HomeMy WebLinkAboutResolution No. 164CITY OF MEDINA,-WASHINGTON
Resolution No. 164
A RESOLUTION adopting an Internal Controls Guideline for the accounting systems
in the City of Medina.
WHEREAS, on April 8th, 1983, the Office of the State Auditor of the State of
Washington reported a defalcation of at least $45,761.85 by the Clerk -Treasurer
of the City of Medina during the period January 1979 through December 1982, and,
WHEREAS, responsible and effective financial management and control are top
priorities of both the City Council and the citizens of the City of Medina, and,
'JHEREAS, Coopers & Lybrand, a Certified Public Accounting Firm has reviewed the
internal controls of the City of Medina and issued a report dated August, 1983,
and,
WHEREAS, the Office of the State Auditor has reviewed the Internal Controls
Report issued by Coopers & Lybrand, and made specific clarifications, and
WHEREAS, the City Council of the City of Medina is desirous of improving the
internal systems available to the City of Medina, inasmuch as they can comple-
ment the existing statutory requirements in RCW 43.09.200, RCW 35A.13.080, and
RCW 35A.13.120.
Now, therefore, THE CITY COUNCIL OF THE CITY OF MEDINA DOES RESOLVE AS FOLLOWS:
SECTION 1. That the City Manager request annual audits by the State Auditor's
Office.
SECTION 2. That the City Manager increase the Treasurer's bond to $100,000,
and review it annually for appropriate limitations.
SECTION 3. That the City Manager destroy all unsequenced warrants and order
only prenumbered warrants.
SECTION 4. That the City Manager improve internal controls over the issuance
of warrants as recommended by the Coopers & Lybrand report and consistent with
the State Auditor's requirements designated in his letter of August 24, 1983.
SECTION 5. That the City Manager strengthen warrant redemption, bank reconcili-
ation, and general ledger posting procedures as recommended by the Coopers &
Lybrand report, and consistent with the State Auditor's requirements.
SECTION 6. That the additional recommendations contained in the Coopers & Lybrand
report be implemented by the City Manager to the extent possible based on existing
or future staffing conditions.
SECTION 7. That the City Manager effectively maintain and endeavor to enhance all
existing accounting procedures presently in place but not addressed in the
Coopers & Lybrand report consistent with State law and generally accepted account-
ing principles as they apply to municipalities.
SECTION 8. That the report issued by Coopers & Lybrand dated August 1, 1983,
together with the comments and clarifications thereon issued by the State Auditor
dated August 24, 1983, shall be attached to and become a part of this resolution.
In every instance of conflict the State Auditor's report shall take precedence.
THIS RESOLUTION ADOPTED THIS 12th day of September, 1983.
E�^ Mayo
hereby certify that 1 am the Cty Cie
(Y a.
ATTEST: of the City of Me•lina; tFat annexed hereto is Grdh,a„ce N......... A& ` ...........
E- JO LED:
`_....__..._._.__...-------------------.
being the tme and c.,red copy of such ordinance vdud, was published an
CITY CLERK posted according to the laws of the State of W.lmLtpn relating to third-da:
cities beginning five days or more bebre itit, ello_,tive data.
Cit. rL.L
cerLfied public accountants
CooNers
&Lybrand
The Honorable Gordon Griffes, Mayor
and Members of the City Council
City of Medina
Medina, Washington
Pursuant to discussions between a committee of your City of Medina
City Council and Mr. John H. Bauer and in response to the report
of the State of Washington Office of State Auditor, Examination
No. 47891 of the City of Medina, King County, Washington, dated
April 8, 1983, we have performed a limited review of certain
internal accounting controls of the City of Medina in effect at
May 17, 1983. We are pleased to report our findings to you.
