiscal year 94. It is anticipated that with the acquisition of new hardware and software, reconciliations will be easier to accomplish. Sewer Liens The City has not currently liened its delinquent sewer bills. As a result, when a property with sewer bill delinquencies is sold, the City must attempt to seek collection in the capacity of an unsecured creditor. We recommend 'that the City implement lien procedures so that the City will receive delinquent sewer bill payments whenever a property is sold. Auditee Response: During fiscal year 1994, the City will be implementing a manual sewer lien process on those outstanding sewer bills covered by the statute of limitations. The City is also currently proceeding with the acquisition of necessary computer equipment and services for a joint utility billing program with the Bangor Water District. 6 BRANTNER THIBODEAU & ASSOCIATES Certified Public Accountants OTHER RECOMMENDATIONS Excise Taxes Receipts During our audit, we noted that the City fell behind in filing the excise tax receipts (the green copies and voids) - making it difficult to control and test the accountability of the excise tax receipts. We recommend that procedures be implemented for the systematic filing of excise tax receipts before the data is misplaced. In fiscal year 1994, the City implemented a specialized excise tax receipting computer program/system which should improve control over excise tax receipting. School Department - EFM-45 Revortin We noted that the EEM -45 Form which the School Department filed with the State did not reconcile with the general ledger. Also, the report omits capital projects activity which should be disclosed. We recommend that the School Department file an amended EFM-45 to properly report current year activity which reconciles to the general ledger. Auditee Response: The School Department will file an amended EFM 45 for fiscal year 1993. Special Revenue When loan payments are received, cash is debited, revenue is credited, and the subsidiary loan detail is credited. An additional entry should have been made simultaneously on the general ledger to adjust the loan receivable account and the deferred revenue account for the principal payment received. We recommend that the City post the general ledger entry for the principal payments at least on a monthly basis and perform simultaneous reconciliations of subsidiary loan receivable detail to the general ledger loan account balance. It is our understanding that the City has taken steps in fiscal year 1994 to implement the above. Sewer Fund At June -30, 1993, the City maintained a reserve for uncollectible sewer bills of $20,000. At that time, sewer bills that had been delinquent for more than one year exceeded $378,000. We recommend that the reserve be reviewed to determine if it accurately reflects the amount of sewer receivables which are unlikely to be collected. Auditee Response: With the advent of the sewer lien process, the reserve will be adjusted as needed to reflect uncollectible amounts. 7 BRANTNER THIBODEAU & ASSOCIATES Certified Public Accountants OTHER RECOMMENDATIONS (CONTINUED) Kirstein Student Loan Fund The City has loans totaling $21,620 at June 30, 1993 for which payments are past due. We recommend that the City implement procedures to review the outstanding loans on a regular basis to ensure compliance with the terms of student loan funds. The City has since entered into an agreement to have an independent company manage these funds - which includes collections. Aeencv Funds During our audit, we noted that certain accounts in the Agency Fund should be reported in the fund originating the transaction. We recommend that the City review all agency accounts to determine whether they should be reported in the Trust and Agency Fund or the fund originating the transaction. Auditee Response: Agency Funds - As part of the implementation of the new hardware and software all accounts are being analyzed to determine where the accounts should be reported. Fixed Assets A fixed asset survey has been performed on the City assets during fiscal year 1994, and the City is awaiting a final fixed asset inventory listing. This listing, however, only covers City assets and not the School's. We recommend that the School conduct an inventory of its fixed assets so that a complete record will exist. Grants. Contracts, Single Audit Act No one individual in City government monitors contracts and federal and state grants. There is no master listing of contracts and grants authorized, outstanding or applied for. Also, the City should provide their program directors with a copy of the Office of Management and Budget "Compliance Supplement for Single Audits of State and Local Governments". The lack of oversight enhances the possibility that grants and contracts might be mismanaged or that compliance requirements may not be met. We recommend that the City designate one individual to monitor all federal and state contracts and grants to ensure overall compliance. We understand that duties in the Finance Department are being realigned to allow one staff member to serve as contract compliance officer. H. BRANTNER THIBODEAU & ASSOCIATES Certified Public Accountants OTHER RECOMMENDATIONS (CONTINUED) Truncation During our audit, we noted a truncation problem on the encumbrance report (ENC050). We recommend that the City review all computer programs to determine which ones have incompatible field sizes and to make necessary programming adjustments. The City is currently in the process of replacing its financial and administrative software, which should eliminate this problem in the future. School Trust and Agency Deficit Fund Balances Certain school trust and agency fund balances have deficit balances of $109,178 at June 30, 1993. These funds represent programs that are supposed to be self-supporting. We recommend that the school department monitor these accounts to prevent future overspending of these funds and develop a plan to fund the existing deficit balances. Auditee Response: Approximately $80,000 of the deficit was a result of a timing difference between when the funds were expended and the receipt of the funding. The School Department will develop a plan to fund any remaining fund deficits. Workers Compensation Liability Consistent use of allocation methods from one accounting period to another enhances the use of financial statements to users by facilitating analysis and understanding of comparative accounting data. During our audit, we noted that the City changed its method of calculating the allocation of workers compensation liability among the funds. We recommend the City in the future consider how changes in allocation methods and other accounting estimates may affect the financial statements and ensure that such changes do not distort comparative financial statements. Auditee Response: Workers Compensation Liability - The City will maintain the current methodology, which is to book the actuarial gain or loss to the general fund liability rather than apportion the liability to other funds. The general fund has the largest expense and experience. Since much of the actuarial gain or loss is due to IBNR (Incurred But Not Reported), rather than estimated costs per claim retaining that expense within the general fund will not distort the enterprise funds, which are financial sensitive to IBNR changes. 9 BRANTNER THIBODEAU & ASSOCIATES Certified Public Accountants