Brentwood's Internal Controls Reviewed as Part of Annual Audit

As part of Brentwood’s annual audit, the accounting firm, Schowalter & Jabouri presented the results of the 2012 Comprehensive Annual Financial Report at the June 24 board of alderman meeting.

The internal controls report of the city was not summarized at the meeting.

Patch made a Sunshine Law request of the city and obtained the report, which is included below. The original report is 18 pages long.

It is in three sections:

1. Deficiencies considered to be significant
2. Other current year matters
3. Status of prior year comments and recommendations

CITY OF BRENTWOOD, MISSOURI, REPORT ON INTERNAL CONTROL RELATED MATTERS AND ADVISORY COMMENTS

DECEMBER 31,2012

SCHOWALTER & JABOURI, P.C.

CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS 11878 GRAVOIS ROAD
ST. LOUIS, MISSOURI 63127
(314) 849-4999
FAX (314) 849-3486

The Honorable Mayor, Members
of the Board of Alderman and Management

City of Brentwood, Missouri

FINANCIAL SERVICES COMPUTER SOLUTIONS ADMINISTRATIVE OFFICES

11777 GRAVOIS ROAD ST. LOUIS, MISSOURI 63127 (314) 842-2929 FAX (314) 842-3483

In planning and performing our audit of the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of Brentwood, Missouri (the "City") as of and for the year ended December 31, 2012, in accordance with auditing standards generally accepted in the United States of America, we considered the City's internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we do not express an opinion on the effectiveness ofthe City's internal control.

Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and, therefore, material weaknesses or significant deficiencies may exist that were not identified. - However, as discussed below, we identified certain deficiencies in internal control that we consider to be significant deficiencies.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. We did not identify any deficiencies in internal control that we consider to be material weaknesses.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our comments concerning internal control and other significant matters are presented as follows:

1. Deficiencies Considered to be Significant

2. Other Current Year Matters

Management's written responses to the significant deficiencies and other matters identified in our audit has not been subjected to the audit procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it.

MEMBERS
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. MISSOURI SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
AICPA GOVERNMENTAL AUDIT QUALITY CENTER· AICPA EMPLOYEE BENEFIT PLAN AUDIT QUALITY CENTER
"SCHOWALTER & JABOURI, P.C. IS A MEMBER OF NEXIA INTERNATIONAL, A WORLDWIDE NETWORK OF INDEPENDENT ACCOUNTING AND CONSULTING FIRMS."

This communication is intended solely for the information and use of management, The Honorable Mayor, the Members of the Board of Alderman, and others within the organization and is not intended to be and should not be used by anyone other than these specified parties.

We will be pleased to further discuss these matters with you and want to express our sincere appreciation to the staff for the cooperation and assistance received during the audit engagement and for the opportunity to serve the City of Brentwood, Missouri.

St. Louis, Missouri June 21, 2013

Yours very truly,

BOURI, P.C.

-----------------------------------------------------------------------

I. DEFICIENCIES CONSIDERED TO BE SIGNIFICANT

A. Journal Entries

During our audit, we noted that general journal entries are not reviewed or approved by someone independent of their preparation. Requiring approval of journal entries will help ensure that entries are accurate, have reasonable explanations and are adequately supported.

We recommend that all journal entries be reviewed and approved by someone other than the preparer. A standard journal entry form may be developed to document this review and approval and to indicate that the entry has been properly posted to the City's general ledger.

City's Response - The City will initiate a review and approval process for all journal entries. 

B. Bank Reconciliations

During our audit, we noted that several of the City's bank reconciliations are not reviewed and approved by someone independent of their preparation. In addition, we noted several instances where bank reconciliations that were independently reviewed and approved, were not reviewed timely. Timely preparation and review of bank reconciliations is key to maintaining adequate control over both cash receipts and disbursements. A review of the monthly bank reconciliations will ensure that reconciling items are reasonable and that there are no unidentified differences. A review may also help detect errors or other irregularities in the City's cash accounts.

