HomeMy WebLinkAboutAbrahams Group Initial Report_201401221339129009Town of Nantucket
Organization Review
of the
Department of Finance
Final Report
The Abrahams Group
September 2008
THE ABRAHAMS GROUP
September 5, 2008
Ms. C. Elizabeth Gibson
Town Manager
Town Hall
16 Broad Street
Nantucket, MA 02554
Dear Ms: Gibson:
I am pleased to submit the attached final report of the Organization Study of the
Department of Finance of the Town of Nantucket.
We look forward to presenting our report to the Audit Committee and to the Board of
Selectmen.
Sincerely yours,
Mark D. Abrahams, CPA
President
Attachment
52 Flanagan Drive, Framingham, MA 01701-3745, Phone 508 788-9172, Fax 508 788-6217
bettergov@aol.com, www.theabrahamsgroup.com
Town of Nantucket
Table of Contents
Page
Executive Summary 1
I. Introduction, Objectives and Methodology 7
II. Overview of the Finance Department and Financial Activities 10
III. Findings and Recommendations: 18
INTERNAL CONTROLS:
Cash Receipts and Collections 18
1. Eliminate all of the Treasurer’s general ledger posting authorities
2. Need for independent reporting of receipts and collections to the Accounting
Officer
3. Need to provide receipt for cash/checks turnovers by Treasurer’s Office at
time of delivery of funds
4. Job design for abatement entry and payment entry to accounts receivable
system creates internal control weakness
5. Transfer bank accounts that are not under custody of Treasurer to the
Treasurer’s custody
6. Require submittal of cash register tapes (proof of sales) for major turnovers to
the Treasurer and to the Accounting Officer
7. Eliminate the practice of sharing a “cash drawer” in Collector’s Office
Payroll and Personnel Actions 23
8. Job design for new employee entry/pay adjustments and responsibility for
payroll processing creates internal control weakness
9. Finance Department must review and approve Personnel Action Forms
(PAFs) and Recruitment Requisitions (new form)
10. Payroll is processed without authorization document to allow the action
11. Departmental payrolls submitted and processed without department head’s
signature
Vendor Transactions and Accounts Payable 25
12. Widespread decentralized MUNIS rights to create new vendors presents a
weakness in internal controls
13. Need to activate MUNIS budget controls
14. Require “Receiving Reports” with invoices in order to authorize payment of
invoices for goods, materials or equipment
WORKFLOWS AND OPERATIONS 27
15. Decentralize “Time and Attendance” component of payroll to optimize
finance staff time and to create efficiencies
16. Decentralize “Cash Receipts” entry to departments in order to optimize
finance staff time, to create efficiencies and approve controls
17. Eliminate duplicate systems for recording abatements and exemptions
18. Immediately implement formal monthly reporting to Audit Committee as
evidence of monthly cash reconciliation and accounts receivable
reconciliations
19. Report all “balances due” on Municipal Lien Certificates (MLCs)
20. Record all Accounts Receivable (Summary Level) Transactions on MUNIS
General Ledger
21. Establish and maintain one accounting and financial reporting system
(General Ledger)
22. Hire one audit firm to prepare one set of GAAP Annual Financial Statements
and eliminate separate audits of two town departments (Airport and Water).
23. Give consideration over the long term to reinstitution of quarterly tax billing
24. Require timely submittal and control of key reimbursements such as
Chapter 90
25. Manage the tailings process on a timely basis in order to return “revenue” to
the books
26. Facilitate on line access to Bank Accounts for departments
27. Need indirect cost methodology for certain departments/utilities
28. Employee leave balances
29. Need to facilitate School End of the Year Report Filing
30. Need to restructure the Chart of Accounts
31. Document financial policies and procedures
ORGANIZATION AND STAFFING 42
32. Need for clear dichotomy between treasury functions and accounting
functions and reassignment of staff
33. Need to assign clear responsibilities and accountabilities to “Accountant” vs.
the “Controller”
34. Need to remove Human Resource/Personnel functions from the Finance
Department
35. Need to assign “Assistant Treasurer” role to current staff
36. Assignment of additional responsibilities and cross training of Executive
Assistant to the Finance Director
IV. Finance Department and Financial Activities in the Future 48
V. Implementation Plan 54
Appendices: 59
A. List of Individuals Interviewed
B. Current Organization Chart
C. Treasurer’s Monthly Report of Reconciliation of Bank Statements to
“Cash Book” for Audit Committee
D. Recommended Organization Chart
Town of Nantucket Executive Summary
Town of Nantucket
Organization Review of the Department of Finance
Executive Summary
Background and Objectives
The Abrahams Group was hired to conduct an organization review of the Town of
Nantucket’s Finance Department. The Town’s audit firm, Powers and Sullivan of
Wakefield, Massachusetts, has been critical of the department’s operations, most notably
with FY 2005, 2006 and 2007 management letter comments. The auditors have been
most concerned with the Town’s inability to reconcile cash, specifically cash as recorded
in the Treasurer’s cash book, to the bank statements and then to the general ledger (the
official record of all accounting activity of the Town). In May 2008, the audit firm
submitted a letter to the Town Manager with guidance and recommendations to assist
Department officials in the reconciliation of cash.
In recent weeks the audit firm also delivered the Audited Financial Statements for the
year ended June 30, 2007. The audit firm, in its opinion letter, has qualified its opinion
on the financial statements, which is a serious situation. Specifically the auditor firm
states: “The Town does not have a system of internal control that allows us to form an
opinion on the balance of cash, investments, and interfund receivables and payables.
These internal control deficiencies also do not allow us to form an opinion on the
accuracy of revenues, expenditures and expenses reported.” They have also presented
other management letter comments and also addressed material weaknesses in the
Town’s accounting and financial reporting systems.
The Department is therefore under scrutiny from the Department of Revenue (DOR) due
to the late submittal of the audit, late submittal of Free Cash Worksheets and balance
sheets, late submittal and filing of Schedule A (report of municipal spending and
revenues), late submittal and filing of the End of Year Report (report of school spending
and school revenues). Also, DOR has had issues in the past with the Town’s Tax
Recapitulation filing which is the basis for DOR’s certification of the tax rate; the filings
have improved in the past couple of years.
Based on the late filings of financial reports to DOR and the Department of Elementary
and Secondary Education (ESE) (formerly the Department of Education (DOE)), about
$1.8 million in state aid ($1.7 million of Chapter 70, $12,000 of charter reimbursement
and $106,000 of lottery funds) has been withheld from Nantucket between 2004 and 2008
as a method of penalty to assure the mandatory reports are submitted. The state aid
eventually was released, but its withholding for several months impacted negatively the
Town’s cash flows and consequently investment earnings. To put this into perspective,
over the last several years there have been two communities that have gone into the
summer time from which the DOR has withheld quarterly local aid payments, Nantucket
and one other.
1
Town of Nantucket Executive Summary
On April 11, 2008, DOR in a written letter, required that Nantucket provide, no later than
June 30, 2008, a written plan on when the Town would complete the audits for FY 2006,
FY 2007, and FY 2008, and how the Town would address the problems written in the FY
2005 management letter. The Town responded by June 30, 2008 with the following
milestones:
• Submittal of the FY 2006 audit to DOR by July 3, 2008.
• Submittal of the FY 2007 audit to DOR by August 15, 2008.
• Submittal of the draft findings of The Abrahams Group Report to the Town by
August 29, 2008 (Phase 1), addressing internal controls, staffing, and procedures.
• Submittal of a Finance Bi-Monthly Report to DOR by August 31, 2008.
• Submittal to DOR of the plan to complete the FY 2008 audit by September 5,
2008.
• Submittal of the first quarter FY 2009 cash reconciliation report to DOR by
November 15, 2008.
• Submittal of the FY 2008 audit to DOR by March 15, 2009.
Thus, the Town decided to conduct an organizational study of the Finance Department
with the objective to develop, document, and implement organizational, staff
responsibility, workflow and procedural changes, in order to strengthen internal controls
and to improve organizational efficiency and effectiveness. This project will analyze the
financial functions, job responsibilities, workflow, controls, and operations to develop
staffing and organization recommendations primarily in the Finance Department. The
specific objectives of this project were to:
• Review department staffing, organization, and activities and make
recommendations for improvements
• Review internal controls to assure sound division of responsibilities and make
recommendations to assure effective practices and procedures
• Review operations, systems and workflows in order to improve the pre-audit
and review function of the department as well as controls and effectiveness of
the Finance Department
• Determine an implementation plan for accomplishment of the
recommendations with timelines and assigned responsibilities for completion
Following the submittal of The Abrahams Group Report, the Town will work with us to
develop a detailed implementation plan. The second phase will focus on documenting
financial policies and procedures, implementing new financial controls, training, and
other tasks as necessary. We did not conduct a benchmarking study nor did we conduct
an audit of the financial position or results of operations of the Town of Nantucket.
The Town has met the FY 2006 and FY 2007 audit submittal deadlines. With the
submittal of this report and the August 31, 2008 Finance Bi-Monthly Report to DOR, the
Town continues to be on schedule with the above deadlines.
2
Town of Nantucket Executive Summary
Organization of the Report
This report is organized as follows:
Section I. Introduction, Objectives and Methodology
Section II. Overview of the Finance Department and Financial Activities
Section III. Findings and Recommendations
A. Internal Controls
B. Operations, Processes and Workflow
C. Organization and Staffing
Section IV. Finance Department and Financial Activities in the Future
Section V. Implementation Guide and Timeline
Summary of Findings and Recommendations
Section III of this report presents numerous (36) recommendations for change to improve
the Department’s operations, internal controls and reassigns certain functions within
Finance or to other Departments. The Town is at a critical point in terms of turning
around its accounting and financial reporting which in our view is the highest priority for
management to address. The Town needs to address these findings and recommendations
immediately, establish milestones, and hold people accountable for their actions.
Number Recommendation
INTERNAL CONTROLS: Cash Receipts and Collections
1. Eliminate Treasurer’s general ledger posting authorities
2. Need for independent reporting of receipts and collections to the Accounting
Officer
3. Need to provide receipt for cash/checks by Treasurer’s Office at time of delivery
of funds
4. Internal control weaknesses based on job design for abatement entry and payment
entry to accounts receivable system
5. Transfer bank accounts that are not under custody of Treasurer to the Treasurer’s
custody
6. Require submittal of cash register tapes (proof of sales) for major turnovers to the
Treasurer and Accounting Officer
7. Eliminate the practice of sharing a “cash drawer” in Collector’s Office
INTERNAL CONTROLS: Payroll and Personnel Actions:
8. Internal control weaknesses based on job design for new employee entry/pay
adjustments and responsibility for payroll processing
9. Finance Department must review and approve Personnel Action Forms (PAFs)
and Recruitment Requisitions (new form)
10. Payroll is processed without authorization document to allow the action
3
Town of Nantucket Executive Summary
11. Departmental payrolls submitted and processed without department head’s
signature
INTERNAL CONTROLS: Vendor Transactions and Accounts Payable
12. Widespread decentralized MUNIS rights to create new vendors presents a
weakness in internal controls
13. Need to activate MUNIS budget controls (and require transfers)
14. Require receiving reports with invoices in order to authorize payment of invoices
for goods, materials or equipment
WORKFLOWS AND WORK PROCESSES
15. Decentralize “Time and Attendance" entry of payroll in order to optimize finance
staff time, to create efficiencies and improve controls
16. Decentralize “Cash Receipts” entry to departments in order to optimize finance
staff time, to create efficiencies and approve controls
17. Eliminate duplicate systems for recording abatements and exemptions
18. Immediately implement formal monthly reporting to Audit Committee as
evidence of monthly cash reconciliation, accounts receivable reconciliation and
budget reconciliation
19. Report all "balances due" on Municipal Lien Certificates (MLCs)
20. Record all Accounts Receivables Transactions of MUNIS General Ledger
21. Establish and maintain one accounting and financial reporting system (General
Ledger)
22. Hire one audit firm to audit one set of GAAP Annual Financial Statements
23. Give long term consideration to reinstitution of quarterly billing
24. Require timely submittal and control of key reimbursements such as Chapter 90
25. Manage the tailings process on a timely basis in order to return "revenue" to the
books
26. Facilitate on line access to bank statements
27. Need indirect cost methodologies for certain departments/utilities
28. Employee leave balances
29. Need to facilitate School End of Year Report Filing
30. Need to restructure the chart of accounts
31. Document financial policies and procedures
ORGANIZATION AND STAFFING
32. Need for clear dichotomy between treasury functions and accounting functions
33. Need to assign clear responsibilities and accountabilities to the “Accounting
Officer” and to the Controller
34. Need to remove Human Resource/Personnel functions from the Finance
Department
35. Need to assign “Assistant Treasurer” role to current staff
36. Assignment of additional responsibilities and cross training of the Executive
Assistant to the Finance Director”
4
Town of Nantucket Executive Summary
Finance Department and Financial Activities in the Future
There has been much focus on the fact that the Finance Department is chronically late in
reconciling the cashbook to the general ledger; this is the result of many larger issues
within the department. Our study has found serious weaknesses in the Department
including:
• Misplacement of functions and responsibilities
• Consolidation of responsibilities with one individual or unit that instead must
be segregated to assure sound internal controls
• Lack of understanding of the treasury function vs. the accounting function
• Lack of understanding of the need to centralize controls and posting
authorities
• Lack of sound management and control of the general ledger which risks the
integrity of the general ledger
• Serious and long standing weaknesses in internal controls
• Duplicate accounting systems within the Town and maintenance of
decentralized financial records due to lack of confidence in the Finance
Department’s record keeping
• Deficiencies in the flow and reporting of information to the Accounting
Officer
• Need for recording and reporting of all departments’ financial activities on the
general ledger
• Processing of transactions without the authorizing documents
• Lack of fundamental understanding of why core financial activities or controls
are necessary
• No clear understanding that the Finance Department must control and monitor
financial activity and status
• Weak pre audit and control role of the Department
Section IV presents a four page table: Summary of Recommended Changes: Today
versus Future that presents what we believe must change in terms of the organization,
transfer of responsibilities, internal controls, operations, workflows, reporting and
segregation of duties.
