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City of Centerville June 3, 2009 Page 2 2008-1: Segregation of Duties over Utility Billing and Investment Transaction Cycles (finding since 2007) Condition: During our audit we reviewed procedures over cash receipts, cash disbursements, payroll, utility billing and investments. The City was found to have limited segregation of duties the transaction cycles relating to utility billing and investments. Criteria: There are four general categories of duties: authorization, custody, record keeping and reconciliation. In an ideal system, different employees perform each of these four major functions. In other words, no one person has control of two or more of these responsibilities. Cause: As a result of the limited mm~ber of staff, in the utility billing cycle, the accounting clerk performs duties or has custody of assets in two or more categories of duties. In the investment cycle, the finance director has responsibility over all duties but there is some review of statements by the City Administrator. Effect: The effectiveness of the internal control system relies on enforcement by management. The effect of deficiencies in segregation of duties and internal controls can result in undetected errors or misappropriation of assets of the City. Recommendation: While we recognize the ntunber of staff is not large enough to eliminate this deficiency, we recommend that the City evaluate the current procedures and segregate duties where possible and implement any compensating controls. Compensating controls could consist of additional monitoring and review, such as approving all adjushnents with utility billing and review of utility billing registers.. We are aware some compensating controls are in place; however, it is important that the Council is aware of this condition and monitor all financial information. N~anagement Response: Management has initiated changes in the inveshnent procedures to ensure that there is separation between initiation and authorization and that the Finance Director only has authority to move funds between existing accounts. Management will add procedures over utility billing to ensure that all adjustments are approved and that posting of billing is reviewed by someone other than the accounting clerk. 952.835.9090 Fax 952.835.326t www:aemcpas.cosn