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HomeMy WebLinkAboutAUDIT MANAGEMENT REPORT 06-30-1979 I I I . II I I I I I I I I I I I I I ii Form DA-96 2M sets (2) 6-76~128777 DEPARTMENT OF~ BUREAU Of' ACCOUNTS MANAGEMENT REPORT for the TOWN OF NORTH ANDOVER ~TOWN OF NORTH ANDOVER MANAGEMENT REPORT June 30, 1979 BOARD OF SELECTHEN We have examined the financial statements of the to~n of North Andover, Massachusetts for the year ended June 30, 1979, and have-issued our report thereon dated December 14, 1979. As part of our examination, we made a study and evaluation of room's system of internal accounting control to the extent we considered necessary to evaluate the system as required by generally accepted auditing standards. Under these standards, the purposes of such evaluation are to establish a basis for reliance on the system of internal accounting control in determining the nature, timing and extent of other auditing procedures that are necessary for expressing an opinion on the financial statements and to assist the auditor in planning and performing his examination of the financial statements. Our examination of 'the financial statements made in accordance with generally accepted auditing standards, including the study and evaluation of the town*s system of internal accounting control for the year ended June 30, 1979, would not necessarily disclose all weaknesses in the system because it was based on selected tests of accounting records and related data. However, such study and evaluation disclosed the following conditions that we believe to be material weaknesses. Because this report deals only with areas of internal control and operating procedures which need improvement, it may appear to portray a one-sided picture of the town's operations. We wish to point out that we found many favorable aspects of the town's operations and accounting systems. We also were pleased to note the high degree of dedication evident in many of the officials and employees with whom we worked. GENERAL 1. Encumbrances Excepting major capital outlays, the town does not use the encumbrance method of accounting on a uniform purchase order system. With both systems, a reduction in the appropriation balance is recorded upon the issuance of an approved purchase order. The primary advantage to these methods is that expenditures for goods and services are I controlled when the order is placed, thereby reducing the possibility of an overdrawn appropriation. If a purchase order system were in use, it would be possible to document the specific goods and services desired by the 'Wwn, assuring vendor compliance, and it could be used to confirm negotiated prices and fees. A properly conceived purchasing system assures delivery of goods and services, reduces occurrences of duplicate payments to vendors, provides control overpricing arrangements, and provides documentary evidence for establishing the '~own~s continuing liabilities at year_ end. Interim reports :'.would be more meaningful because budgets would be compared to actual expendituress to date plus the total purchase orders approved. Because of the intrinsic controls associated with these systems, we recommend that a study be made of the feasibil- ity and the cost benefits of implimenting the aforementioned system. 2. Fixed Assets Massachusetts municipalities generally do not account for fixed assets even though they usually represent substantial resources. Many to~ns, as a control feature, account for the fixed assets on an informal basis. We recommend the creation of memo- randum accounting records indicating cost or appraised value of all 'to~n property and equipment for accountability and control of existing assets as well as future acquisitions. Such records, including periodic inventories, would assign responsibility for safe- guarding of assets and would facilitate forecasting of capital asset replacement requirements as well as identify assets which are no longer in use and available for sale or'transfer to other departments. The ~merican Institute of Certified Public Accountants and the National Committee on Governmental Accounting require fixed assets to be included in municipal financial statements. 3. Contracts Our tests for compliance with the Statute and Town by-laws requiring Solicitation of competitive bids revealed that contract files were not always complete. Chapter 41 Section 57, which reads in part: Pursuant to "The to~m accountant shall have custody of all contracts," We recommend that every officer of the town who makes or executes a contract on behalf of the town shall furnish said oontractor copy thereof to the town accountant within one week after its execution. 4. Payroll It was noted that no formal policy exists for payroll check "pick ups" from the treasurers' office. We recommend a properly designated person should be appointed to "pick up" the departments payroll checks, sign off for such in the town treasurer~ office, and return to the to~n treasurer's office all checks for employees not present on the day of check distribution. ASSESSORS 1. Our review of motor vehicle excise taxes disclosed that exempt bills are deleted from commitment books and the totals adjusted accordingly. We recommend that the abatement process be implemented for these exempt bills or that a log book be main- tained for additions and deletions signed by a majority of the Board of Assessors. 