The Finance Department must change its fundamental role and become a pre audit and
control entity responsible for the accounting and reporting of all Town departments’
financial transactions, over the course of the next couple of years.
An implementation plan is presented in Section V of the Report. This implementation
plan recognizes the priorities established in Section IV of the Report and the reality that
not every recommendation can be implemented at once. A more detailed implementation
plan will be developed as part of our Phase 2 work.
5
Town of Nantucket Executive Summary
Leadership and Accountability
Going forward, Nantucket must be able to establish proper internal controls and meet key
accounting and financial reporting deadlines pursuant to the internal standards that the
Town sets and for reporting to the Department of Revenue.
The Board of Selectmen, the Audit Committee and the Town Manager must support the
change in the fundamental role of the Finance Department. It is also important that the
Board of Selectmen, the Audit Committee and the Town Manager must require that all
departments identified in this report adopt the changes to achieve the recommendations
and comply with the recommendations in order to improve the financial controls,
processes and procedures.
We hope the recommendations in this report will help set the foundation to make changes
in the operation, organization, and priorities of the Finance Department. Ultimately, the
Town will need to assign responsibility and hold people in the Finance Department and
other departments accountable to meet these objectives.
6
I. Introduction
The Abrahams Group was hired to conduct an organizational study of the Finance
Department. The Town has a consolidated Finance Department under the management
of a Director of Finance. The Department includes a total of 19.5 positions in the
divisions of Assessing, Collecting, Treasury, Controller/Accounting, and Management.
Assessing consists of the Assessor, four full-time, and one part-time positions and an
Abatement Advisory Committee. The Collector function consists of the Collector
supported by two full-time positions. Treasury includes the Treasurer and three full-time
staff. The Controller oversees a Bookkeeper and Accounting Clerk. The Town is
attempting to fill a vacant staff Accountant position. The Management division consists
of the Finance Director, Assistant Director of Finance and an Executive Assistant to the
Director.
The Town has been using the MUNIS financial management and accounting system for a
number of years as well as some decentralized accounting systems. A complete overview
of the Department of Municipal Finance including its organization, staffing, delineation
of financial activities within the Department, those performed outside the Department and
the issues and challenges the Department is currently facing are presented in Section II.
The Town’s independent auditors have been highly critical of the operations and internal
controls of the Finance Department. Recently, they advised the Town that the long-term
solution will require a complete overhaul of the finance operations, documentation of all
processes, and adherence to new financial policies, procedures, and controls. They
have recommended measures, primarily focusing on cash reconciliation, that the Town
could take to improve fiscal management in Fiscal 2009 while, at the same time, a
comprehensive set of improvements are implemented including improved internal
controls and division of responsibility. Internal controls are needed to protect a
government’s assets against the danger of loss or misuse, and to ensure that all
transactions are properly authorized, and that data contained in financial reports are
reliable.
Thus, the Town decided to conduct an organizational study of the Finance Department
with the objective to develop, document, and implement organizational, staff
responsibility, workflow and procedural changes, in order to strengthen internal controls
and to improve organizational efficiency and effectiveness. This project will analyze the
financial functions, job responsibilities, workflow, controls, and operations to develop
staffing and organization recommendations for the Department. The specific objectives
of this project were to:
• Review Department staffing, organization, and activities and make
recommendations for improvements
7
Town of Nantucket Review of Department of Finance
• Review internal controls to assure sound division of responsibilities and make
recommendations to assure effective practices and procedures
• Review operations, systems and workflows in order to improve the pre-audit
and review function of the Department as well as controls and effectiveness of
the Finance Department
• Develop a plan to implement the recommendations with timelines and
assigned accountabilities for completion
Approach
Over the course of the study The Abrahams Group has reviewed the Finance
Department’s organization, staffing, operations, workflows and systems. We
administered a Job Analysis Questionnaire (JAQ) to all employees in order to understand
each employee’s principal responsibilities, utilization of time, reporting relationships,
information or system needs and perceived strengths and weaknesses with respect to the
organization. All department staff returned the JAQs. We then conducted interviews of
18 Department employees as to current operations, job activities, information needs,
utilization accounting and financial reporting software and systems. We also have
conducted interviews with another 21 individuals external to the department. Appendix A
presents the listing of all individuals that we interviewed for the study.
We have reviewed various information and documents including:
• Current policies and procedures
• Finance Department job descriptions
• Source documents, reports and manual logs for key activities such as:
Departmental Payments to the Treasurer, Collector’s Turnover, Personnel Action
Forms, Certificates of Abatement, Commitments of Billings, Time and Attendance
Reports, Payables Vouchers and the like
• Prior year Audited Financial Statements and Management Letters
• MUNIS System Access and Authorities
• Schedule A, School End of Year Report, and Recap Sheets
• Town Charter and applicable by laws
Findings and Recommendations
In our study we found all of the staff of the Finance Department who we interviewed to
be very cooperative and helpful. The staff overall appears dedicated to the Finance
Department. Staff members were extremely helpful and timely in providing reports and
information to us during the course of this study.
The majority of the findings and recommendations that are presented in Section III of this
report are in the areas of:
8
Town of Nantucket Review of Department of Finance
• Segregation and/or reassignment of duties and responsibilities for improved
internal controls
• Decentralization of some functions to the departments to redistribute work and to
better utilize Finance Department staff in a control/pre-audit role
• Transfer of some responsibilities to the appropriate unit of the Finance
Department or other areas/departments
• Improved utilization of the MUNIS software and the capacity it offers for
efficiency and elimination of manual records and processes
• Improve clarity in roles and “checks and balances” of certain Finance Department
employees and focus on key priorities in the areas of accounting and financial
reporting
Organization of the Report
The remainder of this report is organized as follows:
Section II. Overview of the Finance Department and Financial Activities
Section III. Findings and Recommendations
A. Internal Controls
B. Operations, Processes and Workflow
C. Organization and Staffing
Section IV. Finance Department and Financial Activities in the Future
Section V. Implementation Guide and Timeline
9
Town of Nantucket Review of Department of Finance
II. Overview of the Finance Department
Background
The Department of Finance is a consolidated Finance Department with responsibility for
most financial functions of the Town and the County. The Director of Finance is
appointed by the Town Manager and oversees the Assessing Division, Collection
Division, Treasury Division and Controller’s (Accounting) Division. The Department
also has a Management Division responsible for special projects and assisting with the
development of the annual budget, the capital improvement program, and financial
forecasting. The Department is staffed by a total of 19.5 full time equivalent positions
(FTEs).
Six positions responsible for the management and oversight of financial functions are:
the Director of Finance, the Assistant Director of Finance, the Treasurer, the Collector,
the Assessor and the Controller. The organization chart of the current Finance
Department is presented in Appendix B.
Section 19-11 of the Town Code which established the consolidated Department in 1989
under a Director of Finance sets forth that the Director of Finance must elect to serve as
the Accountant or the Treasurer/Collector but not both at the same time. By virtue of her
office as Director of Finance, the current Director of Finance chose to serve as the
Accountant. As the Accounting Officer for Nantucket, the Director of Finance is the
accountant pursuant to all the requirements of Massachusetts General Law. As such this
is the position that:
• Approves and signs all payroll warrants
• Approves and signs all accounts payable warrants
• Certifies funding for all contracts
• Signs certain grant reimbursement requests
• Signs and approves Schedule A filing to DOR
• Signs and approves the ESE (Department of Elementary and Secondary Education
- the new name of the Department of Education) End of Year Report (in
conjunction with school officials)
• Signs financial schedules of the Tax Recapitulation Sheet to DOR
• Signs the annual Free Cash Worksheet and Submittal to DOR
• Signs the Highway Report to Mass. Highway
• Signs the Community Preservation Report
• Signs the Snow and Ice Report and Submittal to DOR
• Signs the Cash Reconciliation Report and Submittal to DOR
• Signs the Accounts Receivable Reconciliation Report and Submittal to DOR
• Signs the Statement of Indebtedness Report and Submittal to DOR
• Approves and signs other documents
10
Town of Nantucket Review of Department of Finance
Four positions of the six key oversight positions have statutory authorities and
responsibilities: the Finance Director (solely as the Accountant), the Treasurer, the
Collector and the Assessor. The Controller and the Assistant Director of Finance have
neither statutory authorities nor responsibilities.
The Department has added staff in recent years to address the growth in the Town’s
budget growth, volume of financial transactions, and budgeting and financial reporting
needs. In 2004 the Department had 16 authorized positions versus today’s 20 positions.
In order to strengthen the Department, a budget analyst was added, which was then
upgraded to Assistant Director of Finance. The staff accountant was promoted to
Controller four months ago. Accordingly the Department has two additional
management positions. Recently the Director received approval for the position of
Executive Assistant to the Finance Director. This position was filled in June 2008.
It is important to clarify that the Department does not receive and process the payments
for water use, sewer use or those payments related to the Airport. Historically these
payments have been submitted directly to Wannacomet Water (water and sewer) and the
Airport for recording in their decentralized and independent accounts receivable systems.
For purposes of this report and discussions regarding accounting, please note that the
words Accountant or Accounting Officer refer solely to the Director of Finance. The
other position that is key to the accounting function is the Controller; all references to
Controller, will use that title. The Department has a position of “accountant” which
reports to the Controller. This position is vacant. For purposes of this report this position
will be called “Staff Accountant”.
Issues of the Department
The Town’s audit firm, Powers and Sullivan of Wakefield, Massachusetts, has been
critical of the department’s operations, most notably with FY 2005, 2006 and 2007
management letter comments. The auditors have been most concerned with the Town’s
inability to reconcile cash, specifically cash as recorded in the Treasurer’s Cash book, to
the bank statements and then cash in the cash book to the general ledger (the official
record of all accounting activity of the Town). In May 2008, the audit firm submitted a
letter to the Town Manager with guidance and recommendations to assist Department
officials in the reconciliation of cash.
In recent weeks the audit firm also delivered the Audited Financial Statements for the
year ended June 30, 2007. The audit firm, in its opinion letter, has qualified its opinion
on the financial statements, which is a serious situation. Specifically, the auditors state:
“The Town does not have a system of internal control that allows us to form an
opinion on the balance of cash, investments, and interfund receivables and
11
Town of Nantucket Review of Department of Finance
payables. These internal control deficiencies also do not allow us to form an
opinion on the accuracy of revenues, expenditures and expenses reported.”
They have also presented other management letter comments and also addressed material
weaknesses in the Town’s accounting and financial reporting systems. Some of these
include:
• The Treasurer’s cashbook was not accurately reconciled to the bank balances or to
the general ledger throughout the year.
• The Town does not have a system to reconcile the balances in the due to, due
from accounts that are intended to represent cash that has not been transferred
between funds.
• The Town was unable to provide support for several balances maintained on the
general ledger.
• The Town does not have internal procedure manuals clearly defining the
responsibilities of each position within the Finance Department.
• Highway grant funds cash deficits have exceeded the known invoices that are
awaiting reimbursement.
• Several of the Town’s trust fund balances do not reconcile with their respective
bank accounts.
These and other situations are examples of how the Town has not established an internal
control system to safeguard the Town’s assets and provide reasonable assurance that
transactions are executed in accordance with management’s policies and procedures and
recorded properly in the financial system. These and other reportable conditions were
included in prior management letters, but were not seriously addressed until now.
The Town is therefore under scrutiny from the Department of Revenue due to the late
submittal of the audit, late submittal of free cash worksheets and balance sheets, late
submittal and filing of Schedule A (report of municipal expenditures and revenues), late
submittal and filing of the End of Year Report (report of school spending and school
revenues). Also, DOR has had issues in the past with the Town’s Tax Recapitulation
filing which is the basis for DOR’s certification of the tax rate; the filings have improved
in the past couple of years. Nantucket in the late 1990s converted to quarterly tax billings
in order to maximize cash flows, as have many municipalities in the Commonwealth.
Nantucket did not maintain quarterly billings and reverted four years ago to semi annual
tax billings.
Based on the late filings of financial reports to DOR and ESE, about $1.8 million in state
aid ($1.7 million of Chapter 70, $12,000 of charter reimbursement and $106,000 of
lottery funds) has been withheld from Nantucket between 2004 and 2008 as a penalty to
assure the mandatory reports are submitted. Of this, about $1.1 million was related to
late EOYR submittals; while about $778,000 was due to late Schedule A submittals. The
state aid eventually was released, but its withholding for several months impacted
negatively the Town’s cash flows and consequently investment earnings.
12
Town of Nantucket Review of Department of Finance
On April 11, 2008, DOR in a written letter, required that Nantucket provide, no later than
June 30, 2008, a written plan on when the Town would complete the audits for FY 2006,
FY 2007, and FY 2008, and how the Town would address the problems written in the FY
2005 management letter. The Town responded by June 30, 2008 with the following
milestones:
• Submittal of the FY 2006 audit to DOR by July 3, 2008.
• Submittal of the FY 2007 audit to DOR by August 15, 2008.
• Submittal of the draft findings of The Abrahams Group Report to the Town by
August 29, 2008 (Phase 1), addressing internal controls, staffing, and procedures.
• Submittal of a Finance Bi-Monthly Report to DOR by August 31, 2008.
• Submittal to DOR of the plan to complete the FY 2008 audit by September 5,
2008.
• Submittal of the first quarter FY 2009 cash reconciliation report to DOR by
November 15, 2008.
• Submittal of the FY 2008 audit to DOR by March 15, 2009.
The Town has met the FY 2006 and FY 2007 audit submittal deadlines. With the
submittal of this report and the August 31, 2008 Finance Bi-Monthly Report to DOR, the
Town continues to be on schedule with the above deadlines.
