HomeMy WebLinkAboutNantucket Mgmtltr14
TOWN OF NANTUCKET, MASSACHUSETTS
MANAGEMENT LETTER
YEAR ENDED JUNE 30, 2014
Table of Contents
Transmittal Letter………………………………………………………………........1 - 2
Overview ........................................................................................................... .... ….3 - 5
Informational Items………………………………………………………….….……6 - 7
Findings and Comments.………………………..….………………………….……..8 – 9
Operational Reviews………………………………………………………………...10 - 18
Honorable Board of Selectmen, Audit Committee
and Town Manager
Town of Nantucket, Massachusetts
16 Broad Street
Nantucket, Massachusetts 02554
We have audited the financial statements of the governmental activities, the business type
activities, the discretely presented component unit, each major fund, and the aggregate
remaining fund information of the Town of Nantucket, Massachusetts (the “Town”) as of
and for the year ended June 30, 2014, which collectively comprise the Town’s basic
financial statements and have issued our report thereon dated December 22, 2014. We
conducted our audit in accordance with auditing standards generally accepted in the
United States of America and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States.
Internal Control Over Financial Reporting
Management of the Town is responsible for establishing and maintaining effective
internal control over financial reporting. In planning and performing our audit, we
considered the Town’s internal control over financial reporting as a basis for designing
our auditing procedures for the purpose of expressing our opinions on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the
Town’s internal control over financial reporting. Accordingly, we do not express an
opinion on the effectiveness of the Town’s internal control over financial reporting.
A deficiency in internal control exists when the design or operation of a control does not
allow management or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct misstatements on a timely basis. A material
weakness is a deficiency, or a combination of deficiencies, in internal control such that
there is a reasonable possibility that a material misstatement of the entity’s financial
statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting was for the limited purpose
described in the first paragraph of this section and was not designed to identify all
deficiencies in internal control over financial reporting that might be deficiencies,
significant deficiencies, or material weaknesses. We did not identify any deficiencies in
internal control over financial reporting that we consider to be material weaknesses, as
defined above.
Town of Nantucket, Massachusetts Page 1 of 18 Management Letter
This report is intended solely for the information and use of the Board of Selectmen,
Audit Committee, Town Manager and others within the organization and is not intended
to be and should not be used by anyone other than these specified parties.
Roselli, Clark & Associates
Certified Public Accountants
Woburn, Massachusetts
December 22, 2014
Town of Nantucket, Massachusetts Page 2 of 18 Management Letter
I. OVERVIEW
Fiscal year 2014 provided further evidence of improvements to the local, national and
international economies. According to the U.S. Bureau of Labor Statistics, both state
and national unemployment rates are approaching pre-recession levels and
productivity indexes are trending above expectations. Furthermore, residential home
values, especially on the island, continue to improve and the market for new and
existing home sales has been robust over the past two to three years.
While these improvements provide optimism to the Town and its residents, the Town
must remain diligent in managing its finances. The Town has been successful in
maintaining its reserve balances despite trying economic times. Many other towns
have conceded to the pressure of maintaining services in lieu of building reserves and
thus are facing the consequences of those decisions including downgrades to their
credit ratings. The Town, however, has managed its financial operations well despite
this prolonged challenge.
The Town ended the year with approximately $14.7 million in unassigned fund
balance in its general fund. This represented 19.1% of the fiscal year 2014 general
fund budget and far exceeds the state-wide average (8%) as well as the “optimum
ratio” (15%) favored by bond rating agencies.
This is the type of consistency that has allowed the Town to earn and maintain an Aa2
rating from Moody’s Financial Services, as well as set up the Town to potentially
increase this rating in the near future. We are encouraged by this effort and support
the Town’s efforts to continue this trend.