2. A suspended assessment card should be prepared for each suspended assessment to facilitate computing the committed interest due to dhte. 3. Personal Property Taxes - Affidavits are not being filed by all businesses in town as required by Chapter 59, Section 29 of the General Laws of the Commonwealth fo Massachusetts. TAX COLLECTOR 1. Approximately $436,5?6 in uncollected motor vehicle excise taxes remained uncollected at the end of fiscal 1979. Of this amount, $96,000 relates to levies prior to 1979. Although these receivables are fully reserved until collected and therefore do affect the town's "free cash" position, collection of a large portion of these amounts due would increase town revenues substantially. A selected number of these accounts were confirmed by direct mail. From the replies received, it appears that a large number of these accounts could not be located. While recognizing that there are some problems in collecting motor vehicle excise taxes, there are legal remedies at the town's disposal to effect a complete settlement. 3 We recommend that a formal plan for aggressive follow-up of these overdue amounts be immediately prepared and that adherence to this plan be continuously monitored. 2. In our testing of the collector's accounts it was noted that the collector has not been turning collections over to the treasurer on a weekly basis as required in Massachusetts General Laws Chapter 60 Section 2. We recommend that payments be made to the treasurer on a more timely basis as prescribed by said section. TREASURER-RECONCILIATION OF CASH 1. Bank reconciliations were not prepared as a matter of standard operating procedures in the past. This resulted in several errors in recording cash transactions. In order to prevent this practice from recurring, we recommend the following: a) The treasurer should prepare reconciliations of all cash accounts on at least a monthly basis. (Reconciliations should include imprest accounts showin$ a zero balance per books as well as those accounts for which activity is reflected in the treasurerYs check register.) b) All cash account balances should be summarized and reconciled to general ledger control balances. c) A report should be prepared summarizing the above reconciliation procedure and presented with supporting reconciliations for audit and approval by the town accountant in accordance with Chapter 41~ Section 50 of the General Laws. d) The monthly cash reconciliation reports should become an integral part of the treasurer's cash book. 2. The lists of outstanding checks as of June 30, 1979 for the general fund contained checks which date back prior to 1972. The payroll account contained checks which date back to July of 1974. We recommend that the fists of checks outstanding be reviewed at least once a year and old checks be placed in the Tailings-Unclaimed Checks account on the books. This would eliminate the repetitive listing of the old ~hecks when performing the reconciliation of the bank accounts and lessen the risk of the checks losing their identity. 4 TREASURER.- Trust Funds 31 Our examination of the Trust Funds, in custody of the town treasurer, revealed that the statements of the conditions on the original bequests could not be located. Since expenditures may be restricted by the terms of the bequest~ we recommend (hat an attempt be made to locate these records. Also, in the future,~rovision should be made to obtain written statements of the restrictions or lack thereof, assuring that these records are ret&ined throughout the life of the bequest. TOWN ACCOUNTANT Chapter 41, Section 50, of the General Laws requires that the town accountant reconcile all cash accounts at least once in each year. The purpose and effect of this existing law is to build into the accounting system,a sound internal control by providing for an independent check of the various departments. In performing tSls reconciliation, the town accountant verifies all existing cash balances and independently checks the cash balances to his control accounts. Noncompliance with this law is a serious breakdown in the internal accounting control system and we strongly recommend that corrective measures be instituted immediately. TOWN CLERK In testing cash receipts of the town clerk's department, we noted that receipts relating to the sale of fishing, game and sporting lZcenses are not being remitted to the treasurer's office. Instead, the town clerk is receiving these funds, and in turn remitting them directly to the appropriate State agency for payment of their portion of the fees. As the town clerk is acting as an agent for the State, we recommend that a change in the town's by laws be considered and that the town clerk remit all funds received over to the treasurer for proper handling and remittance to the appropriate State agency. FEDERAL REVENUE SHARING AND ANTI-RECESSION It was noted that the town did not comply with all required publication notices, failure to do so constitutes noncompliance with the regulations add could,result in forfeiture of Federal Revenue Sharing Funds. We recommend that adequate consideration of publication requirements should be given by the Town Administration. A checklist on various publication requirements should be ns6d as a tool to ensure compliance. DEPARTHENT OF PUBLIC WORKS Water and Sewer Our review of the billiflg and collection procedures of water and sewer user charges as well as miscellaneous billings and consumer guarantee deposits disclosed the following weaknesses: 1. Detailed lists of outstanding/unpaid accounts were not reconciled to the Town Accounts ledger control accounts. 