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HomeMy WebLinkAbout20090316 - VI-14 MEMO TO: Honorable Mayor and City Council members FROM: Charlene A. Stark, Finance Director RE: Internal Control Documentation DATE: March 11, 2009 Back Ground The city is regulated by the Government Accounting Standards Board (GASB). In 2007 the Government Accounting Standard Board came out and made a Statement of Auditing Standard 112 (SAS 112) which specifies that cities need to document the internal controls that are in place to ensure the safekeeping of the cities assets. This was an audit finding for the 2007 annual audit and upon recommendation of the city’s audit firm Tautges Redpath, Ltd the goal has been to comply with SAS 112. This documentation in no way implies that the city has had a problem with any of the multiply financial transaction the city conducts on a daily basis. The documentation of the internal control will reduce misunderstanding, errors, duplicated or omitted procedures that can result in inaccurate or untimely accounting records. This document can help to ensure that all similar transactions are treated consistently, that accounting principles used are proper, and that records are produced in the form desired by management. If you should have any questions, please feel free to contact me. Council Action Requested: Approve the Internal Control Policy of the City of Hastings financial transactions. City of Hastings Internal Controls The City of Hastings seeks to balance its internal accounting control in such a way as to ensure public confidence and maintain the integrity of its financial systems and assets, without unduly inhibiting the ability to efficiently carry out its mission. Goal: The goal of the City Council in establishing an internal control policy for all financial transactions that have an impact on the financial health of the City is to safeguard the assets of the City against fraud. No financial transaction shall be handled by only one person from beginning to end. The internal control policy is t o ensure an appropriate level of fiduciary responsibility for the management team of the City. Internal controls are established to ensure all revenues are recorded and collected for the City of Hastings. Internal controls are established to ensure all expenditures are recorded and are legitimate expenses of the City and the integrity of the City’s financial system is kept in a safe manner and can be relied on for accurate reporting of those financial transactions. Financial Transactions: Accounts Payable Grant Receivables Ambulance Receivables Investments Budget and adjustments Miscellaneous Receivables Cash Receipts Note & Loan Receivables Change Funds Payroll Computer Security Permits Contracts Payable Petty Cash Donations Postage Inventory Duplicate Checks Property Tax Receivables Escrows Purchase Cards Fixed Assets Special Assessment Receivables Fuel Inventory Trac Tokens Gas Keys Transfers Utility Receivables Abbreviations : AFD-Assistant Finance Director-Julie Flaten Financial Software-INCODE FD-Finance Director-Charlene Stark HEDRA-Hastings Economic AT-Accounting Technician-Connie Lang Development, Redevelopment ACCT-1-Accountant 1-Becky Kline Authority ACCT-2-Accountant 2-Kim Niederkorn JE-Journal Entry CA-City Administrator-Dave Osberg DH-Department Heads - 1 - ACCOUNTS PAYABLE Objective: The objective of the City Council in meetin g this goal is to ensure that cash is disbursed only upon proper authorization of management for valid governmental purposes, and that all disbursements are properly recorded. Segregation of Duties: A.Payment of all claims shall be authorized by the approp riate department supervisor, the FD if claims are over $500.00 and CA if the claims are over $5,000. Wire transfers shall be authorized by the finance staff, recorded by a journal entry, and updated by the ACCT-2. B.Account payable (AP) and payroll (PR) checks are signed through the financial system. A password is required to invoke the secured signatures of the city FD and Mayor. All checks shall require two signatures. C.Bank reconciliation’s shall be prepared by the ACCT-2. D.Council approves all accounts payable check runs. Operating budgeted expenses can be paid prior to Council approval. Other expenses are not paid until the council meeting. The following criteria needs to be met to determine which AP run is appropriate: Council will grant the autho rity for approval of claims to the FD for routine expenses. The following are required to go before council before the checks are issued: ? Payments for employee reimbursements (no exceptions). ? Capital outlay items over $10,000 ? Non-budgeted items ? Items that are legally required to have council approval such as final contract payments estimates, etc…. E.All bills are audited by finance staff and all employee reimbursements and bills over $500 are to be approved by the FD, or designee. In addition, all employee reimbursements and any bills over $5,000 shall also be approved by the CA. F.Supplies and services are ordered by all employees and signed off by the appropriate DH or manager. CA can sign off on all pay vouchers. G.Accounts payable are to be submitted to Finance on a pay voucher form. The original invoice or billing and any other detailed information will be attached as back- up documentation. When applicable, a city purchase order form or travel expense form shall also be supplied H.Taxpayer identificati on (W-9) information is required for all vendors and it shall be the purchasing departments’ responsibility to obtain this information. The exception to this requirement is for refunds of accounts receivables generated from ambulance billing, utility billi ng or the accounts receivable system – due to overpayment. I.The staff of the city clerk’s office shall mail properly signed and approved checks. - 2 - J.The individuals authorized to sign the checks or designee shall review each cash disbursement voucher for the proper approved authorization and supporting documentation of expense. K.The AT shall maintain unpaid invoices in an unpaid invoice file for all funds. Accounting Controls: The following common internal controls relate to repaying bills: A.All disbursements, except those from petty cash, will be made by pre- numbered check or by authorized ACH withdrawals or wires from designated accounts. B.It is not permissible to draw checks payable to cash except for reimbursement checks for petty cash. C.Under no circumstances will blank checks be signed in advance. D.A disbursement voucher shall be prepared for each invoice or request for reimbursement that details the invoice date, invoice number, payee, and amount of invoice, description of expense account to be charged, authorization signature or initials, and be accompanied with related source documents. E.Authorized persons must approve expenditures in advance. Administration-City Administrator or Finance Director Arena- Director of Parks and Recreation Aquatic Center- Director of Parks and Recreation Building Inspections- Building Official Building Maintenance-Facility Supervisor Cable- City Administrator or Finance Director City Clerk-Assistant City Administrator Code Enforcement- Building Official Communications-Assistant City Administrator Council-City Administrator