Exhibit 1 illustrates this positive trend:
Exhibit 1
Town of Nantucket, Massachusetts Page 3 of 18 Management Letter
Exhibit 2 illustrates the growth in reserve ratio:
Exhibit 2
Also on a positive note, the Town continues to aggressively address annual
Management Letter comments. The Town’s Audit Committee, which was established
a few years ago at a time when maintaining sound financial management practices
was a challenge for the Town, oversees this process. As a result, for the third
consecutive year, significant improvements to the Town’s operations have been
observed.
The following reflect some of the highlights for fiscal year 2014:
A Comprehensive Annual Financial Report (CAFR) was prepared for the year
ended June 30, 2014. The Town is 1 of about 25 communities in Massachusetts
to prepare such a report.
Such an endeavor qualifies the Town to receive the Government Finance Officers
Association Certificate of Achievement for Excellence in Financial Reporting. In
addition, it provides the Town with enhanced financial information and
accountability to its citizens, elected and appointed officials, and investors.
Preparing the report does not guarantee an increase to the Town’s credit rating
however the report will have tremendous investor appeal.
Findings related to the Nantucket Memorial Airport, a town enterprise fund have
all been resolved.
Findings related to the Wannacomet and Siasconset water enterprise funds have
all been resolved.
5.00%
7.50%
10.00%
12.50%
15.00%
17.50%
20.00%
2009 2010 2011 2012 2013 2014
Reserve Ratio
Town of Nantucket, Massachusetts Page 4 of 18 Management Letter
The Town has increased its awareness of the Other Postemployment Benefits
obligation by creating a dedicated annual budget source to fund the liability.
This is a very important step to increasing the Town’s credit rating.
Health insurance subscriber audits are currently underway and by the completion
of fiscal year 2015, it is expected that the Town will be in compliance with this
requirement of the Health Insurance Reform Act.
IRS garnishments of over $400,000 were protested by the Finance Office. As a
result the Town was able to receive approximately $360,000 of the amounts
previously garnished. This will result in an increase to free cash when it is
certified at the close of fiscal year 2015. It will be available for appropriation at
the April 2016 Town Meeting. Protests are currently ongoing in efforts to collect
the remaining penalties and interest that were assessed.
The Internal Service Fund, which is a health insurance trust fund, was presented
on a full accrual basis at the close of fiscal year 2015. This eliminated the
payable errors reflected in the prior year Management Letter.
Capital assets are now being captured contemporaneously with the use of
software purchased by the Town during fiscal 2014. This was a large task for the
Town due to the significant volume of capital assets under the Town’s control.
This is now an efficient process moving forward.
The Town made amendments to its purchase order system. Purchase orders are
no longer needed for amounts less than $500. This has improved efficiency in the
purchasing process.
With the appointment of a new Finance Director at the end of fiscal year 2014,
Finance has begun the process of conducting internal audits of departments in
fiscal year 2015. This will increase the Town’s awareness of risk, and allow the
Town to implement improved controls in cash handling areas.
One of the results of the significant progress made with respect to the operating
deficiencies as discussed above was the removal of the Town from the Department of
Revenue “watch list”. The Town is no longer required to submit audited financial
statements to the Department of Revenue prior to the tax rate being set. This is a
major positive step for the Town.
While progress has been made in many critical areas, some findings from prior years
remain unresolved. In addition, new findings were observed resulting from the
procedures of the current audit. These are summarized in this Management Letter
and have been discussed with the Finance Department. We understand that
improvements are currently being developed to address these.
Town of Nantucket, Massachusetts Page 5 of 18 Management Letter
II. INFORMATIONAL ITEMS
New Pension Accounting Standards
In June 2012, the GASB issued Statements No. 67, and No. 68. Both statements will
materially impact the Town’s reporting of pension liabilities, effective fiscal year 2015.
Because the calculations necessary to implement these statements will be generated by the
Barnstable County Regional Retirement System (the System), it is imperative that the Town
work with the System to ensure that the information needed is available in sufficient time to
be included in the Town’s fiscal year 2015 CAFR.
