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FY 2013 Mgt Letter Final Response as of _RN3001 Town of Nantucket Town Administration Response and Action Plan to Fiscal Year 2013 Audit Management Letter dated December 5, 2013 As of March 19, 2014 – Endorsed by Audit Committee Updated as of April 16, 2014 Informational Items A. Other Post-employment Benefits The Town has appropriated $750,000 over the last two fiscal years for OPEB purposes. Prior to the end of FY 2014, the Town will determine how to manage these funds going forward. B. Health Insurance Mandate Prior to the end of FY 2014, the Town will ensure that a documented process for the required health insurance enrollment audit is prepared, as well as a report for FY 2014 as to internal audit findings. C. Comprehensive Annual Financial Report (CAFR) Once the Town’s Finance Director position is filled, this will be a project to work toward for either FY 2015 or FY 2016. Findings and Recommendations A. Nantucket Memorial Airport – 4 Findings 1. Accounts Receivable Processing – this item has 4 components a. Variance Between Accounting Systems: a variance between the Town’s accounting records and the Airport’s was detected during the audit process, which seems to be a timing/communications issue. Responsibility: Airport Manager 2 Implementation Plan/Schedule: Immediate. The Airport Manager will report to the Audit Committee on progress before the end of FY 2014. In addition, the Airport reports “there is a better understanding now of the MUNIS Accounts Receivable module and report running within the Airport’s Dynamics system, as opposed to when the audit was conducted.. This relates to why there were 17 new customers presented in the 9/30/13 report. The report’s search criterion wasn’t set properly to capture all customers and it wasn’t realized until this discrepancy was pointed out. This issue is now resolved.” b. Credit Card Transactions Included in Accounts Receivable: Finance Department and Airport records for these transactions need to match and be accurate at least quarterly. This can be accomplished through regular reconciliations which are communicated more frequently between the two departments; as well as a written, agreed upon process as to how and when this will occur. Responsibility: Airport Manager/Finance Director Implementation Plan/Schedule: by the end of FY 2014 the Finance Director and Airport Manager will provide a written document for Audit Committee review. d. Multiple Accounts for Same Customer: In order to avoid inadvertent posting of transactions to the wrong customer account, the Airport will establish a consistent methodology of setting up accounts so that billings are clear as to what customer account they correspond to and for what purpose and consolidate where necessary/appropriate. Responsibility: Airport Manager Implementation Plan/Schedule: the Airport reports as follows: “having multiple accounts for the same customer is necessary to accurately identify the appropriate cost centers needed to determine a rate structure and approved methodology for establishing aeronautical rates in accordance with Federal regulations. Through the Master Plan effort, due to be completed late this summer, the Airport will review these to determine if any can be consolidated.” 2. Accounting Personnel. This relates to the complexity of the Airport’s accounting needs and the lack of seasoned staff trained in Airport managerial operations (through no fault of their own). The recommendation to retain the third-party accountant who has been with the Airport for quite a while; and to provide training to the current staff is intended to be followed. Responsibility: Airport Manager 3 Implementation Plan/Schedule: the Airport has a current contract with its consultant that was executed in early FY 2014 and there are no plans to discontinue these services. The Manager and staff will examine and enroll appropriate employees in training opportunities if possible by the end of FY 2014. Recently the Airport Business Manager resigned and the Airport will make every effort to ensure the replacement for this position either has or receives the requisite training. 3. Capital Asset Maintenance. The Airport needs to update its fixed asset inventory and establish a more regular review and update process. Responsibility: Airport Manager Implementation Plan/Schedule: Complete update and establish written process in FY 2014 in consultation with the Auditor. The Airport reports that they are “in the process of comparing the Town’s fixed asset list to the Airport’s with the Airport’s independent consultant.” B. Payroll – 5 Issues 1. Payroll Warrant Totals. The totals do not represent an accurate picture of what the Town’s payroll expenditures are because of the way in which MUNIS reports are formulated; and/or the way in which information is entered into MUNIS. This results in proper auditing procedures not being able to be accomplished, as well as internal controls being incomplete. Responsibility: Treasurer Implementation Plan/Schedule: Before the end of FY 2014, the Treasurer will develop a written plan of action as to how to correct/improve the MUNIS reports, with a description of how the information will be entered going forward as of a date certain – in consultation with the Auditor and MUNIS. 2. Departmental Payroll Transmittal Sheets. The transmittal sheets used by departments for submittal to payroll need to be modified to include employee pay rates so as to avoid inefficiency and inaccuracies in the payroll process (ie, proper recording of leave time used, accurate applicable pay rates such as overtime, shift differential). Responsibility: Treasurer/Department Heads Implementation Plan/Schedule: Currently, Town Administration is preparing a scope of services for an outside party to conduct an operational review of the Town’s payroll processes. We expect this review to begin before the end of FY 2014. 4 3. Payroll Withholding Amounts Process Improvement. This item relates to issue #2 of these Payroll Issues. Due to the Town’s current process, it is not always clear how or when withholdings amounts are netted down. Responsibility: Treasurer Implementation Plan/Schedule: This issue will be included in the operational review as noted in issue #2. 