This report presents several recommendations for change to improve the Department’s
operations, internal controls and reassigns certain functions either within Finance, or to
other departments. The Town is at a critical point in terms of turning around its
accounting and financial reporting which in our view is the highest priority for
management to address. The Town needs to address these findings and recommendations
immediately, establish milestones, and hold people accountable for their actions.
Overview of Responsibilities, Staffing and Organization of the Divisions of the
Department of Finance
The Management Division is staffed by three full time equivalent (FTE) positions: the
Director of Finance, the Assistant Director of Finance and by an Executive Assistant to
the Director of Finance. It is important to note that both positions are recent additions,
the Assistant Finance Director (formerly the budget analyst) has tenure of 1.5 years and
the Executive Assistant position was added three months ago. The principal
responsibilities of the division are:
• Overall management and direction of the department
• Financial forecasting
• Assist in the preparation and development of the annual budget
• Assist in the preparation and development of the annual capital improvement
program (CIP)
• Oversight and preparation of accounting and financial reports per MGL
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Town of Nantucket Review of Department of Finance
• Reconciliation of accounts receivable
• Coordination of the annual audit
• Support to the Board of Selectmen, Finance Committee, Capital Program
Committee, other Town departments, and the Audit Committee
The Assessment Administration Division is staffed by 5.5 FTEs: the Assessor, the
Assistant Assessor, the Field Assessor, Senior Clerk, Administrative Assistant and a
contractual position, the Property Lister that represents approximately a .5 FTE on an
annual basis and is responsible for inspections of new properties and additions in support
of the field assessment function.
The principal responsibilities of the division are:
• Administration and determination of property values
• Administration and determination of new growth
• Preparation of assessment schedules for Tax Recapitulation Sheet
• Inspection of properties and new additions
• Administration of revaluations (every 3 years)
• Reviewing abatement applications and granting or rejection of abatements
• Providing support and documentation to Abatement Advisory Committee
• Providing testimony and documentation for Appellate Tax Board
• Reviewing and granting of personal exemptions
• Updating and maintaining the VISION Assessment Administration database for
all property related values and transactions (abatements and exemptions)
• Reviewing accuracy of Tax Commitment/Billing Database for purposes of
producing Semi annual Tax Billings and Commitments for Collector
• Entering all MVX abatements to the MUNIS Accounts Receivable System
• Entering and recording property abatements and exemptions in manual logs
The revaluations, which are conducted every three years pursuant to state requirements,
are done on a contractual basis by an outside firm. The Assessors Office also receives
outside support from a consultant who assists in the conversion of values from the
VISION property appraisal system to the MUNIS tax-billing module in order to assure
that data converts properly and that all calculations on tax bills are accurate.
The staff in the Assessor’s Office is cross-trained in most functions and activities such
that more than one staff position can handle the activity in the event of absences. The
Assessing staff has significant longevity, with an average length of service of 14.3 years.
The Assessor, Assistant Assessor and Field Assessor have the Massachusetts Accredited
Assessor designation. Based on the skill sets, expertise and training of the office, it does
not require any significant degree of supervision from the Finance Director.
The Assessor’s Office also has several formal written policies and procedures, which
delineate responsibilities and actions for many key assessment administration functions.
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Town of Nantucket Review of Department of Finance
The Collection Division is staffed by three FTEs: the Collector, the Assistant Collector
and the Administrative Assistant. The principal responsibilities of the division include:
• Issuance and collection of Real Estate and Personal Property Tax Bills
• Issuance and collection of Motor Vehicle Excise (MVX) Tax Bills
• Issuance and collection of Boat Excise Bills
• Preparation and issuance of Municipal Lien Certificates (MLCs)
• Processing and posting of payments for Tax, MVX, Boat, and Police and Fire
Details to MUNIS (or Vadar) Accounts Receivable systems
(From window, lock box, tax service companies and on line payments)
• Issuance of demands
• Issuance and posting of refunds to the MUNIS Accounts Receivable system
• Entry of all real estate and personal property tax abatements and exemptions to
MUNIS Accounts Receivable System
• Tax takings
The staff in the Collector’s Office is cross-trained in most functions and activities such
that more than one staff position can handle the activity in the event of absences. The
Collection’s staff has an average longevity of 10 years. The Collector has received
certification as a Massachusetts Collector. The office works closely with the Assessor’s
office and it is independent in terms of the level of direction or supervision needed by the
Director of Finance.
The Assessor’s Division and the Collector’s Division are located at the Town Hall and
are physically separate from the Management Division, Treasury Division and
Controller’s Division of the Finance Department.
The Treasury Division is currently staffed by four FTEs: the Treasurer, the Payroll
Assistant, the Accounts Payable Assistant and the Cash Receipts Assistant. In recent
months one incumbent has been out on “sick leave”.
The principal responsibilities of the Treasury Division include:
• Review of all accounts payable (invoices) to assure they are charged to the
appropriate General Ledger (G.L.) fund and account and meet MGL standards for
accountant’s review for payment
• Issuance of vendor numbers to departments, who then set up their own vendors in
the MUNIS system
• Review of all payroll charges to assure they are charged to the appropriate
General Ledger (G.L.) fund and account and meet MGL standards for release
• Set up of all new employees on the payroll system
• Administration of all employee personnel actions and transactions in the MUNIS
system (new hires, wage changes, promotions, terminations, deduction changes)
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Town of Nantucket Review of Department of Finance
• Receipt of cash and checks from the Collector and several departments of the
Town, and counting of the cash/check turnovers,
• Posting of cash receipts to the general ledger of the Town and for deposit of the
funds at the bank
• Assurance that all new employees are filling only vacant positions to assure
budget compliance
• Assistance to employees in employee benefits and insurance administration
• Coordination with the Town’s financial advisors (First Southwest) for debt
issuances
• Administration and recording of cash receipts and cash disbursements in the
QuickBooks “Cash Book”
• Filing and reporting of state and federal taxes
• Reconciliation of the Town’s bank statements to the “Cash Book”
The Treasury Division is also responsible for the receipt and filing of several forms
(Collector’s Turnover, Departmental Payments to the Treasurer, Commitments of
Billings and Abatements) that for the most part are submitted only to the Treasurer (and
not to the Accounting Officer for checks and balances).
The Treasury staff has an average length of service of 3 years. The Treasurer is a
certified Massachusetts Municipal Treasurer. This division receives more intervention,
review, and time of the Finance Director than others in the areas of the cashbook and
bank statements.
The Controller’s Division is staffed by the Controller, the Operations Bookkeeper, and
the Accounting Clerk. There is one vacant position, the “Staff Accountant”. The
Controller has served in the division for 2.5 years and was promoted to Controller four
months ago. The Accounting Clerk was hired recently in July 2008. As discussed above,
the Director of Finance, per the Town Code and per Massachusetts General Law, is the
Accounting Officer and is responsible for the integrity of the general ledger and the
financial statements, and for the accuracy and filing of many financial schedules and
reports to the Commonwealth. The principal duties of the division include:
• Maintaining the accuracy of the general ledger (the official legal record of all of
the Town’s assets, liabilities, fund balances, revenues and expenditures)
• Recording and posting journal entries
• Setting up new accounts and “funds” on the general ledger
• Verifying and reconciling cash on the general ledger to Treasurer’s cash
• Updating and maintaining fixed asset records
• Insurance and Risk Management
• Entry of budget amendments
• Preparing Schedule A, Financial Schedules of the Tax Recapitulation Sheet,
Combined Balance Sheet for Free Cash Certification, Free Cash Worksheet,
checklists, and other reports.
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Town of Nantucket Review of Department of Finance
It is also important to note that the reconciliation of accounts receivable is not a function
of the Controller’s Office or of the Accounting Officer rather it is a responsibility of the
Assistant Director of Finance within the Management Division.
The Controller’s Division has in the past received consulting support related to
reconciliation of cash, closing of the books, valuation and reporting of fixed assets, and
the preparation and filing of Schedule A. Outside assistance to prepare the Combined
Balance Sheet for Free Cash Certification and Schedule A is planned for FY 2008.
Other Comments
The Department of Finance is responsible per state law for the financial reporting and
accounting of all financial activity of the departments and units of the Town of
Nantucket.
We note also that the Town has several enterprise funds established pursuant to
Massachusetts General Law. The fact that a department of Town government has its
activities accounted for in an enterprise fund does not mean it is an independent entity;
the enterprise fund simply segregates its financial activity and reports the surplus or
deficit for each accounting period. The Airport, Wannacomet Water, Siasconset Water,
Landfill, and the Town’s Sewer Utility are enterprise funds and units of Town
government that are funded by an appropriation of Town meeting each year. As such the
Accounting Officer of the Town is responsible for all accounting and financial reporting
for these units of government and their enterprise funds.
The Town of Nantucket is audited on an annual basis by an independent certified public
accounting (CPA) firm, which prepares and delivers annual financial statements, a
management letter, and a federal funds audit. The CPA firm also provides an agreed
upon procedures review of the school department’s End of the Year Report as filed with
the Department of Education.
The Airport and Wannacomet Water also employ another audit firm to provide an audit
of their separate financial records.
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Town of Nantucket Review of Department of Finance
III. Findings and Recommendations
This section presents our findings and recommendations, organized by:
A. Internal Controls
B. Operations, Procedures, and Workflow
C. Organization and Staffing
A. INTERNAL CONTROLS
The first section of findings and recommendations addresses weaknesses in internal
controls. It is important to have sound division of responsibilities and segregation of
duties to assure sound controls in the processing of all financial transactions. This
section identifies changes that should be made in the assignment of duties or combination
of duties assigned to certain staff within the Finance Department or other departments of
the Town.
This section is divided into three sub sections:
• Cash receipts and collections
• Payroll and personnel actions
• Vendor transactions and accounts payable
INTERNAL CONTROLS: Cash Receipts and Collections
1. Eliminate all of the Treasurer’s general ledger posting authorities
Finding:
The current responsibilities of the Treasurer include a combination of activities that do
not provide for an appropriate segregation of duties. The Treasurer is responsible for:
• Reconciling the bank statements
• Maintaining the Cash Book
• Posting cash receipts, payroll and payables to the general ledger
• Setting up new employees in the MUNIS system
• Collecting receipts (cash and checks)
In addition the Treasurer has virtually total security clearance and access within the
MUNIS accounting and financial management system to enter, process and post to the
general ledger in the areas of journal entries, payments, cash receipts abatements,
creation of new employees, and changes to employee wages; as well the position has
authority to override MUNIS batches of other staff. The general ledger is the
responsibility of the accounting officer in a municipality, not the treasurer.
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Town of Nantucket Review of Department of Finance
The current responsibilities of the position, maintaining the “Cash Book” and reconciling
the bank statements to the “Cash Book,” in combination with unlimited posting
authorities and control of the general ledger (the accounting side of the operation),
presents significant internal control weaknesses and creates the potential for fraud.
(Please note that the potential for fraud does not mean that fraud exists. We were not
engaged to nor did we perform a fraud audit or review).
Recommendation:
The Director of Finance and the IT Director should immediately remove all general
ledger posting authority of the Treasurer. In order to assure a sound segregation of
duties, the Treasurer should be able to view (query) MUNIS screens only. The position
should have no posting rights to the general ledger.
2. Need for independent reporting of receipts and collections to the Accounting
Officer
Finding:
At present all reporting of receipts and collections is solely to the Treasurer; a copy of the
Departmental Payments to the Treasurer form or the Collector’s Turnover to the
Treasurer is not provided to the Accounting Officer, who is the sole responsible party for
the accurate recording of all financial activity on the general ledger. The form should go
to each officer (Accounting Officer and to Treasurer) to assure “checks and balances”.
Also, the Treasurer (or designee) posts all cash receipts/collections to the general ledger
in lieu of the Accounting Officer or accounting designee, which is an additional
weakness.
Recommendation:
The Accounting Officer must require that all departments turning in cash/checks submit
the Departmental Payments to the Treasurer form as well as the Collector’s Turnover to
the Treasurer to the Treasurer AND a separate copy to the Accounting Officer. This dual
reporting of cash receipts and collections assures, from an internal control view, that
there is an independent copy to the Accounting Officer for recording the transaction on
the general ledger. The copy to the Treasurer is the source document for recording
receipts in the Treasurer’s “Cash Book”. The two separate copies are fundamental tools
to support the reconciliation of cash each month.
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Town of Nantucket Review of Department of Finance
3. Need to provide receipt for cash and check turnovers by Treasurer’s office at the
time of delivery of the funds
Finding:
The Collector’s office and many departments of the Town turn over cash and checks to
the Treasurer’s office for deposit in the bank. Many times the Treasurer’s office does not
provide a receipt to the person turning over the cash and checks at the time of delivery.
This can present a risk when the cash/checks are counted later in the day, as there can be
an issue as to what amount was actually turned over. In addition, there is no signed
document as evidence that receipts were turned over. Also, there is no cash register
(receipting device) at the Treasurer’s office.
Recommendation:
All cash and checks that are turned over to the Treasurer (or designee) should be counted
in front of the person turning over the cash/checks. The Treasurer (or designee) should
then provide a signed receipt to the person of the amount remitted.
The Finance Department should create a three-part form for two documents
(Departmental Payments to the Treasurer and Collector’s Turnover to the Treasurer).
Specifically, one copy is for the Treasurer, one for the Accounting Officer, and one for
the department’s records. When the cash/checks are counted, the Treasurer or designee
signs the form documenting the dollar amount turned in. The specific department should
then immediately deliver the “receipted copy” to the Accounting Officer/Controller. As
such the Accounting Officer then has evidence of the amount turned over and receipted
as sound documentation before the Accounting Officer (or Controllers staff) posts the
amount to the general ledger.
4. Internal control weakness based on job design for abatement entry and payment
entry to accounts receivable system
Finding:
The Assessor’s office is responsible for the review, approval and issuance of all real
estate and personal property abatements and for exemptions. The Assessor’s office
processes all aspects of motor vehicle excise abatements in MUNIS but forwards all real
and personal abatements and exemptions to the Collector’s office for MUNIS processing.
