City's internal control dinged by auditors

Cathy Decker/Staff reporter

A significant deficiency was cited by the auditing firm of Carpentier, Mitchell, Goddard & Company LLC, according to a letter that is a part of the 66-page auditor's report for the city of Aledo for the year ending Dec. 31, 2008.

The auditors used the city's current "Internal control over financial reporting" to design the audit procedure for expressing opinions on the city's financial statements.

On the one hand the auditor letter says the city's internal control over financial reporting's effectiveness was not an issue  ("but not for the purpose of expressing an opinion on the effectiveness of the city of Aledo's internal control over financial reporting."), two paragraphs later the auditor lists a significant deficiency discovered.

"A significant deficiency is a control deficiency or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected by the entity's internal control."

The finding was that the city does not have a system in place to identify, record, dispose of and depreciate capital assets, including capital assets contributed or acquired through developer contribution or agreements.

"Currently capital outlay accounts are reviewed at fiscal year-end in an effort to identify these items and items were found during the audit process that were not identified and should have been," the report states.

This could have the effect of having capital assets improperly expensed and not properly tracked.

The auditors suggested the city prepare and maintain a detailed list of assets that includes description, date of purchase, estimated useful life, cost and depreciation information.

James A. Taylor, CPA, represented the auditing firm at Monday's June 15 city council meeting. This is the second year the firm has audited the city books. "One issue changed," Taylor said. When the government standards changed a couple of years ago, the city was required to track information on depreciated fixed assets. He said the city's assets had 54 percent of its useful life remaining.

Taylor said the city's total unrestricted assets amounted to $1,963,193, or 32 percent of the city's total annual revenue. This percentage is within the desired range of between 30 to 50 percent. This is a decrease of $98,586 from the previous year's audit.

"While governmental activities experienced an increase in net assets of .22 percent, business-type activities experienced a 1.17 percent decrease. The overall decrease is a result of having more expenses than revenue during the fiscal year."

Budget carryover

Taylor said the level of fund balance in three major funds was looked at -- the general fund, payroll deduction fund and property tax increment financing fund.

"Last year issues were all addressed and corrected, which is positive."

Taylor pointed out the city's debt services load, which is an indicator of solvency, is up a bit from last year. "This is not any kind of danger zone," he said. He said they like to see at least a 2:1 ratio. Aledo's ratio is 3.77: 1, up slightly from last year's 3.71:1 ratio.

He said that the auditors "overall did not encounter any significant difficulties" due to the city's open book cooperation. "I was pleased with the response of findings from last year's audit," he added.

While there may be some areas of concern, overall there was no particular area for the city council to worry about.

The auditors analyzed the major fund balances including general fund, payroll deduction fund and property tax TIF fund. For the year ending Dec. 31, 2008 the city's unreserved and undesignated fund balance of the three funds was 156.84 percent of annual revenues, which is considered well above the recommended range of 10 - 30 percent.

Another question the audit looked at was whether the city's utility services were self supporting. As of Dec. 31, the city's water and sewer activities were 86.9 percent self sufficient and the gas utility was 98.3 percent self sufficient.

Alderman Rich Maynard asked Taylor's opinion on how the city handled its Tax Increment Financing projects and whether the city needed to retain a separate accountant to track that area.

"Most local governments that have TIF have those same concerns," said Taylor. He said that he doesn't often see a municipality having a separate auditor for TIF. "We did not have a lot of issues with your TIF," he added.

Maynard pointed out that the accounting reports were behind on TIF.

Janice Green, said she does separate TIF reports and has them caught up as of the end of 2007. "Carpentier reviewed that as part of the audit," she said.

She added that she should have 2008 caught up by the first or second week in  July.

In other business the city council:

• Approved the prevailing wage ordinance.

• Agreed to increase the amount of TIF grant for parking lot improvements at Vitales by $2968.55

• Agreed to have Laurie Wood be the IMRF agent for the city.

• Approved low bids for Valley Construction of $138,746.50 to do hot mix asphalt surface in the city; $142,665, for American Asphalt to do some micro-surfacing in the city.

• Authorized the city attorney to execute a contract with  Ameren for installing Wi-Fi in downtown Aledo.

• Authorized the city attorney to move forward with the TIF agreement and redevelopment agreement with Green Development Group for a $200,000 grant to purchase property on Henderson corner.