HomeMy WebLinkAboutAbrahams Group Interim Report_201401221339145572
Town of Nantucket
Organization Review
of the
Finance Department
Interim Review of Implementation of
September 2008 Recommendations
August 2009
Table of Contents
Page
Introduction 1
Phase 1 Implementation 2
Phase 2 Implementation 11
Conclusion 15
Appendix A, Matrix
Town of Nantucket Department of Finance Interim Review
INTRODUCTION
The Abrahams Group issued an Organization Review of the Finance Department in
September 2008. The report consisted of 36 major recommendations dealing with
internal control weaknesses, workflow and operations, and organization and staffing. To
implement these recommendations, two plans were developed. Phase 1 focused on the
sixteen (16) priority recommendations generally relating directly to the Finance
Department. Phase 2 focused on the ten (10) priority recommendations generally relating
to Town Administration and Human Resources. The remaining 10 recommendations
have yet to be addressed. These plans were deferred until the FY 2008 audit was
completed, the 2009 annual town meeting was completed, and progress was achieved on
the Phase 1 and 2 plans.
This report presents the status of the Phase 1 and 2 implementation plans as reviewed by
The Abrahams Group in June and July 2009. It is organized by phases. The objective of
this report is to provide an independent assessment of the implementation status.
Generally, the Finance Department has implemented several of our recommendations
since this time last year. The Town has also completed outstanding audits and other
requirements consistent with their timetable as reported to and acknowledged by the
Department of Revenue.
Our major concerns were focused on the causal factors of the inefficiencies,
ineffectiveness, lack of controls, procedures and the like relating to 1) cash
reconciliations, 2) accounts receivable reconciliations, and 3) internal controls. With
respect to the reconciliations, the Finance Department has made progress and has targeted
September 30, 2009 to provide the independent auditors with FY 2009 reconciliations for
the FY 2009 audit. With respect to internal controls, the Town Assessor, Collector and
Treasurer’s staffs are posting transactions to the general ledger. We believe the Controller
or his staff should post the general ledger. MUNIS is a batch processing system whereby
the Assessor, Collector and Treasurer can enter data in batches, which can be reviewed
by the Controller or staff, and then posted to the general ledger. This in our view
provides the highest level of internal control. Our recommendations are focused to
provide a high level of internal control. Anything short of these criteria may impair the
integrity of the general ledger. The Finance Department has specifically discussed the
phased in implementation of posting authority in the following order: Treasurer,
Treasurer’s receipts, Collector’s office, and Assessing. An implementation plan needs to
be developed for these changes that corrects internal control deficiencies in a coordinated
manner so as to eliminate them and not with a sequential approach that creates new
internal control deficiencies.
The Abrahams Group did not audit the activities or reports related to these
recommendations, and accordingly, do not express an opinion on the results.
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Town of Nantucket Department of Finance Interim Review
IMPLEMENTATION- PHASE I RECOMMENDATIONS
Recommendation #1
Removal of Posting Authority from Treasurer
Status: Partially implemented. Intent of recommendation was not achieved and internal
control weaknesses continue.
Discussion: The fundamental intent of this recommendation was to assure a sound
segregation of duties and to not allow any one position (Treasurer identified in report) to
have a combination of duties that were an internal control risk and provided the potential
for fraud. Controls had to be put and place and posting authority had to be vested with
the Controller’s Division.
The posting authorities were removed from the Treasurer. However the assistant to the
Treasurer then posted cash receipts as well as processed the receipts and prepared the
bank deposits. The ability to process cash and checks, make bank deposits and post to
the general ledger continues a fundamental internal control weakness.
The Finance Department has specifically discussed the phased in implementation of
posting authority including the Treasurer’s Office. Changing this particular area of
posting will require workflow and procedural changes. An implementation plan will need
to be developed for the phase in of these changes.
The Abrahams Group should monitor the progress on this (and other related
recommendations). When it is clear that the redesign satisfies internal controls,
segregates duties, and assures workflows and reviews that will promote and assure the
integrity of the general ledger, then the overall MUNIS access and authorities for the
Finance Department should be revised by the IT Director.
Recommendation #2
Need for independent reporting of receipts and collections to the Accounting Officer
Status: Implemented
Discussion: Our report identified that an independent copy of the Departmental
Payments to the Treasurer and the Collector’s Turnover to the Treasurer did not go to
the Accounting Officer, who is the responsible party for recording all activity on the
general ledger. This is the basis of an assurance of “checks and balances” between the
general ledger and the cashbook.
The Collector sends a separate copy of the Turnover to the Controller’s Division. Most
departments send a copy of their turnover to the Controller’s Division.
