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CITY OF GEM LAKE Schedule of Findings and Responses Year Ended December 31, 2023 -34- FINDINGS – MATERIAL WEAKNESS IN INTERNAL CONTROL OVER FINANCIAL REPORTING 2023-001 INADEQUATE SEGREGATION OF DUTIES Criteria – Internal control over financial reporting. Condition – The City of Gem Lake, Minnesota (the City) has limited segregation of duties in a number of areas, including, but not limited to, controls over cash receipts, cash disbursements, utility billing, and payroll. Questioned Costs – Not applicable. Context – The condition applies to multiple areas as noted above. Repeat Finding – This is a current year and prior year finding. Cause – The limited segregation of duties is primarily caused by the limited size of the City’s office staff. Effect – One important element of internal accounting controls is an ade quate segregation of duties such that no one individual have responsibility to execute a transaction, have physical access to the related assets, and have responsibility or authority to record the transaction. A lack of segregation of duties subjects the City to a higher risk that errors or fraud could occur and not be detected in a timely manner in the normal course of business. Recommendation – We recommend that the City continue its efforts to segregate duties as best it can within the limits of what the City considers to be cost-beneficial. Management Response – There is no disagreement with the audit finding. The City reviews and makes improvements to its internal control structure on an ongoing basis to maximize the segregation of duties in all areas within the limits of the staff available. However, the City does not consider it cost-beneficial at this time to increase the size of its finance department staff in order to further segregate accounting functions.