or Finance Industrial Park -Planning Director or HEDRA Director Elections-Assistant City Administrator Emergency Management-Chief of Police and FEMS Director Engineering-City Engineer & PW Director Finance-Finance Director or Assistant Finance Director Fire & Ambulance-FEMS Director Heritage Preservation-HEDRA Director HRA-HEDRA Director Hydro- Public Works Director, Public Works Superintendent, and Public Works Supervisor Information Technology-IT Director Insurance-Assistant City Administrator or Finance Director Le Duc Mansion- City Administrator, Facility Supervisor or Finance Director - 3 - Legal-Administrator or Finance Director Parks Capital- Director of Parks and Recreation Parks Operations- Director of Parks and Recreation Police-Chief of Police Planning-Planning Director Recycle- Director of Parks and Recreation Reforestation- Director of Parks and Recreation Senior Center-Finance or Director of Parks and Recreation Sewer-Public Works Director, Public Works Superintendent, and Public Works Supervisor Sidewalks-Public Works Director, Public Works Superintendent, and Public Works Supervisor Street Lighting-Public Works Director, Public Works Superintendent, and Public Works Supervisor Streets-Public Works Director, Public Works Superintendent, and Public Works Supervisor TRAC-Assistant City Administrator Water-Public Works Director, Public Works Superintendent, and Public Works Supervisor F.The City will not pay off of a statement. Invoices with detail of dates and the purchases will only be acceptable back up. G.Invoices and requests for reimbursement will be checked for accuracy and reasonableness before approval. H.An AP disbursement report will be prepared and distributed to council that details the amount of the expense, description and account to be charged. I.Expense reports for travel related expenses should be submitted on a timely basis and reviewed by AFD. J.Checks by which claims are paid shall have printed on the reverse side, above the space for endorsement: “The undersigned payee, in endorsing this check declares that the same is received in payment of a just and correct claim against the City of Hastings, and that no part of it has heretofore been paid.” K.In accordance with M.S. 471.425, subd. 2, claims of the city shall be paid within this time frame will be subject to penalty and interest charges assessed by the vendor, as provided for in M.S. 471.425, subd. 4.. L.Credit card purchases shall not be allowed except as legally provided under M.S. 471.382 and in compliance with city council’s adopted credit card policy. - 4 - Internal Controls for Accounts Payable Custody of Control Authorization Recording Assets Activity Mail is opened and City Clerk's distributed office Pay Vouchers are prepared DH-signs Department Matches invoices to purchase orders and Department receiving reports Pay Vouchers are entered into financial AT system Edit of pay vouchers is completed for: Proper council week, sales tax, department approvals, ACCT-1 Edit of pay vouchers is completed for: proper account coding, fund coding, AFD Signs Checks AFD City Clerk's Mails Checks office Updates General Ledger ACCT-1 Council, Approves claims list Finance Director Bank Reconciliation ACCT-2 Controls the accuracy, completeness of and access to cash disbursements programs and data files AFD/FD - 5 - AMBULANCE RECEIVABLES Objective: The objective of the City Council in meeting this goal is to ensure that ambulance revenues are collected for services rendered. Segregation of Duties: The Fire Department is responsible for the billing and collecting of ambulance receivables. The following duties have been segregated out to ensure accuracy in billing, collection and reporting of this class of assets. A.Fire Department Fire Support Staff bills the calls through the ambulance billing system. B.The Fire Department Office Manager enters the payments against the accounts and prepares a revenue report to be brought over to the City Clerk’s office with the payments. C.The staff of the City Clerk’s office enters the payments into the financial system to update the general ledger. D.The AT prepares the deposit and updates the general ledger. E.The ACCT-2 takes the deposit over to the bank for deposit. F.The ACCT-2 reconciles the bank statement to the cash ledger. G.The ACCT-1 reconciles the monthly reports from the Ambulance system to the general ledger. H.The AFD reconciles the general ledger cash accounts to the bank statement. Accounting Controls: The following accounting controls pertain to the ambulance receivable records. A.Receipts should be brought over the City Clerk’s office daily. B.Receipts should be entered into the financial software daily. C.Deposits are prepared and taken to the bank daily. D.Monthly reporting should be maintained and submitted in a timely manner. E.Monthly reconciliation of the bank statements, cash accounts and general ledger accounts should be completed in a timely manner. F.Period review of the reports should be completed by the FD. - 6 - Internal Controls for Ambulance AR Custody of Control Authorization Recording Assets Activity Mail is Deliver ed Post Office Ambulance Mail is opened Clerk Ambulance Clerk into Ambulance AR system. City Clerk's office into Finance software. Wires are JE into GL Payment are receipted by FD. AT for Finance Voids software. Deposit is prepared AT Deposit is brought to bank ACCT-2 General Ledger is updated AT Bank reconciliation ACCT-2 General Ledger reconciliation-for cash AFD Ambulance ledger Ambulance reports printed. Clerk Reconciliation of Ambulance AR ACCT-1 Annual reconciliation review FD - 7 - BUDGET AND ADJUSTMENTS Objective: The objective of the City Council in meeting this goal is to ensure that the current budget is authorized by Council and maintain the financial goals for the funds. Segregation of Duties: The City’s Finance Department is responsible for the overall budget process and is delegated authority from the City Council. A.The operating budget is prepared and preloaded by Finance. B.Capital budget requests are requested by the departments. C.A priority list is prepared based upon input from the DH. D.Finance Committee convenes to meet with departments and be informed of the requests. E.The department priority list is reviewed by the Finance Committee. F.The preliminary levy is set by Council based upon the Finance Committee’s recommendations. G.The final levy is authorized by City Council. H.Budget adjustments are brought before Council for approval. I.The AFD records the budget adjustments into the financial system. J.The FD reviews the adjustments and updates the general ledger. Accounting Control: A.The budgetary control is maintained at the departmental level within a fund. B.It takes Council approval to transfer between funds, to increase a budget line item with or without a revenue offset. C.All budget adjustment with the exception of an administrative correction adjustment are required to go before Council D.A separate policy is in place. - 8 - Internal Controls for Budget Custody of Control Authorization Recording Assets Activity New Budgets Budget process is opened by Finance The operating budget based upon parameters set by Administrator Finance The Capital Budget requests are Departments requested by Budget system is updated