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MAY-23-2003 15:16 763 569 5799 763 569 5799 P.19/19 REPORTABLE CONDITION During our audit we noted a condition which is considered to be a "reportable condition" as defined by standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the City's ability to record, process, summarize and report on financial data consistent with the assertions of management in the financial statements. Lack of Sef{re1!atio" of ACCOUlltinJ! Duties During the year ended December 31, 2002, the City had a lack of segregation of accounting duties due to a limited number of office employees. . Management is aware of this condition and has taken great strides since 1998 to compensate for the lack of segregation, but due to the large staff needed to handle all of the accounting duties, the costs of obtaining desirable segregation of accounting duties can often exceed benefits which could be derived. We are in agreement with managemenCs assertion that the lack of segregation of accounting duties is currently cost prohibitive and impractical to correct. However~ management must remain aware of this situation and should continually monitor the accounting system, including changes that occur. Although the item listed is considered to be a reportable condition, we do not feel it is a material wealmess. MANAGEMENT RECOMMENDATIONS Old outstandin~ checks: During our audit of cash we noted that on the outstanding check list, there were a few checks dated for the years 2000 and 2001 amounting to $470. We recommend the City estab1ish a policy to keep the outstanding check list CUlTent by stopping payment on outstanding checks over a year old and issuing new checks. Update Authoriz.ed Sií!nature Requirements While auditing the City's cash acc.ounts, we found the City properly requires two signatures on all checks to prevent unauthorized disbursements. However, a review of the signature card at Wells Fargo indicates the bank only requires one signature to allow for checks to clear. Although we did not find cancelled checks with only one signature, we recommend the Fjnance Director contact the bank and revise the signature requirement. This action may prevent potential problems with unauthorized disbursements. 17 TOTAL P.19