We recommend that the City develop and implement procedures that require all bank reconciliations to be reviewed and approved by someone other than the preparer. The review should include tests of mechanical accuracy and tracing of items on the reconciliation to the relevant source documents. In addition, we recommend that the reconciliations be signed and dated by the reviewer to document that the review has occurred, to indicate approval, and to ensure the review was completed timely.

City's Response - The City will initiate a review and approval process for all bank reconciliations. 

C. Risk Assessment

The opportunity to commit and conceal fraud exists where there are assets susceptible to misappropriation and inadequate controls to prevent or detect the fraud. Although management addresses risks as they arise in the normal course of everyday business, however we recommend that the City perform a risk assessment to identify, analyze, and manage the risk of asset misappropriation. Risk assessment, including fraud risk assessment, is one element of internal control. Thus, ideally, the City's internal control systems should include performance of this assessment.

The risk assessment can be informal and performed by a management-level individual who has extensive knowledge of the City. Ordinarily, the management-level individual would conduct interviews or lead group discussions with personnel who also have an extensive knowledge of the City, its environment, and its processes.

Once areas vulnerable to fraud or other risks have been identified, a review of the City's systems, procedures, and existing controls relating to the identified areas should be conducted. The City should consider the additional controls that need to be implemented to reduce the risk of fraud, considering the nature and extent of controls recommended and the cost of implementing those controls. Thisassessmentofrisksandinternalcontrolsshouldbedocumentedtoprovidethe foundation for appropriate communication concerning the City's responsibility for the evaluation and monitoring of the effective operation of controls. Once completed, risk assessments should be reviewed and updated annually or as significant changes occur.

City's Response - The City has issued a Request for Qualifications (RFQ) for Internal Control and Financial Policy Review which will address this recommendation.

D. Capital Asset Inventory

As noted in the Missouri State Auditor's report, the City has not completed an inventory of its capital assets in a number of years. A capital asset inventory should be completed to ensure that all items listed are still in use by the City and that the listing of assets is complete.

We recommend that the City perform a physical inventory of all capital assets. Taking a complete physical inventory requires extensive planning. A written plan and timetable should identify the inventory teams, departments, locations and inventory times. The teams should know about existing departmental fixed asset records and how the identification and tagging of assets should be conducted. Also, they should be aware of potential problems.

Issues to be addressed in developing the inventory plan include: who should take the initial physical inventory; how should the inventory be taken; how much and what type of training is appropriate for inventory personnel; what types of inventory tags should be used; how should asset numbers be assigned; how should the inventory be phased?

Inventories can be accomplished using in-house personnel, or by engaging professional contractors. Contracting with reliable outside contractors can mean such advantages as having the project completed within the established time frame and no interference with established priorities.

City's Response - The City will be issuing a Request for Proposal (RFP) for a new 3rd party vendor to provide capital asset accounting services including performing annual physical inventories.

E. Payroll-Related Liabilities

During our audit, we noted numerous liability accounts, the majority being payroll related liabilities, which have not been reconciled in a number of years. A benefit to timely reconciliations is that errors do not accumulate but can be identified and attributed to particular period, which makes it easier to perform reconciliations in the future.

We recommend that policies and procedures be implemented to ensure that all balance sheet accounts, including payroll-related liabilities be reconciled timely and any errors or discrepancies be followed up on in a timely manner.

City's Response - The City has been working toward completing all balance sheet account reconciliations that have been outstanding for many years. Those that require extensive research going back several years are being completed as current workload requirements allow. In addition, procedures must be developed moving forward so that the reconciliations can be maintained on a monthly basis.

F. Payroll Timesheets

During our audit, we noted that the individual responsible for processing payroll receives a pay roster from each department indicating the hours worked, including any overtime, for each employee instead of physical time cards. In addition, a supervisor or department head does not sign the pay rosters, which would indicate their review and approval that time worked was accurate.