and controlled FD Finance Budget is reviewed Committee Budget is adopted Council Budget Adjustments: Requested Departments Approved Council Budget adj. created AFD Budget Adj. approved and updated FD - 9 - CASH RECEIPTS Objective: The objective of the City Council in meeting this goal is to ensure that all c ash intended for the city is received, promptly deposited, properly recorded, reconciled, and kept under adequate security. Segregation of Duties: A.The staff of the City Clerk’s office, will be responsible for receiving all cash payments collected at City Hall, whether by mail or in person. The staff of the City Clerk’s office will be responsible for entering the receipts in the financial system. B.Departments with offices outside of City Hall will be responsible for receiving all cash payments collected a t the respective buildings and ke pt safe until delivered to City Hall for processing. Receipting into the financial system is encouraged unless prohibitive. Various departments have cash receipting software that provides in addition to cash receipting re ports other reports used for the operations of their respective departments (i.e. pool), these departments send a report to the City Clerk’s office and are entered into the financial system by the staff of the City’s Clerk’s office. C.At the end of the day, the receipts processed at City Hall will be locked up in the vault in Finance. D.The next business day the AT will balance the drawer and post receipts to the general ledger. The deposit will be put into a locked bank bag and given to the ACCT-2 for delivery to the bank. E.The ACCT-2 will deliver the locked bag from the bank to the AT. The AT will compare the bank receipt to the copy of the bank deposit and file the paperwork in the vault. F.Bank reconciliation shall be prepared by the ACCT-2 and reviewed by the FD on a monthly basis. G.General ledger will be reconciled to the bank statement by the AFD and shall be reviewed by the FD on a monthly basis. Accounting Controls: A.All receipts will be entered into the financial system software and have a computer generated cash receipt, stating the date of the receipt, the amount of the receipt, a description of the item or service being paid for. (When the system is down check payments are held in the drawer for entering in when the system is operable. For cash transactions, the customers are provided with a copy of a two part manual receipt. The original copy of the manual receipt is kept with the cash until the system is operable.) - 10 - B.Departments that bring money to City Hall for entry shall provide a record of the date of the receipts, amount of receipt, and description of the revenue account to be credited. C.Departments that have access to the financial software at their r espective offices should enter the receipts under their own drawer with their individual terminals assigned to them. The City Clerk’s office follows this same protocol. D.The computer generated numbered receipt shall be two-part. The first part may be given to the payee; the second part will be retained with payment in the receipt book, until checks are deposited on a daily basis. E.An accounting of change given for cash should be noted on the receipt. F.Cash shall be deposited in the city’s bank account on a daily basis. Finance staff shall take deposits to the bank. G.Cash receipts shall be kept in a lock ed box in a safe, vault, or similar secure place. H.ACH or wire deposits are recorded by the FD by journal entry to the general ledger with sufficient back up documentation attached. I.A separate policy is in place. - 11 - Internal Controls for Cash Receipting Custody of Control Authorization Recording Assets Activity TRAC Drivers Mail is Delivered City Clerk's Mail is opened Office City Clerk's Office/Various Payment are receipted Off-site offices Voids Finance Deposit is prepared AT Deposit is brought to bank ACCT-2 General Ledger is updated AT Bank reconciliation ACCT-2 General Ledger reconciliation AFD Reconciliation is reviewed FD - 12 - CHANGE FUNDS Objective: The objective of the City Council is meeting this goal is to ensure that cash funds stay intact. Segregation of Duties: A.Change funds are authorized by the City’s FD. B.The custodian of the change fund is assigned by the FD/DH. C.The Finance Department, Police Chief, Director of Parks and Recreation, Aquatic Manager, and Civic Arena Manager shall be the custodian of the change funds at each respective building. The custodian of the c hange fund shall be responsible for the safekeeping of such funds. D.An annual review of change funds and the custodian will be reviewed by the FD. Accounting Controls: A. A steward of the change fund shall be established and is charged with the responsibility of the safety of the change fund. B.The change fund will be locked up at night. C.Limited access to the change fund should be in place during business hours. D.No staff member shall be allowed to cash personal checks, including paychecks, from the change funds. - 13 - Internal Controls for Change Funds Custody of Control Authorization Recording Assets Activity Change Accounts FD Assign Change Cash Control Department Security of Change Cash Department Physical count of Change Finance - 14 - COMPUTER ACCESS Objective: The objective of the City Council in meeting this goal is to ensure that the data for the City’s financial computer system is intact and remains intact and that data is not changed on the system that would cause loss of assets to the city. Segregation of Duties: A.IT set up new users to the overall computer system. B.FD set up new users to the financial system and grant permissions. Accounting Controls: A.The FD and the IT Director are the only two who have administrative rights to the financial system. B.The Finance staff has inquiry and update rights where appropriate. C.Other department staff (other then DH’s) have inquiry rights only unless they are staff who enter cash receipts. D.DH’s have input entry to the department budget. They are locked out after the due date. E.Controls are placed on access to Laser Fiche data under the finance. No access to payroll information is given except for the Finance/HR personnel. F.Passwords are required to access system. G.Passwords are required to be changed every six months. H.A separate policy is in place. - 15 - Internal Controls for Computer Access Custody of Control Authorization Recording Assets Activity IT set up new employees per DH IT Employee request DH set up IT policy Council Back up tapes-run daily IT CH-PD Tapes kept off-site Swap Limits access for users to finance software FD - 16 - CONTRACTS PAYABLE Objective: The objective of the City Council in meeting this goal is to ensure that all contracts are accounted for. Segregation of Duties: A.Council must approve the Departments request to go out and get bids for a project. B.Sealed bids are delivered to City Hall and the City Clerk’s office or designee accepts bids and time stamps the bids. A complete list of bids received i s prepared. C.Opening of the bids is conducted by the department. D.Council awards the contracts. E.FD or designee maintains a record of contracts awarded by Council. F.FD maintains a spreadsheet of projects from the approved budget. Compares this spreadsheet to the general