2001CITY OF BANGOR, MAINE
Letter of Recommendations to Management
June 30, 2001
CERTIFIED PUBLIC ACCOUNTANTS
AND BUSINESS CONSULTANTS
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October 19, 2001
To the Bangor City Council
City of Bangor, Maine
Certified Public Accountants and Business Consultants
In planning and performing our audit of the financial statements of the City of Bangor for the year ended
June 30, 2001, we considered its internal control 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. However, we noted certain matters involving the internal control 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 that, in our judgment, 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. We have noted one reportable
condition below.
Our consideration of the internal control structure would not necessarily disclose 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 of one
or more of the internal control components does not reduce to a relatively low level the risk that errors or
irregularities in amounts that would be material 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. We noted no matters involving the internal control over financial reporting and its operation.
that we consider to be a material weakness.
In addition to the reportable condition noted, we have noted other matters that we feel warrant
management's attention. These comments have been reported under the heading "Other Comments"
below.
REPORTABLE CONDITION
(Non -material Weakness)
Sewer System Controls
Controls at the sewer utility are potentially weakened 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 district; 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 software, which is incompatible with the City's general accounting software, is also employed
Bangor City Council
October 19, 2001
Page 2
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's 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's 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 government 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.
OTHER COMMENTS
Enterprise Fund Deficits
The Bass Park Fund has incurred losses for the past several years. Recently, this fund has received
additional subsidy from the City's annual budget. Even with this additional funding, the Park has
continued to experience shortfalls. At June 30, 2001, the Bass Park fund deficit was $1,428,070. This
past year the expenditures exceeded the revenues. We understand that the City continues to review this
fund closely to identify any possible changes that could potentially reduce costs or increase revenues.
Our recommendation is that the City persist in these efforts.
MDOT Reports
Per review of the reports for the Maine Department of Transportation operating and capital grants, the
information on the reports did not agree with the financial records of the City for Vease, Orono, and Old
Town. This was due to the transfer to reserves being deducted for the entire year, when it is usually done
monthly. This resulted in requesting less federal funds than the City was entitled to in the early months.
All reimbursements for the other communities were calculated at the correct percentages, per the grant
agreement. We recommend these transfers be done monthly to ensure the accuracy of drawdown
requests.
Monitor Rescue Accounts Receivable and Review the Collection Policv
In the past year, the amount of the rescue accounts receivables in the 90 day and over category has
increased. Management should continue to monitor the rescue accounts receivables on a timely basis. In
addition, we recommend that the City review its collection policy to determine whether additional steps
could be taken to aid in collection of accounts. We believe that once a receivable is over 90 days old, it
becomes increasingly difficult to collect. Uncollected accounts result in a direct decrease in net income.
Bangor City Council
October 19, 2001
Page 3
Ambulance Receipting
While performing internal control write-ups, we noted that the City is not maintaining paper backup for
ambulance receivables. As run sheets are received from the drivers / EMTs, information is entered and
bills are sent out every ten days. No physical copies of bills are maintained nor is any form of
receivables listing printed. The information is recorded in the computer system which is backed up
every day. If the computer systems were to become inoperable for any reason between one of these
backup periods, accounting information may be lost without recourse. We recommend that, at the very
least, a receivables listing be printed after each batch of bills has been entered and that the listing be
maintained for a period of six months.
Information System Issues
It was noted during the audit, that .several employees, who had been previously terminated, still had .
access privileges to network programs. We recommend that the Information System Department be
notified in a timely manner of the termination of employees, so that access privileges can be eliminated
for those employees.
It was also noted during the audit, that Information system employees have access to sensitive areas,
such as payroll functions and fund accounting. We recommend eliminating access to these areas, as they
represent the potential for undue risk relating to fraud or other irregularities.
Segregation of Duties
Treasurer's Office
In the Treasurer's Office, mail receipts are opened and processed in certain circumstances by the same
individual. Ideal segregation of duties provides for separation of functions by different individuals and,
therefore, would have mail receipts opened by an employee different from the person processing the
receipt. This practice provides for verification of receipts processed and prevents receipts from being
diverted for unauthorized purposes.
We recommend that the City consider establishing a system requiring that a,person different from the
employee opening the mail process all mail receipts.
Sewer Fund
Because there are only four individuals at the sewer fund who perform accounting related functions,
ideal segregation of duties is impractical. Because of this, we believe that the City should consider
expanding the responsibilities of the internal audit functions to provide for a periodic review of sewer .
fund operations.
