HomeMy WebLinkAbout2007-2008 Single AuditCITY OF EVANSTON, ILLINOIS
SINGLE AUDIT ACT
SUPPLEMENTARY FINANCIAL
AND COMPLIANCE REPORT
YEAR ENDED FEBRUARY 29, 2008
CITY OF EVANSTON, ILLINOIS
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 2008
TABLE OF CONTENTS
PAGE
Federal Compliance Section:
Report on Internal Control over Financial Reporting and
On Compliance and Other Matters Based on an Audit of
Financial Statements Performed in Accordance with
Government Auditing Standards............................................................................................................... 1
Report on Compliance with Requirements Applicable to each
Major Program and Internal Control over Compliance
In Accordance with OMB Circular A-133 and
Schedule of Expenditures of Federal Awards........................................................................................... 3
Schedule of Expenditures of Federal Awards......................................................................................... 6
Notes to Schedule of Expenditures of Federal Awards............................................................................ 10
Schedule of Findings and Questioned Costs............................................................................................ 12
Summary Schedule of Prior Audit Findings.............................................................................................. 22
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INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING AND ON COMPLIANCE AND
OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS
PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
To the Honorable Lorraine H. Morton, Mayor and
Members of the City Council
City of Evanston
Evanston, Illinois
We have audited the financial statements of the governmental activities, the business -type
activities, each major fund, and the aggregate remaining fund information of the City of
Evanston, Illinois, as of and for the year ended February 29, 2008, which collectively comprise
the City of Evanston's basic financial statements and have issued our report thereon dated
September 24, 2008. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General of the United
States.
Infernal Control Over Financial Reporting
In planning and performing our audit, we considered the City of Evanston's internal control over
financial reporting as a basis for designing our auditing procedures for the purpose of expressing
our opinions on the financial statements, but not for the purpose of expressing an opinion on the
effectiveness of the City of Evanston's internal control over financial reporting, Accordingly, we
do not express an opinion on the effectiveness of the City of Evanston's internal control over
financial reporting.
Our consideration of the internal control over financial reporting was for the limited purpose
described in the preceding paragraph and would not necessarily identify all deficiencies in
internal control over financial reporting that might be significant deficiencies or material
weaknesses. However, as discussed below, we identified certain deficiencies in internal control
that we consider to be significant deficiencies.
A control deficiency exists when the design or operation of a control does not allow management
or employees, in the normal course of performing their assigned functions, to prevent or detect
misstatements on a timely basis. A significant deficiency is a control deficiency, or combination
of control deficiencies, that adversely affects the City of Evanston'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
City of Evanston's financial statements that is more than inconsequential will not be prevented or
detected by the City of Evanston's internal control over financial reporting. We consider the
deficiencies described in the accompanying schedule of findings and questioned costs to be
significant deficiencies in internal control over financial reporting. These deficiencies are items
2008-1, 2008-2, and 2008-3.
Virchow, Krause & Company, LLP
Certified Public Accountants & Consultants - An Independent Member of Baker Tilly International
To the Honorable Lorraine H. Morton, Mayor and
Members of the City Council
City of Evanston
A material weakness is a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the financial statements
will not be prevented or detected by the City of Evanston's internal control.
Our consideration of the internal control over financial reporting was for the limited purpose
described in the first paragraph of this section and would not necessarily identify all deficiencies
in the internal control that might be significant deficiencies and, accordingly, would not
necessarily disclose all significant deficiencies that are also considered to be material
weaknesses. However, of the significant deficiencies identified above, we consider items 2008-2
and 2008-3 to be material weaknesses.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City of Evanston's basic financial
statements are free of material misstatement, we performed tests of its compliance with certain
provisions of laws, regulations, contracts and grant agreements, noncompliance with which could
have a direct and material effect on the determination of financial statement amounts. However,
providing an opinion on compliance with those provisions was not an objective of our audit and,
accordingly, we do not express such an opinion. The results of our tests disclosed no instances
of noncompliance or other matters that are required to be reported under Government Auditing
Standards.