The following areas will be impacted materially:
1) Certain actuarial methods of calculating the accrued pension liability will now be
mandated, instead of optional.
2) The value of actuarially determined pension benefits that have been earned (by both
active and non-active employees and pensioners) will now be reported as a liability in the
Town’s Statement of Net Position and the applicable accrued costs included within the
Statement of Activities.
3) Enhanced and more detailed financial statement footnote disclosure relative to the
pension plan will be required.
4) Enhanced and more detailed required supplementary information reporting relative to the
pension plan will be required.
In the event the information is not available, it will result in an adverse opinion to the
financial statements, disqualify the Town’s CAFR and potentially reduce the Town’s credit
rating. Therefore we urge the Town to contact the System and maintain an open line of
communication regarding the timing of this information.
Bond Rating
The Town has been very active in the capital markets in the past decade. As a result,
the Town’s bond rating is important to not only gain perception as a well-run
community, but also to be able to issue bonds to investors for a lower interest rate.
This will ultimately lead to reduced financing costs for the Town.
New Standard and Poor Investor Services’ rating factors highlight seven areas from
which a community’s debt is rated.
One of the factors includes an evaluation of Management and its effectiveness. This
is evaluated based on the financial policies and procedures in place including budget
policies, forecasting policies, reserve policies, investment policies, capital policies
and debt policies. The management score counts 20% towards the rating evaluation
Town of Nantucket, Massachusetts Page 6 of 18 Management Letter
and is rated on a scale of 1 to 5. A grade of 1 will strongly contribute toward upward
pressure in the bond rating.
It is therefore imperative that the Finance Office review all these factors in
conjunction with the financial policies that are currently in place and develop or
improve the financial policies that will contribute to a higher evaluation in this
factor. Adoption by the Selectmen of these policies will render their effectiveness,
stronger
With respect to the other 6 factors; institutional framework, economy, budgetary
flexibility, budgetary performance, liquidity and debt profile, the Town rates
positively in all these factors.
Town of Nantucket, Massachusetts Page 7 of 18 Management Letter
III. FINDINGS AND RECOMMENDATIONS
A. Unemployment Filings
The Town insures for unemployment through the Commonwealth of
Massachusetts. Filings and contributions from the Town to the Commonwealth
are required quarterly. It was determined that the Town has filed the forms using
an incorrect rate for the past decade. This resulted in a significant underpayment
to the fund that was charged completely to the fiscal year 2014 budget and caused
a $235,000 deficit that had to be raised on the 2015 tax rate recap sheet.
The filing of payroll related forms has been an issue for the Town for a number of
years as evidenced in the prior year when the IRS garnished over $400,000.
The overall process should be redesigned. A review process by an individual more
familiar with filing these complicated forms prior to the actual forms being filed
should be the ultimate goal. This will help cut down on errors in the process.
B. Health Insurance Trust
The Town currently self-insures for health insurance. Contributions to the fund are
made by the Town and by employees by way of payroll deductions. The fund is
now beginning to build equity however it is difficult to determine what portion of
the equity is the employer portion and what portion of the equity is the employee
portion because the transactions are processed through one revenue account rather
than split into two accounts.
It is important to keep the balances segregated because in the event the
arrangement is terminated, the Town would need to determine what is owed to the
employees if any.
C. Personal Property Tax, Motor Vehicle and Boat Excise Receivable Balances
The Town currently carries personal property tax receivables dating back to 1989,
motor vehicle excise receivables dating back to 1986, and boat excise receivables
dating back to 1995. The total amount greater than 15 years old is over $400,000.
The Town should analyze the detail supporting these balances and determine if the
balances should be abated given the age and doubtfulness of collection at this point
in time. In the financial statements, an allowance for doubtful accounts of
approximately $766,000 has been reported which reflects those amounts greater
than 5 years old.