Our review was undertaken for the purpose of assisting you in
discharging your responsibiities in City Government by recommend-
ing for your consideration possible improvements in internal
accounting which may be implemented. As we previously discussed,
the elected and operating management of the.City of Medina is
responsible for establishing and -maintaining ;a system of internal
accounting control. In fulfilling tlis respofis 1 31 ity, '•e t a "es v
and judgments by management are required to assess the expected
benefits and related costs of control procedures.. The objectives �y
of a system are to provide management with reasonable, but not`'
absolute, assurance that assets are safeguarded against floss from
unauthorized use or disposition, and that transactions are executed a
in accordance with management's authorization and recorded properly
to permit the preparation of financial statements in accordance with
generally accepted accounting principles.
Because of inherent limitations in any system of internal account-
ing -control, errors or irregularities may occur and not be detected.
Also, projection of any evaluation of the system to future periods
is subject to the risk that procedures may become inadequate
because of changes in conditions, or that the degree of compliance
with the procedures may deteriorate. 0
As our limited review procedures addressed only internal accounting
controls over cash disbursements, accordingly, we are not in a
position to make any observations or express any opinions as to the
system of internal accounting control of the City of Medina in effect
at May 17, 1983, in part or taken as a whole.
During the examination of the City of Medina by the State of
Washington, office of State Auditor, certain irregularities in the
accounting records were discovered which indicated an alleged
misappropriation of public funds during the audit period from
January 1, 1979 through March 10, 1983.
It is important to recognize that control procedures, at least
informally, were in place throughout the entire period. The
breakdown, which permitted the alleged defalcation to occur,
certain control procedures in the
resulted from the fact that of
documents and the sing
review and approval of source ningecif-
cash disbursements documentation were not functioning. Sp
ically, the control procedure requiring dual signatures on
warrants and checks was in place but not operative. This control
procedure was circumvented by the.signing of blank checks and lack
of inspection of the supporting data of various warrants and checks
by the co -signor of these documents. In addition, the reconciliations
of various accounts were not performed by an individual, independent
of other functions, nor were they reviewed in detail.
Further, financial reporting and analytical analysis was both
infrequent and inadequate to permit a finding of such matters
through an evaluation of operating results.
With the staff size of the City of Medina, it is unlikelythat
complete segregation of duties can be obtained. It is,
erefore
essential that prescribed internal accounting controls in place'
be rigidly followed. a'
Following is a summary of findings and recommdiscusendations
them with yo Quin
consideration. We would be p ou have any questions
additional detail, should you so desire. If y
please contact Mr. John H. Bauer in our Seattle office.
0 'C�
Seattle, Washington
August 1, 1983
Y
ig
Perceived Weaknesses and Recommendations:
1. improve Internal Controls Over Warrant Issuance
During our review of the process of issuance and approval
of warrants, we noted the following weaknesses:
Prior to signing, warrants were not always compared
to supporting documentation;
. Blank warrants were signed;
Not all warrants were prenumbered; invoices were
not cancelled after payment and the warrant
register was not always completed when the warrant
was prepared.
These weaknesses can result in unauthorized warrants being
signed and issued and invoices being submitted twice for payment.
We recommend the following procedures be instituted to
improve controls over warrant issuance.
When signing each warrant, note the payee and
amount of the warrant. Agree payee and amount
to supporting documentation with particular
attention to all payroll and large or unusual amounts
Use only prenumbered warrants.
Only sign completed warrants.
Update the warrant register concurrently with the
preparation of each warrant.
After payment of an invoice, denote on the invoice
that it has been paid.
segregation of duties should include the following
procedures:
One person, the assistant clerk, should be responsible
for issuance of warrants, preparation of the warrant 0
register, coding invoices and posting to the general
ledger. A different person, say the City Clerk, should
be responsible for preparation of the payroll, submission
of invoices to the assistant clerk for payment, mailing
warrants for payment of invoices, review of general ledger
coding of invoices, and review of posting of the general
ledger.
U=.
3
Perceived Weaknesses and Recommendations, Continued:
2.
3.
