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HomeMy WebLinkAboutAgenda Report - November 17, 1982 (55)MEETING V, NK AUDIT AND Following introduction of the matter and discussion, MANAGEMENT LETTER Council, on motion of Councilman Pinkerton, Murphy second, FOR YEAR ENDED accepted for filing the Audited Financial Statements of the JUNE 30, 1982 City of Lodi for the year ended June 30, 1982 and Manage - ACCEPTED FOR FILING ment Letter from the auditing firm of Ernst and Whinney. Q U JR 2? �i; 2N TKA. MIA 6 q y !o no,! U ME g Aso"', X- w-, A Q> 1 -. -If Hilli 1, ooa SAY'. 31 W -V A40 Ernst &Whinney November 8, 1982 Nov • 9 -1982 535 Capitol Mall. Suite 630 C' Sacramento, California 95814 916/447-3237 Ms. Alice M. Reimche City Cleric City of Lodi P. 0. Box 320 Lodi, CA 95241 Dear Alice: Enclosed are 23 copies of the audited financial statements of the City for the year ended June 30, 1982. I am also enclosing 13 copies of our management letter for the City. We enjoyed working with the City personnel this year and look forward to discussing our report at the City Council meeting on November 17th. Very truly yours, James E. Olson Partner JEO:alh Enclosures MEMORANDUM TO: Henry A. Glaves, Jr., City Manager FROM: Robert H. Holm, Finance Director DATE: November 16, 1982 SUBJECT: Ernst & Whinney Management Letter - June 30, 1482 I have discussed the Management Letter with E&W and the Finance Department staff and wish to offer the following comments. PAYROLL - SEGREGATION OF DUTIES We have taken the necessary steps to segregate the duties of the payroll clerk and are now having the signed payroll checks distributed by another person in the Finance Department. PAYROLL USER RECONCILIATION We have assigned this task to our EDP Programmer Analyst ane expect completion in the next few weeks. DISASTER RECOVERY PLAN The basic elements of a disaster recovery plan and where we now stand on them are as follows: 1. Second Site Back-up Facility - We have at least 5 IBP[ System -349 in the area and are now working on some type of written receiprocal agreement with two or three of them. 2. Identification of Critical Applications - We have identified the critical applications as: utility billing, cash collection & payroll. Our short- term survival plans call for us to restore these areas as soon as possible if a disaster should occur. 3. Back -uv and Storaxe of Data Files. Software & Operating Menus - We presently copy files and software changes on a daily basis and place this data in the basement vault, which has a 2 -hour fire door. The only problem with this location would be a flood. We are looking into an off-site storage area. A� r Henry A. Glaves, Jr. City Manager November 16, 1982 Page 2 BUDGET M - UNPREDICTABLE REVENUES & EXPENDITURES In the City's reserve for cost of labor and materials, or what is commonly referred to as "Work for Others", we have not established appropriations for: • Foreign cities bail . Plan check fees (outside firms) . Labor distribution over and short . Rec*°eation miscellaneous However, we can set these appropriations up and plan to do so this fiscal year. We did estimate revenues for these functions this year. ACCESS TO EDP TERMINALS We plan to contact other cities and see what their consensus is .and also plan to look into software packages that provide this security. I'm sure that this will be a cost item of several thousand dollars and will make a report of the results as soon as possible. RECORDING OF TRANSACTIONS The Turner/Cluff Assessmerc District was established under California's 1915 Special Assessment Act and, therefore, these bonds, unlike the 1911 Act, are an obligation of the City. We did not receive sufficient information on these bonds in December 1981 to set up an accounting entry to record the obligation. MARKETABLE SECURITIES Mr. Lachendro has already delivered these securities to this office. We have issued him a receipt and turned the bonds over to the City Clerk for safekeeping in the City's safe deposit box. Robert H. Holm Finance Director November 19, 1982 HENRY A. CLAVES. Jr. City Manager ALICE M. REIMCHE City Clerk RONALD M, STEIN City A"omay Mr. James E. Olson Partner Ernst and Whinney 555 Capital Mall suite 650 Sacramento, CA 95814 Dear Mr. Olson: This letter will confirm that the Lodi City Council at its regrular meeting of NcrAmIber 17, 1982 received the Audited Financial Statements of the City of Lodi for the year ended June 30, 1982 and Mana.7eiment Letter as prepared by the auditing firm of Ernst and i&inney. Tile subject documents were reviewed and received for filing by motion act cn of the Council. Very truly yours, Alice M. Reimche City Clerk MIR: j j CITY COUNCIL FRED RE ID.M.yor CITY OF LOD I ROBERT C MURPHY, Mawr Pro Tempore CITY HALL, 221 WEST PINE STREET EVELYN M OLSON POST OFFICE SOX 320 JAMES W PINKERTON, Jr LODI. CALIFORNIA 95241 JOHN R (Randy) SNIDER (209) 334-5634 November 19, 1982 HENRY A. CLAVES. Jr. City Manager ALICE M. REIMCHE City Clerk RONALD M, STEIN City A"omay Mr. James E. Olson Partner Ernst and Whinney 555 Capital Mall suite 650 Sacramento, CA 95814 Dear Mr. Olson: This letter will confirm that the