2. Detailed lists of consumers' guarantee deposits were not reconciled to the Town Accountant's ledger control acconnt. 3. Refunds and transfers of work completed from consumers' guarantee deposits were not properly reported to the town accountant. 4. Separate bank accounts are maintained by the public works department for the collection of water and sewer accounts. 5. Collections and deposits are paid to the town treasurer only once a month causing a substantial balance in the aforementioned bank accounts at the end of each month. 6. An employee of the Computer Service Company picks up cash and checks at the public works ~epartment and gives no receipt for such. 6 DEPARTMENT OF PUBLIC WORKS Water and Sewer (Cont.) In order to strengthen the internal control procedures and correct the above mentioned weaknesses, we recommend: 1.. Detailed lists of unpaid accounts should be requested from the Computer Service ~ompany and reconciled to the town accountant's control ledger at least once a month. All variations should be thoroughly investigated and rectified at this time. 2. Consumer guarantee deposits should be set up in detail, with appropriate columns which would reflect the disposition of such deposit, ie, "Refunds" , "Transferred To Accounts Receivable" , etc, with the remaining column showing the amount of consumer guarantee deposits held in custody of the department of public works. At the close of each month the guarantee deposits should be listed in detail and compared to the town accountant's ledger control account. 3. Appropriate monthlk. reports to town accountant should be developed which can be used as source documents in support of a general journal entry reflecting the transfers to be made from the consumer guarantee deposit, a check of refunds made from this account and deposits received for the month. The end results of these monthly documents should support the balance in the ledger control account. 4. The non-interest bearing checking accounts maintained by the department of public works, which have a substantial balance representing Collections not turned over to the town treasurer should be eliminated and all collections should be made direct to the town treasurer's account. 5. Procedures should be developed for the timely deposit (preferably daily) of all receipts which would maximize the availability of these monies to be invested by the town treasurer as soon as possible. 6. The employee of the Computer Service Company should provide bonding to the town as a safeguard against the possibility of any loss occuring in the transporting of receipts from the Department of Public Works office to the depository bank, In addition, a signed receipt should be given to the responsible official of the town for the amount to be deposited to the town treasurer's account. 7 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The accounting principles followed by the Town are outlined in Chapter 44 of the General Laws of the Commonwealth of Massachusetts. These principles are incorporated in a manual c~-m~only known as the Uniform System and promulgated by the Department of Revenue, The Commonwealth is currently considering the adoption of generally accepted accounting principles as outlined in Governmental Accountingt Auditing and Financial Reporting (G.A.A.F.R.)~ a 1968 publication of the National Committee on Governmental Accounting. Systems designed in accordance with G.A.A.F.R. are arranged on a "Fund" basis. G.A.A.F.R. identifies eight types of funds and two. groups of accounts, summarized below: 1. General Fund - A fund used to account for the ordinary operations of a governmental unit which are financed ~rom taxes and other general revenues (all transactions whi=h are not accounted for in another fund .) 2. Special Revenue Fund - A type of fund used to account for revenues from specific taxes or other earmarked revenue sources which by law are designated to finance particu/ar functions or activities of government. (After the fund is established it usually continues year after year until discontinued or revised by proper legislative authority.) 3. Debt Service Fund - A type of fund established to finance and account for the payment of interest and principal on all general obligation debtt serial and term~ Other than that payable exclusively from special assessments and revenue debt issued for and serviced by a go.vernmental enterprise. 4. Capital Projects Fund - A type of fund created to account for all resources used for the acquisition of designated fixed assets by a governmental unit except those financed by Special Assessment and Enterprise funds. 5. Enterprise Fund - A type Of fund established to finance and account 'for the aquisition, operation and maintenance of goverr~ental facilities and services which are entirely or predominantly self-supporting by user charges. 6. Intra.governmental Service Fund - A type of fund established to finance and account for services and commodities furnished by a designated department or agency to other departmental or agencies within a single governmental unit. Amounts expended by the fund are restored thereto either from operating earnings or by transfers from other funds, so that the original fund capital is kept intact. 