D. Receivable Reconciliation
The receivable reconciliations prepared as of June 30, 2014 reflected a number of
items identified as timing items between the general ledger and the Tax Collector’s
Town of Nantucket, Massachusetts Page 8 of 18 Management Letter
records. After further investigation it was determined that this was due to reports
being run in October as opposed to June 30. Certain activity occurring subsequent
to year-end in MUNIS sometimes compromise the balances run with a June 30
date. We suggest the Town make efforts to run the necessary reports on June 30
or, if reports are run subsequent to year-end, provide a reconciliation of activity
rolling back to June 30 on an excel spreadsheet.
E. Cash Reconciliations (continued from prior year)
The Town Treasurer’s general depository account contains numerous reconciling
items, some of which are greater than a year old. These net to an immaterial
amount, however in order to make the reconciliation process more efficient, we
suggest the Treasurer clean up these reconciling items by making the necessary
adjustments to the cash book.
F. Closing Process
The Town’s submission of its year-end schedules to the DOR had several errors.
These errors related mainly to entering data incorrectly from the MUNIS system to
the DOR schedules and balance sheet. Contributing to the situation was the
tardiness with which the books were closed, which did not allow for adequate
review time by the Finance Director prior to submission.
The closing process needs to be reviewed and processes should be implemented to
allow for a more streamlined, efficient, error free submission. This would include
closing the books by September 15th, to allow for ample review time by the
Finance Director.
G. Capital Projects
The Town presently carries about $250,000 in capital projects balances dating
back to fiscal year 2004. A few years ago the Town had many issues with its
Capital Project’s balances including a review to determine if arbitrage regulations
had been compromised. The analysis exposed numerous errors in the process that
led to a material weakness citation. These stale balances could be the remnants of
this analysis. In any regard, the Town should make best efforts to spend these
funds for appropriate projects as soon as possible.
Town of Nantucket, Massachusetts Page 9 of 18 Management Letter
IV. OPERATIONAL REVIEWS
A. Payroll Process
The Treasurer’s Office is responsible for processing the Town payroll and the
related federal and state wage reporting. These duties are primarily performed by a
payroll clerk with the assistance of the Town Treasurer. The administration of the
Town’s employee benefits are performed by the Human Resources Department.
We interviewed and discussed payroll policies and procedures with the staff of the
Treasurer’s Office, Human Resources Department, DPW, Police Department and
Our Island Home. During our review of the policies and procedures of the
aforementioned Town departments we observed the following with respect to the
Town’s payroll process:
Payroll Warrant and Timesheet Errors
For select samples, we attempted to trace payroll data from the signed payroll
warrants to the departmental payroll submissions and then to the employee
timesheets/cards. There were numerous errors observed in conducting these
procedures summarized as follows:
1. Many samples were missing timesheets.
2. Many timesheets were handwritten, illegible and caused incorrect amounts to
be paid.
3. Public Works has a punch clock, but timesheets were still handwritten.
4. There were numerous inconsistencies between the timesheets and the
transmittal forms including overtime hours and vacation and sick hours being
reported incorrectly.
5. The overall timesheet/transmittal process is sloppy and inconsistent from
department to department.
Payroll Submissions
Town departments receive payroll transmittals from the payroll clerk and are
expected to update the form for hours worked and include any additional pay for
each employee. According to the Treasurer’s Office the forms are almost always
received after the deadline for submission. The departments are required to
recalculate the total the number of hours worked for each location as a control total
for the payroll clerk to reconcile to which does not always occur. Ideally, the
departments would also be required to recalculate the total dollar pay of each
employee which would be a second control total to reconcile to. We were told this
was a policy in the past but was abandoned due to the Town’s desire to remove
pay rate information from the transmittals. This control total could eliminate many
of the payroll errors that are occurring.
Town of Nantucket, Massachusetts Page 10 of 18 Management Letter
Employee Accruals
We noted that the Town has had significant problems with various departments
and unions regarding the accurate tracking of employee sick, vacation and
compensatory time accruals. We understand that significant work has been
undertaken in the prior years to bring accrual balances in line. As previously
described, many departments do not always put the correct sick, vacation and
compensatory time on the payroll transmittals making this a difficult process.
