Summary

The results of our financial and operational audit of the City of Lake Alfred, Florida, for the fiscal year ended September 30, 2001, and selected actions taken prior and subsequent thereto are summarized below.

GENERAL MANAGEMENT CONTROLS

Finding No. 1:  Several findings included in the annual financial audit reports have been reported for several years without correction. These findings related primarily to the adequacy of the accounting records and procedures.

Finding No. 2:  The City had not established written policies and procedures necessary to assure the efficient and consistent conduct of accounting and other business-related functions and the proper safeguarding of assets.

Finding No. 3:  The City had not provided for an adequate separation of duties, or established adequate compensating controls, in several areas of business operations.

Finding No. 4:  The City was unable to provide explanations and documentation for many interfund transfers and receivable/payable balances recorded to the accounting records.

Finding No. 5:  Procedures for the adjustment of the accounting records through journal entries did not provide for supervisory review and approval of the entries.

Finding No. 6:  The City�s overall financial condition is showing signs of deterioration which, if not corrected, could result in a future financial emergency.  In addition to the effects of inadequate internal controls as discussed throughout this report, factors that have contributed to this condition, include a lack of targeted fund equity levels, periodic cash analysis and forecasts, and financial plans.

BUDGETARY CONTROLS

Finding No. 7:The City did not maintain adequate documentation to support the estimated beginning fund balances on the 2000-2001 fiscal year budget and did not amend the budget to include actual beginning fund balances.

Finding No. 8: Procedures for adoption of the 2000-2001 and 2001-2002 fiscal year budgets did not provide for compliance with the time constraints for notifications to the Property Appraiser and advertisement established in Section 200.065, Florida Statutes.

Finding No. 9: The financial records disclosed budget overexpenditures totaling $4.4 million for 201 object levels for the 2000-2001 fiscal year.  The City�s total governmental fund expenditures exceeded the total budgeted expenditures by $199,332.

CASH AND INVESTMENTS

Finding No. 10: Petty cash fund disbursements were not always adequately documented and custody of the petty cash funds was not restricted to a specific employee.

Finding No. 11: The bank accounts were not promptly reconciled during and subsequent to the 2000-2001 fiscal year and adequate controls had not been implemented to prevent bank overdrafts.

Finding No. 12: Accountability for prenumbered payroll checks was deficient in that they were used out of sequence and, in some instances, were unaccounted for, and access to them was not adequately restricted.

Finding No. 13: Contrary to Chapter 717, Florida Statutes, stale-dated checks totaling $814 and written-off by the City were not reported or remitted to the Florida Department of Banking and Finance.

Finding No. 14: The City could have earned additional investment income of approximately $30,000 by investing more moneys with the State Board of Administration or the City�s money market account.

FIXED ASSETS

Finding No. 15: Values reported for fixed assets were not supported by documentation showing their actual cost or estimated historical cost.

Finding No. 16: The tangible personal property records did not provide adequate accountability over tangible personal property as they did not contain all necessary information and did not include all property items. Further, some items could not be located or were not properly tagged.

Finding No. 17: A physical inventory of tangible personal property had not been performed since 1999.

Finding No. 18: Although the City consolidated the Internal Service Fund into the General Fund, the Internal Service Fund fixed assets were not reported in the General Fixed Assets Account Group.

Finding No. 19: The City purchased the Mariana Utilities System from Polk County, pursuant to a bid, for $601,000 without obtaining independent appraisals or other information needed for a determination of the economic feasibility of the acquisition. The next highest bid for the System was $251,000 less than the City�s bid.

OTHER ASSETS

Finding No. 20: The City had not established an inventory system to track the usage, value, or quantity of transportation inventory items.

LONG-TERM DEBT

Finding No. 21: The City obtained a temporary bank loan of $1,600,000 as �bridge� financing for the acquisition, construction, and equipping of specified projects, including the Mariana Utilities System, and renewed the loan several times when long-term financing could not be arranged. We found that no rate study had been performed regarding the Mariana Utilities System; significant resources were committed prior to obtaining financing; charter provisions related to the borrowing were violated; unnecessary interest expense was incurred; unnecessary financing costs were incurred; and related grant reimbursement requests were not timely filed.