8 7. Trust and Agency Funds - Trust Fund - A fund consisting of resources received and held by the governmental unit as trustee to be expended or invested in accordance with the conditions of the trust. Agency Fund - A fund consisting of resources received and held by the governmental unit as an agent for others. Special Assessment F~n..d - A fund set up to finance and account for the construction of improvements or provision of services which are tx) be paid for, wholly or in part, from Special Assessments levied against benefited property. 1. General Fixed Assets Group of Accounts - ~ self-balancing group of accounts set up to account for the general fixed assets of a governmental unit. 2. General Long-Term Debt GrouP of Accounts - A self-balancing ~roup of accounts set up to account for the general long-term debt of a governmental unit. Although the adoption of G.A.A.F.R. is still under study in the Commonwealth, we recommend that the Town Accountant become familiar with its underlying principles to be better prepared to meet future accounting and reporting responsibilities. In addition, G.A.A.F.R. has been restated by the National Council on Governmental Accounting (N.C.G.A.) in March 1979 which is effective for fiscal years ending after June 30, 1980.. This G.A.A.F.R. restatement constitutes a modest revision to update, clarify, amplify and reorder G.A.A.F.R. in order to provide immediate guidance for governmental accounting and financial reporting. An important objective is to incorporate pertinent aspects of "Audits of State and Local Goverr~e~tal Units" (A.S.L.G.U.), the 1974 industry audit guide of the A.I.C.P.A. N.C.G.A. Statement #1 supersedes N.C.G.A. interpretation %1~ "G.A.A.F.R. and the A.I'.C.P.A. Audit Guide." O~r examination uncovered other minor weaknesses in the accounting internal control system that we considered to be iw~aterial and accordingly did not affect the nature, timing or extent of our substantive testing. The foregoing conditions were considered in determining the nature, extent and timing of audit tests we applied in our examination of the financial statements ~ring our evaluation of No. Andover s internal control system, the fore mentioned weaknesses were discussed with Town management personnel responsible for that particular accounting function. In this regard, we would appreciate receivingt at your earliest conveniencet~/-':~n.'.'¥ thoughts you may have with respect %o ~tmplementing our recommendations and a prOposed timetable for same. ' In conclusion, we wish to take this opportunity .to thank you for your cooperation during the course of ~ur audit and should you wish %0 discuss the _ contents of this report, assistance in the implementation phase of the financial statements, we will bepleased to meet with you at a mutually convenient date and time. ' Department of Revenue December 20, 1979 - TOWN OF NORTH ANDOVER M~NAGE~T REPORT June 30, 1979 BOARD OF SELEC~ We have examined the financial statements of the to~n of North Andover, Hassachusetts for the year ended June 30, 1979, and have' issued our report thereon dated December 1~, 1979. As part of our examination, we made a study and evaluation of the town's system of internal accounting control to the extent we considered necessary to evaluate the system as required by generally accepted auditing standards. Under these standards, the purposes of such evaluation are to establish a basis for reliance on the system of internal accounting control in determining the nature, timing and extent of other auditing procedures that are necessary for expressing an opinion on the financial statements and to assist the auditor in planning and performing his examination of the financial statements. Our examination of 'the financial statements made in accordance with generally accepted auditing standards, including the study and evaluation of the tovrn~s system of internal accounting control for the year ended June 30, 1979, would not necessarily disclose all weaknesses in the system because it was based on selected tests of accounting records and related data. However, such study and evaluation disclosed the following conditions that we believe to be material weaknesses. Because this report deals only with areas of internal control and operating procedures which need improvement, it may appear to portray a one-sided picture of the town's operations. We wish to point out that we found many favorable aspects of the town's operations and accounting systems. We also were pleased to note the high degree of dedication evident in many of the officials and employees with whom we worked. GENERAL 1. Encumbrances Excepting ma]or capital outlays, the town does not use the encumbrance method of accounting on a uniform purchase order system. With both systems, a reduction in the appropriation balance is recorded upon the issuance of an approved purchase order. The primary advantage to these methods is that expenditures for goods and services are I controlled when the order is placed, thereby reducing the possibility of an overdrawn appropriation. If a purchase order system were in use, it would be possible to document the specific goods and services desired by the '~own, assuring vendor compliance, and it could be used to confirm negotiated prices and fees. A properly conceived purchasing system assures delivery of goods and services, reduces occurrences of duplicate payments to vendors, provides control overpricing arrangements, and provides documentary evidence for establishing the ~town's continuing liabilities at year end. Interim reports "~would be more meaningful because budgets would be compared to actual expendtturess to date plus the total purchase orders approved. Because of the intrinsic controls associated with these systems, we recommend that a study be made of the ffastbil- ity and the cost benefits of implimenting the aforementioned system. 