Another contributing problem is that many accrual tables in MUNIS are set up to
grant the time up front at the beginning of the year which does not reflect the
collective bargaining agreements. This is a problem because there are accrual
limits set up in MUNIS such that once the time is granted in one lump sum
MUNIS reduces the employee accrued balances to bring them down to the limit
even if carryover amounts from the prior year exist. Therefore it makes it
extremely cumbersome to monitor and calculate proper employee accruals.
The Treasurer’s Office also does not print and distribute accrual activity and
balance reports to Town departments so that reconciliations can be performed
between MUNIS and the department’s records. We also noted that the accruals for
each employee are not closed at the end of each year. As a result the year to date
reports of accruals will contain all the activity of the employee since the tables
were created.
We recommend that the Town review the current accrual practices and modify the
tables in MUNIS to reflect the current CBA’s or seek to change the CBA’s to
reflect the current practices when the CBA’s are re-bargained. We recommend the
Treasurer’s Office run the year end closing process in MUNIS so that year-to-date
accrual reporting will be more accurate. Finally, we recommend that the
Treasurer’s Office distribute accrual balance activity reports monthly and require
all Town departments to reconcile with department records and sign off that the
activity in MUNIS is accurate.
Fair Labor Standards Act (FLSA) Compliance
The HR Department informed us that certain Nantucket Airport employees were
earning compensatory time for hours worked in excess of forty hours rather than
being paid overtime. We are also aware that the Town recently modified the
compensatory and overtime policies related to other non-exempt employees to be
compliant with FLSA.
We recommend that the Town review its current payroll policies and collective
bargaining agreements to ensure compliance with FLSA.
Personnel Action Forms
The Town uses Personnel Action Forms (PAF’s) to document the information
needed to create a new employee in the payroll system or to make non-deduction
Town of Nantucket, Massachusetts Page 11 of 18 Management Letter
related payroll changes to existing employees. The PAFs are not standard and
come in different formats, none of which are designed so that the payroll clerk can
efficiently enter information into MUNIS. Many of the PAF forms we viewed
contained social security numbers of employees which is unnecessary on these
forms as the payroll clerk should have an IRS W-4 form on file for each employee.
We also noted that the Airport, School and Water Departments submit PAF forms
directly to the payroll clerk and bypass the HR Department, which should review
each payroll change to ensure that Town human resources policies are being
followed.
We recommend that the Town create a standard PAF form that all departments are
required to use. The PAF should be designed to correspond to the required fields
in the MUNIS employee master file and job salary screens. The social security
number field should not be included on the new PAF. We also recommend that
the Town consider having the Airport, School and Water Departments submit PAF
forms to the HR Department for review prior to entry in MUNIS by the payroll
clerk.
Employee Step Increases
Employee pay increases from contractual steps are often processed late and require
the Town to process a retroactive payment to the employee. The HR Department
is in the process of compiling a listing of employees and the step increase dates for
this purpose. Complicating this issue is that the employees’ classification date, and
not the original hire date, is the date the step increase is given for some employees.
Currently the classification dates are not entered into MUNIS.
We recommend that the HR Department complete its listing of employees’ step
increase dates to ensure that these pay increases are processed timely.
Consideration should be given to adding these dates into the MUNIS payroll
module so that all payroll users have access to the dates. In the future, in the
month prior to the employees’ scheduled step increase, the HR Department should
complete a PAF form and forward to the department head for approval. Once
approved, the Department should forward the PAF back to HR for filing with a
copy sent to the payroll clerk for entry into MUNIS.
Employee Benefits
To initiate change to an employee benefit deduction, the HR Department forwards
a copy of the related documentation (i.e. health insurance enrollment form) to the
payroll clerk for processing. This is inefficient as the payroll clerk has to review
the document(s) to ascertain the change that is being requested. We also became
aware of an instance where the Nantucket Airport was not offering an insurance
option that was available to other Town employees, which is a violation of Federal
payroll laws.