We recommend that policies and procedures be implemented regarding the handling of employee time cards. In addition, we recommend that employee time be reviewed and approved by a supervisor or department head and the approval be documented.

City's Response - The City is implementing an electronic Time and Attendance module that will provide detailed time cards and automate and document the employee submittal and supervisor approval process.

G. Tax Increment Financing District Accounts

1. The City has numerous Tax Increment Financing (TIF) Districts. Each TIF has numerous accounts maintained by trustees. The activity of these accounts is not monitored and recorded in the general ledger until the end of the year. Not recording and reconciling the accounts on a monthly basis means that errors or other problems might not be recognized and resolved on a timely basis.

We recommend the City implement procedures to record and reconcile the various TIF activities on a monthly basis.

City's Response - The City will consider this recommendation and discuss possible alternatives to this long-standing practice. Staffing and cost issues must be considered as this is a significant increase in workload for Administration.

2. The City collects and remits Economic Activity Tax Revenues (EATS) to the trustee for each TIF. The EATS are generally allocated 50% to the City and 50% to the respective TIF unless otherwise noted in the debt documents. During our audit, we noted the capital improvement EATS is allocated 100% to the TIF Districts and the fire and storm water/parks EATS are allocated 50% to the City and 50% to the TIF Districts. However, for months when no capital improvement EATS are received, the City does not allocate any fire or storm water/parks to the TIF Districts. Although this practice is consistent with prior years, City personnel could not provide any supporting documentation to substantiate this methodology.

We recommend the City review the allocation of EATS to the respective TIF Districts and the City.

City's Response - The City has been discussing this issue with Bond Counsel as this process was developed many years ago. We are confident that there is an explanation and will continue to research the issue.

3. In December 2012, the bondholders o f the $7,675,000 City o f Brentwood, Missouri Variable Rate Demand Tax Increment Refunding Revenue Bonds, Series 2007A, received notice that the bonds were subject to mandatory tender and purchase since the Credit Facility expired. As a result, the City's TIF District has incurred significant legal fees. Although this debt is not a general obligation of the City, the debt is in the name of the City. Incurring significant legal expenses and fees reduces the monies available to pay debt interest and principal payments.

We recommend the City review the current situation and take necessary action to reduce legal costs and fees.

City's Response - All parties have been working diligently to resolve the legal issues and will continue to do so.

H. Documentation of Accounting Policies, Procedures and Internal Controls

While the City has some documentation, not all of the City's significant accounting and financial reporting processes are formally documented. Documenting a process involves identifying and gaining an understanding of the events or transactions that trigger performance of the process; the automated or manual procedures used in performing the process; the person(s) or position(s) responsible for performing the procedures; the source documents used or generated; the procedures for reviewing, approving and correcting any errors detected; and the financial or operational entries or reports summarizing the result of the process.

Procedures that may be used to gain an understanding of the workflow or flow of transactions include making inquiries of City personnel; observing them performing their duties; inspecting documents, forms, and records used in or produced in the process; tracing transactions through the system; and performing a walk-through of the procedures performed in the process.

Documentation of significant accounting and financial reporting processes, including performance of a walk-through, may reveal whether procedures are performed as prescribed, the kinds of exceptions or errors that occur, and the types of actions taken to correct errors. Thus, it is one step in assessing controls over financial reporting. Documentation of operational and accounting processes also provides an opportunity for persons involved in a process to consider whether there are inadequacies in the process or whether there are more effective, efficient, or profitable ways to perform it. In addition, the documentation can be used in reinforcing established policies and procedures, evaluating performance, or training a new employee to perform the process.

We recommend the City identify and document its significant operational and accounting processes in a formal accounting policies and procedures manual. In addition, we recommend the City develop internal control documentation to address each of the five elements of internal control (control environment, risk assessment, control activities, information and communications and monitoring) as described in the COSO (Committee of Sponsoring Organizations) internal control framework. Once this documentation is complete, those charged with governance have a responsibility to understand the controls and ensure they are operating effectively.