4. IRS Garnishment. In FY 2013, the Town was garnished due to differences between the IRS and the Town as to income tax withholdings. Responsibility: Treasurer Implementation Plan/Schedule: The Treasurer will prepare a written report as to this issue, to accompany a Request for Legal Services for assistance in resolving the matter by the end of May, 2014. 5. Withholding Account Deficits. This has been a lingering item in the most recent annual audit reports: this problem relates mostly to the differences in which different groups of Town employees are paid (ie, teachers have a different health insurance withholding arrangement in the summer from the rest of the Town employees). The Treasurer has worked to resolve this issue but some deficits remain. Responsibility: Treasurer Implementation Plan/Schedule: Before the end of FY 2014, the Treasurer will provide a written report as to what remains of the problem, as well as a written process outlining how the withholding accounts are to be managed and monitored – in consultation with the Auditor. C. Posting of Sewer and Water Receipts – 4 Issues 1. Posting of Water Receipts. Rather than Sconset and Wannacomet water receipts being posted to a particular fund when received with a liability simultaneously set up, receipts should be directly posted to the proper fund when received to avoid inefficiency. Responsibility: Wannacomet Water Manager 5 Implementation Plan/Schedule: The Water Company has completed the recommended change to its receipts posting methodology. 2. Refund Posting Error. A refund meant for Sconset Water was instead posted to Wannacomet Water. Investigation as to whether this was a human vs systemic error should be undertaken. Responsibility: Wannacomet Water Manager Implementation Plan/Schedule: Wannacomet Water Manager has provided a written report on this matter to the Audit Committee; and, it is considered resolved. 3. Revenue Detail. While revenue received for Water and Sewer is broken out in detail in MUNIS, it is not done that way at the departmental level, and should be for efficiency and accuracy purposes. Responsibility: Wannacomet Water Manager Implementation Plan/Schedule: Wannacomet Water does identify and classify water and sewer revenue and assigns these revenues to the appropriate MUNIS revenue code and provides this detail to the Treasurer. 4. E-billing. This is not a formal finding, just a point of information that since Wannacomet utilizes e-billing, the Town should investigate it as well. Responsibility: Finance Director/Collector Implementation Plan/Schedule: E- billing is being implemented for the fiscal year 2014 fourth quarter real and personal property tax bills. D. Health Insurance Trust Payments This item is not a formal finding, but a notation that there is a discrepancy as to when Health Insurance Trust Fund payments were made between FY 2012 and FY 2013. Responsibility: Treasurer Implementation Plan/Schedule: By the end of May, 2014, the Treasurer will provide a written report as to what exactly happened with these payments, to the Town Manager and the Audit Committee. There may be a difference in reporting issues of this nature between former and current auditors. 6 E. Limited Internal Audit Process This item is not a formal finding, but rather more of a recommendation that the Town either consider establishing an internal audit position; or, conduct regular internal audits of its cash- handling departments. Responsibility: Town Manager/Finance Director Implementation Plan/Schedule: Town Administration has seriously discussed the possibility of an internal audit position; however, when the prior Finance Director left it was decided to hold off on this until a new Finance Director has been hired. Meanwhile, we plan to follow the suggestion of the Auditor to engage in 2-3 such internal audits per year until at the end of a 5-year period when most cash-handling departments will have been reviewed. F. Capital Assets This item is not a finding at all, but rather more of recognition of improvements that the Town has made with assistance from the Auditor during FY 2014 to its capital asset inventory update. Responsibility: Finance Director/Assistant Town Accountant Implementation Plan/Schedule: Going forward, the Assistant Town Accountant will maintain the inventory and keep it updated, annually or more frequently as is practicable. G. Cash Reconciliation – 3 items 1. Aged Reconciling Items in General Depository Account. While these items net to an immaterial amount, they should be cleaned up so that the reconciliation process is more efficient. Responsibility: Treasurer Implementation Plan/Schedule: The Treasurer has completed the necessary adjustments to these older items; and, this matter is considered resolved. 2. Health Insurance Trust Bank Account. There is a need to complete adjustments to the General Ledger resulting from bank account transactions to more accurately reflect the Health Insurance Trust Fund balance at year-end. There may also be other accounts where such adjustments need to be completed. Responsibility: Treasurer 7 Implementation Plan/Schedule: The Treasurer will undertake to complete the adjustments by the end of FY 2014 and report out to the Audit Committee by the end of FY 2014. 3. Bank Account Consolidation. This isn’t so much of a finding as a suggestion that the Town should consolidate its numerous bank accounts so as to increase operational efficiency. Responsibility: Treasurer Implementation Plan/Schedule: The Treasurer will undertake a review of all current bank accounts, take action to consolidate them and provide a “before and after” report to the Audit Committee before the end of FY 2014. G. Purchase Order System Again, this item is not really a finding, but a suggestion that the Town increase its purchase order requirement from $1.00 to a higher amount due to the extreme inefficiency of departments having to create a purchase order for, literally, every purchase. Additionally, purchase orders being dated after the invoice date remains an issue for the Town, possibly because of the unreasonably low purchase order requirement. Responsibility: Finance Director/Town Manager Implementation Plan/Schedule: During FY 2014, the Town Manager has already instructed the appropriate Finance staff and IT staff to increase the purchase order amount to $1000. Finance will continue to monitor the purchase order/invoice date situation. Further, the entire purchasing process is currently under review by Finance, procurement and other staff.