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HomeMy WebLinkAboutR-76-0479RFC/rb 4/28/76 RESOLUTION NO. 76-479 A RESOLUTION RECEIVING THE ANNUAL POST AUDIT REPORT PREPARED BY TOUCi1E, ROSS,& COMPANY; AND AUTHORIZING THE CITY CLERK TO RETAIN SAID REPORT AS A PUBLIC RECORD FOR A MINIMUM OF 10 YEARS, WHEREAS, Chapter 10.500, Rules of the Auditor General, require municipalities to be subject to an annual post audit by an independent certified public accountant retained and paid by the municipality; and WHEREAS, Chapter 10.510, Subsection 6 requires that the annual post audit report shall be received by the munici- — pality at a regular meeting of its governing body: NOW, THEREFORE, BE IT RESOLVED BY THE COMMISSION OF THE CITY OF MIAMI, FLORIDA: Section 1. The annual post audit report prepared by Touche, Ross & Company is hereby received by the City of Miami. Section 2. The City Clerk is hereby authorized and directed to retain the aforesaid report as a public record for a minimum of 10 years. PASSED AND ADOPTED this 13 day of MAY 1976. J H. D. SOUTHERN CITY CLERK MAURICE A. FERRE PREPARED AND APPROVED BY: / Q-�/( ROBERT F. CLARK Assistant City Attorney APPROVED AS TO FORM AND CORRECTNESS; HN S. LLO &ty Attorney MAYO R "DOCUMENT INDEX ITEM NO. ---' yip! InrI^1'1% !1„ . i'"T CITY COMMISSION METING OF MAY 1 3 1976 +Ct t oW MIAMt, PLot2tbA INTEti-c5 tI E MEMORAt4 UM 1Oe PROM: Mr. P. 14. Andrews City Mattager A; Passer Acting Director of Finance bATE: SUEUJECT: April 21, 1976 Resolution Receiving Anntiat Post Audit Report REFTRENCEB: ENCLOSUEtEst Rules of the Auditor General, Chapter 10.500, provide that the Annual Post Audit Report and any comments required by this Chapter shall be received by the municipality at a regular meeting of its governing body and retained as a public record for at least ten years. Please have a resolution drawn receiving the Annual Post Audit prepared by Touche Ross & Co., and authorizing the City Clerk to retain said report as a public record for a minimum of ten years. "SUPPORTIVE DOCUMENTS FOLLOW" .(f TOUCHE ROSE & CO. CERTIFIED PUBLIC ACCOUNTANTS THIRD FLOOR RIVERGATE PLAZA 444 6RICKELL AVENUE NiIAMI, rLORIDA 33131 April 9, 1976 Honorable Mayor and City Commissioners City of Miami, Florida We have examined the financial statements of the City of Miami, Florida, for the year ended September 30, 1975. As a part of our examination, we reviewed the City's system of internal control to the extent we considered necessary to evaluate the system as required by generally accepted auditing standards. Under these standards, the purpose of such evaluation is to establish a basis for reliance in determining the nature, timing and extent of other auditing procedures that are necessary for expressing an opinion on the financial statements. However, during our examination we also have given consideration to certain matters including: 1. Whether expenditures were made in accordance with appropriations and other Municipal fiscal requirements and restrictions. 2. Whether revenues have been properly accounted for. 3. Whether financial controls and procedures are adequate. 4. Whether there is compliance with statutes, laws, rules and regu- lations under which the City is functioning. 5. Whether there are indications of lack of efficiency in the City financial operations and management. Because our examination was made on a test basis and was not designed primarily to disclose inefficiencies, defalcations, and similar irregu- larities, it would not necessarily disclose all such matters. However, our examination did di.scicse several areas where we believe improve- ments could be made or controls strengthened. In an evaluation of internal control, it should be remembered that the objective of internal control is to provide reasonable assurance as to the safeguarding of assets against loss from unauthorized use or dis- position, and the reliability of financial records for preparing fi- nancial statements and maintaining accountability for a tit -- tOUONE hot§ & to. 1bhorable Mayor and City Commissioners City of Miami, Florida April 9, i976 We have also noted that positive action has been taken by the City on several matters which we discussed in our previous letter to the Mayor and City Commission, dated April 1, 1975, Therefore, we have included a section containing prior year's recommen- dations fully implemented in the current year, We have discussed our recommendations with Mt, John Passer, Acting Di- rector of Finance, and other City officials and have considered their comments as they relate to these recommendations, Yours very truly, Certified Public Accountants "SurPi;r 1 IV- DOCUMENTS FOLLOW" ?ouciE floss & CO, GRANTS MANAGEMENT As part of our examination We reviewed the area of grants management to determine whether (i) controls over grant administration are ade- quate and (ii) the City is receiving all monies due as reimhutrsement for indirect municipal costs associated with federal grants. As you know, the federal government in most cases is committed to pay- ing its appropriate share of all allowable costs applicable to pro- grains supported by federal grants, including indirect costs. These costs are associated with each federally" -supported program Which go beyond the salaries and other expenses of the