Town of Nantucket, Massachusetts Page 12 of 18 Management Letter
We recommend that a Payroll Deduction Form, similar to the Personnel Action
Forms described above, be created to summarize the pertinent information needed
by the payroll clerk to process the change. The form should be designed to
correspond with the required fields in the MUNIS Payroll Deduction Master.
B. Department of Public Works
Chapter 90 Program
The Town is entitled to a set amount of state aid for the maintenance of its
roadways under the Chapter 90 Program of the Highway Division of the
Massachusetts Department of Transportation (the “DOT”). These funds are
obtained by the Town by submitting Chapter 90 Program reimbursement requests
after making payments for these pre-approved programs. Chapter 90 Program
funds are primarily used for roadway resurfacing but may also be used for initial
roadway construction, bikeways, storage garages for road-building equipment, as
well as light and heavy equipment used in these processes.
Generally, DOT will make reimbursement payments to a municipality within sixty
to ninety days from submission of properly completed and supported Chapter 90
Program reimbursement requests. The timely processing of Chapter 90 Program
reimbursements is crucial to a municipality’s year-end free cash calculations as
well as its overall cash flows. Temporary deficits are common in Chapter 90
funds; however, provided these deficits are cured within ninety days, year-end free
cash is not adversely affected by these deficits.
In connection with our analyses and procedures, it was apparent that in fiscal year
2013 and throughout the majority of fiscal year 2014 the Town was not timely
submitting Chapter 90 reimbursement requests to the DOT. To prevent a material
reduction to the Town’s fiscal year 2013 free cash calculation, a temporary
borrowing was executed by the Town in the form of a grant anticipation note.
Personnel changes were made in fiscal year 2014 and the new Town Engineer is
now responsible for the DPW’s Chapter 90 Program. In April and May 2014, the
new Town Engineer obtained from DOT a detail of all open Chapter 90 Program
funds available to the Town and began the process of gathering vendor payment
data and completing the required Chapter 90 Program reimbursement forms. The
total Chapter 90 Program reimbursements requested by the Town Engineer totaled
approximately $767,000 of a possible $883,000 available to the Town.
We recommend that the Town Engineer develop processes to periodically review
the Town’s Chapter 90 Program progress with the DPW Director and submit
Chapter 90 Program reimbursement requests as costs are incurred.
Town of Nantucket, Massachusetts Page 13 of 18 Management Letter
Landfill
Based on our physical observation of the landfill’s operations, reviews of
accounting files and other source documents as well as interviews with landfill and
DPW personnel, we observed the following areas for improvement in internal
controls:
There is an absence of formal, written policies and procedures. Effective policies
and procedures can provide better assurance that the strategic goals and financial
objectives of the DPW and landfill are being met. Furthermore, in periods of
personnel transition, for which the DPW has recently experienced a good deal of
key employee turnover, policies and procedures can lessen the impact of sudden
and unexpected personnel changes.
We recommend that the DPW and landfill develop written policies and
procedures surrounding not only revenue processing, but also costs and expenses
associated with personnel and outside vendors and communication with other
Town departments.
There was an absence of video surveillance equipment at the landfill’s scale
house. This is the point of sale for all revenue-generating activities at the landfill.
Remote video monitoring and surveillance equipment, which is now an affordable
process, of the scale house would permit the DPW to remotely monitor the
activities of the scale house operations and address two of the three risks listed
above. Through remote monitoring, the DPW may periodically check the scale
house operations to better ensure that all chargeable waste is being processed
through the Waste Works system as well as verify the scale house operator’s
classification of chargeable waste.
We recommend that a remote video monitoring and surveillance system be
installed at the scale house. One camera should be focused on the cash register
and another on the truck’s contents.
The waste service agreement between the Town and WON permits the Town to
perform periodic audits of WON’s tipping fees calculations in Section 9.05(d).
