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City Of Vermilion
Financial Audit
The Auditior Of The State has reviewed the Independent Auditor’s Report of the City of Vermilion, Erie County, prepared by Rea & Associates, Inc., for the audit period January 1, 2006 through December 31, 2006. Based upon this review, they have accepted these reports in lieu of the audit required by Section 117.11, Revised Code.
Schedule of Findings December 31, 2006
FINDING NUMBER 2006-001
Significant Deficiency
Posting of Receipts and Disbursements and Bank Reconciliations
A necessary step in the internal control over financial reporting is to prove both the balance of the bank and the balance of cash in the accounting records. Numerous times throughout the year, debt proceeds were shown as reconciling items on the bank reconciliation. These items should have been posted to the City’s accounting records when the money was deposited into the account.
When reviewing selected disbursements, items were not paid in a timely manner, which caused in some cases, late charges and fees to be assessed against the City. During budgetary testing, appropriations approved by council were not always posted in a timely manner. At one point in time, there was a 20 day lag between council approval, and posting to the system.
Without complete and timely posting of receipts, disbursements, and appropriations, the City’s internal control is weakened, which could hinder the detection of errors or irregularities by the City’s management in a timely manner. In addition, the lack of monitoring may lead to errors, irregularities or misappropriation of City assets, and untimely audit reports.
We recommend that the City take all steps necessary to ensure timely payment of obligations and posting of receipts and appropriations approved by council. This could assist in ensuring that the bank balance and book balance are reconciling properly, interest and late fees are not assessed against the City, and avoid any budgetary violations.
Management stated that new employees were hired toward the end of fiscal year 2006, and feel that they have a better understanding of job assignments now, for posting of checks, receipts, and appropriations, and reconciling of bank statements.
FINDING NUMBER 2006-002
Significant Deficiency
Internal Controls Over Disbursements
A necessary step in the internal control over financial reporting is the proper approval of requisitions by department heads or purchasing agents.
We recommend that the City take all steps necessary to ensure that all department heads and/or purchasing agents are signing off on all requisitions prior to check issuances.
Management concurs and will implement procedures to ensure that requisitions are signed off by the department heads prior to check issuances.
FINDING NUMBER 2006-003
Noncompliance Citation
Ohio Rev. Code Section 5705.39 states that total appropriations from each fund shall not exceed the total of the estimated revenue available for expenditure there from, as certified by the budget commission, or in case of appeal, by the board of tax appeals. No appropriation measure shall become effective until the county auditor files with the appropriating authority a certificate that the total appropriations from each fund, taken together with all other outstanding appropriations, do not exceed such official certificate or amended official certificate. When the appropriation does not exceed such official certificate, the county auditor shall give such certificate forthwith upon receiving from the appropriating authority a certified copy of the appropriation measure. Appropriations shall be made from each fund only for the purposes for which such fund is established.
For the audit period, the City had appropriations ($1,000,000) exceeding the certified estimated revenues ($0) for the East Liberty Sanitary Sewer fund, and appropriations ($2,486,346) exceeding the certified estimated resources ($0) for the Lagoons Project Fund. There were also other instances of noncompliance that are deemed immaterial to the financial statements. The
City should certify all estimated revenues to be received by the City so that appropriated amounts are not in excess of the Official Certificate of Estimated Resources, as certified by the budget commission.
Management concurs and will implement procedures to ensure that estimated revenues, certified by the County budget commission, are sufficient to prevent future citations.
FINDING NUMBER 2006-004
Noncompliance Citation
Ohio Rev. Code Section 5705.10 states that money paid into any fund shall be used only for purposes for which such fund is established. As a result, a negative fund balance indicates that money from one fund was used to cover the expenses of another fund.
During testing, we noted numerous instances on monthly reports where negative fund balances existed throughout the audit period and at year-end. The negative cash balances at year-end were fund 503 (lagoon capital projects fund) $(470,919), fund 459 (CDBG special revenue fund) $(284,990), fund 703 (claims rotary internal service fund), $(41,426), and fund 220 (drug law enforcement special revenue fund) $(730). The City needs to monitor fund balances and make advances and transfers as appropriate to eliminate negative fund balances.
Management understands the situation, and will attempt to better monitor fund cash balances.
FINDING NUMBER 2006-005
Noncompliance Citation
Ohio Rev. Code Section 5705.41 (D) states, in part, no orders or contracts involving the expenditure of money are to be made unless there is a certificate of the fiscal officer that the amount required for the order or contract has been lawfully appropriated for such purpose and is
in the treasury or in the process of collection to the credit of an appropriate fund free from any previous encumbrances.
The following exceptions to this basic requirement are provided by the statute:
A. Then and Now Certificate – This exception provides that, if the fiscal officer can certify that both at the time the contract or order was made and at the time that he is completing his certification, sufficient funds were available or in the process of collection, to the credit of a proper fund, properly appropriated and free from any encumbrance, the taxing authority can authorize the drawing of a warrant. The taxing authority has 30 days from the receipt of such certificate to approve payment by resolution or ordinance. If approval is not made within 30 days, there is not legal liability on the part of the subdivision or taxing district.
B. Amounts of less than $3,000 may be paid by the fiscal officer without such affirmation of the taxing authority upon completion of the “then and now” certificate, provided that the expenditure is otherwise lawful. This does not eliminate any otherwise applicable
requirement for approval or expenditures by the taxing authority.
During testing, we noted that several invoices were dated before the required purchase order was generated, implying that the City’s purchase order procedures are not being adhered to by the City’s staff. It was also noted that numerous purchase order requisitions were not properly approved by all parties, including the department head and purchasing agent. Furthermore, it was noted that purchase orders are not generated for all expenditures. Per inquiry, these purchases include: utility payments, supplemental rewards, payroll distributions/transfers, energy service, workers’ compensation, health premiums, payments made to the State of Ohio, claims requests, umpire pay and refunds and reimbursements.
Management concurs and will implement procedures to ensure that purchase orders are dated prior to invoices, and the purchase orders are utilized for all checks issued to prevent future citations.
1/12/08
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