JACKSON THORNTON F 234956 5090 sorgs-aors ‘The Honorable Mayor and Members of the City Council 2oocommence — City of Prattville, Alabama ALABAMA In planning and performing our audit of the financial statements of the City of Prattville, Alabama aeios.2so1 _ (the City) for the year ended September 30, 2009, in accordance with auditing standards generally accepted in the United States of America, we considered the City of Prattville, Alabama's internal Geet control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control Waumpe Our consideration of intemal control was for the purpose described in the preceding paragraph Tennent and would not necessarily identify all deficiencies in intemal control that might be significant Mufssto deficiencies or material weaknesses. However as discussed below, we identified certain deficiencies in internal control that we consider to be significant deficier A control deficieney 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 misstatements on a timely basis. A deficiency in design exists when a control necessary to meet the control objective is missing, or when an existing control is not properly designed so that even if the control operates as designed, the control objective is not always met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or qualifications to perform the control effectively A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected. We consider the following control deficiencies to be significant deficiencies: Policies and procedures The t's cash disbursement procedures do not provide an adequate segregation of duties. The City should modify the accounts payable procedures to require the check signer to review supporting documentation, either an invoice or purchase order requisition, as a part of standard procedure for the approval of accounts payable disbursements,The Honorable Mayor and Members of the City Couneil City of Prattville, Alabama Page 2 There are miscellaneous accounts receivable and accrued liabilities other than payroll withholdings included on the City’s general ledger that are not reconciled to subsidiary balances in a timely manner. The City should establish a procedure to reconcile subsidiary ledgets to the general ledger on a monthly basis. The City should develop a credit card policy to ensure controls over expenditures. Certain City employees are authorized to utilize credit cards for business transactions; however, the City does not have a credit card policy. ‘The City has allowed the cashing of personal checks by employees through the revenue department cash tur-ins, In a sample of test items we found one instance where the cash and checks turned in by the municipal court did not agree with the cash and checks deposited by the revenue department. ‘The total deposit agreed, but the breakdown between cash and checks did not agree, This was the result of employees cashing personal checks through department turn-in. We recommend that the City develop a policy of not allowing the ‘cashing of personal checks through peity cash, ‘The City began using Incode software during the year to process the City’s payroll in-house. We noted that the accrued leave schedule maintained on the City’s Incode software, included some inactive employees and one council person accruing leave. We recommend that a supervisor review the accrued leave schedule on a routine basis to be sure that employees are accruing leave properly. The City currently does not have a disaster recovery plan in place. The backup of the City’s financial data is not being stored offsite. We recommend that the City develop a disaster recovery plan to include offsite storage of the City’s financial data Budgeting ‘The City’s budgeting process does not include the appropriate consideration of the City’s operating budget, There were some department’s whose expenditures were understated based on prior year actual results. In addition, budget amendments were not initiated in all departments resulting in an over expended budget in that department. ‘The City should continue in its efforts to improve the budgeting process to improve the reliability of the monthly budget reports utilized to control expenditures. Budget reductions to line item expenditures over the prior year should be supported by external information. Budgeted expenditures should be based on prior year’s experience unless economic conditions can be documented to support a reduction in the budgeted expenditure.The Honorable Mayor and Members of the City Council City of Prattville, Alabama Page 3 ‘A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of financial statements will not be prevented or detected. We consider the following significant deficiencies to be material weaknesses ‘There is a lack of segregation of duties in the Finance Department. It was noted in the audit that the deputy finance director has access to the check signing module in accounts payable, can create, add, and delete vendors in accounts payable, reconciles the bank statements, and hhas the ability to post journal entries. In addition, this person is authorized to initiate and approve ACH transactions with financial institutions. The accounts payable clerk can also create, add, and delete vendors in the accounts payable module and has access to the check signing module, Checks are mailed by the accounts payable clerk. ‘The payroll clerk can initiate changes to payroll hours and has access to the check signing, module for payroll checks. The payroll reports are not reviewed timely by a supervisor. We recommend that the City review their procedures to identify areas where segregation of duties can be implemented to provide improved controls. The City’s pooled cash and payroll bank reconciliations have had an unidentified reconciling item on the bank reconciliations since January 2009. We recommend that any unreconciled differences be identified and resolved in a timely manner. During our audit we became aware of opportunities the City has for strengthening internal controls and improving operating efficiency. Although the items below are not considered significant deficiencies, we would like to make the following recommendations. We found, during our audit, that various departments are handling their own grant request with no centralized location to maintain the grant documents and supporting invoices, To improve the City's compliance with grant requirements, we recommend that the City centralize the recordkeeping and management of grant transactions. We noted, during our audit, that the City could strengthen the payroll process by having an employee in the Human Resources department check the payroll reports for exceptions before payroll is released for payment. Currently, each department head reviews payroll reports subsequent to the payment of payroll expenditures, It was noted that there were travel advances that had not been cither substantiated with receipts o repaid as of the date of this report. We recommend that the City follow the reimbursement rules of an accountable plan which requires the return of any amounts in excess of their substantiated expenses in a reasonable time period. Under the periodic statement method, a reasonable period is within 120 days. If the excess amount is not paid within a reasonable period of time, the amount is treated as being paid under a onaccountable plan and must be included in income by the recipient.The Honorable Mayor and Members of the City Council City of Prattville, Alabama Page 4 During our audit, we noted that the City is not currently verifying that the vendors utilized to provide goods and services for Federal awards are not suspended or debarred. We recommend that the City establish procedures to verify that vendors providing goods and services under the Federal awards have not been suspended or debarred by the Federal Government During our audit, we reviewed the City’s IT’ policies and procedures and noted areas that required improvement. The risk areas identified included physical security, disaster recovery, and physical location of IT systems. We recommend that the City review their current IT. policies and procedures and implement a plan to reduce the exposure to the various risk factors. ‘This communication is intended solely for the information and use of the Mayor, City Council, management, and others within the organization and is not intended to be and should not be used by anyone other than these specified parties. Gocboon cherntony 4, Pe Prattville, Alabama June 2, 2010