persons directly respon= Bible for carrying out the program. Such indirect costs eligible for reimbursement include costs incurred in units of the City government, such as Finance Department, Budget Office, Data Processing Center, Motor Pool, Personnel Office and Purchasing Department. However, to be eligible for reimbursement of these costs the City must file an approved plan with the federal government. The product of this plan is an "indirect cost rate": a percentage figure which is applied to direct costs to ascertain the amount of reimbursement the City can receive.for indirect costs. Based on the September 30, 1975, list of approved Federal and State Grants prepared by City personnel, Miami has applied for and received grants of approximately $7,000,000 on which reimbursement and indirect costs is allowed. However, no plan has been prepared and the requests include no provision for indirect cost reimbursement. Reasons for this situation appear to stem from the fact that no one person within the city organization has had complete control over the grant process. The City's Community Affairs Office, which has recently been established by the City Manager, initiates inquiry and prepares application for grants. This does not include any finance related procedures and participation by the Finance Department in this process appears to be minimal. As a result of our review, we also offer the following recommendation in the overall area of Grants Management: I. Responsibility for all grants management should rest in one department. This department should work with the City's Washington representative exploring new grant areas; initiate inquiries and prepare proposals, develop and update a cost reimbursement plan; initiate the cost reimbursement plan; initiate cost reduction and cost measurement reporting and update the City Administration and City Council on developments in the area of grants and grants management. IT. The City must develop a work plan for maximizing reimbursement for indirect cost. Such an effort includes: A. Develop an initial fcasability study to ascertain whether an allocation plan is -worth -while. Based on our initial observations, we believe that such a plan is not only woreh- whi.lc but a necessity. "SU PPORT!VE DOCUMENTS FOLLOW" tOVOHE ROSt & CO 2 R. Develop a plan emphasizing the simple, most cost effective methods for developing the plan. C. Establish and maintain contact with the cognizant federal agencies. b. Follow through negotiations, gain necessary approvals and update the plan as necessary. As we have indicated, we believe that the current operations of the City in this grants area are inadequate for a municipality of the size and complexity of the City of Miami and we strongly urge the City to implement the steps outlined above. SYSTEMS DEVELOPMENT - GENERAL In 1974, we offered the following comments: "We are aware that the City is planning for a major data pro- cessing installation, including data processing' services which would be available to the Finance Department. We believe that the city is at a point in its growth where it has become essen- tial to automate its data processing to the extent practical, and we recommend that planning to this end be continued. In its system development and equipment selection effort, we urge that the City give high priority to the needs of the Finance Depart- ment. At the present time, the data processing equipment in the Finance Department is card oriented and not capable of meeting the poten- tial for automated systems requirements in the Finance Department. We believe that there are a number of applications in finance and related areas where the City could effectively utilize data pro- cessing capabilities. For example, the general ledger and peri- pheral accounting records could be automated. Currently, an excessive amount of time is expended collating and summarizing information which is posted to the general ledger. Subsidiary records such as accounts receivable ledgers and fixed assets records could be more effectively maintained by EDP systems. At the present time, detail information supporting these accounts is minimal. Other applications that could be effectively imple- mented are cash management, inventory controls and programs to account for federal grants." In 1975, the City implemented a plan to develop a more effective and efficient system within the Finance Department. This system as cur- rently proposed will make increased use of electronic data process- ing and is expected to become operational in 1976. Additionally, we offer the following recommendations relating to individual systems weaknesses which should be corrected as the new system becomes integrated. "SUPPORTIVE DOCUMENTS FOLLOW" ?OUCFIE Ross & co. Internal. Control over Data Processing Department In 1974 and 1975, we made limited reviews of the system of internal control employed in the data processing area and noted the following weaknesses: 1. Programming personnel operate the computer on regular processing tuns. No program manual exists which sets forth standardized programming techniques and procedures such as program documentation, program testing and program changes, 3. Plow charts are not available for all programs. 