Bangor City Council
October 19, 2001
Page 4
School Department
In the School Department, mail receipts are opened and processed by the same individual. Ideal
segregation of duties provides for separation of functions by different individuals and, therefore, would
have mail receipts opened by an employee different from the person processing the receipt. In addition,
the individual who opens the mail keeps no cash receipt log. The cash receipts log should detail the
amount of each check, the date received, and a description of what the amount is for. Periodically,. the
cash receipts log should be reconciled,with what has been recorded.
New Governmental Reporting Model
The Governmental Accounting Standards Board (GASB), which is the standard setting body for
governmental accounting, has recently issued GASB Statement No. 34, which establishes new financial
reporting standards for state and local governments. Statement 34 is one of the most comprehensive .
financial reporting standards in the history of standards setting and by far the biggest change ever in
governmental financial reporting. Some of the more significant requirements of Statement 34 are that
governments must record and depreciate their fixed assets rather than simply account for them in an
account group. Governments must also begin recording "infrastructure assets" which includes roads,
bridges, dams, and other infrastructure. Additionally, there are significant changes in the presentation of
your financial statements. The GASB believes that these changes will result in greater accountability by
governments by providing more useful information to a wider range of users. Although the City of
Bangor will not be required to implement Statement 34 until the year ended June 30, 2003, there is much
work to be accomplished before the implementation date. A significant amount of time by your finance
personnel and others and possibly other resources will be required to accomplish all that must be done to
implement Statement 34. Our firm has begun the process of presenting seminars and providing other
information to assist in this effort and. will continue to do so. We feel that it is also important to inform the
elected officials about the requirements of the new reporting model and alert you about the significance of
these changes: We recommend the City establish a formal.implementation plan which would include a
list of steps to implement, assign responsibility for the tasks involved, and establish a timetable to ensure
completion by your required implementation date.
Acquire a Fixed Assets Tracking System
Instead of an integrated accounting system that includes. a fixed asset accounting module, the City's
fixed assets are maintained on an Excel spreadsheet. Depreciation for enterprise funds is calculated
using formulas, which must be created when a new asset has been acquired. We recommend that the
City consider acquiring a fixed asset system to account for and monitor its physical assets and related
depreciation. This system will also be needed in FY 2003, when the City is required to implement
GASB Statement No..34.
Additionally, we recommend that formal controls be adopted to ensure that all disposals of fixed assets
are reported to the accounting department so that the accounting records can be properly updated.
Bangor City Council
October 19, 2001
Page 5
Related Entitv Tax Returns
The City of Bangor has been associated with various economic development entities, such as Banair
Corp. and Bangor Area Development Corp. We have not previously ascertained whether income tax
returns have been filed and have not inquired of City officials regarding this subject. To avoid penalties,
we recommend that City officials look into the tax filing responsibilities of these entities.
Establish Effective Controls to Ensure Customer Confidence in E -Commerce
Through discussions with the City's management and information technology personnel, it has become
evident that the City intends to expand its e-commerce capabilities. We recommend that as part of this
expansion, the City ensure customer confidence in e-commerce by establishing effective controls to
provide reasonable assurance that customers' transactions using e-commerce are completed and billed as
agreed. These Internet controls should include the following procedures:
• Each transaction should be checked for accuracy and completeness, and an .
acknowledgement should be received from the customer before the transaction is processed.
• The terms, billing elements, and, if applicable, electronic settlement should be displayed.
• The City should monitor its transaction history to ensure that controls remain effective and
that reports of noncompliance are promptly addressed and corrective measures taken.
This report is intended solely for the use of the City Council and management and is not intended to be
and should not be used by anyone other than these specified parties.
We wish to express our appreciation for the cooperation and assistance we received from the officials
and employees of the City during the course of our audit and to advise you that we are available to
provide any assistance required to implement the above suggestions.
Very truly yours,
SOUTH PORTLAND AUGUSTA WATERVILLE
20 Long Creek Drive 189 Water Street 30 Elm Street
South Portland ME 04106 Augusta ME 04330 Waterville ME 04901
Tel. 207-773-2986 Tel. 207-623-8401 Tel. 207-877-9397
Fax 207-772-3361 Fax 207-623-8404 Fax 207-877-9398