2. Fixed Assets Massachusetts municipalities generally do not account for fixed assets even though they usually represent substantial resources. Many towns, as a control feature, account for the fixed assets on an informal basis. We recommend the creation of memo- randum accounting records indicating cost or appraised value of all 'town property and equipment for accountability and control of existing assets as well as future acquisitions. Such records, including periodic inventories, would assign responsibility for safe- guarding of assets and would facilitate forecasting of capital asset replacement requirements as well as identify assets which are no longer in use and avail~ble for sale or transfer to other departments. The American Institute.of Certified Public Accountants and the Natinnal Committee on Governmental Accounting require fixed assets to be included in municipal financial statements. 3. contracts Our tests for compliance with the Statute and Town by-laws requiring Solicitation of competitive bids revealed that contract files were not always complete. Chapter ~l Section 57, which reads in part: Pursuant to "The to~m accountant shall have custody of all contracts," We recommend that every officer of the tovm ~ho makes or executes a contract on behalf of the to~n shall furnish said contractor copy thereof to the to~n accountant within one week after its execution. 4. Payroll It was noted that no formal policy exists for payroll check "pick ups" from the treasurers' office. We recon~nend a properly designated person should be appointed to "pick up' the depart~nents payroll checks, sign off for such in the to~m treasurer~ office, and return to the to~m tre'asurer's office all checks for employees not present on the day of check distribution. -/~ ASSESSORS 1. Our review of motor vehicle excise taxes disclosed that exempt bills are deleted from commitment books and the totals adjusted accordingly. We recommend that the abatement process be implemented for these exempt bills or that a log book be main- tained for additions and deletions signed by a majority of the Board of Assessors. 2. A suspended assessment card should be prepared for each suspended assessment to facilitate computing the committed interest due to d~te. 3. Personal Property Taxes - Affidavits are not being filed by all businesses in town as required by Chapter 59, Section 29 of the General Laws of the Commonwealth fo Massachusetts. TAX COLLECTOR 1. ApProximately $436,576 in uncollected motor vehicle excise taxes remained uncollected at the end of fiscal 1979. Of this amount, $96,000 relates to levies prior to 1979. Although these receivables are fully reserved until collected and therefore do affect the town's "free cash" position, collection of a large portion of these amounts due would increase town revenues substantially. A selected number of these accounts were confirmed by direct mail. From the replies received, it appears that a large number of these accounts could not be located. While recognizing that there are some problems in collecting motor vehicle excise taxes, there are legal remedies at the town's disposal to effect a complete settlement. 3 We recommend that a formal plan for aggressive follow-up of these overdue amounts be immediately prepared and that adherence to this plan be continuously monitored. 2. In our testing of the collector's accounts it was noted that the collector has not been turning collections over to the treasurer on a weekly basis as required in Massachusetts Oener~l Laws Chapter 60 Section 2. We recommend that payments be made. to the treasurer on a more timely basis as prescribed by said section. TREASURER-RECONCILIATION OF CASH 1. Bank reconciliations were not prepared as a matter of standard operating procedures in the past. This resulted in several errors in recording cash transactions. In order to prevent this practice from recurring, we recommend the following: a) The treasurer should prepare reconciliations of all cash accounts on at least a monthly basis. (Reconciliations should include imprest accounts showing a zero balance per books as well as those accounts for which activity is reflected in the treasurer's check register.) b) All cash account balances should be summarized and reconciled to general ledger control balances. c) A report should be prepared summarizing the above reconciliation procedure and'presented with supporting reconciliations for audit and approval by the town accountant in accordance with Chapter 41, Section 50 of the General Laws. d) The monthly cash reconciliation reports should become an integral part of the treasurer's cash book. 2. The lists of outstanding checks as of June 30, 1979 for the general fund contained checks which date back prior to 1972. The payroll account contained checks which date back to 3uly of 197~. We recommend that the lists of checks outstanding be reviewed at least once a year and old checks be placed in the Tailings-Unclaimed Checks account on the books. This would eliminate the repetitive listing of the old ~hecks when performing the reconciliation of the bank accounts and lessen the risk of the checks losing their identity. 