We noted certain matters that we reported to management of the City of Evanston in a separate
letter dated September 24, 2008,
The City of Evanston's response to the findings identified in our audit is described in the
accompanying schedule of findings and questioned costs. We did not audit the City of
Evanston's response and, accordingly, we express no opinion on it.
This report is intended solely for the information and use of the City of Evanston's management,
others within the entity, federal awarding agencies and pass -through entities and is not intended
to be, and should not be, used by anyone other than/these specified parties.
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September 24, 2008
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INDEPENDENT AUDITORS' REPORT ON COMPLIANCE WITH
REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND INTERNAL
CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133
AND THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
To the Honorable Lorraine H. Morton, Mayor and
Members of the City Council
City of Evanston
Evanston, Illinois
Compliance
We have audited the compliance of the City of Evanston, Illinois, with the types of compliance
requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133
Compliance Supplement that are applicable to each of its major federal programs for the year
ended February 29, 2008. The City of Evanston's major federal programs are identified in the
summary of auditors' results section of the accompanying schedule of findings and questioned
costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to
each of its major federal programs is the responsibility of the City of Evanston's management.
Our responsibility is to express an opinion on the City of Evanston's compliance based on our
audit.
We conducted our audit of compliance in accordance with auditing standards generally accepted
in the United States of America; the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States and
OMB Circular A-133, Audits of States, Local Governments, and Non -Profit Organizations. Those
standards and OMB Circular A-133 require that we plan and perform the audit to obtain
reasonable assurance about whether noncompliance with the types of compliance requirements
referred to above that could have a direct and material effect on a major federal program
occurred. An audit includes examining, on a test basis, evidence about the City of Evanston's
compliance with those requirements and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion. Our audit does not provide a legal determination of the City of Evanston's compliance
with those requirements.
In our opinion, the City of Evanston complied, in all material respects, with the requirements
referred to above that are applicable to each of its major federal programs for the year ended
February 29, 2008.
Virchiow, Krause & Company, LLP
Certified Public Accountants & Consultants • An Independent Member of Baker Tilly International
To the Honorable Lorraine H. Morton, Mayor and
Members of the City Council
City of Evanston
Internal Control Over Compliance
The management of the City of Evanston is responsible for establishing and maintaining effective
internal control over compliance with requirements of laws, regulations, contracts and grants
applicable to federal programs. In planning and performing our audit, we considered the City of
Evanston's internal control over compliance with requirements that could have a direct and
material effect on a major federal program in order to determine our auditing procedures for the
purpose of expressing our opinion on compliance, but not for the purpose of expressing an
opinion on the effectiveness of the internal control over compliance. Accordingly, we do not
express an opinion on the effectiveness of the City of Evanston's internal control over
compliance.
A control deficiency in an entity's internal control over compliance exists when the design or
operation of a control does not allow management or employees, in the normal course of
performing their assigned functions, to prevent or detect noncompliance with a type of
compliance requirement of a federal program on a timely basis. A significant deficiency is a
control deficiency, or combination of control deficiencies, that adversely affects the entity's ability
to administer a federal program such that there is more than a remote likelihood that
noncompliance with a type of compliance requirement of a federal program that is more than
inconsequential will not be prevented or detected by the entity's internal control.
A material weakness is a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that material noncompliance with a type of compliance
requirement of a federal program will not be prevented or detected by the entity's internal
control.
Our consideration of internal control over compliance was for the limited purpose described in
the first paragraph of this section and would not necessarily identify all deficiencies in internal
control that might be significant deficiencies or material weaknesses. We did not identify any
deficiencies in internal control over compliance that we consider to be material weaknesses, as
defined above.