City's Response - The City has issued a Request for Qualifications (RFQ) for Internal Control and Financial Policy Review which will address this recommendation.

II. OTHER CURRENT YEAR MATTERS

A. Establish an Audit Committee or Expand the Role of the Ways and Means Committee

Financial reporting is a core managerial function. Accordingly, management is primarily responsible for financial reporting, including the adequacy of internal control over the financial reporting process. Similarly, it is a core responsibility of any governing body to exercise oversight of management. Therefore, the governing body is ultimately responsible for ensuring that management is, in fact, meeting its internal control and financial reporting responsibilities.

An audit committee is a practical means for a governing body to provide much needed independent review and oversight of the government's financial reporting processes, internal controls, and independent auditors. An audit committee also provides a forum separate from management in which auditors and other interested parties can candidly discuss concerns. By effectively carrying out its functions and responsibilities, an audit committee helps to ensure that management properly develops and adheres to a sound system of internal controls, that procedures are in place to objectively assess management's practices, and that the independent auditors, through their own review, objectively assess the government's financial reporting practices.

Therefore, we recommend that consideration be given to the establishment of an audit committee or expanding the role of the Ways and Means Committee to include responsibility for oversight of the financial reporting process, including the adequacy of internal control over the financial reporting process. The Government Finance Officers Association has "Best Practice" guidance for audit committees that can provide additional guidance for the committee.

City's Response - We believe that the Ways and Means Committee is qualified and does currently provide independent review and oversight o f the City's financial reporting processes, internal controls and independent auditors. This Committee meets on a monthly basis and provides an opportunity for auditors and other interested parties to discuss concerns in an open public meeting.

B. Fund Balance Policy

In February 2009, the Government Accounting Standards Board (GASB) issued Statement No. 54, "Fund Balance Reporting and Governmental Fund Type Definitions." This standard substantially alters the focus and terminology used for fund balance reporting. The new categories and terminology reflect an innovative approach that will focus not on financial resources available for appropriation, but on the extent to which the government is bound to honor constraints on the specific purposes for which amounts in the fund can be spent.

We recommend that the City adopt a comprehensive fund balance policy that addresses the following:

• The order in which the City considers restricted, committed, assigned and unassigned amounts to be spent when amounts in more than one fund balance classification are available for a particular purpose.

• The decision-making authority and formal action that is required to be taken to establish (or modify or rescind) a commitment o f fund balance.

• The bodies or persons with the authority to express intended uses of resources that result in assigned fund balance.

City's Response - The City's draft of a Comprehensive Fund Balance Policy was first provided to the Ways and Committee during the 2013 budget process in October 2012. It has now been approved by the Ways and Means Committee and will be considered for adoption by the Board of Aldermen at their next meeting on June 24, 2013.

C. Capital Asset Policy

Capital assets represent a significant investment of City resources. Currently, the City does not have a formal capital asset policy. A comprehensive capital asset policy will assist the City in managing this investment.

We recommend the City establish a comprehensive capital asset policy. Such a policy, at a minimum, should address: capitalization threshold; establishment of useful lives; periodic inventory of assets; disposal of property; information to include in detail property records; depreciation methods and when depreciation starts; repairs vs. additions; impairment consideration; and insurance coverage.

City's Response - The Capital Asset Policy is a policy that should be included in the City's formal accounting policies and procedures manual as the auditors have recommended in item IH As noted under that item, the City has issued a Request for Qualifications (RFQ) for Internal Control and Financial Policy Review, which will address this policy.

D. Cable Deposits

During our audit, we noted that there is not a detailed subsidiary ledger or a listing of customers and amounts on deposit that comprise the cable deposits held by the City. Maintaining a detailed subsidiary ledger that is reconciled to the general ledger on a timely basis is a primary means of preventing and detecting an error that would affect the City's ongoing liability for customer deposits held. In addition, unreconciled accounts provide the opportunity for misappropriation of funds and concealment of such activity.