4 TREASURER.- Trust Funds 3, Our examination of the Trust Funds, in custody of the to~n treasurer, revealed that the statements of the conditions on the original bequests could not be located. Since expenditures may be restricted by the terms of the bequest, we recommend that an attempt be made to locate these records. Also, in the future,~rovision should be made to obtain ~rritten statements of the restrictions or lack thereof, assuring that these records are ret&ined throughout the life of the bequest. - TONN ACCOUNTANT Chapter 61, Section 50, of the General Laws requires that the to~n accountant reconcile all cash accounts at least once in each year. The purpose and effect of this existing 1~ is to build into the accounting system.~a sound Internal control by providing for an independent check of the various departments. In performing t~Ls reconciliation, the to~n accountant verifies all existing cash balances and independently checks the cash balances to his control accounts. Noncompliance with this law is a serious breakdown in the internal accounting control system and we strongly recommend that corrective measures be instituted immediately. TOWN CLERK In testing cash receipts of the town clerk's department, we noted that receipts relating to the sale of fishing, game and sporting licenses are not being remitted to the treasurer's office. Instead, the town clerk is receiving these funds, and in turn remitting them directly to the appropriate State agency for payment of their portion of the fees. As the town clerk is acting as an agent for the State, we recommend that a change in the town's by laws be considered and that the town clerk remit all funds received over to the treasurer for proper handling and remittance to the appropriate State agency. FEDERAL REVENUE SHARING AND ANTI-RECESSION It was noted that the town did not comply with all required publication notices, failure to do so constitutes noncompliance with the regulations a~d could result in forfeiture of Federal Revenue Sharing Funds. We recon~nend that adequate consideration of publication requirements should be given by the Town Administration. A checklist on various publication requirements should be used as a tool to ensure compliance. DEPARTMENT OF PUBLIC WORKS Water and Sewer Our review of the bi11£flg and collection procedures of water and sewer user charges as well as miscellaneous billin§s and consumer guarantee deposits disclosed the following weaknesses: 1o Detailed lists of outstanding/unpaid accOUnts were not reconciled to the Town Accounts ledger control accounts. 2. Detailed lists of consumers' guarantee deposits were not reconciled to the Town Accountant's ledger control account. 3. Refunds and transfers of work completed from consumers' guarantee deposits were not properly reported to the town accountant. 4. Separate bank accounts are maintained by the public works department for the collection of water and sewer accounts. 5. Collections and deposits are paid to the town treasurer only once a month causing a substantial balance in the aforementioned bank accounts at the end of each mon th. 6. An employee of the Computer Service Company picks up cash and checks at the public works department and gives no receipt .for such. 6 DEPARTMENT OF PUBLIC WORKS Water and Sewer (Cont.) In order to strengthen the internal control procedures and correct the above mentioned weaknesses, we recommend: le Detailed lists of unpaid accounts should be requested from the Computer Service ~ompany and reconciled to the town accountant's control ledger at least once a month. Ail variations should be thoroughly investigated and rectified at this time. 2. Consumer guarantee deposits should be set up in detail, with appropriate columns which would reflect the disposition of such deposit, te, "Refunds" , "Transferred To Accounts Receivable" , etc, with the remaining column showing the amount of consumer guarantee deposits held in custody of the department of public works. At the close of each month the guarantee deposits should be listed in detail and compared to the town accountant's ledger control account. 3. Appropriate monthly' reports to town accountant should be developed which can be used as source documents in support of a general journal entry reflecting the transfers to be made from the consumer guarantee deposit, a check of refunds made from this account and deposits received for the month. The end results of these monthly documents should support the balance in the ledger control account. 4. The non-interest bearing checking accounts maintained by the department of public works, which have a substantial balance representing ~ollections not turned over to the town treasurer should be eliminated and all collections should be made direct to-the town treasurer's account. 5. Procedures should be developed for the timely deposit (preferably daily) of all receipts which would maximize the availability of these monies to be invested by the town treasurer as soon as possible. 6. The employee of the Computer Service Company should provide bonding to the town as a safeguard against the possibility of any loss occuring in the trmnsporttng of receipts from the Department of Public Works office to the depository bank, In addition, a signed receipt should be given to the responsible official of the town for the amount to be deposited to the town treasurer's account. 