Schedule of Expenditures of Federal Awards
We have audited the financial statements of the governmental activities, the business -type
activities, each major fund, and the aggregate remaining fund information of the City of
Evanston, Illinois, as of and for the year ended February 29, 2008, which collectively comprise
the City of Evanston's basic financial statements and have issued our report thereon dated
September 24, 2008. Our audit was performed for the purpose of forming opinions on the
financial statements that collectively comprise the City of Evanston's basic financial statements.
The accompanying schedule of expenditures of federal awards is presented for purposes of
additional analysis as required by OMB Circular A-133 and is not a required part of the basic
financial statements. Such information has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
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To the Honorable Lorraine H. Morton, Mayor and
Members of the City Council
City of Evanston, Illinois
This report is intended solely for the information and use of the City of Evanston's management,
others within the entity, federal awarding agencies and pass -through entities and is not intended
to be, and should not be, used by anyone other than these specified parties.
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September 24, 2008
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CITY OF EVANSTON, ILLINOIS
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
FOR THE YEAR ENDED FEBRUARY 29, 2008
FEDERAL PASS -THROUGH EXPENDITURES
CFDA IDENTIFYING FOR THE
FEDERAL GRANTOR NUMBER NUMBER FISCAL YEAR
Direct Programs - Grants
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
COMMUNITY PLANNING AND DEVELOPMENT
Community Development Block Grant
Entitlement year 22
14.218
B96-MC-17-0012 $
1,000
Entitlement year 25
14.218
B99-MC-17-0012
2,533
Entitlement year 27
14.218
B01-MC-17-0013
28,413
Entitlement year 30
14.218
B04-MC-17-0012
15,000
Entitlement year 31
14.218
B05-MC-17-0012
38,870
Entitlement year 32
14.218
B06-MC-17-0012
210,404
Entitlement year 33
14.218
B07-MC-17-0012
2,095,156
Total Community Development Block Grant
2,391,376
Emergency Shelter Block Grant
14.231
S07-MC-17-0012
84,825
Total Emergency Shelter Block Grant
84,825
Home Investment Partnership
HOME Program
14.239
M03-MC-17-0218
6,259
HOME Program
14.239
M04-MC-17-0218
33,654
HOME Program
14.239
M05-MC-17-0218
122,344
HOME Program
14.239
M06-MC-17-0218
339,329
HOME Program
14.239
M07-MC-17-0218
3.033
Total HOME Program
504,619
Total Department of Housing and Urban Development
2,980,820
* Denotes a Major Program (Continued)
The accompanying notes are an integral part of this schedule.
M
CITY OF EVANSTON, ILLINOIS
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
FOR THE YEAR ENDED FEBRUARY 29, 2008
FEDERAL
PASS -THROUGH
EXPENDITURES
CFDA
IDENTIFYING
FOR THE
FEDERAL GRANTOR
NUMBER
NUMBER
FISCAL YEAR
DEPARTMENT OF JUSTICE
OFFICE OF COMMUNITY ORIENTED POLICING
SERVICES
Title V Delinquency Program
16.548
11G6627000
$ 46,973
Justice Assistant Grant
16.592
2006-DJ-BX-0689
58,232
Law Enforcement Prosecutor Based Victim
Assistance Grant 16.575
206045
45,760
MDC Equipment Program Grant
16.579
403581
10,199
Community Service Frog Grant
16.523
505029
26,000
Total Department of Justice
187,164
Pass -Through Programs - Grants and Loans
DEPARTMENT OF AGRICULTURE
Passed through State of Illinois Department of Public Health
Summer Lunch Program 10.559 14-016-51OP-00 88,012
Summer Food Inspection Program 10.559 78281027 600
Total Department of Agriculture 88,612
DEPARTMENT OF TRANSPORTATION
Passed through Chicago Metropolitan Agency for Planning
Bike System Plan 20.205 BP02040897 28,894
Total Department of Transportation 28,894
NATIONAL ENDOWMENT FOR THE HUMANITIES
Passed through the Illinois State Library
Library Services and Technology Act 45.310 08-5166 10,602
Total National Endowment for the Humanities 10,602
ENVIRONMENTAL PROTECTION AGENCY
OFFICE OF WATER
Passed through the Illinois Environmental Protection Agency
Water Pollution Control Revolving Loan* 66.458 L17273600/7100 2.169.139
Passed through State of Illinois Department of Public Health
Beachwater Testing 66.472 75380151 4,617
Total Environmental Protection Agency 2,173,756
* Denotes a Major Program (Continued)
The accompanying notes are an integral part of this schedule.