We recommend that the City develop a comprehensive listing of deposit balances by customer. This listing should be reconciled to the general ledger periodically to ensure that all transactions have been accurately recorded. In addition, we recommend that the City establish a policy regarding forfeiture of cable deposits and implement procedures to follow-up on long- outstanding deposits.

City's Response - The City has been working toward completing all balance sheet account reconciliations that have been outstanding for many years. Those that require extensive research going back several years are being completed as current workload requirements allow. In addition, procedures must be developed moving forward so that the reconciliations can be maintained on a monthly basis.

E. Other Post-Employment Benefits

During our audit, we noted that retirees of the City that meet the retirement requirements of LAGERS and the City's Police and Fire Pension Fund are eligible to participate in the City's health, dental, and vision insurance plans. In addition, the City may provide $250 per retiree per month to assist in covering the costs of health insurance premiums. Government Accounting Standard Board Statement (GASB) No. 45, Accounting and Financial Reporting by Employers for Post employment Benefits Other Than Pensions, requires the City to disclose the actuarially determined costs of providing these benefits to employees. In addition, GASB Statements Nos. 67 and 68 will require additional reporting and footnote disclosures for other post-employment benefits plans. These two GASB Statements are effective for the years ending December 31, 2014 and December 31,2015, respectively.

We recommend that the City consider obtaining an actuarial report for its other post- employment benefits and make the necessary disclosures in its financial statements.

City's Response - The City will work with the St. Louis Area Insurance Trust (SLAIT) who provides the City's medical and prescription drug coverage as well as the City's providers of dental and vision coverage to determine how best to address the requirements of GASB Statement No. 45 as it relates to the implicit rate subsidy. As discussed, the $250 per retiree per month stipend is based on annual budget considerations and does not constitute an ongoing commitment to provide benefits to retirees of the City.

F. Differential Pay

During our audit, we noted that the City does not have a documented policy for when employees receive differential pay for shifts worked.

We recommend the City document its policies and procedures regarding differential pay and communicate these policies to all departments to ensure consistency of its application.

City's Response - The City will initiate the process of adding this policy to the Employee Handbook.

G. Police and Fire Pension Investments

During our audit, we noted that the allocation of pension investments was not consistent with the approved investment policy. We noted that cash and equivalents was 12.3% of total investments, fixed income investments was 32.9% of total investments and real assets was 0.2% of total investments. Per the investment policy, cash and equivalents should make up no more than 6.42% of total investments, fixed income investments should make up between 50% and 60% of total investments, and the policy was silent as to whether real assets was a permissible investment vehicle.

We recommend the Police and Fire Pension Board review its investments and investment policy to ensure the compliance of its investments with the goals of the plan.

City's Response - As discussed, there are times when the Police and Firefighters' Pension Fund is receiving revenue (cash) that will cause temporary fluctuations in the allocations between investment types including cash and cash equivalents. Rebalancing must occur periodically in order to maintain allocations consistent with the investment policy. We believe that our custodian reasonably satisfies this requirement. In addition, we provided information during the audit of approval by the Board o/Trustees of the plan to increase equity investments to 50% - 60% thereby reducing the fixed income investment target to 40% - 50%.

H. City Investment Policy

As noted by the prior auditors, the City's investment policy is vague and does not specifically address investment related risk. These risks include the following:

• the risk that an issuer or other counterparty to an investment will not fulfill its obligations (credit risk)

• the risk of loss attributed to the magnitude of the City's investment in a single issuer (concentration of credit risk)

• the risk that changes in interest rates will adversely affect the fair value of an investment (interest rate risk).

  We recommend the City evaluate and update its investment policy to include these risks. City's Response - As notedpreviously, the City has issued a Requestfor Qualifications (RFQ) for

Internal Control and Financial Policy Review, which will address this policy.

I. Court Bonds

During our audit, we noted that the City does not use pre-numbered bond forms and does not have a process for accounting for bail bonds issued. The City should have processes in place to track and account for all bonds to ensure that they are properly accounted for and recorded.