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The Treasurer’s Office prepares a cash receipts packet that includes the department turn
over sheets. The Controller’s Division then matches their copies of the turnovers to the
copies received by the Treasurer’s office to assure there are no discrepancies. A DNR
(did not report) list is generated identifying the departments that did not forward a
turnover to the Controller’s Division. The Controller’s Division contacts these
departments. It is important that the Controller and each department head assure that
respective staff complies with this dual reporting requirement.
Recommendation #3
3. Need for Treasurer’s office to provide receipt for cash/checks at the time of
delivery of the funds
Status: Partial Implementation –Departments
Partial Implementation – Collector’s Turnovers
Discussion: Our report had discussed that “the Collector’s office and many departments
of the Town turnover cash and checks to the Treasurer’s office for deposit in the bank”.
Since a receipt was not provided in many instances, it presented a risk when the
cash/checks are counted later in the day that there may be an issue in terms of what was
actually turned over. In addition, there was no signed evidence by the Treasury staff of
what was turned over to them.
The Treasurer’s office has begun to implement the recommendation with respect to the
various departments that turn over checks and cash. Collector’s receipts are turned over
to the Treasurer with a bank deposit slip (prepared by Collector’s office) and are
immediately deposited (Treasurer’s Receipts clerk picks up the deposits at the Tax
collector’s office and goes to the bank).
Recommendation #4
Internal Control weakness based on job design for abatement entry and payment
entry to accounts receivable system.
Status: Partially implemented. Intent of recommendation was not achieved and internal
control weaknesses continue.
Discussion: In 2008, the Collector’s staff had authority to post payments, post
abatements and release refunds, which is a serious internal control weakness as the same
person should not be able to apply payments and to abate the receivable. Moreover, only
the Accounting Officer (or designee) should have authority to post abatements to the
general ledger based on review of relevant source documentation.
The abatement entry and posting has been removed from the Collector and vested with
the Assessor’s Office. Our recommendation stated that only abatement entry to MUNIS
should be transferred to the Assessor’s staff and that all abatement posting (real estate,
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MVX, Personnel property and boat excise) must be an authority and role of the
Controller’s Division in order to assure adequate internal controls, review of the vote of
the Board of Assessors specifiying the abatements by taxpayer, and only then
independent posting by Controller’s Division to the general ledger in order to maintain
the integrity of the general ledger (receivable and overlay). In order to achieve the
internal controls recommended in our report, the posting authority should be removed
from Assessors staff and the design plan for Abatement Review and Posting Authorities
should be implemented within the next thirty days.
With respect to the Collector, the objective of our recommendation is to allow the
Collector’s office to be able to enter the work in MUNIS, but someone in a control
function (Controller) must review the batch and source documents and then post to the
general ledger. The Collector processes about $60 million of real estate, Personnel
property, motor vehicle, community preservation, liens, betterments, and other committed
receipts, of which about $36 million are lock box or on-line payments that are directly
deposited into a bank. The Collector’s staff has permissions and posts these payments to
the general ledger. About 1,000 of these postings were processed between the period
January 1, 2009 and May 6, 2009. The Assessor now prepares the abatement entry
instead of the Collector.
The Collector posts these payments to a general ledger cash turnover account, a clearing
account recommended by the previous independent auditor to “hold” the payments until
these payments are reviewed by the Controller’s Division. The Collector’s Office
prepares a daily turnover sheet for each batch, and transmits the turnovers to the
Treasurer’s Office, who posts the receipts to the cashbook. A copy of the turnover is
transmitted to the Controller’s Division, which reviews each posting. Once the
Controller’s Division reviews these payments, they will transfer the cash in the turnover
account to the proper general ledger cash account. Thus, the Controller’s Division
reviews the Collector’s postings.
The question here is does the current process provide sufficient internal control? We
think the Town would have greater internal control if our recommendation were to be
implemented.
Greater internal control can be achieved once the Town redesigns workflows and
procedures and changes the posting authority to have the Controller or designee (on
Controller’s staff) post the general ledger consistent with our previous related comments.
To reiterate, our report recommended all posting of all transactions be a function of the
Controller’s Division. MUNIS is a batch processing system. The Controller or designee
should post the pending batch (created by the Collector, Assessor or Treasurer) to the
general ledger to assure the integrity of the general ledger.
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Town of Nantucket Department of Finance Interim Review
Recommendation No. 5
Transfer all bank accounts that are not under the custody of the Treasurer to the
Treasurer’s custody
Status:
1. Implemented Recommendations for Collector/Deputy Collector’s Bank Account
and Payment Process
2. Have not Implemented Recommendation for Town Clerk’s Bank Account
Discussion:
The Collector and Deputy Collector (a vendor) have been removed as the signatories for
this bank account. The bank statements no longer are sent to the Collector. The bank
account for the deposit of the Deputy’s collections is now under the custody of the
Treasurer.