4. The file cabinets used for storing programs and program cards are not locked. These are accessible to all employees within the department. 5. At the time of our examination, there were no program run books or logs maintained. Since that time, some partial logging has been instituted and should be increased. 6. Backup programs and program documentation are not maintained. 7. There is little or no participation by user departments in review and testing of programs or in verification of data processing output. 8. The data processing installation and equipment are not restricted to access by department personnel. The installation may be entered by all employees. A good system of internal control helps insure that information pro- cessed is accurate and reliable. In order to help achieve adequate control over the data processing department, it is imperative that these weaknesses in the system of internal control of the data pro- cessing department be corrected. Throuuh our discussions with City personnel we have been advised that certain personnel and organiza- tional changes have recently occurred which should help to correct these weaknesses. Receiving Department The City does not have a centralized receiving department. Orders for goods are placed by the Purchasing Department and the goods are received by the respective user departments. Substantially all goods received by the City should be cleared through a centralized receiving department which is inc'c.pandent of the purchas- ing, accounting and user departments. This department should be respon- sible for determining the quantity and quality of goods received and that goods received are in accordance with the purchase order, for the preparation of a prenunber. ed receiving report anr] for the trans- mittal of goods received to the user. departments. All deliveries to user departments from the receiving department should be accompanied by an authorized delivery advise or materials release. �,-t-tI�([ tOUCFIE RRo55 & Co. Establishing a receiving department, as described above, would not only greatly increase internal controls over receiving and accounts Payable, but would also enhance existing internal controls over Mate- rials usage and facilitate the use of economic order quantities, Policies and Procedures Manual A formal accounting and data processing procedures manual does hot Currently exist, We recommend that, as part of any system redesign, a formal procedures manual be prepared to document all accounting and data processing policies and procedures. This would help to insure that account policies and procedures are consistently applied and transition periods for new personnel would be less difficult, General Ledger and Journal Entries We recommend that a formal chart of accounts be developed such that adequate management information can be derived from the accounting records, but not so detailed as to be cumbersome. Accounts Receivable The City retains many delinquent rents, waste collection charges, taxes and assessments on the financial records for long periods of time. We recommend that the City give additional attention to the collection of delinquent receivables and write-off all uncollectible receivables when appropriate, in light of statutory requirements. Statutory modifications should be obtained in instances when good business reasons and the statutes conflict. INTERNAL AUDIT In prior years, and in 1975, the activities of the Internal Audit Department have been limited almost exclusively to the review of specific transactions within certain balance sheet and revenue ac- counts. During 1975, with the transfer of the Internal Audit Staff, the overall supervision for the performance of internal audit was transferred to the department. We believe that the City would bene- fit from expansion of their function into all areas of financial significance such as purchasing, inventory control, budgeting, expenditure control and monthly financial reporting. In addition, we recommend that the function be expanded to provide for Opera- tional Audits - audits of efficiency, economy and compliance. FICA TAXES ON SICK PAY Internal Revenue Code Section 3121(a) (2) expressly excludes from FICA taxes payments for earned sic}: leave made to employees for periods in which they were absent_ from wort: because of illness. For such payments to be excluded from this ta::, a formalized sick leave "p]. in" must be documented in wri_ti_n9 or otherwise made known to the employees. It is not uncowmoa for major corporations to exclude sick leave pay- ments from FICA tax requirements under the provisions of the internal "c r7�r;r�T� • �E r t. ~+ , toUCHt ROSS & G0. Revenue Code, As an example, we are aware that City of kahsas City, Missouri, has begun such a plan. City of Miami should consider such a plain. In order to be eligible for such treatment, a ruling request must be obtained from the Internal Revenue Service, If a favorable ruling is obtained, the estimated savings to the City of Miami and the appli- cable city employees for the calendar year 1975, could be sizeable. In addition, savings to the City could continue to increase each year for the following reasons: 1. ender current law, the maximum taxable wage base (currently $14,100) for social security purposes will increase as the annual indexed cost of living increases: thus, an increasing • number of employees should fall beneath the maximum wage limita- tions in future years. 