We recommend the City utilize pre-numbered bond forms and account for the numerical sequence o f court bonds issued and recorded by the municipal court.

City's Response - This item will be reviewed with the Municipal Court Judge to ensure that there are processes in place to properly account for bail bonds issued.

J. Review Personnel Change Report

During our audit, we noted that the individual responsible for processing payroll has the ability to change and update pay rate information in the City's system which is a segregation of duties issue. As a compensating control, we noted the Finance Director reviews the labor distribution report and documents her review. However, we also noted a personnel change report is available for review.

We recommend the Finance Director review the personnel change report in addition to the labor distribution report and document her review to ensure only authorized payroll changes are made to the system.

City's Response - The City will implement this recommendation as an added measure ofinternal control.

K. Accounts Payable Controls

During our audit, we noted that the individual responsible for processing and entering accounts payable into the general ledger has the ability to add new vendors, access to the blank check stock, access to the electronic signatures and retains the checks for mailing after they are signed. This practice makes the City susceptible to fraud, as it gives the individual the opportunity to create fictitious checks and /or alter the checks after they are signed.

As a compensating control, the check register is reviewed by both the Finance Director and the City Administrator; however, documentation of their review is not always retained. In addition, the Finance Director accounts for the numerical sequence of checks and the financial statements and budget to actual schedules are periodically reviewed; however, these compensating controls do not address the opportunity for check alteration.

We recommend that the City Administrator and/or Finance Director retain documentation of their review of the check register. We further recommend segregating the accounts payable duties of check printing and mailing. If proper segregation of duties can not be accomplished, we recommend someone independent of the accounts payable process review the cancelled checks that are returned with the monthly bank statements for any alterations. If the latter recommendation is chosen, this review should be documented.

City's Response - Documentation of the review of check registers will be retained. In addition, cancelled checks will be reviewed for any alterations and this review will be documented as an added measure of internal control.

L. Information Technology Controls

During our audit, we noted certain opportunities to strengthen controls over information technology. Specifically,we noted the following:

• A formal data retention policy does not exist.

• There is no disaster recovery plan.

• Tape back-ups are currently stored in the City Hall and not offsite.

  Since infonnation technology is an integral part of the City's every date operations, we recommend that the City evaluate the cost and benefit of implementing additional infonnation technology controls, including adopting a fonnal retention policy, preparing a disaster recovery plan and periodically testing this plan, and storing back-ups at a secure, off-site, third party location. These additional controls will help ensure the security and integrity of the City's electronic infonnation.

City's Response - The City agrees that technology is an integral part of the City's daily operations and recognizes that the City's data is a valuable asset which must be protected.

• The need for formal retention policies was identified and staff is currently developing a data retention policy which will address the appropriate legal retention periods dependent upon the type of data which is stored.
• Staff is establishing a disaster recovery plan. During this process, staff will obtain quotes and budget as necessary to ensure the proper technology systems and services are acquired and implemented in order to property protect the City's data in the event of a disaster.
• Staff is currently meeting with technology solution architects to design a City-wide backup and off-site data storage solution. Staff will subsequently purchase or budget accordingly, dependent upon the solution and available funding. In addition, staff quickly identified an opportunity to backup the financial system data to an existing disk storage system in the secured server room located within the Police Department. This solution is successfully backing up the financial system data simultaneously with the stand-alone tape backup system which was already in use at City Hall. 

M. Parks and Recreation Computer System

During our audit, it was brought to our attention that the Parks and Recreation computer system, RecTrac appears to have some flaws in its reporting. It was noted that the same report run on different computers often results in differing data.

We recommend contacting the software developer to detennine if a solution is available. If no solution is available, the City should investigate any alternative solutions to ensure the reliability of reports.

City's Response - The City contacted RecTrac about the infrequent (occurring less than five times per year) flaw in the reporting. In working with RecTrac Support it was determined that the flaw occurs when a certain setting is accidentally chosen by staff. A new procedure has been developed with RecTrac that will eliminate this flaw in the future.