The DPW regularly receives scale tickets and can compare recorded transactions
with those processed in Waste Works, for which the DPW has a software license.
We believe that periodic, unannounced cash counts at the scale house should be
performed monthly, at a minimum, by either DPW or Town finance personnel.
We recommend that the DPW and Town develop a process to perform periodic,
unannounced cash counts at the scale house. Differences, if any, should be
resolved with the DPW, Town finance office and the WON operations director.
Town of Nantucket, Massachusetts Page 14 of 18 Management Letter
Safeguarding cash assets is a goal of any internal control system. The current
practices employed at the landfill to store cash collections made at the scale house
overnight need improvement. Cash collections held overnight, are gathered by a
DPW employee each weekday morning. For security purposes, the current
procedures will not be detailed in full in this report other than to state that cash
collections held overnight can be stored in a more secure manner.
We recommend that the landfill and DPW modify their current procedures as
follows:
o A DPW employee should collect scale house cash collections at the
conclusion of each day Monday to Friday and at the open of business each
Monday morning.
o The landfill operator should install a safe within a secured location within
their facility for cash collections that it will maintain overnight for
weekends and Town holidays in which the landfill is open but the DPW is
not.
Collections of landfill revenues on account represent the vast majority of the
approximate $3 million in fiscal year 2013 tipping fees. Customers remit their
payments to the DPW, who inputs these collections into Waste Works and
prepares a turnover for these cash receipts for remittance to the Town Treasurer.
This is a significant cash collection process for a department that appears to be
understaffed at the present time. The use of a lockbox would create operating
efficiencies within the DPW and better ensure that cash applications are being
made properly within the Waste Works system. In addition, if a lockbox were
used, the bulk of the cash receipt handling and processing would be taken out of
the hands of the administrative clerks in the DPW office and placed in the care of
the more advanced accounting skilled individuals in the Finance Department,
thereby significantly reducing the financial risk described in the “Overview”
section of this report.
We recommend that the Town and DPW consider implementing a lockbox
collection system for landfill tipping fees similar to the type the Town currently
uses for a variety of other taxes and fees.
The landfill is categorized as an enterprise fund and therefore follows full accrual
accounting similar to the accounting principles employed by commercial, non-
public organizations. As such, the landfill records outstanding amounts due from
unpaid customer balances for tipping fees as accounts receivable on its statement
of net position. We were provided an aging report as of June 10, 2014 and noted
that over $141,000, or 29%, of the approximate $484,000 in outstanding balances
was aged over ninety days. The DPW director indicated that the DPW had
exhausted all collection efforts on $53,512 in old, past due receivables.
Furthermore, we identified a single balance totaling $71,900 from a customer that
Town of Nantucket, Massachusetts Page 15 of 18 Management Letter
hasn’t done business with the landfill since 2007. In total, these two items
represent $125,412, or nearly 89%, of the entire over 90 day balance.
We recommend the following in relation to receivables:
o The DPW and Town Finance Department develop an abatement policy for
old receivable balances and present this policy to the Town’s Board of
Selectmen for approval. Once approved, annual abatement requests
should be presented to the Board of Selectmen for write-off from the
landfill’s receivable records.
o The landfill has an internal policy whereby customers with outstanding
balances aged more than ninety days must pay for their disposal at the
time of disposal until the old outstanding balances are satisfied. We
observed many instances within the aging reports with customers who
have current balances and over ninety day balances, which would indicate
that this policy is not strictly adhered to. We recommend that the DPW
and landfill re-communicate this policy to its customers and adhere to this
policy.
o Credit applications and credit checks are not made for landfill customers.
We recommend that the DPW develop a credit application that would
facilitate its collection efforts on delinquent accounts.
