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HomeMy WebLinkAboutAUDIT MANAGEMENT REPORT 06-30-1981TOWN OF NORTH ANDOVER, MASSACHUSETTS MANAGEMENT REPORT June 30, 1981 SEP 1 ~9~2 SUMMARY OF FINDINGS TYPE A WEAKNESSES NOTED 1. General Approval of Treasury Warrants 2. Expenditures Prior Year's Bills Paid from Current Appropriation TYPE B WEAKNESSES NOTED 1. General 1. Assessor's Application Forms 2. Employees Personal Recorded Keeping 3. Flag Pole Fund 4. Non-Expendable Portion of Trust Funds 5. Coordinate Purchasing Procedures Page MEMBERS OF THE BOARD OF SELECTMEN We have examined the financial statements of the town of North Andover, Massachusetts for the year ended June 30, 1981, and have issued our report thereon dated December 22, 1981. As part of our examination, we made a study and evalua- tion of the town's system of internal accounting control to the extent we consider- ed necessary to evaluate the system as required by generally accepted auditing standards. Under these standards, the purposes of such an evaluation are to estab- lish a basis for reliance on the system of internal accounting control to determine the nature, timing and extent of other auditing procedures that are necessary for expressing an opinion on the financial statements and to assist %he auditor in plan- ning and performing his examination of the financial statements. Our examination of the financial statements made in accordance with gen- erally accepted auditing standards, including the study and evaluation of the town's system of internal accounting control for the year ended June 30, 1981, would not necessarily disclose all weaknesses in the system because it was based on selective tests of accounting records and related data. However, such study and evaluation disclosed the following weaknesses that we believe should be brought to your attention. The following summary of findings defines the various weaknesses inher- ent in the internal accounting control systems of the town as: Ty~e A - Comments - These are the weaknesses that, if not corrected quickly, can cause the most problems. They carry with them a high risk of error or possible irregularity. Type B - Comments - These are the weaknesses that are also important, but immediate corrective action is not as necessary since assets are still reasonably safeguarded. These areas, however~ once corrected will serve to strengthen the town's internal administrative as well as its accounting controls. While this report may appear to portray a one-sided picture of the town's operations, its main objective is to point out areas of concern that we feel should be corrected. SUMMARY OF FINDINGS TYPE A WEAKNESSES NOTED 1. General Approval of Treasury Warrants 2. Expenditures Prior Year's Bills Paid from Current Appropriation TYPE B WEAKNESSES NOTED 1. General 1. Assessor's Application Forms 2. Employees Personal Recorded Keeping 3. Flag Pole Fund 4. Non-Expendable Portion of Trust Funds 5. Coordinate Purchasing Procedures 4 4 TYPE A WEAKNESSES NOTED 1. General Approval of Treasury Warrants In our review of warrants, it was noted that some warrants were signed by less than a majority of the selectmen. This constitutes non-compliance with the town by law as well as the General Laws of Massachusetts. We recommend that all selectmen review and approve each warrant. How- ever, under no circumstances should a warrant be paid unless it has been approved by at least a majority of the selectmen. 2. Expenditures Prior Year's Bills Paid from Current Appropriation In our review of paid bills, we noted 1980 invoices paid from 1981 fiscal appropriation. This represents non-compliance with legal provision as there is no statutory authority to charge expenditures of a prior year against an appropriation voted to cover expenditures for the current year. We recommend that when it appears to the town accountant that liabilities incurred against any appropriation may be in excess of the unexpended balance thereof, he shall immediately notify the selectmen and the board, committee, or head of depart- ment that no charges against such appropriation shall be allowed for any further liability until the town makes provision for its payment. We further recommend that each head of a department, board, or committee authorized to expend money, furnish the town accountant with a list of bills remain- lng unpaid at the close of the financial year in accordance with Section 58, Chap- ter 41, General Laws. If there is an insufficiency in the appropriation to meet such liabilities incurred, then the town should take appropriate action under Sec- tion 64, Chapter 44, General Laws for the payment of unpaid bill of prior years. 