As such staff in the Collector’s office that can enter payments can also abate (reduce) a
portion or all of the taxpayers’ receivable in the MUNIS system.
This is a serious internal control weakness as the same person should not be able to apply
payments and at the same time have MUNIS clearance/rights to abate the receivable.
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Town of Nantucket Review of Department of Finance
Recommendation:
The practice of the Collector’s office entering abatements and exemptions should cease
immediately and the MUNIS access and authority to “abate” in MUNIS should be
removed from all positions within the Collector’s office. Authority to enter abatements
to taxpayer’s accounts within the MUNIS system should only be a MUNIS right and
authority of staff in the Assessor’s office. All entry of tax abatements and exemptions to
the customer accounts within the accounts receivable system should be the responsibility
of the Assessors.
Moreover, only the Accounting Officer (or designee in the Controller’s Office) should
have authority to post transactions to the general ledger.
5. Transfer all bank accounts that are not under custody of the Treasurer to the
Treasurer’s custody.
Finding:
There are bank accounts for Town transactions that are not under the custody of the
Treasurer. This is a weakness in internal controls.
The first bank account in question is maintained by the Town Clerk under her name. It
has both depository and check writing authority and the sole signature required for
checks is that of the Town Clerk. All receipts and checks received by the Town Clerk for
various licenses and permits are deposited in the Town Clerk’s bank account instead of
being immediately turned over to the Treasurer on a Schedule of Departmental Payments
to the Treasurer (and to the Accounting Officer) and deposited in the Town’s general
depository bank account. Currently, the Town Clerk only turns over funds to the
Treasurer on a once a month basis when the Town Clerk writes a check from her bank
account to the “Town of Nantucket” for deposit in the Town’s bank account. Also the
Town Clerk has the ability to write checks on this bank account and pay invoices.
The second bank account not under the jurisdiction of the Treasurer is a bank account
maintained by the Collector. This bank account is for the deposit of funds collected by
the Town’s Deputy Collector for delinquent motor vehicle excise accounts. Both funds
due to the Town and fees due to the Deputy Collector are deposited in this bank account.
The Collector’s signature is the sole signature on the bank account required for the
release of payment of the fees due to the Deputy Collector.
Recommendation:
The two bank accounts should be closed. The Treasurer should be the only one with
custody of Town bank accounts. All receipts/collections must be reported to the
Treasurer and to the Accounting Officer and recorded on the Town’s “Cash Book” and
on the general ledger.
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Town of Nantucket Review of Department of Finance
Also, with respect to the Town Clerk’s process, all cash receipts and checks should be
reported and turned over every couple of days to the Treasurer for deposit in the Town’s
general depository bank account under the custody of the Treasurer. All payables
transactions of the Town Clerk should be paid solely through the Town warrant duly
reviewed and signed by the Accounting Officer and also by the Board of Selectmen.
With respect to the Collector’s bank account, some Towns have a separate account,
although payments of fees to the Deputy Collector must be based on co-signing authority
of both the Collector and Deputy Collector. We recommend that the sounder practice is
to close the bank account. The Deputy Collector should simply submit a schedule of
fees that are payable to the Deputy, at this point the Collector should review it. If
appropriate the Collector should approve it and process it as a payable on the accounts
payable warrant. The payment to the Deputy Collector would only be released through
the Town warrant duly reviewed and signed by the Accounting Officer and also by the
Board of Selectmen.
Our review did not include a comprehensive testing with banks in the area; these bank
accounts became apparent based on our review of processes and procedures in certain
areas. We recommend that if testing with banks in the area, by the audit firm, reveals
any other bank accounts under the Town’s tax identification number that are not under
the custody of the Treasurer, that these accounts should likewise be closed.
6. Require submittal of cash register tapes (proof of sales) for major turnovers to
the Treasurer and to the Accounting Officer
Finding:
Certain departments have significant “sales activity” including school lunch and athletics.
At present when these departments turn over their cash and checks, no documentation is
provided of actual sales based on a cash register tape or other supporting documentation.
This presents a weakness in internal controls.
Recommendation:
The Controller and Accounting Officer should initiate a process such that major areas of
activity (sales) are documented with a cash register tape. This will ensure that all cash
and checks turned over (or deposited by the department at the bank) match the actual
source documentation at the point of sale to assure sound control and deposit of all funds
originally collected at the point of sale.
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Town of Nantucket Review of Department of Finance
7. Eliminate practice of sharing a “cash drawer” in the Collector’s Office
Finding:
The current practice in the Collector’s Office provides that the staff (up to three positions
on a given day) all use the same “cash drawer” for all cash and check transactions of the
day. This does not assure accountability in the event of discrepancies in the amount in
the “cash drawer”.
Recommendation:
In order to improve controls and identify all activity for each person who accepts
payments over the course of the day, it is important for each staff person to have their
own “cash drawer”. Each day each person should “close out” in MUNIS and turn over
their deposit based on the activity of their own “cash drawer”. This practice will better
enable the office to identify if and when discrepancies exist.
INTERNAL CONTROLS: Payroll and Personnel Actions
8. Internal control weakness based on job design for new employee entry (pay
adjustments) and payroll processing
Finding:
There is no segregation of duties for set up of new employees, wage adjustments, and the
responsibility for the actual processing of payroll. The same position that sets up and
adds persons to the payroll should not also have MUNIS authority to process the payroll
and release the paychecks. This process is also inefficient and requires extensive
communications between various staff in the Finance Department and the Human
Resources Director.
Recommendation:
The responsibility for the set up of new employees, termination of employees, and
changes to the wage tables in MUNIS should be the responsibility of the Human
Resource Department. This will provide two benefits:
1. It will create accountability within the Human Resources Department for entry
to MUNIS of all personnel related actions
2. It will establish the segregation of duties by transferring some functions to a
different position in a separate department of Town government.
The staffing and organization section of this report provides additional recommendations
in this area.
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Town of Nantucket Review of Department of Finance
9. Finance Department must approve Personnel Action Forms (PAFs) and
Recruitment Requisitions (recommended new control form).
Finding:
Employee actions (additions to payroll, wage increases, and the like) are approved based
only on the approval (signature) of the department head and the Human Resource
Director. The Finance Department does not currently have to sign off on the PAF for
personnel actions that have a financial impact. As a result some personnel actions have
had budgetary implications without the approval of Finance in a pre audit, control role.
Recommendation:
The Finance Department has implemented “position control” in the MUNIS system. To
assure its effective implementation and to assure budgetary compliance, the Finance
Department must have approval/rejection authority before hiring actions are taken,
including initiatives to recruit for positions. As such, two changes should be
implemented:
1. The Finance Department must be an approving signature on the PAF to assure
budgetary compliance, and
2. No position should be advertised or recruited without the Finance
Department’s (Assistant Director of Finance) signature/approval on a
Recruitment Requisition (a new form that should be implemented). The new
Recruitment Requisition must be signed by the department head, the Human
Resources Director and the Assistant Director of Finance (as the Budget
Officer of the Town).
10. Payroll is processed without an authorized document to allow the action
Finding:
The Finance Department has processed payroll adjustments based on “collective
bargaining” settlements based on the verbal instruction of the Human Resource
Department. The retro payroll action made the adjustment effective on July 1st of the
respective fiscal year. Many employees received excess compensation as a result.
Recommendation:
It is important that all Finance Department staff understand that payroll (or any)
transactions and adjustments must be processed and authorized only upon written
authority. In this instance, the Treasurer (who currently oversees payroll) needed to
obtain a copy of the executed collective bargaining agreement. Wage adjustments can
only be released by Finance based on sound controls, including receipt of the authorizing
documents and clear understanding of its contents.
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Town of Nantucket Review of Department of Finance
11. Departmental payrolls submitted and processed without department head’s
signature
Finding:
We have noted some payrolls that are submitted and processed each week that are not
signed by the department head. Massachusetts General Laws requires that payrolls must
be signed by the department head as certification of the time worked by the employees of
that department.
Recommendation:
It is important that all Finance Department staff understand that payroll (or any)
transactions and adjustments must be processed and authorized only upon written
authority. The Finance Department must assure that any transaction including payroll is
processed after receipt and review of the proper authority/signature.
INTERNAL CONTROLS: Vendor Transactions and Accounts Payable
12. Widespread decentralized MUNIS rights to set up and create new vendors
presents a weakness in internal controls
Finding:
The Collector’s Office, the Treasurer’s Office and most departments throughout the
Town including the school department can create and set up vendors in the MUNIS
system. Many of these offices then process a payable (Treasury), a refund (Collector’s
Office) and control release of the payable check or refund check. The ability for the
same person to set up vendors, approve a payable or refund, and control the release of the
check to vendors or taxpayers presents risks, as duties are not segregated to prevent the
potential for fraud. Specifically, a fictitious vendor could be set up and payments
processed to the fictitious vendor.
We do note that the accounts payable clerk provides vendor numbers over the phone. But
multiple employees access the new vendor function and can create and set up new
vendors.
Recommendation:
MUNIS rights and access to set up vendors should be removed from staff in all municipal
departments as well as the school department. One position in the Town Manager’s
office (procurement office of the Town) should have authority to create a new vendor in
the MUNIS system. This position should only create the vendor based upon appropriate
documentation: the federal tax identification form (W-9).
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Town of Nantucket Review of Department of Finance
Normally the Town would not need a Manual Log with a manual list of vendors, as
MUNIS would report all vendors by name or by vendor number.
13. Need to activate MUNIS budget controls
Finding:
The MUNIS general ledger provides the ability (feature) to control expenditures and
encumbrances and to reject any encumbrance or expenditure that would exceed budget.
MUNIS can be set up to control at the line item level or at the category (appropriation) of
expenditure (personal services, expenses, capital). Currently the budget controls in
MUNIS are not activated to allow system control to prevent expenditures in excess of
budget.
Recommendation:
The Accounting Officer should immediately implement the MUNIS budget control
features that will warn/prevent budget lines/categories from being exceeded. The line
item level is a more detailed level of control but it provides the most discrete level of
control. We recommend that the Town manage the budget at this level through the
MUNIS system.
This will “force” transfers from accounts/areas with excess funds to the account/area that
is deficient. It will prevent the entry of encumbrances and the payment of invoices that
will put overall management of the budget at risk of deficit spending.
The budget should be actively managed by each department. If, for example, MUNIS
rejects the entry of a purchase order or payable, the department staff can prepare a
MUNIS budget transfer (within the total appropriated expense amount) for review and
posting by the Accounting Officer/Controller.
This recommendation will promote the active management of the budget by each
department and will prevent any possible budget overages by system control of the
budget.
We also note that several staff said that the Assistant Director of Finance (as the Budget
Officer) is responsible to assure that departments do not exceed their budgets. This
position can advise of potential issues with a budget and its ability to sustain through the
fiscal year, however per Massachusetts General Laws, the Accounting Officer is the sole
position to assure that no expenditure is made in excess of any appropriation of Town
meeting.
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Town of Nantucket Review of Department of Finance
14. Require Receiving Reports with invoices to authorize payment of invoices for
goods, materials and equipment
Finding:
The current accounts payable process provides that departments submit an original
invoice as the basis to pay the vendor. A department head that pays invoices for goods,
materials and equipment should have evidence that the goods or materials were actually
received by some one in the department via documentation of a receiving slip or packing
slip.
Recommendation:
In order to institute stronger controls, the Accountant and Controller should implement a
policy and procedure that payments for goods, materials and equipment will be made
based upon:
1. Submittal and approval of the invoice by the department head and
2. Submittal and approval of the receiving slip/packing slip signed by the staff
member of the department who received the goods.
B. WORKFLOWS AND WORK PROCESSES
15. Decentralize “Time and Attendance” component of payroll to optimize finance
staff time and to create efficiencies
Finding:
Currently accounts payable entry in MUNIS is decentralized to the various Town
departments and to the school department. This means that each department enters its
invoices/payables to MUNIS and then the appropriate documentation is submitted to
allow the Finance Department to review/audit the hard copies to the department’s
MUNIS payables batch.
At present, “time and attendance” which is the reporting of hours worked, sick, vacation,
personal leave etc. is not entered by the Town departments. Currently, hand written
entries on the Earnings Worksheet are submitted or delivered to the Treasurer’s Office
and the Treasurer’s staff enters the time and attendance centrally.
Time and attendance entry is an inefficient process, as it requires the handwriting of staff
time/leave on to a MUNIS entry form when it could be entered directly by each
department and then printed and signed by the department head. The Finance
Department could then review the payroll batch with the time and attendance component
filled in.
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Town of Nantucket Review of Department of Finance
Recommendation:
In the near future the Finance Department should decentralization “time and attendance”
to the departments. The departments are responsible for time and attendance in any event
and are the staff that knows the attendance of their employees. The department head is
responsible to certify the hours of departmental staff.
The recommended process simply delegates the entry of the time and attendance. All
payroll review, correction and processing functions are retained in the Finance
Department.
The benefits are:
• It removes much data entry from one position in the Finance Department and
while each respective department has to do it (it represents less volume as each
department is just entering time and attendance for its own employees).
• It promotes finance/accounting’s role as a reviewer/auditor of the data instead of
focusing on data entry.
• It reduces errors as less people handle payroll information.
Again, each department would have “entry only” rights in the MUNIS Payroll Module.
The Accounting/Controller staff of the Finance Department would be the only staff
authorized to process payroll and the only staff with MUNIS rights to post
weekly/biweekly payrolls to the general ledger after review of the source documents.
16. Decentralize “cash receipts entry” to departments in order to optimize Finance
Department staff time, to create efficiencies and improve controls
Finding:
At the present time, most departments deliver their receipts (cash and checks) to the
Treasurer’s Office. The receipts are often not counted at the time of delivery and the
department receives a receipt of the transaction one or two days later. At present the
receipts have not been reported independently to the Accounting Officer. The
Treasurer’s Office is responsible for the deposit at the bank. The Treasurer’s staff is also
responsible for all the data entry of the “receipts” by general ledger account.