ledger for payments. G.At year end the contracts payable is calculated and JE into the general ledger by the FD. Accounting Controls: A.The City follows state statue laws that pertain to contracts. ? Contracts over $100,000 require sealed bids. ? Contracts between $15,000-$99,999 can be solicited and require only two quotes. ? Contracts fewer than $15,000 no quotes are necessary but are encouraged. B.For contracts that are over $100,000 the awarded company is required to follow the City’s policy on prevailing wage. (See the policy on prevailing wages.) C.Departments that have awarded a contract subject to prevailing wages will be required to verify that the contractor is in compliance with prevailing policy. - 17 - Internal Controls for Contracts Payable Custody of Control Authorization Recording Assets Activity Departments Council approves bring to council contracts over for approval $100,000 action. Sealed bids delivered and time stamped City Clerk's and list prepared Office Opening of Sealed bids Departments Award of Bids Council Tabulation of all Awarded Contracts FD Recorded YE contracts Payable FD Record Infrastructure into FA records AFD - 18 - DONATIONS Objective: The objective of the City Council in meeting this goal is to ensure that donations get accepted by the Council and be appropriated for what the donation was intended for. Segregation of Duties: A.Council must accept the donation and approve the budget adjustment for the donation. B. The AFD will create the budget adjustment JE. C. The FD will review and upd ate the budget adjustment JE. Accounting Controls: A. Departments may receive the donation before approval and if the donation is a check or cash it should be brought to the Finance Department for safe keeping. B. The check or cash will be held until the day after the council meeting. The donation will then be receipted/recorded into a donations revenue account. C. Donations will be tracked in a donations revenue code (5815). The expenditure of the donations will be tracked in a donations expense code (6498). A one year rollover will be granted if not spent. Some donations are small in nature and it is the intent of the Department to allow these small donations to grow over a period of a couple of years. At such time when the accumulation of donations has grown the department will request a budget adjustment to utilize this funding source. D. Finance will track these donations and conduct discussions with the departments in regards to these funds. - 19 - Internal Controls for Donations Custody of Control Authorization Recording Assets Activity Council accepts Departments donations and bring to council approves budget for approval adjustment action. Budget adjustment AFD Update General ledger for budget FD Security of Donation until approval is received Finance City Clerk's Receipting of donation office - 20 - DUPLICATE CHECKS Objective: The objective of the City Council in meeting this goal is to ensure that asset s for the City are protected from fraud. Segregation of Duties: A.Employee or vendor must sign a lost/stolen check affidavit. B.A stop payment is placed by the AFD or FD C.The lost /stolen check is voided in the system by AFD or FD D.A replacement pay voucher is prepared with a copy of the affidavit and stop payment attached. E.The AFD/FD prepares pay voucher for reissuance of check. Accounting Controls: A.Duplicate check form is signed and notarized by payee. B.Verification that the check has not been cashed prior to replacement. C.Lost/stolen checks have stop payments placed by the AFD or FD. D.Lost/stolen checks are voided in the financial system for proper recording. E.A separate policy is in place. - 21 - Internal Controls for Duplicate Checks Control Authorizatio n Custody of Assets Recording Activity Replacement Check Requested Employee/Department Outstanding Check list reviewed ACCT-2 Stop Payment Placed FD Or AFD Lost Check Affidavit obtained FD or AFD Placement of Reversal in General Ledger AFD Approval of Reversal FD Prepare pay voucher for reissuance of check AFD/FD - 22 - ESCROWS Objective: The objective of the City Council in meeti ng this goal is to ensure that all expenditures relating to a development are paid by the developer. Fees for review of site plans, preliminary plat reviews and inspections are deducted out of the escrow as they incur. Segregation of Duties: A.Planning Director or City Engineer sets the fees for the escrow at the time of submittal of the preliminary plat and site plan. B.The AFD sets up the escrow coding and informs Engineering, Planning and the staff of the City Clerk’s office. C.Staff of the City Clerk’s office receipts the escrow payment into the financial system. D.As invoices are processed the Engineer or Planning department keeps a copy of the invoice for reconciliation of the escrow. E.AFD reconciles the escrow to the general ledger. F.Upon completion of the project the escrow is reviewed by the Engineering or Planning department as well as the AFD. Accounting Controls: A.Escrow accounts should be established before any fees occur. B.Only fees for inspections, reviews, development grading construction plans should be charged to these accounts. C.If city staff is used for inspections or reviews the time noted on time cards should be allocated to the escrow the work was performed for. The AFD will allocate the time per a (JE). D.Reviews of escrow account balances should be performed periodically. The AFD should notify the engineering or planning when accounts have a negative balance, additional escrow money should be collected. E.Reconciliations are performed quarterly. F.A final reconciliation will be performed before cl osing of the escrow. G.Escrow will be closed when the development is completed and there are no outstanding items per planning and engineering. H.Annual review of open escrows should be completed by Planning, Engineering and Finance. - 23 - Internal Controls for Escrows Custody of Control Authorization Recording Assets Activity Escrow set Planner/Engineer Escrow account codes set up AFD City Clerk Receipt of Escrow Staff Dept. Admin. Invoices paid Planner/Engineer Assistants Reconciliation of General Ledger AFD AFD/Dept. Admin. Closing of Escrow Planner/Engineer Assistants - 24 - FIXED ASSETS Objective: The objective of the City Council in meeting this goal is to ensure that all assets owned by the Ccity are recorded, tracked and kept safe. Segregation of Duties: A.Departments purchase fixed assets and prepare pay vouchers for payment. B.AT enters pay vouchers for payments. C.ACCT-1 and AFD edit pay vouchers for accuracy and correct account codes. D.AFD assigns fixed asset number and sends tags to departments. E.ACCT-1 enters fixed assets into financial system. F.FD reviews year end allocations for fixed assets. G.ACCT-2 renews licenses each renewal c ycle. Accounting Controls: A. FD and AFD review all capital expenditure accounts against budget. B. AFD determines values. C. FD reviews new capital purchases for insurance renewal. D. AFD and FD review balances of capital accounts for capital budget rollovers. E. AFD and FD review gain/loss on sale of assets for disposal of assets. F. AFD and FD read council agendas for declaration of excess property resolutions. G. A separate policy is in place. - 25 - Internal Controls for Fixed Asset s Custody of Control Authorization Recording Assets Activity Purchase of Asset Council Department Payment process-see Accounts Payable AT Tags assigned AFD Fixed Asset system Reconciled AFD Inventory taken AFD Review FD Depreciation recorded AFD Licensing ACCT-2 Insurance FD - 26 - FUEL INVENTORY-Parks Objective: The objective of the City Council in meeting this goal is to ensure that use of the fuel that is kept on hand is used by proper authorities for proper authorized use and is recorded accurately in the financial system. Segregation of Duties: A.Monthly reading of the fuel tanks is read by the Department of Parks and Recreation. B.Receipt of fuel is authorized by the department. C.Payment of the invoice is done through the accounts payable process. D.The Department of Parks and Recreation review dispensing report monthly. E.The Department of Parks and Recreation prepare monthly expense report and submit to AT in Finance. F.Reconciliation of monthly expense report to general ledger is reviewed by AT G.A JE to record monthly expense is prepared by the AT. H.The update of the JE is done by the ACCT-2. Accounting Controls: A.Fuel is kept in a secured area. Pins numbers are required for access. B.Fuel tanks padlocked. C.1 key per vehicle is assigned. D.Key in mileage of vehicle is required to dispense fuel. E.Review of dispensing records is done monthly. F.Leak detection system is run weekly and reviewed. G.Monthly reconciliation is done and updated in the financial records. - 27 - Internal Controls for Fuel Inventory Custody of Control Authorization Recording Assets Activity Monthly read of fuel tanks Department Receipt of Fuel Department Dispensing report Department Monthly reconciliation of Fuel to General Ledger AT Record monthly expense AT - 28 - GAS KEYS Objective: The objective of the City Council in meeting this goal is to ensure that gas inventory housed at the Dakota County fueling station in Hastings is used for appropriate City vehicles. Segregation of Duties: A.Gas keys are requested by the AT. B.Gas keys are authorized by Dakota County. C.Billing is prepared by Dakota County. D.The pay voucher is prepared by the ACCT-1 for payment. Accounting Controls: A.Gas keys are assigned to an employee and a vehicle. (The Fire Department assigns both keys to the vehicle.) B.Both keys need to be present to initiate the fueling station. C.Type in the pin number. D.Type in the mileage of the car being filled. E.Type in gas pump number. F.Remove keys. G.Fill tank. - 29 - Internal Controls for Gas keys Custody of Control Authorization Recording Assets Activity Assign gas keys Employees AT Set up gas keys Dakota County Billing prepared Dakota County Pay voucher is prepared ACCT-1 Departments via keys, pin and mileage of vehicle. Access to fuel station - 30 - GRANTS Objective: The objective of the City Council in meeting this goal is to ensure that grants are accepted by City Council and the money is accounted for and appropriated for the intention the grant was intended for. Segregation of Duties: A. Departments write grant applications and forward a copy of the application to the Finance Department. B. When the grant is awarded the award letter is presented to Council for approval. C. Upon Council approval a budget adjustment is recorded in the financial software. B. Finance prepares a summary of grant expenditures for the audit. D. Reports to grantor are reported by the Department and filed with the Finance Department. E. Grants are monitored by the FD and AFD. Accounting Controls: A.Grant receipts are tracked through grant revenue accounts. (5310-5315, Federal Grants) (5320, State Grants) B.Grant expenses are tracked through grant expense accounts. (6497-Federal, 6496-State) B. Grant money should be wired or sent directly to the City Finance Department for coding. - 31 - Internal Controls for Grants Custody of Control Authorization Recording Assets Activity Applications Departments Approvals Council Expenditure summary FD Reports to Grantors Department Grant receipts Finance - 32 - INVESTMENTS Objective: The objective of the City Council in meeting this goal is to ensure that the investment portfolio is adhering to the investment policy and t hat the investments instruments are appropriate and allow for appropriate cash flows for the City’s disbursements. Segregation of Duties: A.Placement of Investments by FD. B.Wire for investments by FD. C.JE to record investments made by AFD D.Update of general ledger made by ACCT-2 E.Reconciliation of broker statements to general ledger and portfolio made by FD, monthly. Accounting Controls: A.Investment policy is in place and must be adhered to. B.Brokers must review the policy and sign a broker agreement each yea r. C.Quarterly reports reviewed by Council. - 33 - Internal Controls for Investments Custody of Control Authorization Recording Assets Activity Placement of Investment Purchases FD Finance Director/Should Recording of change this to Investment Purchases AFD Update of JE ACCT-2 Reconciliation of Statements to Portfolio FD Quarterly Review Council - 34 - MISCELLANEOUS RECEIVABLES Objective: The objective of the City Council in meeting t his goal is to ensure that all receivables owed to the City are billed, properly recorded, reconciled, and kept under adequate security. Segregation of Duties: A.Departments that have bills to be invoiced for revenue other then ambulance, permits, and utility bills turn into the ACCT-2 a To Be Invoiced Form (T.B.I.F) with the proper coding and description of services provided. B.The ACCT-2 will input the information into the Incode accounts receivable system, run invoices and mail them on a weekly basis. C.The staff of the City Clerk’s office will receipt the payments into the accounts receivable system. D.The AT will update the general ledger and the accounts receivable ledger when payments are received. Accounting Controls: A.The T.B.I.F back up of the services received should be attached, which should include date services provided, description of services, amount to be invoiced. B.Invoices are printed on pre-printed City of Hastings form. C.A determination for an invoice to be reversed should be done by the department issuing the invoice and documentation given to the ACCT-2 to be kept in the file or Laser Fiched to the customer account. D.Should an invoice be determined to be reversed the ACCT-2 will give the FD the information for verification and sign off on the ad justment. Acceptable reversals are for correction for administrative errors. All other requests must go before Council for approval. E.Monthly reconciliation of the accounts receivable system to the general ledger should be performed by the ACCT-2 and given to the AFD for review. - 35 - Internal Controls for Miscellaneous Receivables Custody of Control Authorization Recording Assets Activity Mail is opened and City Clerk's Payments distributed office Payments are City Clerk's receipted office Deposit is prepared by AT General Ledger is updated AT Bank Deposit is delivered to bank in a ACCT-2 locked bank bag. Department prepares T.B.I.F. and attaches documents To be Invoiced Forms are prepared by if needed. Billing Invoices are entered into Finance System ACCT-2 General ledger and AR system is updated AFD Bills are mailed