Warrant Red
res
Reconciliation
A review of warrant redemption and bank reconciliation proce-
dures revealed control weaknesses including warrant redemptions
not being properly recorded in the warrant register and a lack
of segregation of duties between warrant redemption and bank
reconciliation procedures. These weaknesses could permit
unauthorized warrants to be redeemed.
We recommend the following procedures be considered to improve
controls over warrant redemption, bank reconciliations and
recording amounts in the general ledger.
Redemption of warrants and the updating of the warrant
register for redemption, reconciliation of warrant,
checking and investment accounts and accounting for
numerical sequence of warrants issued should be performed
by an individual that does not issue warrants.
Reconciliations on all accounts should be reviewed on
a monthly basis by the City Manager. Material reconcil-
ing items should be investigated and resolved.
On a quarterly basis, at a minimum c'binparativs fiin 'J'&
statements should be prepared by the Treasurer and
reviewed by the City Manager. Comparisons shoul8_.include %-
budgeted to actual expenditures and, perhaps, a''cort0arison`
to the same quarter of the prior year. Explanations
should be obtained for unusual and material variances.
Monthly revenue and expense summaries, with comparisons
to budget, should be prepared and reviewed.
-Streamline Invoice Processing
The purchase .order document and update of the purchase order
log book are generated after the purchase of goods and services
by the City. This document is, in essence, functioning merely
as support for the invoice. As the purpose of a purchase order
system is to control and obtain approval for purchases before
they occur, we recommend that the completion of the purchase
order and update of the log book be discontinued. Currently,
purchasers of large and unusual items obtain the approval of
the City Manager prior to such purchases. The size and communi-
cations within the City"s staff allow these informal controls
over purchasing to operate efficiently. This is evidenced by
few budget overruns and maintenance of inventories at a reason-
able level.
0
Perceived Weaknesses and Recommendations, Continued:
3. streamline Invoice Processing, Continued
We further recommend that the purchase order document be
replaced as support to the invoice by a two-part warrant.
A copy of the warrant, after it has been signed, should
be attached to the paid invoice and filed by vendor. The
to the
attestation currently made on the purchase order as
by Washington
receipt of goods and services (as required
law) could be made either on the copy of the warrant or
directly on the invoice itself.
These recommendations should help to streamline the, processing
of invoices by the elimination of certain documents not used
of invoices
and promote more efficient general ledger coding
.and location of paid vendor invoices.
4. Increase Bonding Limit of Certain Key Employees
The employees" blanket bond limit is currently $20,000 per
occurrence. In view of the dollar volume of transactions
that consider-
handled by the City of Medina, we recomend
ation be given to increasing the blanket bond coverage.
5. Additional Recommendations
The City Manager should also consider the following items:_
Consideration should be given -to issuing warrants
only twice each month. This would mean that fewer
,
warrants would be issued at one time providing;
additional time for the review process.
During months in which either the City Clerk or
assistant clerk are absent from the job for an
extended period, the City Manager should perform
the aforementioned reviews and reconciliations.
Vacations for personnel with financial responsibilites
should be mandatory and extend over one reconciliation
period.
Reconciliation procedures should be expanded to W
include redemption of warrants. On a test basis,
agree dollar amounts and number of warrants redeemed
on the bank statement to the redeemed warrant package.
This procedure should be performed by an individual
that does not redeem warrants, the assistant clerk.
After typing, warrants should be forwarded directly
to the City Manager for detailed inspection, comparison
and signature. The Manager should then forward the
warrants to the Clerk/Treasurer.
5
Perceived Weaknesses and Recommendations, Continued:i
5. Additional Recommendations, Continued
When completing the dollar -amount on the warrant,
there should be no blank spaces between the dollar
and the numerals representing the amount of the check.
When writing the dollar amount of the warrant in the
register, unused figure places should be lined out.
All entries in the warrant register should be made
in ink. No corrections should be made to the register.