In the internal controls section we recommended new control procedures to assure a
sounder turnover of cash/checks process.
The process can be improved in order to minimize data entry time of the Treasurer’s staff
and to assure timely transmittal of funds to the bank.
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Town of Nantucket Review of Department of Finance
Recommendation:
The Finance Department should consider decentralizing the MUNIS entry of “cash
receipts” and allowing departments to simply make the deposit at the bank themselves.
Many departments are located in relatively close proximity to the bank.
Under the new process, the department would:
• Enter the receipts by MUNIS code to the MUNIS system and print the MUNIS
Payment Proof
• Attach the Payment Proof to a Turnover Sheet signed by the department head
• Submit the signed turnover and the deposit slip stamped by the bank to the
Accounting Officer and to the Treasurer
At that point:
• The Accounting Officer will review the documentation and if it is in order will
post the transaction to the general ledger
• The Treasurer will record the transaction in the cashbook.
Also, the departments should have online access to their MUNIS revenue accounts to
review and check that the deposit (receipts) is posted by the Accounting Officer (or
designee).
As another control, the Treasurer as custodian of the bank account, could be set up as a
Master Account and each department could have its own sub account to isolate each
respective department’s deposit activity.
17. Eliminate duplication in recording abatements and exemptions
Finding:
The Assessor’s office appears to have effective processes in place in terms of sound
documentation that is recorded with care through manual processes on manual
certificates and in manual logbooks. However there is a duplication of effort within the
Assessor’s office manual logs and records and the subsequent recording of the same
data/information within the MUNIS financial management system, which is inefficient.
Our finding specifically applies to the dual recording of real estate and personal property
abatements, real estate exemptions (veterans, surviving spouse etc) as well as to the dual
recording of motor vehicle abatements.
Real Estate Abatements and Exemptions – Current Process
Application is approved, amount to be abated is indicated and approval authority signs
the application.
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Town of Nantucket Review of Department of Finance
A handwritten manual certificate is prepared:
• One is retained in the Certificate Book,
• One is forwarded to the Collector and
• One mailed to the taxpayer.
The abatement/exemption information is then hand recorded in the logbook with name,
address. The abatements in the batch (group) are then totaled and recorded in the
logbook.
When the Collector’s office receives their copies of the abatement certificate, then the
Assistant Collector enters the abatement-processing feature of MUNIS and enters the
information to the respective taxpayers account. (The internal control weakness with
abatement activity in the Collector’s Office is discussed in the Internal Controls section
of this report). When the Collector enters the abatements for the period, the Collector’s
office and the Assessor’s office reconcile that specific MUNIS batch to the manual
abatement logbook.
The Collector’s staff has responsibility to post the abatement to the general ledger.
Motor Vehicle Abatements – Current Process
At present the Assessor’s Office does directly enter all motor vehicle excise (MVX)
abatements to the MUNIS system and the taxpayer receives a MUNIS generated
abatement certificate. However, all motor vehicle excise tax abatements are hand
recorded in the Motor Vehicle Abatement logbook.
Recommendation:
Real Estate Abatements and Exemptions
The Assessor’s Office should cease the use of manual abatement forms and logs. The
more efficient process that also provides controls is:
The Assessor’s staff should enter the abatement or exemption (as approved on the
Application form) to the respective taxpayer’s account in the MUNIS System. The
abatements should be entered in MUNIS on a daily basis, the Certificates processed and
mailed on a daily basis.
The Assessor’s staff should run a tape or Excel tally of the amounts on the approved
Abatement Applications compared to the amounts entered in the MUNIS abatement
batch to assure they reconcile. This information should be forwarded to the Collector and
to the Accounting Officer. Upon verification that the MUNIS batch total and the
Approved Application amount reconcile, the Accounting Officer (or designee) will post
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Town of Nantucket Review of Department of Finance
the batch to the general ledger and reduce the Overlay (Provision for Abatements and
Exemptions).
The Assessors will have in the actual file the date of the application for abatement and the
date of approval or rejection by the Abatement Advisory Committee.
The Collector’s office is eliminated from any entry and reconciliation activities. The
Accounting Officer simply would not post the abatement(s) if the source documents and
the MUNIS batch do not agree.
Motor Vehicle Abatements
We recommend that the manual recording in the logbook be eliminated. Once the
approved MVX authorization is reconciled to the batch entered to MUNIS then the
MUNIS listings can serve as the log/record.
18. Immediately implement formal monthly reporting to Audit Committee as
evidence of monthly cash reconciliation
Finding:
A major issue facing the Finance Department is the reconciliation of cash. The lack of
periodic and timely cash reconciliations has been a continual and significant finding of
the Town’s independent audit firm. They have also made procedural recommendations
to facilitate cash reconciliations, which they submitted in May 2008.
Recommendation:
The Finance Department is in the process of reconciling cash for FY 2008. Once FY
2008 is reconciled, cash must be reconciled for each month in FY 2009 within 20 days of
the close of the month to stay current and prove that “Cash” is reconciled. This issue is
so important that proof of the reconciliation must be submitted to the Audit Committee
by the 20th of each month.
As a supplement to the audit firm’s recommendation, we recommend that by the 20th of
the following month that the Treasurer and the Accounting Officer submit a Monthly
Bank Statement Reconciliation to Treasurer’s Cash Book report to the Audit Committee.
The reconciliation should present all of the following for each bank account:
The bank statement balance
Outstanding current checks
Outstanding checks more than 180 days
Unwarranted disbursements (current month)
Unwarranted disbursements (more than 30 days)
Deposits in transit (current month)
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Town of Nantucket Review of Department of Finance
Deposits in transit (more than 30 days)
Other adjustments (current month)
Other adjustments (more than 30 days)
A sample of the Monthly Bank Statements Reconciliation to Treasurer’s Cash Book is
presented in Appendix C.
The Accounting Officer should present a cash report identifying the cash transactions
booked to the general ledger for that month (i.e., daily cash receipts, vendor warrants,
payroll warrants, journal entries recorded to “Cash” and any other adjustments on the
general ledger).
The report shall be published and submitted with a cover letter signed by the Treasurer
and Accounting Officer with any items of note to the Town Manager and to the Audit
Committee as evidence of the monthly reconciliation.
This recommendation is also applicable to the monthly accounts receivable
reconciliations. In brief, the Audit Committee should receive a signed letter between the
officials who maintain the accounts receivable detail and the Accounting Officer that the
detailed receivables database and MUNIS general ledger reconcile at the end of each
month. This will apply to all receivables: real estate, personal property, motor vehicle
excise tax, Wannacomet Water, Siasconset Water, Sewer Utility, etc.
19. Report all “balances due” on Municipal Lien Certificates (MLCs)
Finding:
The Collector’s Office prepares Municipal Lien Certificates (MLCs) based upon requests
of law firms when a property is to be sold. The Collector’s Office responds promptly and
well within the ten days allowed per Massachusetts General Law.
Normally an MLC issued by the Collector’s Office in a Massachusetts’ municipality
presents for the law firm (and buyer) the outstanding balances for all committed receipts
(property tax and user charges, i.e. water and sewer balances due, if any). It is important
to present and convey this information on the legal document, the MLC, in order to
document the balances due and to protect the Town’s right to collect the money in the
future. When this information is not reported on the MLC, the Town’s rights/claims to
the monies are less than perfect.
An unusual situation in Nantucket is the fact that the water and sewer receivable system
is maintained by the Wannacomet Water Company (a department of the Town). They
use Inhance Utility Solutions Billing and Accounts Receivable system and not the
MUNIS utility billing and accounts receivable system. The Town’s collector does not
have access to this system.
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Town of Nantucket Review of Department of Finance
Since the Town’s Collector’s Office is not vested with the responsibility to accept
payments and maintain the accounts receivable detail for the Town’s water and sewer
activities, the Office does not provide information on water and sewer balances on the
MLC and refers the law firm (party requesting the balances due on the parcel/property) to
the Town’s water department (Wannacomet Water). As such the MLC is issued with
incomplete information that does not protect the Town’s rights in the future to claim
delinquent water and sewer balances. It is up to the law firm to have phone conversations
with Wannacomet Water regarding water and sewer balances, which does not achieve the
objective of formal reporting on an MLC to protect the Town’s rights.
Recommendation:
The Collector’s Office must be the sole authority to issue information on property tax and
user charge (i.e. water and sewer etc.) balances due (or not due) at the time of sale of a
property on the island. As such, we recommend that the Collector’s office report all
balances due on the property, as soon as practical.
To accomplish this, the Collector’s Office must have on-line access (for query) to
Wannacomet’s Inhance Utility Solutions Billing and Accounts Receivables
system/database. This on-line, remote access to the water department’s Billing and
Accounts Receivable should be set up immediately or as soon as practical. This database
contains the water and sewer balances due. The Collector must have assurance from
Wannacomet Water that the receivables are current (payments are recorded daily). So
commencing as soon as possible, the Collector’s Office will have access to all balances
due on the parcel from two databases: MUNIS and Inhance Utility Solutions.
20. Record all Accounts Receivables (Summary level transactions) on the MUNIS
general ledger
Finding:
The Town utilizes an integrated financial management, accounting and reporting system,
(MUNIS) for general ledger, accounts payable, payroll, purchasing, fixed assets, and cash
receipts. However, some receivables for Wannacomet Water, Siasconset Water, the
Sewer Utility, Landfill, and the Airport are decentralized in independent accounts
receivable systems.
When there are separate billing/accounts receivable databases the transactions that are
processed in those systems must be reported to the Accounting Officer of the
municipality and recorded on the general ledger of the Town., the legal record of all
accounting and accounts receivable activity: the billing commitments, the abatements,
the payments (receipts) and the refunds. That is the only way in which the general ledger
of the Town will reflect the accurate receivables.
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Town of Nantucket Review of Department of Finance
In order to fully utilize the general ledger component of the MUNIS system and to have
an accurate and current general ledger, it is essential that the MUNIS accounts receivable
module reports all receivables of the Town and that they be current and supported by
source documents. This is not the case with Wannacomet Water, Sewer, Siasconset
Water and the Airport receivables.
Over one year ago, the Finance Department took a positive initiative and developed and
issued an Accounts Receivable Policy and Procedures document. The document was
clear as to the reporting requirements and documents to be submitted by each Town
department that bills various accounts receivable (i.e. Wannacomet Water, Airport, etc).
Certain departments do not comply with the policy and do not provide the required
documents for recording of key transactions on the MUNIS general ledger of the Town.
The result is that the MUNIS system does not report timely and accurate receivables (at a
summary level) for these departments. When the receivables detail is resident with a
department, the summary level information must be recorded on a current basis on the
general ledger. Then the two balances (general ledger vs. detailed receivables system)
must be reconciled each month by the Accounting Officer (or designee).
For example, the Wannacomet Water department operates as follows: Wannacomet
Water bills for:
• Water use of its customers
• Water use of Siasconset Water customers
• Sewer use of customers (per an understanding with the Department of Public
Works).
As record of the billings for recording on the general ledger of the Town, Wannacomet
Water provides:
• No record of the Wannacomet commitment of billing each month
• Handwritten record of Siasconset Water commitment of billing with no
supporting/reconciling total from the Inhance Utility Solutions receivables system
• Handwritten record of Sewer billing with no supporting/reconciling total from the
Inhance Utility Solutions receivables system
With respect to abatements (release of charges), Wannacomet does not provide
documentation for either its own abatements, Siasconset abatements nor for sewer
abatements. Abatement activity (the release of committed charges) must be recorded
timely on the general ledger.
Also we note that commitments that have been submitted have been sent to the Treasurer.
The Treasurer of a municipality is not involved with receivables. All receivable
transactions must be submitted to the Accounting Officer who is the official responsible
for the general ledger.
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Town of Nantucket Review of Department of Finance
Recommendation:
Immediately all receivables transactions must be submitted to the Accounting Officer on
the date of the transaction so that the general ledger is accurate and reflects current
receivable balances. For example, when Wannacomet Water issues a commitment of
billing for Wannacomet, Siasconset and sewer user charges for the month/period, the
commitments must be signed and must be submitted with the supporting detail from the
Inhance Solutions Utility billing system to the Accounting Officer. At that point the
Accounting Officer will record the commitments on the general ledger.
Any abatements signed and approved by the abatement authority for Wannacomet,
Siasconset, Sewer, Landfill, and Airport must be submitted to the Accounting Officer
forthwith for recording on the general ledger to reduce the receivable.
At the end of each month, based on all the source documents submitted for recording on
the general ledger, the general ledger balance and the detailed receivables systems must
be reconciled. Without the provision of the required documents, this has not been
possible.
We have classified this issue under workflow and operations but it is also a serious
internal control issue as units of the Town government are committing, abating, refunding
and processing payments without providing key source documents to the Accounting
Officer to allow timely and accurate general ledger postings and related reconciliations.
21. Establish and maintain one accounting and financial reporting system
The Town owns an integrated accounting, financial reporting and financial management
system, the MUNIS system. As explained above (Finding 20) some billing and
receivables are accounted for in separate systems.
In addition certain departments most notably Wannacomet Water and Airport maintain
separate revenue and expenditure ledgers. Multiple accounting systems are inefficient.
The MUNIS system should be the system of record for all revenues, budgets and
expenditures as all cash receipts for all departments are posted to MUNIS and all budgets
and payables are recorded in MUNIS.
In addition in the future (if our recommendations are implemented), payables, payroll and
cash receipts will be entered by departments. As such, MUNIS should be the only
system for departments to refer to for a record of revenues, expenditures and budget to
actual reports.
Departments have on line access and report printing access to their accounts so MUNIS
will facilitate timely information and reporting. The Finance Director can determine if
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Town of Nantucket Review of Department of Finance
some departments should have additional training in MUNIS capabilities and whether the
Controller’s Office staff or MUNIS should provide the training.
