The Tennessee Comptroller of the Treasury has released the audit report of Manchester City for Fiscal Year 2018-2019.
There were no material weaknesses related to the internal control over financial reporting identified, but the auditors identified significant deficiency related to the internal controls. Auditors also noted noncompliance material to the financial statement.
According to the report, the city has corrected six of the previous issues, also referred as findings.
Findings relating to the financial statements
This issue is related to the Manchester Recreation Center and has been repeated.
This is significant deficiency under Government Auditing Standards, the report states.
“As of June 30, 2019, accounts receivable in the Manchester Recreation Center totaled $90,291 of which $57,342 was shown in the aging report at over 120 days,” auditors said. “Collection of these amounts does not appear to be likely. These receivables do not appear to have been reviewed and no determination of uncollectible accounts has been made.”
Short-term accounts receivable should be reconciled on a monthly basis. Collectability of accounts should be determined by management and action taken to prevent the situation in future periods, according to the report.
Accounts Receivable that are not collectible falsely inflate the assets of the fund. In addition, any receivables that are not available for current period expenses should be included in deferred inflows to offset this asset.
Recommendation: Receivables should be periodically reviewed and a listing of accounts that are determined to be uncollectable should be prepared and submitted to the Board of Mayor and according to the management of the Manchester Recreation Center, a corrective action plan has been implemented.
Adjusting entries made to cash collections
Another repeated finding is voided and/or adjusting entries made to cash collections without appropriate documentation or approval. This issue is also related to the recreation center.
This is a significant deficiency under Government Auditing Standards.
“Debit entries to revenue accounts were routinely made to correct prior credit entries supposedly made in error,” auditors said. “However; personnel did not provide any documentation of the error nor an approval from management to make the correction. In addition, the same user made the original entry and the correcting entry.”
The city’s Manual on Internal Control Policies prohibits a single individual from entering a transaction and also reversing that transaction. Without proper segregation of duties, individuals are placed at risk should questions regarding the protection of assets arise, according to the report.
The city responded that a corrective action has been taken.
Budgeted expenditures in excess of appropriations
Budgeted expenditures in excess of appropriations is also a repeated noncompliance under Government Auditing Standards.
The General Fund exceeded appropriations at the level of control for Health, Welfare, and Recreation by $23,065.
“Expenditures made in excess of budgeted amounts could result in a loss of control over financial operations by the governing body,” auditors said. “Expenditures should be held within appropriations approved by the Board of Mayor and Aldermen.”
The city has implemented a plan to correct the issue.
Deposit with financial institution in excess of required collateral pledges
Another issue under Government Auditing Standards is voided and/or adjusting entries made to cash collections
“The City of Manchester had uncollateralized, uninsured deposits with First National Bank of $368,045 at June 30, 2019,” auditors said, adding that amounts in excess of deposit insurance and pledged collateral would be subject to loss upon failure of the depository institution.
Management should either obtain pledged collateral based on a monthly analysis of the city’s cash deposits, or deposit funds with other banks who participate in the State Collateral Pool.
A corrective action has been taken, according to the city.
Incomplete reconciliation of bank account
The reconciliation of the pooled cash bank account as of June 30, 2019 did not match the general ledger balance by at least $142,000, according to the report.
Uncleared items were not investigated and there was no apparent follow-up on uncleared outstanding checks.
A failure to complete the reconciliation between a bank statement and the general ledger results in the possibility of material misstatements of cash balances. Management should ensure that the reconciliation process for bank accounts includes investigating and resolving all variances in a timely manner.
This issue has also been addressed, according to the city.
Employee records security
The issue of employee records security is also related to the recreation center
“During the audit, we observed employee files being kept in an unlocked file cabinet along with petty cash funds and other miscellaneous records,” auditors said. “Tennessee Code Annotated, Section 50-7-701(B) states in relation to public employee work records that ‘Information thus obtained pursuant to the administration of this chapter shall be held confidential and shall not be published or be open to public inspection in any manner revealing the individual’s or the employing unit’s identity.”
The private information of department employees is susceptible to fraudulent and malicious activity, the report states.
All employee records should remain confidential and be stored in a secure location.
This issue has been addressed, according to the city.