All mistakes should be crossed out; information should
then be reentered properly.
a
M
ROBERI V. GRAHAM
9 A1! AMII ON
WIILIAM L. LAVAGFYI
p�
ASSISIANI SIAlf AUDIY[111
TI1c � #ttfr of i'�`�a siljin$tnn
OFFICE OF STATE AUDITOR
LEGISLATIVE BUILDING AS-21
OLYMPIA. WASHINGTON 98504
120Q1 753-5277
August 24. 19B
The Honorable Gordon Griffes, Mayor
and Members of the City Council
City of Medina
Medina, Washinaton
Pursuant to the provisions of RCW 43.09.200 through 265, which
generally describe the State Auditor's authority to prescribe for
and examine municipal corporations, we have reviewed the results
of'the Coopers & Lybrand's study and recommendations for improving
internal control and cash disbursement procedures dated
August 1. 1983. Our concurrences and comments follow the seouence
found in the Coopers & Lybrand's letter.
Cover Letter.
We concur entirely but add that the attached recommendations should
be considered in con_unction with the cover letter.
1. Improve Internal Control Over Warrant Issuance.
Except for a procedural difference, we generally concur
with the recommendations.
In our opinion, preparing all warrants in one operations and
then entering them in the warrant reoister provides a more
efficient flow of word: than preparino one warrant and entering
that same warrant in the warrant reoister before preparing the
next warrant.
We concur. however, in the point of emphasis Coopers « Lybrand
is making --all warrants must be registered before aiven to the
city manager for review and signing.
We note that all unnumbered warrants have been destroyed.
2. Strenothen Warrant Redemption, Etc.
We oenerally concur with the recommendation except to add to:
"Reconciliation on all bank accounts
should be reviewed and sinned off on
- 1 -
a monthly basis by the city manager.
Material reconciliation items should be
investioated and resolved."
Note that RCPJ 35A.33.140 requires. no less than quarterly.
reoorts comparing estimated revenues and budgeted appropriation
to actual revenues and expenditures. If the council desiresr
monthly comparisons can be prepared but staffing should be
considered along with the need for the information
RCW 35A.21.030 and RCW 35.23.110 (4) requires the city treasurer
to report monthly to the city council. the condition .(cash
oosition) of the treasury.
3. Increasing Bonding Limit of Certain trey Employees.
This recommendation was contained in our recent report of
examination of the City of Medina.
5. Additional Recommendations.
We oenerally concur except that the city manager performing
reviews and reconciliations during extended absences of the
city clerk: or the assistant city clerk, tends to place too
much financial responsibility in the hands of one person.
An alternate recommendation would be to use temporary'help
for the warrant issuance and registering process in the
absence of either the city clerk or the assistant city
clerk. In the absence of the city clerk, the assistant
city clerk: would perform the clerk's duties. The city
manager continues to perform the review of reconciliations
functions.
Also. lining out unused figure spaces in the warrant
register is somewhat .severe besides making entries in the2
register difficult to read. It should be noted that the
previous clerk altered the warrant amount in the register
only after all warrants in that period had been redeemed
so that discovery by other staff -members was very unlikely.
Further, this method was employed only during 1979 and
1980.
During 1981 and 1982, and only after the close year,
monthly totals in the warrant reoisters were altered
Ll
to cover amounts taken. once again eliminating
discovery by other staff members. Warrant amounts
were not altered in the warrant registers during
1981 and 1982.
Office procedure during that period was that the
assistant city clerk: issued all warrants. entered
them in the warrant reoister, totaled the register,
and entered redemption date of warrants redeemed
from the bank in the register. Unnumbered
warrants used in the defalcation were of coi_erse
not entered in the warrant registers. Therefore,
attemots to hide the shortages were for the benefit
of the auditors. since there was little likelihood
that a staff member would review completed
warrant registers.