The practice of paying the Deputy Collector from the checking account outside of the
warrant process has ceased. The Deputy now invoices the Town as a vendor for fees due
him. The invoices are paid through the warrant process after review by the Controller’s
Division and authorization on the warrant with all approval signatures.
This recommendation also noted that the Town Clerk’s checking account had not been
closed (was not part of the Phase 1 or 2 implementation plan). This allows the deposit of
receipts to a bank account that is not under the custody of the Treasurer and it allows the
issuance of checks outside of the warrant process without associated controls. In addition,
the Treasurer does not receive the bank statement and cannot reconcile this bank account.
Recommendation #6
Submittal of Cash Register Tapes (Proof of Sales) for Major Turnover
Status: Implemented “Evidence of Sale” documentation for School Lunch
Reviewing other areas with “Significant Sales/Cash Activity”
Discussion:
The Controller’s Division now receives documentation of sales for the school lunch
program. This is submitted with the Turnover Report.
The Finance Department has done a review of “sales” activity in other departments in
order to consider improved documentation to accompany the turnover of some other non-
committed receipts. This review is ongoing and has been updated since our last review.
It was our intent that areas with sales and cash activity such as beach stickers and
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community schools initiate control mechanisms to assure all cash is turned over for
deposit and for recording on the general ledger.
Recommendation #7
Eliminate practice of sharing a “cash drawer” in the Collector’s Office
Status: Partially Implemented
Discussion: Our report identified that three staff in the Collector’s Office use the same
“cash drawer” for all cash and check transactions, which does not assure accountability in
the event of discrepancies in the amount of cash in the drawer.
The Collector procured the two cash drawers but they have not been used. The reason is
that they have not been “funded” with petty cash such that all three drawers will have
$125 for change, etc. We recommend that $250 from collections be identified as “cash
on hand” and retained to fund the two new drawers so they can become operational.
Recommendation #9
Finance Department must have signature authority of PAFs and Town should
institute “Personnel Requisition form”.
Status: Implemented Personnel Requisition Form
Implemented Finance Department Review and Approval of Personnel
Action Forms
Discussion: The intent of the Personnel Requisition Form was to assure that no
recruitment or advertisement for a position would occur without completion of the
Personnel Requisition Form to be signed by the Finance Department as evidence of
budgeted funds for an authorized and funded position. The purpose of the Personnel
Action Form and addition of the Finance Department as an approval signature is to assure
that the salary increase/adjustment is provided for in the budget and represents a
certification of funds for the pending personnel action.
Seven samples were randomly selected to test the use of the Personnel Requisition Form
and the Personnel action form. Of the seven, three were full time employees and four
were seasonal employees. Our review of actual Personnel Requisition Forms indicated
that for all recruitments the requisition form was utilized and signed by the Finance
Department prior to recruitment of the position. The Personnel Requisition Form is not
used as part of the seasonal hiring process. Of the four seasonal employees, three of the
new Personnel Action Forms (with a signature block for the Finance Department) were
signed by the Finance Department; one was not. The form that was not signed was an old
form, which does not have the signature block. The source document does not reside in
HR as the policy is still in “draft”. The source documents reside in payroll. The Town
should continue to make progress with these forms.
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Recommendation #10
Assure appropriate written authority and understanding of collective bargaining
documents and disbursements
Status: In Progress
Discussion: Several Town initiatives are in progress relative to this recommendation.
1. On June 10, 2009, the Town transmitted to us the MOA for the DPW union.
2. On June 16, 2009, the Town transmitted to us verification that the new collective
bargaining process had been implemented for the Laborer’s MOA.
3. On July 2, 2009 the Human Resources Director transmitted a draft documenting
contract negotiations, memorandum of agreements, collective bargaining
agreements, and side letters.
The Town should finalize these procedures to fully implement this recommendation.
Recommendation #11
Assure correct payroll authorizations
Status: Implemented as of July 19th
Discussion: The Finance Department has developed new procedures to assure that each
payroll is appropriately authorized by the department head (or designee in event of
absence). The MUNIS Earnings Worksheet, which is the document that represents the
final verification of accuracy prior to the processing of payroll checks, now contains
approval certification language, the signature of each department head who is responsible
to attest for the hours worked, and the date signed/approved. In addition, a board action
was scheduled for approval of a list of “department head designees” for purposes of
payroll reporting.
We requested to see three Earnings Worksheets for the pay period ended July 19, 2009,
Police, Public Works, and Town Clerk. The Finance Department has submitted the
signed Earnings Worksheets for Public Works and Police for the pay period ended July
19, 2009, which was signed by the respective department heads. The Finance Department
has submitted the worksheets for the Town Clerk, which was signed by the Assistant
Town Clerk.