Lodi City Council at its regrular meeting of NcrAmIber 17, 1982 received the Audited Financial Statements of the City of Lodi for the year ended June 30, 1982 and Mana.7eiment Letter as prepared by the auditing firm of Ernst and i&inney. Tile subject documents were reviewed and received for filing by motion act cn of the Council. Very truly yours, Alice M. Reimche City Clerk MIR: j j r a; o - • y l , - 1 t o Ernst & Whinney The City Council City of Lodi Lodi, California N 555 Capitol Mall, Suite 650 Sacramento, California 95814 916/447-3237 We have examined the financial statements of the City of Lodi for the year ended June 30, 1982, and have issued our report thereon dated September 24, 1982. As part of our examination, we made a study and evaluation of the system of internal accounting control only to the extent we considered necessary to determine the nature, timing, and extent of our auditing procedures. Our study and evaluation made for the limited purpose described above would not necessarily disclose all material weaknesses in the system. Accordingly, we do not express an opinion on the system of internal accounting control of the City of Lodi taken as a whole. However, our study and evaluation disclosed no condition that we believed to be a material weakness at June 30, 1982. The following suggestions are submitted to assist in improving procedures and controls. This report is intended solely for the use of the City Council of the City. Sacramento, California September 24, 1982 4 PRIOR YEAR ITEMS In previous management letters, we commented upon areas in which we believed internal accounting controls could be strengthened. Upon considering the City's response to our management letters, we believe that these items have been adequately addressed, except as discussed below. Payroll Segregation of duties in the payroll area is limited. One employee prepares the payroll data and receives the signed payroll warrants from EDP prior to their distribution by independent employees. To strengthen internal control, we recommend that the signed payroll warrants not be returned to the employee responsible for preparation of the payroll data. In last year's management letter, we mentioned that the City could obtain more effective control over payroll data if a !iser reconciliation of output to input and user verification of output was performed. During our examination, we noted that total hours paid are still rant reconciled to the total hours worked. It is our understanding that the current payroll computer program will be modified in 1982-83 so that the appropriate information will be made available to the users. Disaster Recovery Plan Last year, we recommended that the City develop a written EDP disaster recovery plan which would set forth procedures to be utilized in the event of a disaster. The City is currently developing such a plan. Budgeiing It has been the City's policy not to budget for unpredictable revenues and expenditures. We understand that the City could not implement our recommendations in 1982-83, but plans to use the budgeting guidelines published by the League of California Cities and the International City Manager Association in establishing the 1983-84 budget. We believe this will strengthen controls and commend the City on its decision to implement these new procedures. -1- �D 0 ACCESS TO EDP TERMINALS EDP terminals placed in user departments should be adequately safeguarded against unauthorized access. This prevents a user, who possesses the adequate knowledge, from making unauthorized changes to computer programs or data files. Therefore, we recommend that the City implement a password system in order to restrict access to computerized information. The City may wish to purchase a computer access control software package. Such a package can be linked to the City's existing software. RECORDING OF TRANSACTIONS The recording of transactions on a tisely basis is essential to any accounting system. During our field ,ark, we noted that the City incompletely recorded transactions related to the issuance of the Cluff Avence/Turner Road special assessment bonds. We understand that this occurred because of employee turnover and the concurrent shifting of responsibilities. In order to protect itself against such an occurence in the future, we recommend that the City adopt a standard checklist or route sheet so that all significant matters which affect the City's financial records are brought to the attention of the accounting department on a timely basis. MARKETABLE SECURITIES Due to the liquidity of certain assets like cash and marketable securities, it is essential that the custodianship and the accountability for these assets be segregated. During our examination, we noted that the City Librarian has both custodial responsibility and accountability for the marketable securities recorded in the Library Trust Fund. We recommend that the City place these instruments in the safe deposit box which is under the control of the City Clerk. This will protect the City against physical loss of the assets, such as from fire or theft, as well as enhance segregation of duties. -2-