If the council so wishes, the Coopers & Lybrand recommendations
may be'adooted by resolution. However, fle:ribilty should be
permitted so the city manager can make changes to meet changing
circumstances. We recommend that the council's action be made=
under the ouidance of RCW 35A.13.120 and RCW iSSA.13.080_ A cnpy
of those laws are attached for your perusal.
We also recommend that the council consider fiscal/legal audits
more frequently than once every three years as required by
RCW 43.09.260. More frequent audits can be made but only at the
Council's request.
Adoption of a Claims Clearing Fund.
"claims" is the terminology used by the legislature to mean just -
and due bills for services, supplies, etc. currently, the city
has three warrant issuing funds:
Current Exoense
Street
General Obligation
Each fund has its own series of warrants and warrant registers.
Quite often a claim is for purchases made for two or more funds
requiring the issuance of two or more warrants. some cities have
as; many as ten warrant issuing funds. Determining cash available
for expcanditure or investing is difficult and many smaller cities
cannot and do not determine cash position until after month end.
Under this methodr cash balance for anyone fund at a moment of
time. requires determining the amount of warrants issued but
unredeemed at that period of time.
The adoption (bv ordinance) of a claims fund provides a mechanism
where the city needs only one warrant issuing fund. Under this
ies of warrants is used. Distribution of
method only one ser
es:venditures among funds is coded on the voucher. Only one
is shared among several
warrant is issued even if the expenditure
funds. The claims warrant is entered in a warrant register
having a total column and a number of distribution columns. A
distribution column is used for each city fund. After all
warrants are Preaisterran
rand
is totaled and tcreosstotaledclaims nfor anumeric
register, the r@_ a transfer
accuracy. The fund total amounts are transferred by
appropriate individual fund cash account
;ournal entry from the
to the claims clearing fund cash account. At any one time the
amount of cash in the claims clearing fund cash account 'is equal
to the warrants issued but not yet redeame.l The cacti balance
''
in any city fund cash account would be available for expenditure
or investment withuut further computation since money required to
redeem warrants issued aoainst that fund would have already been
transferred to the claims clearing fund.
The claims clearing fund method has several advantages:
1. only one series of warrants is required resulting
in a little less warrant printing costs.
2 the amount of unredeemed warrants is immediately
determinable with only one warrant issuing fund
and only one warrant register.
cash availability or cash position by fund can be
determined readily and on a daily basis with little
effort.
The claims clearing fund system is being used statewide with 000d
results. A separate payroll clearing fund can also be
established with its own series of warrants. However, we
recommend processing payroll through the claims fund because the
city has only a small number of permanent employees.
0
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Very truly yours.
ROBERT V. GRAHAM, State Auditor
Division of Municipal Corporations
1
Y /
Robert W. Wohllaib, CPA
Regional Audit Manager
Region 3 Cities
ji
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35A.13.080
Title 35A: Optional Municipal Code
35A.13.080 City manager —Powers and duties. The
Powers and duties of the city manager shall ad
(1) To have general supervision over the administra-
tive affairs of the code city;
(2) To appoint and remove at any time all depart-
ment heads, officers, and employees of the code city,
except members of the council, and subject to the pro-
visions of any applicable law, rule, or regulation relat-
ing to civil service: Provided, That he council
t to
provide for he appointment by the mayor,,
confirmation by the council, of a city planning commis'
Sion, and other advisory citizens' committees, commis-
sions, and boards advisory to the city council: Provided
further, That if the police judge or municipal judge of
the code city is appointed, such appointment shall be
made by the ciy manager subject to confirmation by
the council, for a four year term. The police judge or
municipal judge may be removed only on conviction of
malfeasance or misconduct in office, or because of
physical or mental disability rendering him incapable of
performing the duties of his office. The council may