4 In our exit conference, we were made aware that a Special Town Meeting was held to appropriate funds for prior year's bills. TYPE B WEAKNESSES NOTED 1. General 1. Assessor's Application Forms A review of abatements disclosed the lack of assessors' signatures on application forms. According to Section 60, Chapter 59, General Laws, abatements of any tax shall be approved by a majority of the board of assessors. We recommend that a majority of the board of assessors sign the abate- ments application forms to meet the requirements of Sections 59 and 60, Chapter 59, General Laws. In our exit conference~ we were made aware that this recommendation is presently being enforced. 2. Employees Personal Recorded Keeping During our examination of the payroll system, it was observed that cer- tain information was missing from the employees' folders. Information relative to vacation, sick time and W-4's was not available. Lack of such information lessens the effectiveness of the internal con- trol over financial matters involving each town employee. We recommend that departments effect at least yearly an update of vacation, sick time and W-4's in order that the records of the personnel board shall also be updated at least yearly. In our exit conference, we were informed that %he town is in the process of rewriting the by-laws ~o have a secretary full-rime'for %he personnel board ~o handle employees' personnel files. 3. Fla.q Pole Fund During a review of ledger accounts, it was noted that %he Flag Pole Fund was never accepted by the town. This does not comply with the General Laws which require that accounts received to be set up as a trust fund must first be accepted by vote of a town meeting. We recommend that the town vote to accept this fund at a town meeting. This will enable the town to transfer this fund to the trust fund "group of accounts" which can be expended for the purpose for which it was accepted for. 4. Non-Expendable Portion of Trust Funds In reviewing the trust fund group of accounts, we could not locate all original endowments to determine the nonexpendable part of all trust funds. The lack of such information weakens the control over the purpose for which such trust funds may be expended. We recommend that the legal counsel for the town research all trust funds in order to determine the nonexpendable and expendable portion of the trust funds. In our exit conference, we were made aware that the selectmen have instructed town counsel to research all trust funds. 5. Coordinate Purchasing Procedures Purchasing procedures are fragmented to departmental level. The net results of this fragmented purchasing is the loss of the avail- ability bulk purchasing. We recommend that a cost benefit analysis should be initiated in order to study the current procedures. In our exit conference, we were made aware that by charter, certain de- partments have the power to purchase. 6 Uniform Municipal Accounting System The Commonwealth has revised the accounting principles now in effect for the municipalities, the main purpose of which was to bring these principles more into conformity with Generally Accepted Accounting Principles (GAAP). The revised principles are a combination of GAAP as described in a publication entitled "Govern- mental Accounting, Auditing and Financial Reporting" (GAAFR) published by the National Committee on Governmental Accounting (NCGA), the 1980 edition and the Uniform System which is currently in effect for Massachusetts cities, towns and districts having been established under Chapter 44 of the General Laws of the Commonweal th. The revised system has been designated as the "Uniform Municipal Accounting System" (UMAS) and its main thrust is to establish a series of funds and group of accounts similar to those as presented in the updated publication of G.A.A.F.R. in order to facilitate the preparation of more meaningful financial statements and reports. It is documented in a revised Accounting Manual (a new "green book") that has been published by the Bureau of Accounts. Currently, the revised system is being adopted by some of the communities in the Commonwealth on a voluntary basis. We recommend that you familiarize your- self with the revised system and consider its adoption as soon as it is feasible. Our 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, timing and extent of audit tests we applied in our examination of the financial statements, and this report does not modify our financial report dated December 22, 1981. 7 During our evaluation of the town of North Andover's internal control system, the forementioned weaknesses were discussed with the town's management personnel responsible for that particular accounting function. In this regard, we would appreciate receiving, at your earliest convenience, any 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 our audit. It is very important that you commence corrective action on the afore- mentioned weaknesses immediately. We would be pleased to assist you in developing such a corrective course of action, should you so desire. April 20, 1982 Sincerely,