Recommendation #17
Eliminate Duplication in Recording Abatements
Status: Town officials have made a decision not to implement this recommendation.
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Discussion: 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. The Town would like to continue this dual
processing. For reference, some control issues regarding abatements were discussed
under Recommendation No. 4.
Recommendation #18
Immediately implement formal monthly reporting to Audit Committee as evidence
of monthly cash reconciliation
Status: Partially Implemented
(A) Present “Current Month” Reconciliation and understand that Initial
Balance will not be correct since FY 2008 has not been reconciled -
Implemented
(B) Use town’s current reporting form (transition to The Abraham’s Group
Recommendation in early calendar year 2009) - Not Implemented
(C) Submit Reconciliations signed by the Treasurer and the Accounting
Officer by the 30th of the Month - Partially Implemented
Discussion: A major issue facing the Finance Department is the reconciliation of cash
and accounts receivables. This has been a significant finding by the Town’s independent
audit firm.
Cash Reconciliation
Our recommendation focused on implementing monthly reporting on cash reconciliations
to the Audit Committee and to use a reporting format that would allow the Audit
Committee to see related cash reconciliation activity. The Town has partially
implemented our recommendation. Monthly cash reconciliations are performed and
submitted to the Audit Committee. The date agreed to by the Audit Committee and the
Finance Department is the Audit Committee meeting in the second month following the
month being reconciled. This is a major improvement considering that the reconciliation
process did not begin until several weeks or months after the close of the fiscal year.
The reconciliation provided to the Audit Committee documents the reconciliation of the
general ledger cash to the Treasurer’s cashbook. These reconciliations do not however
report the Treasurer’s reconciliation of the cashbook to the bank balances, as formatted in
Appendix C to our 2008 report. Nor do the Controller and the Treasurer sign the
reconciliation report as an attestation of the reconciliation to the source documents.
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We reviewed the cash reconciliation for March 2009. Generally, the Treasurer’s
cashbook was reconciled to the bank statements for the month of March. However, the
vendor and payroll accounts (old and new) for the Town and County were not reconciled
to the bank, and the Controller’s schedule of reconciliation did not reconcile the cashbook
to the general ledger (monthly activity was reconciled, the balances were not.) The
Finance Department is targeting reconciling cash and accounts receivables by September
30, 2009.
Accounts Receivable
The accounts receivables are reviewed monthly. This is a major improvement considering
that the reconciliation process did not begin until several weeks or months after the close
of the fiscal year. The Finance Department has submitted the FY 2009 accounts
receivables reconciliation to the independent auditors. However, several accounts
receivable issues remain.
The basic issue is that the Town does not maintain receivables on the General Ledger for
several activities/utilities. Refer to Recommendation #20 for further detail.
Generally the real estate, personal property and motor vehicle excise taxes are reconciled
based on the reports provided to us. Boat excise, landfill and Our Island Home are not
reconciled and need further work.
Abatements are posted to the general ledger by the Assessors Office. Abatement forms
are approved by the Assessing Department by using a signature stamp, which leaves open
the possibility that anyone with access to the stamp can effect abatement to any tax or
excise receivable. Only original signatures should be acceptable to insure the document
bearing an official’s signature has actually been in that person’s hands. We have
commented previously that the Controller’s Division should be posting to the general
ledger and we have further noted that the Finance Department is planning to change the
posting procedure consistent with our recommendation.
In addition, the Finance Department has prepared monthly accounts receivables reports.
The Audit Committee did not receive this monthly accounts receivable report until July
2009 for the period ending June 30, 3009.
In summary, with respect to “Cash” and to “Receivables,” the original source documents
should be forwarded timely to the Controller and the Controller should post to the general
ledger. The Treasurer should initiate reporting of the monthly reconciliation of the
cashbook to the bank statements to the Audit Committee, as the second component of
evidence to the Audit Committee that the cashbook reconciles to the “Bank” and in turn
the Controller’s reconciliation to the cashbook is sound. The Audit Committee would
have evidence that the cashbook agrees to the bank.
The Audit Committee should continue to receive the monthly accounts receivable
reconciliation report in order to assure accountability.
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Recommendation #26
Facilitate on line access to bank accounts to departments
Status: Implemented
Discussion: The Wannacomet Water Department and the Airport have indicated that
they have online access to their respective bank accounts.
Recommendation #33
Need to assign clear responsibilities and accountabilities to the “Accounting Officer”
and to the Controller.
Status: In Progress
Discussion: Many of the findings and recommendations of the September 2008 report
focused on the need to provide improved controls, and review process and workflows
within the accounting and control function. We recommended the removal of the
Director of Finance from certain activities to allow more focus on accounting and internal
control. A full time controller also staffs the accounting activity. It is important for the
town manager to have a clear delineation of the role and responsibilities of the Director
of Finance/Accounting Officer (per Town Code) versus the role and responsibilities of
the Controller for purposes of clarification and accountability.
