ERMUSR FINIANCIALS 04-17-2008 - Laserfiche WebLink

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Elk River Municipal Utilities Apri17, 2008 Page 2 2007-1 Segregation of Duties Condition: During our audit we reviewed procedures over cash disbursements, payroll and investments and found areas of internal control that can be improved. Criteria: There are four general categories of duties: authorization, custody, record keeping and reconciliation. In an ideal system, different employees perform each of these four major functions. In other words, no one person has control of two or more of these responsibilities. Cause: In the area of cash disbursements, the Finance Officer and one account have control over the entire process from authorization to reconciliation. In the payroll area, the accountant has responsibility in all steps of the process. And for Investment activities, the Finance Officer is solely responsible for the whole process. Another concern is the safeguarding of the stamp used for checking signing. Currently a spare key is kept in an unlocked vault making it available to anyone -essentially giving any employee the ability to authorize a check. Effect: The existence of this limited segregation of duties increases the risk of fraud. Recommendation: The most effective controls lie in striving to obtain as much segregation of duties as possible so that no one person has complete control of any type of financial transaction. Regarding the specific situations listed above, we would offer the following specific recommendations: 1) That neither the Finance officer nor the accountant have control of the check signing process or wire transfer approval process. 2) That a person separate from the recording and authorizing be given responsibility for the reconciliation of cash and investments. 3) Stronger safeguards of the signature stamps and consideration of requiring at least one actual signature. Management response.• Some items have already been implemented to improve internal control and segregation of duties starting in March 2008. 1) We have hired an assistant accountant that does the bank reconciliation. The Finance Director will review these now instead of actually performing them. 2) The key that was in the vault is now in the possession of the Finance Director at all times. 3) Each check required two signatures. We now have two signature stamps with an individual signature on each stamp. One is kept locked in the possession of the accounts payable/payroll clerk and one is kept locked in possession of the Finance Director. We are looking at having a third one created that would be kept locked in possession of the General Manager. 952.835.9090 Fax 952.835.3261 www.aemcpas.com