Finding No. 22: The City obtained funding of approximately $5,800,000 through the State Revolving Fund Loan Program but did not make adequate provision for loan repayment and violated loan covenants related to the escrow account, rate coverage, notification of additional debt, and the Repayment Reserve Account.

Finding No. 23: The City failed to implement effective controls over other long-term debt, including a fire truck loan and an administration building loan. Deficiencies related to the calculation of repayment amounts and incurrence of late payment penalties.

Finding No. 24: Separate accounts were not maintained in the accounting records for the various long-term debt issues.

RESTRICTED RESOURCES

Finding No. 25: Contrary to the Florida Department of Banking and Finance Uniform Accounting System Manual, special revenue funds were not used to separately account for several revenue sources that are legally restricted as to the purposes for which expenditures could be made.

Finding No. 26: Contrary to Section 336.025(1)(b)3., Florida Statutes, the capital improvement element of the City�s comprehensive plan did not identify specific transportation expenditures or projects that would comply with the restricted uses of the additional $0.05 Local Option Fuel Tax.

CASH CONTROLS AND ADMINISTRATION

Finding No. 27: Prenumbered receipt forms used to account for collections were not properly accounted for.

Finding No. 28: Responsibility for collections was not adequately documented from the point of collection to deposit due to a lack of: security over the collections; use of a mail receipts log, immediate application of restrictive endorsements, and transfer documentation.

Finding No. 29: The City has not adequately implemented procedures to assure that collections of record were subsequently recorded to the accounting records and timely deposited. Several instances of missing collections were reported to the City�s police department.

Finding No. 30: Due to problems with the City�s utility billing software and a lack of review and follow-up of discrepancies in the billing records, the City was unable to provide explanations for over/short account balances.

REVENUES AND OTHER RECEIPTS

Finding No. 31: The City had not implemented controls to assure that all citrus fruit harvested from the City�s citrus groves were properly accounted for and that corresponding revenues were received timely.

Finding No. 32: The City�s utility billing and collection procedures, including those related to supervisory review of accounts, account adjustments, timeliness of billings, and delinquent accounts, were not adequate to assure the timely payment of utility bills by users.

Finding No. 33: Utility deposits were not maintained in an interest-bearing account and reconciliations between the bank account and the subsidiary records of customer deposits were not performed.

Finding No. 34: Fees or charges required by City ordinances for business license fees, fire inspection fees, sewer system surcharges, and reconnection fees were not always assessed and collected.

PERSONNEL AND PAYROLL ADMINISTRATION

Finding No. 35: Documentation evidencing the hiring of personnel was not always available as applications, personnel action record forms, and payroll deduction authorizations were not always retained and employment histories were not verified

Finding No. 36: Contrary to Section 112.3135, Florida Statutes, a department head was responsible for the approval of time reported by a relative who worked part-time for the City.

Finding No. 37: Contrary to Section 409.2576, Florida Statutes, several persons hired by the City were not reported to the State Directory of New Hires.

Finding No. 38: Contrary to the City�s Personnel Manual and Employee Handbook, personal evaluation forms were not available to document merit-based pay adjustments for several employees.

Finding No. 39: The rate of pay for three employees exceeded the maximum salary ranges in the Commission approved pay plan and for one employee was below the minimum salary range.

Finding No. 40: Pay advances totaling $5,192 were made to 11 employees without documentation of the reasons for the advances and, in some instances, repayment of the advances. Article VII, Section 10 of the State Constitution prohibits such advances.

Finding No. 41: Bonuses totaling $2,760 were paid to employees, but were not reported as wages or other compensation and subjected to withholding for payment of Federal income taxes and other employment taxes.