N. Budget Compliance

According to RSMo 67.010, the City's budget must present a clear financial plan for the ensuing budget year and must include certain information. During our audit, we noted that the City's 2012 budget did not contain the following:

• Amount required for the payment of interest, amortization and redemption charges on the debt ofthe City

• A summary detailing the estimated beginning balances, estimated revenue, estimated expenditures, estimated transfers, and estimated ending fund balances by fund

We recommend the City review RSMo 67.010 to ensure that all required elements of the budget are included in future years.

City's Response - The 2013 budget provides budget amounts necessary for the payment o f interest, amortization and redemption charges on the debt of the City and provides a summary detailing the estimated beginning fund balances, estimated revenue, estimated expenditures, estimated transfers, and estimated ending fund balances by fund.

O. Ambulance Billing Adjustments

During our audit, we noted that the third party administrator of the City's ambulance billings provides any adjustments to customer accounts to the Finance Director for approval and no other approval is required. Secondary approval would assist the City ensuring that only the amount recommended by the third party administrator is actually written-off and no other adjustments are made.

We recommend that the Ways and Means Committee and/or Board of Aldermen be provided with a list of Ambulance Billing adjustments for their consent to ensure that the City is making every effort to collect fees.

City's Response - City staff will work with the Ways and Means Committee to implement this recommendation.

P. Deposit Receipt Reconciliation

During our audit, we noted that the Finance and Planning and Development departments utilize the same sequence of receipt numbers within the accounting software and no one reconciles the numerical sequence. Reconciling the numerical sequence ensures that all receipts are accounted for and recorded into the general ledger.

We recommend the City implement procedures to account for the numerical sequence of receipts used by the Finance and Planning and Development departments to ensure that all receipts have been properly accounted for and recorded in to the City's general ledger.

City'S Response - The City will implement procedures to account for the numerical sequence of receipts used by the Finance and Planning and Development departments.

Q. General Accounting Consideration

The Brentwood Public Library has historically been included in the City's financial statements as part of the City (primary government). However, GASB Statement No 61, The Financial Reporting Entity: Omnibus an amendment o f GASB Statements No. 14 and 34, amends the criteria for including a component unit in a financial statement. This statement is effective for the year ended December 31, 2013.

We recommend that the City re-evaluate its classification of the Brentwood Public Library based on new accounting standards to ensure compliance.

City's Response - The City will evaluate the classification o f the Brentwood Public Library to ensure compliance with GASB Statement No. 61.

III. STATUS OF PRIOR YEAR COMMENTS AND RECOMMENDATIONS

The City's financial statements for the previous year were audited by other auditors. The prior auditors noted the following comments:

A. Fund Balance Policy

In the prior year, it was noted that the City does not have a formal fund balance policy in accordance with GASB Statement No. 54.

It was recommended the City establish policies including amount of fund balance to be maintained, the order of expenditures of unrestricted resources, and define the specific steps of decision-making authority for purpose of determining, committing and assigning funds.

Status: This comment has not been implemented. See "Other Current Year Matters" for current comment.

B. Community Center Cash

In the prior year, it was noted that several instances of the same person is signed off as having counted and verified the cash on the Cash Balance Report at the Community Center.

It was recommended that two people sign off as having counted and balance the cash amounts.

Status: We noted that the City has controls in place to mitigate this risk. This comment will not be repeated.

C. Deposits

In the prior year, it was noted that the money collected for occupancy permits and business licenses are only deposited weekly or every other week.

It was recommended that money collected for permits and licenses be deposited daily along with other deposits.

Status: We noted that the City has altered its procedures to ensure that funds are deposited more frequently. This comment will not be repeated.

D. Internal Control over Wire Transfers

In the prior year, it was noted the City does not have documented internal control procedures regarding wire transfers. Certain employees have the ability to make wire transfers.