7 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The accounting principles followed by the Town are outlined in Chapter 44 of the General Laws of the Commonwealth of Massachusetts. These principles are incorporated in a manual commonly known as the Uniform System and promttlgated by the Department of Revenue. The Commonwealth is currently considering the adoption of generally accepted accounting principles as outlined in Governmental Accounting, Auditing and Financial Reporting (G.A.A.P.R.), a 1968 publication of the National Committee on Governmental Accounting. Systems designed in accordance with G.A.A.F.R. ere arranged on a "Fund" basis. G.A.A.F.R. identifies eight types of funds and ~ groups of accounts, summarized below: 1. General Fund - A fund used to account for the ordinaz~ operations of a governmental unit which are financed from taxes and other general revenues (all transactions which are not accounted for in another 2. Special Revenue Fund - A type of fund used to account for revenues from specific taxes or other earmarked revenue sources which by law are designated to finance particular functions or activities of government. (After the fund is established it usually continues year after year until discontinued or revised by proper legislative authority.) 3. Debt Service Fund - A type of fund established to finance and account for the payment of interest and principal on all general obligation debt, serial and term, other than that payable exclusively from special assessments and revenue debt issued for and serviced by a goyernmental enterprise. 4. Capital Projects Fund - A type of fund created to account for all resources used for the acquisition of designated fixed assets by a governmental unit except those financed by Special Assessment and Enterprise funds. 5. Enterprise Fund - A type of fund establt-mhed to finance and account 'for the aquisitton, operation and maintenance of governmental facilities and services which are entirely or predominantly self-supporting by user charges. 6. Intraqovernmental Service Fund - A type of fund established to finance and account for services and commodities furnished by a designated department or agency to other departmental or agencies within a single governmental unit. Amounts expended by the fund are restored thereto either from operating earnings or by transfers from other funds, so that the original fund capital is kept intact. 8 ?o Trust and Agency Funds - Trust Fund - A fund consisting of resources received and held by the governmental unit as trustee to be expended or invested Lq accordance with the condit/ons of the trust. Agency Fund - A fund consisting of resources received and held by the governmental unit as an agent for others. 8. Special Assessment Fund - A fund set up to finance and account for the constructio~ of improvements or provision of services which are to be paid fort wholly or in part, from S~ial Assessments levied against benefited property, 1. General Fixed Assets Group of Accounts - ~ self-balancLqg group of accounts set up to account for the general fixed assets of a governmental unit. 2o General Long-Term Debt Group .of Accounts - A self-balancing gr ~ou~p of accounts set up to account for the general long-term debt of a governmental unit. Although the adoption of G.A.A.F.R. is still under study in the Co~monwealtht we recommend that the Town Accountant become familiar with its underlying principles to be better prepared to meet future accounting and reporting responsibilitieSo In addition, G.A.A.F.R. has been restated by the National Council on Governmental Accounting (N.C.G.A.) in March 1979 which is effective for fiscal years ending after June 30, 1980.. This G.A.A.F.R. restatement constitutes a modest revision to update, clarify, amplify and reorder G.A.A.F.R. in order to provide immediate guidance for governmental accounting and financial reporting. An important objective is to incorporate pertinent aspects of "Audits of State and Local Governmental Units" (A.S.L.G.U.), the 1974 industry audit guide of the A.I.C.P.A. N.C.G.A. Statement #1 supersedes N.C.G.A. interpretation Gl, "G.A.A.F.R. and the A.I'.C.P.A. Audit Guide." O~r examination uncovered other minor weaknesses in the accounting internal control system that we considered to be immaterial and accordingly did not affect the nature, timing or extent of our substantive testing. The foregoing conditions were' considered in determining the nature, extent and timing of audit tests we applied in our examination of the financial statements and this report does not modify our financial report dated Decem~er ~&, ~979. R_ring our evaluation of No. Andover's internal control system, the fore- mentioned weaknesses were discussed with Town management personnel responsible for that particular accounting function. In this regard, we would appreciate receivingt at your earliest c0nve~tence, ~'~.¥ thoughts you may have with respect to implementing our recommendations and a proposed timetable for same. In conclusion, we wish to take this opportunity to thank you for your cooperation during the course of ~ur audit and should you wish to discuss the contents of this report, assistance in the ~mplementation phase of the £inancial statements, we will be pleased to meet with you at a mutually convenient date and time. December 20, 1979 Sincerely, Department of Revenue 10