22. Hire one audit firm to prepare one set of audited financial statements for all
Town departments and all Town funds
Finding:
For several years multiple audits have been done. One audit firm audits the Town wide
GAAP Financial Statements, and provides the management letter and federal funds audit
on a Town wide basis. The Airport and Wannacomet Water hire an different audit firm to
audit and prepare financial statements for those two departments and their enterprise
funds. There is no need for multiple audits when these are all units of the same entity, the
Town of Nantucket.
Recommendation:
The airport and water enterprise funds are enterprise funds of the Town of Nantucket as
reported on the Town of Nantucket’s Tax Recapitulation Sheet and financial statements.
The two departments are funded by appropriations of Town meeting. All of the
accounting activity of the two departments including their receivables must be recorded
on the general ledger consistent with the above recommendations. As such one firm
should audit all aspects of all financial activity of the Town and the Town should pay for
one annual audit.
23. Give Consideration over Long Term to Quarterly Tax Billing
Finding:
The Town issued quarterly tax bills commencing in 1997 though 2002. In 2003 due to
issues with converting property values from the VISION Tax Valuation system to the
MUNIS Tax Billing Module, a decision was made to revert to semi annual billing. Semi
annual billing reduces a municipality’s cash flows as revenues from the levy are only
billed in October and April and generally reduces funds available to the Treasurer for
investment and interest earnings.
Recommendation:
Once a community converts to quarterly billings, it usually maintains that practice to
continue to optimize cash flows and investment earnings. At this point in time, with the
various challenges and issues facing the Finance Department, we do not recommend that
the Town transition back to quarterly billings.
However it is an important issue for the Town to reconsider in a couple of years after
other priority issues presented in this report are resolved.
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Town of Nantucket Review of Department of Finance
24. Require timely submittal of reimbursement requests for reimbursement
projects
Finding:
There are long delays in the filings of reimbursements for reimbursement programs such
as Chapter 90. In many instances the Department of Public Works is responsible to
initiate reimbursement requests on its own schedule.
Recommendation:
The Finance Department should institute a practice such that when a Chapter 90 payment
is processed that it must be accompanied by a reimbursement request to Mass Highway
for reimbursement in order to maximize cash flow. The reimbursement request would be
reviewed by the Accounting Officer and submitted to Mass Highway concurrent with the
release of payment to the contractor.
This recommendation will eliminate the need to reconcile the cash balance deficit to the
amount of outstanding invoices awaiting reimbursement from Mass Highway, as
reimbursement filings will be current/timely.
25. Manage the tailings process on a timely basis in order to return “revenue” to
the books
Finding
The Finance Department does not investigate “uncashed” checks on a timely basis. In
addition, the Town has not published a listing of “uncashed” checks for several years in
order to determine if they are still a liability or whether they can be recorded as revenue.
It is important to monitor tailings (“uncashed” checks) on a timely basis and to return
funds that are no longer a liability to the general ledger as revenue.
Recommendation
The Treasurer should identify and research all “uncashed” checks (tailings) as a part of
the timely reconciliation of all bank accounts. All checks that are not cashed within 60
days of the date of issuance should be investigated. After sixty days, the Treasurer (or
designee) should send a notice of the “uncashed” check and the amount to the recipient of
the check at their last known evidence of this mailing. Also, the Monthly Bank Statement
Reconciliation to Treasurer’s Cash Book Report that must go to the Audit Committee as
part of our Recommendation No. 18 will report any checks that have not been cashed
after 60 days.
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Town of Nantucket Review of Department of Finance
Checks that are not cashed after 120 days should be reported to the Accounting Officer as
“uncashed” so the general ledger can be adjusted to increase “Cash” and to record a
corresponding liability.
26. Facilitate on line access to bank accounts to departments
Finding:
Wannacomet Water and the Airport operate as enterprise funds. The Town has
established several bank accounts for each enterprise. Cash receipts are directly
deposited into these accounts and are transferred to Town accounts for warrant
processing.
Wannacomet Water and the Airport do not have on-line access to all their bank accounts
nor do they receive bank statements. Without timely data, and limited to no on line
access to the bank accounts, and no bank statements, it is difficult to reconcile cash.
Recommendation:
Wannacomet Water and the Airport should receive bank statements and should have on-
line access to their bank accounts. Consistent with our recommendation above, it is also
essential that the enterprise funds’ bank cash be reconciled to the MUNIS ledger balance
(not subsidiary ledgers in those departments).
27. Need indirect cost methodology for certain departments/utilities
Finding:
Indirect costs represents costs incurred by the Town on behalf of the enterprise funds and
the School Department. An indirect cost plan should be documented and agreed to
between the Town, the enterprise funds and the School Department.
The Town and the School Department have a written indirect cost plan that has been
agreed to between the Town and the School Committee. However, the indirect costs are
not documented in an agreed upon, signed document between the Town and Wannacomet
Water, the Town and the Sewer Utility, nor the Town and Airport.
Recommendation:
Indirect costs should reflect services rendered by the Finance Department or the Town on
behalf of the enterprise funds. The Town and Wannacomet Water, the Sewer
Department, the Landfill, Siasconset Water, and Airport should agree to a written
documented methodology for Town services provided on behalf of the enterprise funds.
The indirect cost charges would be updated on an annual basis based on the
methodology.
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Town of Nantucket Review of Department of Finance
28. Employee Leave Balances
Finding
Employee vacation, sick and compensated absences benefits are maintained in the
MUNIS system. A number of departments (Wannacomet Water, Airport, and Public
Works) do not agree with the balances carried by the Town and thus maintain shadow
systems to track this information, manually. We have not researched the specific reasons
for this.
Recommendation
An accurate, centralized system can be a better way to ensure that employee leave
balance practices are in compliance with Town contracts, policies and procedures. The
Town should review this issue with these departments and resolve these differences.
29. Need to Facilitate School End of Year Report Filing
Finding
The End of Year Report is due to the Department of Elementary and Secondary
Education by September 30 of each fiscal year. For the past three fiscal years, the Town
did not file the EOYR timely. The filing dates were:
• FY07 (due September 30, 2007) was submitted on February 21, 2008.
• FY06 (due September 30, 2006) was school committee on March 21, 2007 and
municipal May 9, 2007.
• FY05 (due September 30, 2005) was submitted on March 24, 2006.
The FY06 submittal was in two parts. The March 21 submittal was filed without Town
costs incurred on behalf of the Schools. The May 9 submittal included the Town costs
incurred on behalf of the Schools. Absent required ESE data fields in MUNIS (see next
item), the School Department uses an extensive Excel system to report ESE required
information, which results in late End of the Year Report submittals.
Recommendation:
The School Department should be able to maximize the use of the MUNIS system
through a redesign of the chart of accounts. Once implemented, the preparation of the
EOYR would be much easier. See the School Chart of Accounts finding and
recommendation.
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Town of Nantucket Review of Department of Finance
30. Need to Restructure the Chart of Accounts
The classification structure is the vehicle by which accounting data is coded, processed,
posted and reported. The MUNIS system provides organization, account and project
codes as follows:
• Organization - eight segments with the first segment being a four character fund
code and seven segments of up to ten characters each with a maximum of 20
characters
• Account - segment nine, six characters for assets, liabilities, fund equity, revenues
and expenditures
• Project - Segment ten, five characters
The first segment is a three-character segment for fund. MUNIS reserves four characters
for Segment 1, whether four characters are used or not. Segment 2, UMAS Function, is a
three-character field for function where the School Department is coded 300. Segment 3
is a three-character field for department where the School Department is department 300,
Elementary 301, Middle School 302, High School 303, Central System 304, and Plant
305.
Additional codes are provided in Segment 3 for sub funds (i.e., detail revolving, grant,
gift funds). For example, the School Department will use Segment 3 codes for detail
within Fund 24, Fed & State Grants Education and within Fund 26, Revolving Funds
Education.
Segment 4, Sub, where the School Department uses codes for state program (SPED) and
grade level (elementary, secondary) and location (middle school, high school).
Segment 5 (DOE/DOE) is a four-character field for state function codes. The School
Department has many state function codes to use in the system including functions 1100
– 4450.
Segments 6, 7, and 8 are not used. Segment 9 is the MUNIS object code segment for
assets, liability, fund equity, revenue and expenditure accounts. Segment 10, project, is
not used.
Finding
The current structure satisfies the Department of Revenue requirements for fund, UMAS
function, department and object for expenditure accounts and fund and object for revenue
and balance sheet accounts. The current structure however does not provide Department
of Elementary and Secondary Education (DESE) required reporting data elements for
location, all state functions, all state programs, state object, and all grade levels. (Note
that the DESE has not required grade level reporting since 2003; grade level reporting is
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Town of Nantucket Review of Department of Finance
still an accounting requirement in the regulations). The chart of accounts also does not
support program based budgeting for the Town.
The MUNIS system is underutilized and some of the segments provide more than one
informational element:
• Segment 2, UMAS Function, is a mixture of school department function 300 and
other school codes such as 301 Elementary, 302 Middle School, 303 High School,
304 Central System, and 305 Plant.
• Segment 3, Department, is a mixture of school department (300) and other school
codes such as Title 1 301, Special Needs 305, Child Evaluation 306, School
Committee 311, Superintendents Office 311 and 312, transportation 333, and
other codes.
• Segment 4, Sub, is a mixture of grade level and location codes.
• Segment 5, state function, does not include all the DESE required state functions.
It is missing for example, 2305 classroom teachers, 2310 specialists and functions
in the 5000 through 9000 ranges.
A redesign of the MUNIS system would provide the School Department needed data
elements and would provide a vehicle to provide timelier reporting. A redesign would
also support program based budgeting.
Recommendation:
An alternative structure follows for the Town and School’s consideration. This
alternative provides for the same fund, function, department, sub and state function in
segments 1 – 5 and object in segment 9. This structure, however, expands some of these
segments and provides two-character fields for location and program, a four-character
field for function, and one-character fields for state object and grade level, thus allowing
for each segment to be unique. This provides a 20- character organization structure, and
allows room in Segment 8 and the project segment for another use.
Object Project
Seg1 Seg2 Seg3 Seg4 Seg5 Seg6 Seg7 Seg8 Seg9 Seg10
Fund Function Dept Sub DOE/DOR Location State Obj Other Obj Not Used
XXX XXX XXX XX XXXX X X X XXXXX
43324112
Org
This alternative structure, or something similar to it, would require a full conversion of
the chart of accounts. The Town and School Department should:
1. Redesign the chart of accounts to include all required DESE requirements.
2. Redesign Segment 3, Department, to be one use.
3. Revise Segment 4, Sub, to include grade levels for regular day, SPED, ELL,
Voc/Occ Ed, after school, and undesignated.
4. Expand Segment 5, state function, to include ALL state function codes.
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5. Include a separate segment for location, separate from grade level.
6. Include a state object code segment for professional salaries, clerical salaries,
other salaries, contracted services, supplies, and other.
7. Consider other informational needs such as subjects (math, science, and the like)
in the org structure.
8. Consider reducing Segment 2, UMAS Function, to one-character, if additional
characters are needed elsewhere.
As part of this redesign, the Town should review the fund structure for all fund types.
The Town segregates each individual grant by organization code within two funds on the
general ledger without identifying which organization codes represent federal grants.
The Town identifies the funding source of each grant outside of the MUNIS system. A
redesign of the fund structure in MUNIS can eliminate the grant sub system and provide
a more efficient way of identifying federal funds.
The Town would like to reform its budget practices and integrate department goals and
performance data as part of a program or performance based budget. As part of this
redesign, the Town should review the Town’s service delivery system, define its
programs within each department, and establish program codes within the chart of
accounts for program/performance budgeting.
31. Document financial policies and procedures
Finding:
The Town does not have an internal procedures manual that defines the responsibilities of
each position within the Finance Department. As a result, procedures may not be
completed. This report suggests new financial policies and procedures to strengthen
internal controls or to improve efficiency and effectiveness.
Recommendation:
The Town will need to document the financial policies and procedures. Formally
documented procedures and responsibilities of each position would clarify the process
and ensure the intended internal controls are achieved.
C. ORGANIZATION AND STAFFING
32. Need for clear dichotomy between treasury functions and accounting functions
Finding:
There is no clear division and separation of duties between the Town’s Treasury function
and the Accounting/Control functions as referenced in some of the above findings. This
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Town of Nantucket Review of Department of Finance
does not assure sound “checks and balances”. The Treasurer should not oversee activities
related to postings to the general ledger; these are functions of the Accounting Officer
and the Controller’s Office that reports to the Accounting Officer (the Director of
Finance).
Recommendation:
Remove accounts payable and payroll processing and review activities (and the two staff
positions) from the Treasurer and reassign to the Controller. The payments to vendors
and to employees are transactions posted to the general ledger of the Town, which should
be under the management and control of the Accounting Officer/Controller not the
Treasurer. These positions should report to the Controller and should process transactions
only based on training and directives provided by the Controller and Accounting Officer.
The role of the Treasurer is to disburse payables and payroll checks after the payroll
warrant and payables warrant are prepared by the Controller’s staff and signed by the
Accounting Officer and the Board of Selectmen based on adequate documentation.
At that point the Treasurer shall transfer funds from the relevant bank accounts to fund
such warrants and then the Treasurer (or designee) should oversee the mailing and release
of the checks.
The additional benefit of this recommendation is that it will allow the Treasurer to focus
primarily on cash, the Cash Book, bank statements, payment of all state and federal
payroll taxes and the periodic issuance of debt. Appendix C presents the Recommended
Organization.