As previously discussed, commercial fees are assessed and billed annually to all
businesses in Town. The annual fees approximate $400,000 and are typically
billed in the late fall. During fiscal year 2014, these bills were not sent out until
May and, as a result, the current collections are about $250,000 for fiscal year
2014, which is nearly $150,000 under projection. Revenues in other areas were
better than projected, so the Town managed to avert a revenue deficit; however, it
is important that a policy is developed to ensure that bills are sent timely to avoid
any possible revenue deficits at year-end.
Sewer
Based on our reviews of accounting files and other source documents as well as
interviews with DPW personnel, we observed the following areas for improvement
in internal controls:
There is an absence of formal, written policies and procedures. Effective policies
and procedures can provide better assurance that the strategic goals and financial
objectives of the DPW and sewer department are being met. Furthermore, in
periods of personnel transition, for which the DPW has recently experienced a
good deal of key employee turnover, policies and procedures can lessen the
impact of sudden and unexpected personnel changes.
Town of Nantucket, Massachusetts Page 16 of 18 Management Letter
We recommend that the DPW and sewer department develop written policies and
procedures surrounding not only revenue processing, but also costs and expenses
associated with personnel and outside vendors and communication with other
Town departments.
Customers on septic systems are not assessed sewer usage fees by the water
department. Residents will convert from septic to town sewer as part of a
renovation or rebuilding process. A sewer application permit is required for all
new sewer connections. Unless this information is communicated to the water
department, there is the potential that these new sewer users receive sewer
services free of charge.
We recommend that the sewer department develop a policy whereby all septic to
sewer conversions are timely communicated to the water department.
Furthermore, an external policy should be developed and communicated to sewer
users whereby all septic to sewer conversions will begin being assessed sewer
usage fees at the earlier of (i) the installation date or (ii) ninety days after the
sewer application permit. In addition, a copy of the sewer application permit
should be sent to the water department monthly for their records.
Sewer application fees and permits are entirely under the control of the sewer
department. Applicants prepare sewer application permits, which are
prenumbered and sequential and render their payment to a DPW administrative
clerk at the DPW building. These sewer application permits are reviewed by the
DPW administrative clerk. Funds are then collected from the applicant and signed
off by an authorized sewer department employee, generally the DPW director.
The applicant is given the original portion of the permit. The yellow portion is
retained with the payment and ultimately submitted to the Town Assessor for use
in the sewer department’s other one-time fee – the sewer privilege fee.
The DPW administrative clerk maintains an Excel file to record and account for
the sequence of sewer application permits. However, this Excel file is seldom
used and thus incomplete. The use of a log book to account for sewer application
permits is a key element of an internal control system as it accounts for the
sequence of permits and therefore serves as a key detective control to timely
detect a loss from unaccounted revenues. We recommend that the sewer
department implement a sewer application permit log book that tracks the
issuance of sewer application permits, the date of issuance, amount assessed and
collected, the DPW party that accepted the sewer application fee and the DPW
party that approved the issuance of the sewer application permit. This log should
be periodically reviewed to ensure that the sequence of sewer application permits
is intact and that all recorded revenues transactions within the Town’s MUNIS
accounting system are consistent with the details contained in the log.
Alternatively, an “e-permitting” system should be strongly considered within the
sewer department’s operations.
Town of Nantucket, Massachusetts Page 17 of 18 Management Letter
We observed that turnovers of sewer application fees were not being performed
on a timely basis. The DPW director informed us that a former employee had
approximately $52,000 in checks made payable to the DPW that were aged
several weeks (and in some cases months), many of which pertained to sewer
application fees and septic hauling charges. Our review of 24 months of activity
indicated that it was common practice to hold receipts for several weeks and then
make a bulk deposit. The Town has firm policies that turnovers are to be made
daily or weekly should the dollar value of departmental collections be small.
We recommend that the DPW adhere to the Town’s turnover policies and require
that all monies it receives from all sources be turned over to the Town Collector
on a daily basis. Furthermore, the turnover forms should list all permit numbers
as a further internal control.
Town of Nantucket, Massachusetts Page 18 of 18 Management Letter