The Finance Director has submitted an outline of primary duties between the Finance
Director/Accounting Officer and the Controller for budgeting, town meeting preparation,
debt service, accounting, capital projects, fixed assets, reconciliations, audit, financial
reporting, and other topics. This outline has been discussed with the Controller.
Recommendation #35
Appoint an Assistant Treasurer pursuant to MGL Chapter 41, Section 39A.
Status: Not Implemented
Discussion: A major entity as the Town of Nantucket must have someone designated
immediately that can sign a check in the absence of the Treasurer. MGL requires that
the Treasurer appoint the Assistant Treasurer, subject to approval by Board of Selectmen.
The Treasurer’s choice for the position has been out on medical leave. Our
recommendation is that the Treasurer should appoint an Assistant Treasurer immediately.
Recommendation #36
Assignment of Additional Responsibilities to Executive Assistant
Status: Implemented
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Discussion: Our recommendation on this position was developed when the Executive
Assistant to the Finance Director was a very new employee, The Accounting Clerk was a
very new employee, the Accountant position was vacant (now filled), and the part time
former accounts payable clerk / back up had just left employment. We recommended at
that time 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. The Accounting Clerk now provides back up for
payroll and accounts payable.
Thus, the duties as described in the initial job description for the Executive Assistant
have not changed substantially; they have grown with the addition of more committee
work, and with some committees meeting more frequently than in the past. This position
has taken on more administrative function than we originally anticipated.
IMPLEMENTATION PLAN – PHASE II
Recommendation #8
Transfer Entry of MUNIS Personnel Actions/ Transactions to Human Resources
Department
Status: Some progress has been made, implementation will occur after hiring of
administrative assistant position in the human resources department
Discussion: The Finance Department and Human Resources Department have held
meetings and are working in conjunction to transfer the functions to the Human
Resources Department in order to improve internal controls and to focus Treasury staff
on reconciliation of the bank statements to the Cashbook on a current basis.
Recommendation # 12
Centralize MUNIS Control of “New Vendor” set up in one position in Town
Manager’s Office
Status: Progress has been made; Actual removal of MUNIS authority from several town
staff has not been implemented as of July 20th.
Discussion: As of mid July, staff is attending training sessions to learn MUNIS
requisition, purchase order processes and approvals. The intent is to remove MUNIS
access and authority from the several Town departments that have this access. Three
employees in the Town Manager’s Office have been designated for MUNIS access and
authority in order to control the creation of new vendors to only those who are valid
vendors consistent with a sound procurement process.
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In the near future departments will be informed of the new procedures and MUNIS
access will be removed from various staff in town departments.
Recommendation #14
Require “Receiving Reports” for materials, goods, and equipment
Status: Completed. Procedures and Standards have been written and distributed to all
departments for implementation since February 2009. Note that the actual use of the
Receiving Report and assuring it has been submitted to the Controller’s Division should
be reviewed in the near future.
Discussion: The distribution and recent implementation of the new procedures is an
important improvement in controls. As a verification of successful implementation of
the new process, either the Town or The Abrahams Group should review several
payments for materials, goods and equipment to assure that the receiving report is on file
in the Controller’s Division and that it was submitted prior to inclusion of the payment on
the warrant.
Recommendation #19
Report all balances due on MLCs
Status: Partially Implemented
Discussion: The intent of the recommendation was to assure that all balances, including
water and sewer are reported on each municipal lien certificate (MLC) issued by the
Collector’s Office in order to assure that the Town protects its rights in the future to claim
delinquent water and sewer balances.
It requires training the Collector’s staff in the Wannacomet receivables software,
providing query access to the Collector’s staff and timely posting of all activity by
Wannacomet staff to assure the receivable balances are current. Collector’s staff has
access, has had some training, but needs additional training. The Finance Department
needs to work with Wannacoment Water staff to develop revised procedures to address
this issue.
Recommendation #20
Record all Receivables (Summary Level Transaction) on General Ledger
Status: In Progress
Discussion: The Wannacomet and Airport commitments, supplemental
billings/commitments, and abatements are not submitted to the Controller’s Division for
recording on the general ledger. The Sewer and Siasconset water commitments and
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receipts are received by the Finance Department. The area that still needs to be addressed
for these two enterprise funds is the abatements and billing adjustments. As such the
receivable balances are not accurate or simply do not represent the true “receivable”.
We note that Wannacomet provided commitment information for the last month of FY
2009 but without ongoing source documentation of monthly billings/commitments,
supplemental billings, and abatements, the general ledger does not reflect accurate
receivable balances and reconciliations are not possible.