ACCT-2 Accounts Receivable is reconciled to ACCT-2 General Ledger Reconciliation is reviewed by AFD ACCT- 2/AFD Bank Reconciliation - 36 - Controls the accuracy, completeness of and access to cash disbursements programs and data files AFD/FD Write off's of Receivables Council - 37 - NOTES & LOANS Objective: The objective of the City Council in meeting this goal is to ensure that all loans and notes are recorded and tracked for collection. Segregation of Duties: A.The HEDRA is the only department that gives out loans to citizens at this time. B.The HEDRA board and the City Council authorize the loans. C.A promissory note is signed by both parties. D.A copy of the loan documents are given to the FD and the ACCT-2. E.The ACCT-2 bills out the monthly payment per the schedule. F.The FD reconciles at year-end the balance owed on the loans. G.The FD records the loan balances in the general ledger. Accounting Controls: A.The minutes from the council and HEDRA meetings are reviewed to verify that all loans have been recorded. B.The FD requests a report from the HEDRA director to ensure all loans are accounted for. C.The list of all loans is compared to the actual loan documents. D.The list of all loans is compared to the miscellaneous receivable billing for collection of loans. - 38 - Internal Controls for Loans Custody of Control Authorization Recording Assets Activity Applications Citizens Council/HRA Approvals Board FD/ACCT- Documents 2 Billing ACCT-2 Reconciliation of outstanding balances FD Recording of balances FD General Ledger updated ACCT-2 - 39 - PAYROLL Objective: The objective of the City Council in meeting this goal is to ensure that payroll disbursements are made only upon proper authorization to bona fide employees, that payroll disbursements are properly recorded, and related legal requirements (such as payroll tax deposits) are complied with. Segregation of Duties: The City ACCT-1 will process payroll checks or ACH payroll payments. Additional requirements related to the payroll function to be performed by the following persons: A.HR will set up a new employee in the system before an employee number and time card will be iss ued to the employee. B.Rate of pay, deductions, employer payroll expense will be directed by the Assistant City Administrator. C.Rate of pay, deductions, employer payroll expense will be entered into the finance system by the AT. D.Employees will fill out and si gn timecards. E.Supervisors will approve timecards and sign. F.Payroll will be entered into payroll financial software by the ACCT-1. G.The ACCT-2 and the AFD shall review the payroll register. H.The AFD will sign the check via the computer system. I.The ACCT-1 will post the reviewed payroll to the general ledger. J.The AFD will prepare all payroll related tax withholding deposits and reports and processed by EFT to Federal and State agencies. K.AT will prepare the payroll checks for distribution. L.The AFD shall prepare year-end W’-2’s to employees and respond to inquiries regarding the same. M.W-2’s will be mailed to the address o f record. Accounting Controls: The following common internal controls relate to payroll: A.Timesheets are required to document employee hours, in cluding overtime, comp time, and leave time. B.Timesheets must be filled out completely with each day hours recorded as hours worked or some type of leave used. DH’s or Managers sign off on time cards. C.Employment records will be maintained for each employee that detail wage rates, benefits, taxes withheld, and any changes in employment status. D.Payroll-related taxes, including employer share, shall be withheld and paid to the appropriate government agency on a timely basis. - 40 - E.Written personnel policies or union contracts shall dictate the accounting for vacations, holidays, sick leave and other benefits. F.A list of payroll checks written, with appropriate taxes withheld, will be maintained in a separate payroll register. N.Payroll wages may be dispersed by payroll check or direct deposit to employees that have authorized its use. G.The AFD shall hold unclaimed pay checks if no mailing address is available. - 41 - Internal Controls for Payroll Disbursements Custody of Control Authorization Recording Assets Activity HR Pay changes, Function insurance changes HR HR set up of new position. HR Changes are put into payroll system AT New Hire/Terminations HR/AT Changes are verified AFD AFD Payroll Function Time Cards Supervisors Employees Input of time cards ACCT-1 Changes to deductions Employees AT Edit ACCT-2 Edit-2nd review AFD Print/sign checks AFD Update General Ledger ACCT-1 Distribute checks AT Reconcile deduction liability accounts AT Transfer PERA, Taxes AFD Update General ledger for taxes ACCT-2 Bank reconciliation ACCT-2 General ledger reconciliation AFD Quarterly reports AFD - 42 - W-2 prep AFD W-2 distribution Mail - 43 - PERMITS Objective: The objective of the City Council in meeting this goal is to en sure the building permit revenues are collected for services rendered. Segregation of Duties: The Department of Building Safety is responsible for the issuing of building permits. The following duties have been segregated out to ensure accuracy in issui ng, collection and reporting of this class of revenue. A.Clerical staff and/or inspectors issue the building permit and collect fees for the inspections required by state code. B.Fees are set by City Council. C.Clerical staff prints permits from permitting syst em. D.Clerical staff reconciles permit surcharge from permitting system to financial general ledger system. E.FD wires surcharge to State for payment. Accounting Controls: The following accounting controls pertain to the permits receivable records. A.Receipts are entered into financial system at point of sale. B.Receipts should be brought to the finance department each night. C.Deposits are prepared and taken to the bank daily. D.FD periodically verifies reconciliation of surcharge permits to GL account. - 44 - PETTY CASH: Objective: The objective of the City Council in meeting this goal is to provide guidelines for the use, safekeeping and reporting standards of the petty cash fund, while allowing for small purchases or reimbursements to be made from said fund. Segregation of Duties: The petty cash fund is available to staff to make small purchases or reimbursements, in cash, for items such as postage, small office supplies, etc., using the following guidelines: A.The Finance Department and the Police Chief shall be t he custodian of the petty cash account at each respective building. The custodian of the petty cash account shall be responsible for reconciling the fund on a monthly basis and submitting an expense/revenue report to the AT. B.The AT will make the appropriat e entries to record the expenses and will arrange for replenishment of the petty cash account. C.ACCT-2 will go to the bank and cash the petty cash reimbursement check. The cash will be turned over to the petty cash custodian. Accounting Controls: The following guidelines will govern the use and keeping of the petty cash. A.The petty cash will not exceed the amount of $75.00 at City Hall and at the Police Department. B.Each department will keep the petty cash in a locked vault. The locked vault/drawer shall be kept in a secure place. C.Withdrawals from