33. Need to assign clear responsibilities and accountabilities to the “Accounting
Officer” and to the Controller
Finding:
The Nantucket Town Code as adopted in 1989 sets forth that the position of Director of
Finance shall serve as either the Accounting Officer or the Treasurer of the Town. The
current Director of Finance chose to serve as the Accounting Officer. As such the
Director of Finance is the Accounting Officer and as importantly the Town’s
Accountant” per all the various statutory references in Massachusetts General Law
relative to certifying funds, signing contracts and agreements, certifying and signing
forms (i.e. financial schedules of Tax Recap Sheet, Free Cash worksheet, Schedule of
Indebtedness, Schedule A, DOE’s End of Year Report etc.) The Director of Finance (as
Accounting Officer) for example is responsible for the accuracy of the general ledger and
for various certifications subject to the “penalties of perjury”.
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Town of Nantucket Review of Department of Finance
The Department of Finance also has the position of Controller. Unlike the “Accounting
Officer”, the Assessor, the Collector and the Treasurer, the Controller has no statutory
responsibilities pursuant to Massachusetts General Law.
There does not appear to be a clear delineation of responsibility between the “Accounting
Officer” and the Controller. The identification of responsibilities between the two
positions going forward is essential for both the Audit Committee and Town Manager in
order to measure performance and assure accountability between the two positions and
the two incumbents.
Recommendation:
The Director of Finance, as Accounting Officer, is responsible for the Town’s
compliance with all accounting and financial reporting activities required per
Massachusetts General Law.
Our report has presented recommendations that modify the current role of the Director of
Finance. Specifically we have recommended removal of any detailed role of the Director
of Finance in the reconciliation of the Cash Book, and in the reconciliation of bank
statements. These recommendations enhance segregation of duties and allow more time
for the Director of Finance to focus on accounting, reconciliation of the general ledger,
financial reporting and monitoring and control of the general ledger.
We have also recommended that the Assistant Director of Finance be the Town’s
principal budget officer responsible for budget, financial forecasting and capital
improvement planning and programming. The Director of Finance should have very little
involvement in these activities due to the critical need to improve the Town’s accounting
and financial reporting. Based upon the skill set of the Assistant Director of Finance,
which is a relatively new position, this position should be the principal contact through
the Town Manager, to the Finance Committee, Board of Selectmen and to the Capital
Planning Committee. The Town Manager and the various committees and boards should
understand this. This again is important to allow the Director of Finance as Accounting
Officer to focus on closing the books, preparing adjusting entries and balance sheets and
Free Cash worksheets.
This clear designation of responsibilities is intended to focus the Director of Finance on
accounting and to minimize the Director’s role in the budget, CIP and forecasting areas.
Also, to assure sound segregation of duties, the Director of Finance is removed from any
detailed role in treasury functions and activities. The Assistant Director of Finance will
also serve as “Assistant Treasurer” which is solely a back up role to the Treasurer in the
event of absence of the Treasurer to assure the timely and forthwith transfers of funds to
cover payroll and payables warrants of the Town.
The Town had a staff accountant position until approximately one year ago and then the
position was upgraded to Controller. The Town now has a full time
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Town of Nantucket Review of Department of Finance
Controller/Accountant position. In our view, the opportunity (with changes recommended
herein) to have the Finance Director spend 50 to 60% of her time on critical accounting
needs, results in 1.6 FTE of high level staff designated to accounting functions. It is
important for the Finance Director and the Controller to delineate each role to the Audit
Committee and to the Town Manager in addressing the accounting and reporting needs to
the standards of the audit firm and DOR. There should be specific accountabilities for
each official.
Also, we recommend that the Finance Director and Controller be the staff to the Audit
Committee. The Assistant Finance Director should not attend Audit Committee meetings
and should focus on the other areas identified above.
34. Need to remove Human Resources/Personnel functions from the Finance
Department
Finding:
The Treasurer spends 55% of her time on personnel related and payroll related activities.
The payroll assistant spends a portion of her time on set up and entry of personnel
action/personnel administration (non payroll) data to the MUNIS system and additionally
the Assistant Director of Finance spends a small portion of time on personnel related
activities (beyond the position control activity). As explained in Recommendation 32
above, the payroll warrant activities and accounts payable warrant activities should be
transferred to the Controller’s Division that is functionally the correct area of the Finance
Department for preparation and review of the warrants to the standards of the Accounting
Officer. Also, all personnel administration, benefits administration and maintenance of
MUNIS Personnel (non payroll) data and modules should not be a function of the
Treasury Division of the Finance Department.
Personnel administration and benefits administration are functions of the Human
Resources Department, not the Treasury. The performance of these activities, set up of
new employees, counseling and assisting employees with benefits and deductions as well
as HIPPA issues impedes the Treasurer and the Treasury Division’s ability to focus on
and accomplish their principal function to be the custodian of the Town’s cash and to
reconcile bank statements and maintain a timely and accurate cash book.
Recommendation:
Transfer personnel administration, benefits administration, employee assistance with
deductions and benefits to the Human Resources Director. This will allow the Treasurer
and other Finance Department staff to focus on key priorities: financial control, cash
management and reconciliations. This recommendation transfers work activities from
the Finance Department and will free up time of staff to focus on needed finance
activities.
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Town of Nantucket Review of Department of Finance
We do recommend the addition of one new position, an administrative support position to
the Human Resource Director for all of the MUNIS personnel action, personnel
administration and benefits related work as well as responsibility MUNIS personnel
modules. Specifically the Human Resource Director and the new administrative position
would be responsible for data entry, administration and oversight of the personnel files
and modules of MUNIS exclusive of all the payroll processing which would continue, of
course to be a responsibility of the Finance Department, Controller’s Division. The “time
and attendance” activity as explained above would be decentralized to the departments.
The MUNIS system through appropriate workflow design would flow the personnel
actions: new employee, authorized rate of pay, promotion information, step increases etc.
to the Payroll Module. This also promotes stronger internal controls as the person and
the unit within the Town structure that pays the employees will have no authority to set
them up in MUNIS. However, the need for a strong control role of Finance is enhanced
as the Controller’s Division, now responsible for payroll, will also “pre-audit” entry
(periodically) of the Human Resources Department. Moreover, based on other
recommendations we have made the Finance Department’s control role is also improved
to assure budgetary compliance by virtue of the fact that Finance must “sign off” on the
Personnel Action Form (PAF) in the future and will also approve the newly
recommended Requisition to Hire, again to assure budgetary compliance.
35. Need to assign “Assistant Treasurer” from current staff
Finding:
At present the position of Treasurer is the only one in the Finance Department that can
sign Town of Nantucket checks and is the only one who can transfer funds from bank
accounts to provide funding for the payroll warrant and the accounts payable (vendor)
warrants. If the treasurer is absent or on vacation, there is no back up position with
authority to sign checks or with authority to transfer monies between bank accounts in
order to fund the warrants.
Recommendation:
In combination with our other recommendations for changes in the Treasurer’s Division
of the Finance Department, we do not recommend the addition of a new position to be
“assistant treasurer”. We recommend that pursuant to M.G.L. Chapter 41,Section 39A
that the Treasurer, with the approval of the Board of Selectmen, appoint an “assistant
treasurer” from the current staff of the Finance Department. Per statute the position need
not be a member of the Treasurer’s staff and based on sound division of responsibility to
assure sound segregation of duties, the “assistant treasurer” should not be anyone who
works in the accounting/controller’s division, nor the Finance Director (who is the
Accounting Officer).
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Town of Nantucket Review of Department of Finance
The most appropriate position to assume this responsibility is the Assistant Director of
Finance. Again the assignment of this responsibility is solely in the absence of the
Treasurer. The Assistant Director of Finance (as “Assistant Treasurer”) would serve
solely as a back up position to sign any needed checks and to authorize the transfer of
monies between bank accounts to fund warrants. The Assistant Director of Finance
would need to be bonded and sworn in to office. As one additional option, the Assistant
Town Manager could be the position to serve as “assistant treasurer”.
36. Assignment of Additional Responsibilities and Cross Training of the Executive
Assistant to Finance Director)
Finding:
The position of Executive Assistant to the Finance Director is focused on taking minutes
(Finance Committee, Audit Committee and internal departmental meetings) and on
correspondence, purchasing for the Finance Department and entry of wire/manual
payments for the accounts payable warrant. The position also enters “payables” for wire
transfers. The Finance Department has many functions and responsibilities of greater
priority that require support and assistance.
Recommendation:
We recommend that this position be trained as a back up position for review and
processing of the accounts payable warrant as well as for review and processing of the
payroll warrant under the oversight of the Controller. These are two fundamental and
essential functions that must be performed every week.
Currently there is no back up for the accounts payable warrant and this position cannot
take vacation, except “between” accounts payable warrants. There is an essential need
for immediate training to provide back up for these two essential functions.
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Town of Nantucket Review of Department of Finance
IV. Finance Department and Financial Activities in the Future
There has been much focus on the fact that the Finance Department is chronically late in
reconciling the cashbook to the general ledger; this is the result of many larger issues
within the department. Our study has found serious weaknesses in the Department
including:
• Misplacement of functions and responsibilities
• Consolidation of responsibilities with one individual or unit that instead must
be segregated to assure sound internal controls
• Lack of understanding of the treasury function vs. the accounting function
• Lack of understanding of the need to centralize controls and posting
authorities
• Lack of sound management and control of the general ledger which risks the
integrity of the general ledger
• Serious and long standing weaknesses in internal controls
• Duplicate accounting systems within the town and maintenance of
decentralized financial records due to lack of confidence in the Finance
Department’s record keeping
• Deficiencies in the flow and reporting of information to the Accounting
Officer
• Need for recording and reporting of all departments financial activities on the
general ledger
• Processing of transactions without the authorizing documents
• Lack of fundamental understanding of why core financial activities or controls
are necessary
• No clear understanding that the Finance Department must control and monitor
financial activity and status
• Weak pre audit and control role of the Department
Section IV. presents a four page table: Summary of Recommended Changes: Today
versus Future that presents what we believe must change in terms of the organization,
transfer of responsibilities, internal controls, operations, workflows, reporting and
segregation of duties.
The Finance Department must change its fundamental role and become a pre audit and
control entity responsible for the accounting and reporting of all Town departments’
financial transactions, over the course of the next couple of years. The Finance
Department is at a critical point in its ability to accomplish the accounting and financial
reporting necessary to meet DOR and ESE requirements and in proving the capacity to
prepare and present timely and accurate reports of financial activity. The Finance
Department going forward must:
48
Town of Nantucket Review of Department of Finance
• Have internal controls documented and procedures in place
• Be current with respect to audits and state reporting.
Our review of the Department indicates that the Assessing Division and Collector’s
Division can operate independently which is positive in that the Director of Finance can
focus on the key priority: accounting and financial reporting. Also, the Assistant Director
of Finance can focus on and address the development and preparation of the annual
budget (with the Town Manager’s office), the capital improvement program and the
financial forecast. It is also important that there be segregation of duties between the
Director of Finance as Accounting Officer and correspondingly not being involved in
Treasury functions such as reconciliation of the Cash Book to bank statements. All of
these factors should promote and allow total focus of the Accounting Officer (Director of
Finance) and the Controller on the number one priority for the department: accounting
and financial reporting.
The most immediate recommendation for accountability is that cash be reconciled
monthly. We have included a sample cash reconciliation report to facilitate this task. By
reconciling cash monthly, cash balances and revenues and expenditures are monitored
and recorded properly, thus addressing the auditor’s qualifications on the opinion letter.
We are recommending that monthly reports documenting the reconciliation of cash be
delivered and presented to the Audit Committee. When cash reconciliations are up to
date then each month going forward:
• Cash be reconciled monthly by the 20th of the next month
• Cash reconciliations along with accounts receivable reconciliations (real estate,
personal, motor vehicle excise, police details, Wannacomet water, sewer, Airport,
etc) must be reported monthly to the Audit Committee.
These reports to the Audit Committee are fundamental to demonstrate that the
reconciliation of cash as well as the reconciliation of receivables is under control on a
current basis.
Today the Finance Department does a lot of processing; the recommendations herein
strive to position the Finance Department as a pre-audit, review and control entity
allowing more time for analysis. Our recommendations decentralize MUNIS entry to
departments in order to promote the review and control function of the Finance
Department. Our recommendations remove posting authority to the general ledger from
all excepting the Accounting Officer and staff in the Controller’s Division, as they are
responsible and accountable for the integrity of the general ledger of the Town. Posting
should only be done after they are satisfied and have reviewed the financial transactions
to their standards. The reporting (documents) to the Accounting Officer must be separate
from those to the Treasurer as a basic check and balance of the general ledger to the cash
book. The Finance Department in the future must control the financial transactions and
reports of all departments of the Town through timely and accurate reporting on the
general ledger, with one integrated financial management system.
