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CITY OF GEM LAKE SCHEDULE OF FINDINGS AND RESPONSES YEAR ENDED ❑ECEMBER 31, 2008 Internal Control Over Financial Reporting 2008-1: Limited Segregation of Duties Condition: Due to the small size of the City's staff, there is by definition a lack of segregation of the accounting functions that is necessary to ensure adequate internal accounting control. While we realize this scenario is common for small entities, we are required to report this issue and to advise that a concentration of duties and responsibilities in a limited number of individuals is not desirable from an. internal control perspective. Criteria: Generally, a system of internal control contemplates separation of duties such that no individual has responsibility to execute a transaction, have physical access to the related assets, and have responsibility or authority to record the transaction. Effect: The City is unable to maintain segregation of incompatible duties. Cause: The condition is due to a limited number of personnel involved in receipt and disbursement processes. Recommendation: Controls should be reviewed periodically and consideration given to improving the segregation of duties. In making this review, it is important to consider the benefit derived as weighed against the cost of the improvements.. Minnesota Legal Compliance Finding: 2008-02 Declarations of Payment Finding: Minnesota Statutes Section 471.391 Subd 1 and 2 requires that the City document that the declaration of payment requirements were met for any payment of non -payroll claims made by the City. The declaration of payment requirements can be met with a declaration printed on the backside of checks issued by the City in payment of claims. Management Response: The City has corrected this issue as of the completion of fieldwork. (34)