the petty cash will be made only by completing a petty cash voucher. The voucher must state the date and amount of the withdrawal, the reason the cash was withdrawn, the expenditure account to which the expense should be charged, and the name and signature of the person receiving the cash. D.Supporting documentation (receipts, invoices) must be attached to each voucher. E.The Finance staff will make unannounced counts of petty cash and change on occasion. F.No staff member shall be allowed to cash personal checks, including paychecks, from the petty cash funds of the city. G.Under no circumstances shall staff members be permitted to borrow from petty cash for personal use. H.Revenues will not be deposited into the petty cash fund to replenish the petty cash funds. I.A separate policy is in place. - 45 - Internal Controls for Petty Cash Custody of Control Authorization Recording Assets Activity Petty Cash set up Council Assign Petty Cash Officer Department/FD Prepare Petty Cash reimbursement Department Audit reimbursement Finance Reimbursement- see AP - 46 - POSTAGE INVENTORY Objective: The objective of the City Council in meeting this goal is to ensur e that the postage inventory is recorded in the financial system accurately and the expenditure is coded to the proper accounts. Segregation of Duties: A.Prepaid postage is downloaded by the staff of the City Clerk’s office. B.The wire to purchase the postage is done by the FD and the JE is prepared by the FD. C.The general ledger is updated by the ACCT-2. D.Departments sign on to use the postage machine. E.Monthly the ACCT-2 prints the report from the postage machine and reconciles it to the general ledger’s balan ce. F.The ACCT-2 prepares a JE to update the department’s expense accounts for postage used. G.The FD or AFD updates the JE to the general ledger. Accounting Controls: A.The Assistant City Administrator and FD are the only ones that can set up a department on the postage machine and assign codes and passwords. B.The City’s Clerks office and the FD are the only ones who can unlock a department’s code. C.Each department has three attempts to sign on properly or the department gets locked out. - 47 - Internal Controls for Postage Inventory Custody of Control Authorization Recording Assets Activity Postage machine set up DH HR/Finance Department Passwords required HR/Finance Wire Funds to Neo Post FD JE to record transfer FD City Clerk's Download postage Office Month reconciliation of Postage machine to ACCT-2 General Ledger Record monthly expense ACCT-2 - 48 - PROPERTY TAXES: Objective: The objective of the City Council in meeting this goal is to ensure that property taxes are recorded when received and outstanding taxes are recorded as a receivable at year end. Segregation of Duties: A.The County is responsible for collecting the taxes for the City. B.The County sends reports to the City and the FD prepares the JE for the taxes received. C.The ACCT-2 updates the JE to the general ledger. D.The ACCT-2 and the AFD reconcile the bank accounts to the general ledger and cash spreadsheet. E.Year-end reports are sent by the County to the FD. F.A reconciliation of the reports is prepared by the FD G.Year-end entries are JE into the general ledger to record the receivable. H.The current year’s levy is certified to Dakota County in Dec. (A preliminary th levy certification is done by Sept. 15.) The FD completes and files these reports. Accounting Controls: A.The money is ACH (direct deposited) into the City’s bank account by the County. B.An ACH notice is emailed to the Finance Dept. by the County. C.Year-end review of audit entries is made by the AFD and the FD for completeness and accuracy. - 49 - Internal Controls for Property Taxes Custody of Control Authorization Recording Assets Activity Council/HRA Approvals board Certification to County FD Dakota Collection County Record wire for settlements FD General ledger updated ACCT-2 Reconciliation of bank ACCT- stmt. 2/AFD Year-end reconciliation of tax receivable and outstanding taxes. FD Record outstanding tax receivables FD General Ledger updated ACCT-2 - 50 - PURCHASE CREDIT CARDS: Objective: The objective of the City Council in meeting this goal is to ensure appropriate expenditures are appropriated by the use of credit cards. Segregation of Duties: A.DH’s can request to have credit cards issued to staff. B.FD issues the credit cards and gets the appropriate sign off of the adopted policy. C.Staff submits credit card purchase receipts to DH’s for approvals. D.DH’s turn in pay voucher with receipts to Finance for payment. E.The ACCT-1 reconciles pay vouchers to the master card statement. F.Payment is then processed like any other accounts payable. See Accounts Payable for further controls. Accounting Controls: A.Credit cards are restricted by daily transaction amounts and monthly amounts. B.Credit cards are restricted that cash withdrawals are not allowed. C.Employees are not allowed to use City credit cards for personal purchases. D.A separate policy is in place. - 51 - Internal Controls for Purchase Cards- Credit Card Custody of Control Authorization Recording Assets Activity Credit Card Requested Department Credit Card Account Opened FD Credit Card purchases Department Invoices prepared for payment Department Approval for pay vouchers DH Reconciliation of purchases to Mailed to statement ACCT-1 - 52 - SPECIAL ASSESSMENTS: Objective: The objective of the City Council in meeting this goal is to ensure that special assessments are recorded when received and outstanding taxes are recorded as a receivable at year end. Segregation of Duties: A.The County is responsible for collecting the special assessment s for the City. B.The County sends reports to the City and the FD prepares the JE for the special assessments received. C.The ACCT-2 updates the JE to the general ledger. D.The ACCT-2 and the AFD reconcile the bank accounts to the general ledger and cash spreadsheet. E.Year-end reports are sent by the County to the AFD and FD. F.A reconciliation of the reports is prepared by the FD and the AFD. G.Year-end entries are JE into the general ledger to record the receivable. H.Current year special assessments are approved by t he Council. I.AFD certifies the outstanding special assessments to the County by the due date in December. J.Payments made prior to special assessments are entered by the City Clerk’s office. K.A reconciliation of the general ledger is done by the AFD prior to c ertification of the special assessments. Accounting Controls: A. The money is ACH (direct deposit) into the City’s bank account by the County. B. An ACH notice is E-mailed to the FD by the County. C.Year-end review of audit entries is made by the AFD and the FD for completeness and accuracy. - 53 - Internal Controls for Special assessments Custody of Control Authorization Recording Assets Activity Council/HRA Approvals board Reconciliation of general ledger to certification AFD Certification to County AFD Dakota County or City Clerk's office Collection Record wire for settlements FD Year-end reconciliation of special assessment receivable. FD Record outstanding tax receivables FD General Ledger updated ACCT-2 Year-end reconciliation of deferred special assessment. AFD Record outstanding SA deferred amount AFD General ledger