Recommendation #22
Hire one audit firm to Audit all Town Funds and Prepare GAAP Financial
Statements
Status: Implemented.
Discussion: The Town has negotiated with Powers & Sullivan to perform an audit and
prepare GAAP financial statements of all Town funds (including the Airport enterprise
fund and the water and sewer enterprise funds) for FY 2009. The Airport and the Water
Company have been part of the annual audit. Changes were made three years ago so that
Powers & Sullivan began doing original audit work on these two Enterprise funds,
instead of relying on the Burke & Lamb audit report for information. Change made for
the 2009 – 2011 report is for Powers & Sullivan to provide separate audit reports for the
Wannacomet Water Company and the Airport, instead of Burke & Lamb.
Recommendation #27
Formalize and Document Indirect Cost Methodology for Sewer Utility,
Wannacomet Water, Siasconset Water, and Airport.
Status: Wannacomet Indirect Cost Allocation: Implemented
Airport Indirect Cost Allocation: Not Implemented
Sconset Indirect Cost Allocation: Implemented
Landfill Indirect Cost Allocation: Implemented
Sewer Indirect Cost Allocation: Implemented
Discussion: The Finance Director has drafted a revised indirect cost methodology and a
compilation of FY 2009 indirect costs for the five enterprise funds and has submitted
those documents to The Abrahams Group for comment. The methodology is transaction
based, and computes a percentage for the Wannacomet Water, Sconset Water, Sewer,
Airport and Landfill enterprise funds. These percentages are applied to allocate a
reasonable cost of the Finance Department for services they provide on behalf of these
funds. In addition, a methodology has been developed for the Town Manager’s
(Administration) costs. The methodology addresses FY 2009 indirect costs based on FY
2008 actual expenditures. The Abrahams Group has reviewed the methodology and
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indirect costs for reasonableness. The draft has been forwarded to the Airport and
Wannacomet Water for comments.
Wannacomet Water has formally accepted the indirect cost methodology. The Airport
has not formally accepted the methodology. The Finance Department and the Airport are
meeting to resolve this issue. Assuming acceptance, Wannacomet Water, the Airport and
the Town should sign the written, documented methodology.
Recommendation #30
Restructure the School Chart of Accounts
Status: Progress has been made. The chart of accounts has not been finalized.
Discussion: The Abrahams Group is assisting the School Business Manager to
implement a revised School chart of accounts. A new account code structure has been
developed. Segment lists for general fund and non-general fund accounts have been
developed. The work that remains includes completing the orgs and descriptions for all
accounts, finalize the MUNIS conversion workbook, upload the chart into MUNIS, edit
the chart once in MUNIS, provide training, and go live. The chart of accounts is to be
sent to MUNIS in calendar year 2010 for uploading. We note that the implementation of
this recommendation will facilitate our recommendation #29, to expedite the filing of the
School Department’s end of year report.
Recommendation #31
Document Financial Policies and Procedures
Status: In Process
Discussion: The goal of the recommendation was to have formal policies and procedures
documented for major financial activities and processes. The Finance Department
personnel responsible for a policy or procedure will be responsible for drafting the policy
or procedure, which will be sent to the Assistant Finance Director for editing. The
Abrahams Group will provide final review of all procedures.
The documentation of a policy or procedure shall include how the policy or procedure
shall be disseminated to the relevant Town personnel, and identify any training needed to
implement the policy or procedure. A recommendation will not be considered until the
policy or procedure outlined by the recommendation is documented.
Recommendation #34
Remove Human Resource function from Finance Department and transfer to H.R.
Department
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Status: Not Implemented
Discussion: The Human Resources Director has prepared an implementation plan
memorandum for this recommendation. The Finance Department and Human Resources
Department shall review this memorandum and provide an agreed upon plan on how this
recommendation will be implemented.
A key component of the transition is hiring a human resources administrative position.
The position has been advertised. The Town is hoping to fill this position by August 15,
2009. However, we have not received other communications on this recommendation.
CONCLUSION
The above discussions have delineated the status of each recommendation in Phases 1
and 2 of the Implementation Plan. Also we have provided a Status Matrix in Appendix, A
which provides a summary.
The Finance Department has made progress over the course of the past year on a number
of the recommendations and should be commended for these efforts.
We recommend that the Audit Committee, Town Manager and Finance Department
management continue over the next several weeks to complete Phase 1 and 2 of the
Implementation Plan. We believe it is important to address the following priorities
before addressing other recommendations. We suggest that the priorities and their value
or benefit for the Town are:
Priority 1
Implementation of workflows, responsibilities and posting authorities to
assure that the Controller’s Division (and Accounting Officer) maintain,
control and manage the integrity of the general ledger
Benefit and Value to the Town: Several of our recommendations focused on
internal controls, division of responsibilities, and segregation of duties to assure
“checks and balances”. We believe that to refocus the Controller’s Division as
the pre-audit, review and control entity to oversee and monitor the financial
transactions of the Town, will help to assure the integrity of the general ledger.