cause an audit to.be made of any department or office
of the code cityho government thehe advice oronsent of the c ty may
cpersons to
to make it, N
manager;
(3) To attend'all meetings of the council at which his;
attendance may be required by that body;
(4) To see that all laws and ordinances are faithfully
uthoritexecuted, t bj ct tothto amamtain lawc andeorder in
may gran Yo
times of emergency;
(5) To recommend for adoption by the council such`
measures as he may deem necessary or expedient;
(6) To prepare and submit to the council such reports
as may be required by that body or as he may deem it
advisable to submit;
(7) To keep the council fully advised of the financial
condition of the code city and its future needs;
(8) To prepare and submit to the council a proposed
budget for the fiscal year, as required by chapter 35A.33
RCW, and to be responsible for its administration upon
adoption;
(9) To perform such other duties as the council may
determine by ordinance or resolution. 11967 ex.s. c 119
§ 35A.13.080.1
35A.13.090 Creation of departments, offices, and em-
ployment --Compensation. On recommendation of the
city manager or upon its own action, the council may
create such departmentsy or , offices, and employments as it
may fid able and may
e the
powers and duties of each sdepartment oroffice.nCom-
pensation of appointive officers and employees may be
fixed by ordinance after recommendations are made by
the city manager. The appointive officers shall include a
city clerk and a chief of police or other law enforcement
officer. Pursuant to recommendation of he city manag-
er, the council shall make provision for obtaining legal
counsel for the city, either by appointment of a city at-
torney on a full—time or part—time basis, or by any rea-
sonable contractual arrangement for such professional
services. 11967 ex_s. a 119 § 35A.13.090.1
35A.13.100 City manager —Department 'heag5
Authority. The city manager may authorize the3reat[Odpartmt or �'
int
anderemove subordinates in suchce department o
d partmene to him tor office.'
Any officer or employee who may be appointed by the
city manager, or by the head of a department or office,
excpt one sition
ice,emay bevrho holds his
emoved bythe omanager bosubject
other such ap-
pointing officer at any time subject to any applicable
law, rule, or regulation relating to civil service. Subject
to the provisions of RCW 35A.13.080 and any applica-
ble civil service provisions, the decision of the manager
or other appointing officer, shall be final and there shall
y other
courtbe no whatsoever. 119eal rom to 67 ex.s. cn119 § 35Ah13.100.1 body,
35A.13.110 City manager ---Appointment of subor-
dinates--Qua►ifications—Terms. Appointments
made by or under the authority of the city manager
shall be on the basis of ability and training or expen-
ence of the appointees in the duties which hey.are to
perform, and shall be in compliance with provisions of
any merit system applicable to such ciy. Residence
within the code city shall 'not be a requirement ,Allstieh
appointments.shall,be without definite term. [1967 exs:
c it
members Neither the cou�cil nor -any o v
or members, shall direct the aceppC?ntthme t
to, or, his removal from, fft y " s
any of his subordinates: Excpx %r
quirt', he council and iu members shall dell {h'
administrative service solely through the managern-M
neither the council nor any committee or membera'
thereof shall give orders to any subordinate of the city
manager, either publicly or privately. The provisions of
this section do not prohibit he council, while in open
session, from fully and freely discussing with the city ;
manager anything pertaining to appointments and re-
movals of city officers and employees and city affai s-
11967 ex.s. c 119 § 35AA3.120.1
35A.13.130 City manager— xemovai
tion and notice. The citymanager shall be ap rated"for
an indefinite term and may be removed by a majority
vote of the council. At least thirty days before the ef-
fective date of his removal, the city manager must be
furnished with a formal statement in the form of a res-
olution passed by a majority vote of the city council
stating the council's intention to remove him and he
reasons therefor. Upon passage of the resolution stating
the council's intention to remove the manager, the
council by a similar vote may suspend him from duty,
but his pay shall continue until his removal becomes
effective. [1967 exs. c 119 § 35A.13.130.1
35A_13.140 City nager—Removal—Reply and
hearing. The city manager may, within thereof, days fr m
the date of service upon him of a copy
t rem remove him- nohe eventnoreply is timely filed, the