It was recommended the City document internal control procedures regarding wire transfers and that each wire transfer is approved by at least two people.

Status: During our procedures, we noted that all wire transfers are required to be approved by two individuals. This comment will not be repeated.

E. Credit Card Receipts

In the prior year, it was noted that the City does not have documented internal control procedures regarding documentation of the business purpose for expenses on credit card receipts.

It was recommended the City document internal control procedures regarding the use ofthe credit cards and the documentation of business purpose to be maintained.

Status: The City has implemented a Credit Card Policy and Cardholder Usage Agreement that was distributed and signed off by all employees who have been issued City credit cards. This comment will not be repeated.

F. City Fuel Cards

In the prior year, it was noted that the City does not have documented internal control procedures regarding the use of the gasoline credit cards. We also noted that several employees are not entering the correct odometer reading when fueling up City vehicles.

It was recommended the City document internal control procedures for use of the gasoline credit cards. It was also recommended the employees enter the correct odometer readings which will allow someone to analyze the fuel usage for each vehicle.

Status: We noted that the City has distributed a Driver Fuel Policy to all employees who use the Fuelman System. The policy has certain acceptance statements related to the proper use of the System including the requirement to enter accurate odometer readings. The City requires the policy be signed by the employee and returned to the Finance Department to be maintained in their personal file. This comment will not be repeated.

G. Pension Board

As noted in the prior year, a Pension Board member education program is required under Chapter 105 Section 105.666 of Missouri Revised Statutes. Each plan shall, in conjunction with its staff and advisors, establish a board member education program, which shall be in effect on or after January 1, 2009. The curriculum shall include, at a minimum, education in the areas of duties and responsibilities of board members as trustees, ethics, governance process and procedures, pension plan design and administration of benefits, investments including but not limited to the fiduciary duties as defined under Section 105.688, legal liability and risk associated with the administration of a plan, sunshine law requirements under Chapter 610, RSMo, actuarial principles and methods related to plan administration, and the role of staff and consultants in plan administration. Board members appointed or elected on a board on or after January 1, 2009, shall complete a board member education program designated to orient new board members in the areas described in this section within 90 days of becoming a new board member. Board members who have served one or more years shall attend at least two continuing education programs each year in the areas described in this section.

It was recommended the City establish a pension board member education program and a method to document attendance and compliance with the law.

Status: It was noted that the City appears to have a pension education program. This comment will not be repeated.

H. Investment Policy

As noted in the prior year, the City's investment policy does not include specific investment related risk (i.e., specific limitations on credit risk, interest rate risk, and concentration of credit risk for investments).

It was recommended the City update its investment policy to include these risks.

Status: This comment has not been implemented. See "Other Current Year Matters" for current comment.

I. Fraud Policy

As noted in the prior year, the American Institute of Certified Public Accountants (AICP A) Statement on Auditing Standards No. 99 (SAS 99), Considerations of Fraud in a Financial Statement Audit, focuses on the consideration of fraud in an audit of financial statements. It is City management's responsibility to design and implement programs and internal controls to prevent, detect and deter fraud.

It was recommended City management consider documenting its fraud detection compliance program that provides for the procedures to be followed should anyone suspect that fraudulent activity is occurring at the City.

Status: The City has established an Employee Handbook which includes a fraud policy. The Handbook was approved by the Board of Aldermen in March of 2013. This comment will no longer be repeated.

J. TIF Amounts

As noted in the prior year, various TIF amounts were not properly accounted for and paid to the trustees, including overpayments and underpayments. These amounts required adjustment during the prior audit and adjustments to the subsequent year's payments.

It was recommended the City consider additional controls over this function such as review of the calculation of the payments to the trustee and previous year's activity based on appropriate receipts and cash and investments reconciliation.

Status: We noted that currently, controls appear to be in place; however, investigation in to the City's overpayments and underpayments in prior years is still pending. Please see "Deficiencies Considered to Be Significant" for current comment.