As the Controller’s Division (and Accounting Officer) will provide the
independent verification of the transactions to their standards, and then and only
then will financial transactions be recorded. This in turn will enhance the
financial information available to management, Town boards and committees and
interested residents.
Other Discussion on Priority 1: The transfer or work responsibilities, work
flows and posting authorities must be designed, timed and executed in a
coordinated or integrated manner versus the removal of authority from one
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individual but continuing other control weaknesses. The Finance Department has
specifically discussed the phased in implementation of posting authority in the
following order: Treasurer, Treasurer’s receipts, Collector’s office, and Assessing.
An implementation plan needs to be developed for this priority that corrects
internal control deficiencies in a coordinated manner so as to eliminate them and
not with a sequential approach that creates new internal control deficiencies.
Priority 2
Meet financial reporting target dates.
Benefit and Value to the Town: This time last year we began our review there
were many reconciliation issues. One audit was outstanding. The Auditor’s
management letter continually criticized the Town for internal control issues. The
Finance Department would attempt to reconcile cash and accounts receivable, and
prepare other audit schedules literally a few weeks prior to the auditor’s arrival.
The audit opinion letter was a qualified opinion. Our Report was highly critical of
the Finance Department.
One year later much progress has been made. Several of our recommendations
have been fully implemented or are in process of being implemented. The Town
has also completed outstanding audits and other requirements consistent with their
timetable as reported to and acknowledged by the Department of Revenue.
It is important for the Town to meet FY 2009 reporting targets. For the FY 2009
audit, the Town and the independent auditors have developed the following
schedule to complete the FY 2009 audit report by December 31, 2009, if the
Town provides:
• All information except fixed assets by October 1, 2009
• Fixed assets by October 31, 2009.
The Finance Department is committed to earlier dates for completion to provide
State reports, in order to have free cash approved before the special town meeting
and before submitting the proforma. The Finance Department has also targeted or
has completed State-reporting timetables such as:
• Balance sheet by September 2009
• Snow and Ice Report, Submitted on June 30, 2009
• CP-1 report submitted on July 16, 2009
• 4th Quarter Reconciliation of Cash for the Previous Fiscal Year,
September 2009
• Statement of Indebtedness, September 2009
• Schedule A, October 2009
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Town of Nantucket Department of Finance Interim Review
Meeting these dates would be a major accomplishment by the Finance
Department.
Priority 3
Transfer of human resources activities from the Finance Department to the
Human Resources Department
Benefit and Value to the Town: The transfer of human resource related activities
will remove several tasks from the Treasury Division of the Finance Department
and allow this division to focus on cash reconciliations, cash management, short
and long-term borrowing, etc. instead of personnel related tasks. It will also
improve internal controls and the Human Resource Department will in the future
be responsible for all the data entry, administration and oversight of the personnel
modules of MUNIS exclusive of the payroll processing which will continue
within the Finance Department.
Priority 4
Instituting on a permanent basis:
• Monthly reporting of the two part cash reconciliation reporting that
was originally recommended in our Report to the Audit Committee
and Town Manager
• Continue monthly reporting of the reconciliation of accounts
receivable to the Audit Committee and Town Manager
Benefit and Value to the Town: When the Treasurer’s Reconciliation of Bank
Accounts to Cashbook is initiated and when it accompanies the current
Controller’s Reconciliation of the Cashbook to General Ledger, the Audit
Committee will have evidence of the reconciliation of the general ledger to the
bank. This creates ongoing accountability based on the signature of the
Controller and the Treasurer attesting to the reconciliation that each is
respectively responsible for. It places monitoring with the Audit Committee and
Town Manager to assure that this occurs on a monthly basis so past weaknesses
will not recur in the future; it becomes a built in accountability mechanism. The
same applies to the accountability created by a brief, easily understood accounts
receivable reconciliation report to be submitted to the same parties. The accounts
receivable reconciliation report was submitted to the Audit Committee in July
2009; the Finance Department should continue to submit these reports to the
Audit Committee.
Priority 5
The appointment by the Treasurer of an Assistant Treasurer pursuant to
MGL Chapter 41, Section 39A.
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Benefit and Value to the Town: A major entity as the Town of Nantucket must
have someone designated immediately that can sign a check in the absence of the
Treasurer. Our recommendation is that the Treasurer should appoint an Assistant
Treasurer immediately.