49
IV. Summary of Recommended Changes Today versus FutureTopic Today Recommended for ImprovementTransfer of Responsibilities for Improved Reporting, Checks and Balances and Internal Controls:AAccounts Payable Function and AP Warrant Treasury Division Controller's DivisionBPayroll Function and Payroll Warrant Treasury Division Controller's DivisionCPayroll "Time and Attendance" Entry Entered in Treasurer's Office Decentralize to each Department DPersonnel Administration, MUNIS Processing of Personnel Actions, Benefits AssistanceTreasury Division Human Resources OfficeECash Receipts Entry Treasury DivisionDecentralize to each Department (retain some in Treasury)FCash Receipts Posting Treasury Division Controller's DivisionGReal Estate Abatement Entry Collection Division Assessor's DivisionHReal Estate Abatement Posting Collection Division Controller's DivisionIPersonal Exemption Entry Collection Division Assessor's DivisionJPersonal Exemption Posting Collection Division Controller's DivisionKTax Refunds (Real, Personal, MVX) Posting Collection Division Controller's DivisionLReporting of Balances on MLCsCollection Division and Verbal Communication with Wannacomet WaterVest all Authority in Collection Division50
IV. Summary of Recommended Changes Today versus FutureTopic Today Recommended for ImprovementMGeneral Ledger Posting Authority - Treasury Staff Unlimited NoneNGeneral Ledger Posting Authority - Collection Staff Payments, Abatements and Refunds NoneOGeneral Ledger Posting Authority - Assessor's Staff MVX Abatements NonePRemove Posting Authority of Other Departments Remove from Depts. All Posting in Controller's OfficeQBack up Treasurer for Emergencies and Absences None Appoint Assistant Treasurer (as back up)Improved Operations, Controls or Reporting for "Checks and Balances"RCash Drawer in Collector's Office Shared Separate drawer for each stafferSTransmittal of "Departmental Payments to the Treasurer" Report To TreasurerOne Document to Treasurer and separate copy to Accounting OfficerTTransmittal of Collector's Daily Turnover To TreasurerOne Document to Treasurer and separate copy to Accounting OfficerUTransmittal of Wannacomet's Billed Commitments with supporting Documentation Not DoneSigned Commitment and Supporting Documentation to Accounting OfficerVTransmittal of Siasconset Water's Billed Commitments with supporting Documentation No Supporting Documentation SubmittedSigned Commitment and Supporting Documentation to Accounting OfficerWTransmittal of Sewer Utility's Billed Commitments with supporting Documentation No Supporting Documentation SubmittedSigned Commitment and Supporting Documentation to Accounting OfficerXTransmittal of Wannacomet's Abatements with supporting Documentation Not DoneSigned Abatement and Supporting Documentation to Accounting Officer51
IV. Summary of Recommended Changes Today versus FutureTopic Today Recommended for ImprovementYTransmittal of Siasconset Water's Abatements with supporting Documentation Not DoneSigned Abatement and Supporting Documentation to Accounting OfficerZTransmittal of Sewer Utility's Abatements with supporting Documentation Not DoneSigned Abatement and Supporting Documentation to Accounting OfficerAAProvision of Receipt by Treasury staff to Department's Turning over Cash and Checks Not always done Mandatory to Provide Receipt BBProvision of Cash Register Tapes for Significant Departmental Turnovers to the TreasurerNot Done Initiate for Large $$ TurnoversCC2 Bank Accounts Not under Custody of TreasurerCheck writing authority vested with 2 town officials Remove authority and sole authority must be TreasurerDDFormal Authority for Finance Dept. to Sign Personnel Action Forms and to Approve Requisitions to HireAuthority and Process doe not provide for "sign off" by Finance Dept.New Forms and Sign off process to include Finance Dept. upfront and process to assure ControlEERecording of Real Estate Abatements and Exemptions Dual Systems One system of recordFFChapter 90 Reimbursements Long After Payment to VendorsSimultaneous submittal of Reimbursement Request to Mass Highway with Release of Payment to VendorGGTailings No current processing Timely and more current process to increase revenueHHEntry and Set up of New Vendors in MUNIS Decentralized throughout town departmentsCentralize in procurement staff within Town Manager's OfficeIIMUNIS Budget Controls Not turned on ActivateJJMonthly Reporting and Attestation of Cash Reconciliation and Accounts Receivable Reconciliation to Audit Committee No evidence of Reconciliations SubmittedMandatory Evidence and Report to be Submitted to Audit Committee by 20th of following monthKKNumber of Audit Firms Two One52
IV. Summary of Recommended Changes Today versus FutureTopic Today Recommended for ImprovementLLSchool Chart of Accounts Does not facilitate ESE Reporting Requirements Restructure to facilitate reporting to ESEMMTreasury Designee to Sign Checks and Transfer Funds between Bank Accounts (back up) NoneAssign to Assistant Director of Finance or to Assistant Town Manager53
Town of Nantucket Review of Department of Finance
V. Implementation Plan
This section of the report presents an implementation plan or guide for each
recommendation in Section III. It assigns a level of priority to each recommendation,
(critical, very high, high or moderate). It assigns a suggested time frame for resolution
and it places accountability with the position or positions that should see that the
recommendation is accomplished.
After the first phase of The Abrahams Group Report, the Town will work with us to
develop a detailed implementation plan. The second phase will focus on implementing
new financial controls, transferring functions within the Finance Department, transferring
functions to the Human Resources Department, transferring time and attendance entry to
departments, training, documenting financial policies and procedures, and other tasks as
necessary.
Leadership and Accountability
Going forward, Nantucket must be able to establish proper internal controls and meet key
accounting and financial reporting deadlines pursuant to the internal standards it sets and
for reporting to the Department of Revenue.
The Board of Selectmen and Town Manager must support the change in the fundamental
role of the Finance Department. It is also important that the Board, the Audit Committee.
and the Town Manager must require that the water department(s), the airport and all
departments identified in the report adopt the changes to achieve the recommendations
and comply with the recommendations in order to improve the financial controls,
processes and procedures.
We hope the recommendations in this report will help set the foundation to make changes
in the orientation, organization and priorities of the Finance Department. Ultimately, the
Town will need to assign responsibility and hold people in the Finance Department as
well as in other identified departments accountable to meet these objectives.
54
Town of NantucketDepartment of FinanceImplementation PlanNumberRecommendation Priority Timeline AccountabilityINTERNAL CONTROLS: Cash Receipts and Collections1Eliminate Treasurer’s general ledger posting authoritiesVery High Immediate Finance Director2Need for independent reporting of receipts and collections to the Accounting OfficerHigh Immediate Finance Director3 Need to provide receipt for cash/checks by Treasurer’s Office at time of delivery of fundsHigh Immediate Treasurer4 Internal control weaknesses based on job design for abatement entry and payment entry to accounts receivable system.High Immediate Finance Director5 Transfer bank accounts that are not under custody of Treasurer to the Treasurer’s custodyHigh Within 30 days Treasurer6Require submittal of cash register tapes (proof of sales) for major turnovers to the Treasurer and Accounting OfficerModerate Within 90 daysFinance Director and Controller7 Eliminate the practice of sharing a “cash drawer” in Collector’s OfficeModerate Within 30 days Finance Director and CollectorINTERNAL CONTROLS: Payroll and Personnel Actions:8Internal control weaknesses based on job design for new employee entry/pay adjustments and responsibility for payroll processingHigh ImmediateFinance Director, Assessor and Collector9 Finance Department must review and approve Personnel Action Forms (PAFs) and Recruitment Requisitions (new form)High Within 60 daysAssistant Finance Director, H. R. Director and Town Manager10Payroll is processed without authorization document to allow the actionHigh ImmediateFinance Director and Controller11Departmental payrolls submitted and processed without department head’s signatureHigh ImmediateFinance Director and Controller55
Town of NantucketDepartment of FinanceImplementation PlanNumberRecommendation Priority Timeline AccountabilityINTERNAL CONTROLS: Vendor Transactions and Accounts Payable12Widespread decentralized MUNIS rights to create new vendors presents a weakness in internal controlsHigh Within 30 daysFinance Director and Town Manager13Need to activate MUNIS budget controls (and require transfers)High Within 6 monthsFinance Director and Asst. Finance Director14Require receiving reports with invoices in order to authorize payment of invoices for goods, materials or equipmentModerate Within 6 to 9 monthsFinance Director and ControllerWORKFLOWS AND WORK PROCESSES15 Decentralize “Time and Attendance" entry of payroll in order to optimize finance staff time, to create efficiencies and improve controlsHigh Within 9 to 12 monthsFinance Director and Controller16Decentralize “Cash Receipts” entry to departments in order to optimize finance staff time, to create efficiencies and approve controlsHigh Within 9 to 12 monthsFinance Director and Treasurer17Eliminate duplicate systems for recording abatements and exemptionsModerate Within 6 monthsAssessor18Immediately implement formal monthly reporting to Audit Committee as evidence of monthly cash reconciliation, accounts receivable reconciliation and budget reconciliationCritical ImmediateFinance Director and Controller19Report all "balances due" on Municipal Lien Certificates (MLCs)High Within 60 daysFinance Director and Collectorand IT Director20Record all Accounts Receivables Transactions of MUNIS General LedgerVery High ImmediateFinance Director and Controller21Establish and maintain one accounting and financial reporting system (General Ledger)High Within 12 to 18 monthsFinance Director and Controller with Wannacomet and Airport Controllers56
Town of NantucketDepartment of FinanceImplementation PlanNumberRecommendation Priority Timeline Accountability22Hire one audit firm to audit one set of GAAP Annual Financial StatementsModerate Within one yearAudit Committee23Give long term consideration to reinstitution of quarterly billingModerate In 3 to 4 yearsFinance Director, Assessor and Collector24Require timely submittal and control of key reimbursements such as Chapter 90Moderate Within 3 to 6 monthsFinance Director and Controller25Manage the tailings process on a timely basis in order to return "revenue" to the booksModerate Within 6 monthsFinance Director and Treasurer26Facilitate on line access to bank statements Moderate Within 60 daysTreasurer27Need an agreed upon documentation for indirect cost allocation for certain departments/Moderate Within 6 to 12 monthsFinance Director and Controllerutilities28Need to centralize and assure accuracy of employee leave balancesModerate Within 3 monthsFinance Director and Controller29Need to facilitate School End of Year Report FilingModerate 1 to 2 yearsSchool Business Manager and Controller30Need to restructure chart of accountsModerate 1 to 2 yearsSchool Business Manager and Controller31 Document financial policies and proceduresModerate Ongoing Assistant Finance DirectorORGANIZATION AND STAFFING32Need for clear dichotomy between treasury functions and accounting functionsHigh Within 60 daysFinance Director, Controller and Treasurer33Need to assign clear responsibilities and accountabilities to the “Accounting Officer" and to the ControllerHigh Within 30 daysFinance Director, Controller and Town Manager57
Town of NantucketDepartment of FinanceImplementation PlanNumberRecommendation Priority Timeline Accountability34Need to remove Human Resource/Personnel functions from the Finance DepartmentHigh Within 90 days Town Manager35Need to assign “Assistant Treasurer” role to current staffModerate Within 60 daysTreasurer and Board of Selectmen36Assignment of additional responsibilities and cross training of the Executive Assistant to the Finance DirectorModerate Within 60 daysFinance Director and Controller58
Appendix A
Town of Nantucket
Review of the Finance Department
List of Individuals Interviewed
Department of Finance
Management Division:
Connie Voges Director of Finance
Irene Larivee Assistant Director of Finance
Craig Abernathy Executive Assistant
Assessing Division:
Debbie Dilworth Assessor
Ellen Trifero Assistant Assessor
Maureen Diluca Field Assessor
Elizabeth Flanagan Administrative Assistant
Patricia Giles Senior Clerk
Thomas Erichsen Data Collector
Collections Division:
Elizabeth Brown Collector
Pamela Butler Assistant Collector
Trisha Murphy Administrative Assistant
Treasury Division:
Deb Weiner Treasurer
Wanda Hilts Accounts Payable Assistant
Krista Lewis Cash Receipts Assistant (substitute for Payroll)
Controller’s Division
Bob Dickinson Controller
Kathy Richen Operations Coordinator/Bookkeeper
Robin LaPiene * Accounting Clerk
External to Finance Department
Libby Gibson Town Manager
Malachy Rice Assistant Town Manager
Pat Perris Human Resource Director
Linda Rhodes IT Director
Linda Bradbourne Assistant Town Clerk
Charles Gibson Deputy Chief of Police
59
List of Individuals Interviewed (continued)
Sheila Clinger Administrative Assistant – Police Department
Heidi Holdgate Wannacomet Water
Robert Gardner Wannacomet Water
Glen Field School Business Manager
Michael Kopko Board of Selectmen
Patty Roggeveen Board of Selectmen
James Kelly Finance Committee
Mathew Mulcahy Finance Committee
Al Peterson Airport
Tina Smith Airport
Jeff Willett DPW Director
Patty Rottmeier Former Town Accountant
James Powers Powers & Sullivan, CPAs
Renee Davis Powers & Sullivan, CPAs
Barbara Dakin Department of Revenue, Bureau of Accounts
* Telephone interview after on job for one month
60
Appendix B DEPARTMENT OF FINANCE as of August 2008 *Management Division:AbatementAdvisoryCommittee Assessor Collector Treasurer Controller*All positions represent 1 Full Time Equivalent (FTE) unless noted otherwise**Serves As Accounting Officer per Section 19-11 of Town CodeFinance Director **AssessingCollectionsTreasuryControllerAssistant Finance Director Executive Asst. to Finance DirectorField AssessorProperty Lister (.5)Assistant AssessorAdmin. AssistantSenior ClerkAssistant CollectorAdmin. AssistantPayroll AssistantAccounts PayableAssistantCash Receipts AssistantOperations BookeeperStaff AccountantAccounting Clerk61
Town of NantucketAppendix CMonthly Bank Statement Reconciliation to Treasurer's Cash BookTreasurer'sBank Outstanding Outstanding Unwarranted Unwarranted Deposits Deposits All otherAll otherAdjusted CASHListing of Statement Checks Checks Disbursement Disbursement in Transit in TransitAdjustmentsAdjustments Bank BOOKVarianceBank Accounts Balance (Current) More than 180 days* (Current Month) (More than 30 days)* (Current Month) (More than 30 days)* (Current Month) (More than 30 days)* Balance Balance12345678910111213141516171819202122232425262728TOTAL* Detail Attached62
Appendix D DEPARTMENT OF FINANCE Recommended StructureManagement Division:AbatementAdvisoryCommittee Assessor Collector Treasurer Controller*All positions represent 1 Full Time Equivalent (FTE) unless noted otherwise**Serves As "Accounting Officer" per Section 19-11 of Town Code***Treasury Division: Transfers Personnel Functions of Treasury to Human Resource Department and Transfers Accounting/Warrant staff to Controller/Accounting Division of Finance DepartmentFinance Director **AssessingCollectionsTreasury ***ControllerAssistant Finance Director Executive Asst. to Finance DirectorField AssessorProperty Lister (.5)Assistant AssessorAdmin. AssistantSenior ClerkAssistant CollectorAdmin. AssistantCash Receipts Assistant Operations BookeeperStaff AccountantAccounting ClerkAccounts Payable AssistantPayroll AssistantMore Emphasis on Accounting and Reporting with more independenceof other Divisions of the Department63