updated ACCT-2 - 54 - TOKENS: Objective: The objective of the City Council in meeting this goal is to ensure that all revenues collected from TRAC tokens are accounted for and that tokens are safeguarded from theft. Segregation of Duties: A.Tokens are sold in the City Clerk’s office and on the bus by the bus drivers. B.Bus drivers keep track of sales on daily routing schedule. C.TRAC support staff reconciles daily sales made by the bus drivers. D.Sales made by the City Clerk’s office are entered into the financial software and on a daily inventory sheet. E.Daily inventory sheet is entered into a master reconciliation sheet by the TRAC support staff. F.City Clerk’s staff verifies reconciliation to the actual count of tokens on hand. G.The general ledger is reviewed periodically by the TRAC support staff. H.Write offs would need to go before Council. I.The drop boxes are counted by the City Clerk’s office daily. Accounting Controls: A.Tokens are locked up during the day and after hours. B.Limited access to the tokens is maintained. C.Daily sale sheets are i nitialized by the employee who sold the TRAC tokens. D.Tokens on the bus are dropped into a secure box by the users. E.Tokens for resale are kept near the bus drivers while enroot. F.Verification of the inventory sheet is initialized by the employee who does an actual count of tokens on hand. G.Actual counts of tokens on hand are done weekly. H.If a discrepancy is found the TRAC support staff reviews inventory sheets for the time period in question and the discrepancy is investigated. - 55 - Internal Controls for Tokens Custody of Control Authorization Recording Assets Activity Receipts entered at time of sale in cash City Clerk's collections office Tokens sold track on City Clerk's sales report office TRAC Drivers keep record of sales on TRAC Drivers drivers log Count daily TRAC bus box and enters cash City Clerk's into cash collections office Reconciling of daily TRAC logs for sales for both Support busses and front office Staff Actual count of tokens and verification of City Clerk's reconciliation office TRAC Review of general Support ledger Staff Council Write-off's approval - 56 - TRANSFERS Objective: The objective of the City Council meeting this goal is to ensure that authority has been granted to move funds from one department to another or from one fund to another fund. Segregation of Duties: A.Council approves all transfer s between funds and departments. (Exception if transfers made to correct an administrative error.) B.The FD prepares the JE to record the transaction into the general ledger. C.The ACCT-2 updates the general ledger. D.The FD reviews and prepares the audit matrix annually. Accounting Controls: A.Council approval must be attached to the JE to update the general ledger. B.Transfer In and Transfer Out’s must balance. - 57 - Internal Controls for Cash Transfers between funds Custody of Control Authorization Recording Assets Activity Transfers Council Prepare JE FD Update general ledger Accountant-2 Review and Prepare Audit Matrix FD - 58 - UTILITY RECEIVABLES Objective: The objective of the City Council in meeting this goal is to ensure that a ll receivables owed to the City are billed, properly recorded, reconciled, and kept under adequate security. Segregation of Duties-New Accounts : A.Department of Building Safety collects water meter fee and radio read fee. B.Meter is picked up at Public Works Dept. C.New Service order is created by PW Office Assistant. D.Account number and sequence number is assigned by ACCT-2 E.Account is set up in the financial system by AT. Segregation of Duties-Billing: A.The ACCT-2 downloads the cycle to be billed from the financial system in utility billing system. B.Public Works employee assigned to utility reading will go out with the downloaded handheld and read the cycle to be billed. The ACCT-2 then uploads the readings into the financial system. C.A billing register is printe d and reviewed by the ACCT-2. D.If discrepancies (high reads or no reads) occur the ACCT-2 will send out the PW utility operator to re read the accounts. E.Re-reads are adjusted by ACCT-2 and reviewed and updated by the FD. F.General ledger for the monthly bi lling cycle is updated by the FD. G.Invoices are picked up by third party vendor to get ready for mailing. H.Third party vendor verifies with the ACCT-2 on the number of bills being mailed. I.Third party vendor delivers the invoices to the post office for billi ng on the last day of the month. st J.On the 21 or next business day the ACCT-2 applies the 10% penalty per city ordinance to all outstanding utility accounts. K.The FD reviews the accounts the 10% penalty is applies to and updates the receivable subsidiary ledger and general ledger. nd L.The 2 notice is mailed out on the last day of the month for all outstanding accounts. M.A second penalty is applied on the eleventh day of the month following the 1st due date for all accounts that are past due. N.FD reviews the second penalty accounts and updates the subsidiary and general ledger. rd O.Disconnect notices are posted the day before shut-off. (3 Thursday of the month after the 1st due date.) - 59 - st P.On the third Thursday of the month following the 1 due date the ACCT-2 directs the PW Utility Operator to shutoff of all accounts that are on the disconnect list. Q.Shutoff fees are applied on all accounts that were physically shutoff. R.The FD reviews the fees and updates the general ledger. Accounting Controls : A.All readings are rea d by a radio read system. No manual reads are accepted unless attempts with the radio read have failed. B.Invoices are printed on pre printed City of Hastings forms. C.Should an invoice be determined to be reversed the ACCT-2 will give the FD the information for verification and to sign off on the adjustment. Reversal for administrative error or if policy applies. All other request for reversal must go before council for approval. D.Adjustments must be documented and reviewed by the FD. E.Monthly reconciliation of the utility accounts receivable system to the general ledger should be performed by the ACCT-2 and reviewed by the AFD. F.A separate policy is in place. - 60 - Internal Controls for Utility Billing Receivables Custody of Control Authorization Recording Assets Activity New Accounts Dept of Meter fee and radio read unit Building fee collected. Safety Meter is held at PW's until plumber picks up with paid Meter is picked up at PW's permit. PW admin. New Service order is initiated. Assistant Account number and sequence number assigned ACCT-2 Record new accounts in financial software AT Loading of Route onto Billing handheld meter reader ACCT-2 Route is read Utility-PW Bills are calculated and proofed ACCT-2 High/Lows are noted ACCT-2 Meters reread Utility-PW Approval for adjustment FD Bills printed ACCT-2 - 61 - Outside Bills are readied for mailing vendor Change to General ledger is updated FD General ledger is reconciled ACCT-2 Reconciliation is reviewed AFD City Clerk's Receipting Mail is opened office City Clerk's Receipts are entered office Voids AT Deposit is prepared AT General ledger is updated AT AR ledger is updated ACCT-2 Bank reconciliation ACCT-2 General ledger reconciled AFD Annual review FD Adjustments/Misc. Charges ACCT-2 General ledger updated FD FD - 62 -