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Status of RecommendationsAppendix AVery Recently ImplementedPartially Not and PrematureRec. # Fundamental Purpose/Objective Accomplished Accomplished Accomplished to Assess Comment1To assure duties that should be segregatedInt. ControlaCombination of duties vested with one position (Treasurer)are segregated to prevent internal control weaknessesall reassigned to another individual continuing theinternal control weakness in its entirety.To assure Controller posts all receipts to G.L.; not TreasuryxPostings continued as part of Treasury duties. Town to revise posting procedures.2Independent (Check and Balance) Reporting of All ReceiptsInt. ControlaaRecently implemented, to assess at future dateand Collections to Controller's Division as basisfor independent recording and posting to G.L.3Provide receipts at time to Turnovers from CollectorInt. ControlaTreasurer provides deposit slipProvide receipts at time to Turnovers from DepartmentsaRecently implemented, to assess at future date4Removal of Abatement Entry from Collector's StaffInt. ControlaAbatement entry removed from Collector and Transfer to Assessors StaffPosting of Abatements by Controller's DivisionInt. ControlxAbatement review and posting has to be done by Controller'sRemoval of Posting Authority (for anything, including PaymentsInt. ControlxCollector still posts payments to the G.L, this responsibilityto the General Ledger)has to be transferred to "Controller's" for pre-auditand timely posting to G.L. for central control and maintenanceof G.L. and accurate and timely financial information5Remove Collector as Signature on Bank Account Int. ControlaCompletedPay Deputy Collector through Warrant signed by "Accountant" Int. ControlaCompleted and Board of Selectmen consistent with MGLClose Town Clerk's Bank Account and make all vendorInt. ControlxAll vendor payments must go through the Warrant Process payments through warrant process (note: not scheduled foras required by MGL and all receipts must be deposited in a Phase 1 or 2 implementation)bank account under the purview of the Treasurer
Status of RecommendationsAppendix AVery Recently ImplementedPartially Not and PrematureRec. # Fundamental Purpose/Objective Accomplished Accomplished Accomplished to Assess Comment6Submittal of Cash Register Tapes for Significant Int. ControlaaAccomplished for school lunch program, other "cash" areas "Cash" Turnoversare being assessed7Eliminate practice of a cash drawer in the Collector's OfficeaTwo cash drawers have been received, but not implemented9Finance Department to sign PAFs as budget controlaCompletedInstitute a Personnel Requisition FormaCompleted10Appropriate Written Authority and Understanding of CollectiveaNew procedures in draft Bargaining Agreements and other non routine payments11Assure Correct Payroll AuthorizationsaaNew signature block recently implemented17Eliminate Duplication in Recording AbatementsxTown has decided to maintain the Manual Log Processin combination with the MUNIS recording/ledger18Present Evidence of Rec of Cashbook to G.L.aShould be signed by Treasurer and ControllerPresent Evidence of Reconciliation of Bank Accounts toxReconciliation of Bank Accounts to Cashbook and signed Cashbookby the Treasurer has never been submitted to Audit Committee26Facilitate on line Bank AccessaCompleted33Need to assign clear responsibilities/dichotomy betweenaAccountability for each official, outline of responsibilitiesthe two accounting/control positionsrecently developed35Appointment of Assistant Treasurer per MGL Ch 41, s 39AxNo position can sign a check in absence of TreasurerTreasurer must appoint an Assistant Treasurer36Assess Responsibilities of Executive Assistant to optimizeaCompleted"back up" for key functions
Status of RecommendationsAppendix AVery Recently ImplementedPartially Not and PrematureRec. # Fundamental Purpose/Objective Accomplished Accomplished Accomplished to Assess Comment8Transfer Entry of MUNIS Personnel Actions to HRInt. ControlaTo assure sound division of responsibility and segregationto assure sound segregation of dutiesof duties12Centralize MUNIS Control of "New Vendor" Set upInt. ControlaMUNIS Authorities show widespread access and abilityto prevent fraud and assure procurement was authorizedto set up new vendors14Require "Receiving Reports" to assure documentationInt. ControlaActual warrants with paid invoices need to be tested to or receipt of goods and materialsvalidate receiving reports are used19Report all Balances on MLCs to assure sound practiceaAdditional training needed to access data baseand to protect town's right to collect the moneyRevised procedures needed20Record all Receivables on G. L. based on recording Int. ControlaAll financial activity recorded on G.L. should be based of the relevant source documentson source documents22One Audit Firm to audit all Town FundsaCompleted27Formalize Indirect Cost MethodologyImminentAirport has not approved of the indirect cost planIssues with FAA30Restructure School Chart of AccountsaIn process31Document Financial Policies and Procedures to aIn processassure sound practice, understanding for finance staff and all departments and agencies34Transfer H.R. functions done by Finance to H.R. DepartmentxPromote focus on reconciliation of cash/treasury functionsin order to focus Finance on core mission and financial managementobjectives