Finding No. 42: City employees were paid $90,900 for overtime worked, without documentation of prior authorization, contrary to the City�s Personnel Manual and Employee Handbook.

PROCUREMENT OF GOODS AND SERVICES

Finding No. 43: Deficiencies in the control and use of City credit cards provided to two commissioners, the City Manager, and an employee included lack of guidance on use of the credit cards; personal use of the credit cards and subsequent reimbursement contrary to Article VII, Section 10 of the State Constitution; lending of the credit cards to other employees; and lack of supporting receipts.

Finding No. 44: Deficiencies in the procedures for processing disbursements for goods and services included a lack of signatures and dates for receipt of the goods or services and failure to issue purchase orders.

Finding No. 45: Contributions totaling $7,891 were made to the Lake Alfred Chamber of Commerce without an agreement setting forth the specific purposes for the use of the money and follow-up procedures to determine such use.

CONTRACTUAL SERVICES

Finding No. 46: The City paid $24,050 and $30,466 for the 1998-99 and 1999-2000 fiscal years, respectively, to an accounting firm without the benefit of a written agreement.

Finding No. 47: Payments totaling $157,629 to an accounting firm and an engineering firm were not adequately supported by detailed invoices.

TRAVEL EXPENSES

Finding No. 48: Monthly travel allowances totaling $4,850 were paid to the former City Manager and Interim City Manager without the signed typical month�s travel statements required by Section 112.061(7)(f), Florida Statutes, and were not subjected to required withholding for Federal income tax purposes.

Finding No. 49: In 24 instances totaling $343, meal allowances paid to travelers exceeded the meal allowance rates established in 112.061, Florida Statutes. The City had established higher meal allowance rates by resolution; however, establishment of rates in excess of those established by that section of law requires adoption of an ordinance.

Finding No. 50: Travel expenses paid for City Commissioners and employees were not always adequately supported to evidence the authorized public purpose of the travel and to permit a determination of compliance with applicable laws.

Finding No. 51: The City incurred expenses totaling $5,548 from the Mayor�s Youth Council (MYC) Board account for travel expenses for eight people to attend a National League of Cities Conference in Boston, Massachusetts. None of the expenses were supported by travel expense reports evidencing the public purpose of the trip nor were there records to document how the trip served the duties and responsibilities of the MYC. The expenses included an unreimbursed conference registration fee of $115 for a Wauchula City Commissioner and $174 for MYC members to attend a basketball game and movies.

COMMUNICATION EXPENDITURES

Finding No. 52: The City paid an estimated $1,000 in Federal, State, and local telecommunication taxes from which the City is exempt.

VEHICLE USAGE

Finding No. 53: The City assigned seven vehicles to employees on a 24 hour basis without clearly identifying the necessity and benefits.  Vehicle usage logs were not maintained and the personal use of the vehicles was not included in the employees� gross compensation reported to the Internal Revenue Service.

RISK MANAGEMENT PROGRAMS

Finding No. 54: The City purchased various insurance coverages for $303,129 without obtaining bids from insurance providers.

Finding No. 55: Numerous payments of health and hospitalization coverages for City employees were remitted past the due date and in one instance coverage was cancelled due to past due balances.

Finding No. 56: The City did not complete a required self-audit relating to the Florida Municipal Insurance Trust risk pool and incurred $7,212 in penalties assessed by the Trust.

INFORMATION TECHNOLOGY

Finding No. 57 Enhancements could be made to controls over computer access and security in the areas of security awareness, disaster recovery plans, and physical security.

Finding No. 58: Late billings to utility customers resulted from the failure to adequately test a new utility billing application prior to placing the application in operation.

OTHER MATTERS

Finding No. 59: The City destroyed bank statements from the 1997-98 fiscal year prior to completion of the required three-year retention period.

Finding No. 60: Commission approval of transcribed minutes from Commission meetings was often not included in the minutes for the subsequent meetings.

The City's response is a part of report No. 03-029 and is shown as Appendix C.