2. Currently, the FICA rate is scheduled to increase to 6.05% in 1978 and 6.3% in 1981. Historical patterns would indicate that the social security tax rate increases are generally revised upward from the schedule rate increase. 3. Sick pay dollar costs will continue to rise as the total number of City employees increases and as City employees receive pay increases: thus, the FICA tax dollar cost applied thereto will be higher. INVENTORIES In 1974, we noted that security at the City's Motor Pool appears to be lax. We observed that it would be relatively easy for someone to misappropriate significant amounts of inventory. At September 30, 1975, a final unexplained adjustment of $27,000 was required to reduce the book inventory amount to the physical count. This dif- ference is the result of either errors that have occurred in the supply record or the possibility of theft exists. We understand that an in-depth review of these systems was last performed in 1971. We again recommend an overall increase in the security over the motor pool inventory. We also recommend that the controls over the storage and use of inventory and the relevant record -keeping system be reviewed and changed where appropriate. In addition, all employees should be reminded of their responsibilities as regards proper con- trol. We understand that certain procedures to correct this problem are being implemented and we will again review this area in future examinations. CASH RECEIPTS Cash receipts at the Dinner Key Marina for boat dockage fees are recorded daily and kept: in a safe for weekly pickup by an employee from the Finance Department. This present procedure should be re- viewed and revised to permit daily bank deposit of receipts. fir— t,, .. 0 1 r tc ucu 1tOSS tO. i Checks received at the city Cashier's office are forwarded daily to the accounts receivable supervisore but are hot restrictively endorsed at point of receipt by the cashier, Such a procedure increases the chances for checks to be lost, misplaced or stolen: All checks should be restrictively endorsed at the cashier's office immediately Oft receipt, CASH DISBURSEMENTS After checks are processed by the Data Processing Department. they are returned to the Accounts Payable Department for check signing and mailing and cancellation and filing of support. in order to preclude employees from resubmitting supporting data for duplicate payment, the check signing and support cancellation should be per- formed by someone independent of the voucher processing function. In our prior letter, we observed that too many employees have access to the check signing machines. This year, while we noted some improvement, the key to the check signing machine is left in the machine during working hours. When the individual supervising the key is away from the desk, unauthorized use continues. PAYROLL Payroll checks and annual employee earning records (Form W-2) are forwarded to department heads for distribution to employees. This creates an internal control weakness in that such a condition allows department heads to maintain "ghost employees". To provide greater internal control over payroll, the internal audit department should maintain an on -going program of payroll audits, including surprise visits, pay -outs and salary reviews. The W-2 forms should be mailed directly to the employees. ACCOUNTING MATTERS Vacation and Sick Pay An interpretation issued by the Sub -committee on State and Local Governmental Auditing of the American Institute of Certified Public Accountants has indicated that, in certain instances, the contingent liability for accrued vacation and sick pay should be disclosed in a note to the financial statements. The City Finance Department has recently developed the data which will be used for the 1975-76 financial statements. Fixed Assets Much of the property gifted to the City and recorded in the books of the City has been valued at no value although some value for the property existed at date of grant. An example is the Gusman Hall which has not been valued for the current financial statements. While the effect of this situation is not yet material in terms of the fairness of the financial statements taken as a whole, proper valuation should be set for all gifts of property and these ifts properly recorded in the City property accounts. US U OP nTI\`E FOLLOW" si tOUCHE MOSS a CO. Prior Recommendations Fully Implemented During the Period Under Review In 1974 we were unable to locate the exemption certificate (Form W-4) for some employees and recommended that payroll records be kept current and that these be adequate documentation for all payroll deductions. During our current examination we noted that such documentation appeared to be adequate and current. At September 30, 1974, the City had on hand checks dated September 1, 1958, in the amount of $35,050 drawn on the Stadium Enlargement Fund bank account at Florida National Bank. These checks were voided as Of September 30, 1975. • In 1974, we noted several old payables and deposits and we recommended that such items be reviewed periodically and written -off within legal restrictions. At 1975 we noted no such items. "SUPPORTIVE DOCUMENTS FOLLOW"