-7-
CITY OF EVANSTON, ILLINOIS
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
FOR THE YEAR ENDED FEBRUARY 29, 2008
FEDERAL
PASS -THROUGH
CFDA
IDENTIFYING
FEDERAL GRANTOR
NUMBER
NUMBER
DEPARTMENT OF HEALTH AND HUMAN SERVICES
PUBLIC HEALTH SERVICE - I
OFFICE OF HUMAN DEVELOPMENT SERVICES
Passed through Suburban Area Agency on Aging
Ombudsman (Older Americans Act Title III B)
Special Programs for the Aging
93.633
A13-119
Passed through State of Illinois Department of Human Services
Family Planning
93,994
11G7095000
Total Public Health Service - I
HEALTH CARE FINANCING ADMINISTRATION
PUBLIC HEALTH SERVICE - II
Passed through State of Illinois Department of Human Services
Family Case Management 93 994 11G7095000
Teen Pregnancy Prevention 93.994 11G7095000
Teen Pregnancy Prevention 93.994 11G8095000
Total Teen Pregnancy Prevention
Teen Parent Services
93.667
11G8095000
Passed through State of Illinois Department of Public Health
Oral Health Grant
93.994
63481083/73480151
Family Case Management Administration Reimbursement
93.778
None
Total Public Health Service - II
Bio Terrorism Grants
Bio Terrorism Preparedness
93.283
87181027
Cities Readiness Initiative (CRI)
93.283
67081020
Total Bio Terrorism Grants
Vector Prevention Grant
Total Department of Health and Human Services
* Denotes a Major Program
93.283 75380119
EXPENDITURES
FOR THE
FISCAL YEAR
$ 59,858
13.500
73,358
41,600
35,800
18.200
54,000
38,500
1,031
121,574
256,705
51,726
19,514
71,240
3.000
404,303
(Continued)
The accompanying notes are an integral part of this schedule
R
CITY OF EVANSTON, ILLINOIS
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
FOR THE YEAR ENDED FEBRUARY 29, 2008
FEDERAL PASS -THROUGH
CFDA IDENTIFYING
FEDERAL GRANTOR NUMBER NUMBER
FEDERAL EMERGENCY MANAGEMENT AGENCY
STATE AND LOCAL PROGRAMS AND SUPPORT
Passed through the Illinois Emergency Services
and Disaster Agency
2007 Northern Illinois Severe Storms
Emergency Management Assistance Program
Total Federal Emergency Management Agency
Total Federal Financial Assistance
Denotes a Major Program
EXPENDITURES
FOR THE
FISCAL YEAR
97.036 172903124582-00 $ 209,831
97.XXX 497-58830-4400 23,485
233,316
6,107,467
(Concluded)
The accompanying notes are an integral part of this schedule.
CITY OF EVANSTON
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
For the Year Ended February 29, 2008
NOTE 1 — REPORTING ENTITY
This report on Federal Awards includes the federal awards of the City of Evanston, Illinois.
The reporting entity for the city is based upon criteria established by the Governmental Accounting
Standards Board.
The City of Evanston is the primary government according to GASB criteria.
NOTE 2 — BASIS OF PRESENTATION
The accounting records for some grant programs are maintained on the modified accrual basis of
accounting. Under the modified accrual basis, revenues are recorded when susceptible to accrual,
i.e., both measurable and available. Available means collectible within the current period or soon
enough thereafter to be used to pay liabilities of the current period. Expenditures are recorded
when the liability is incurred. The accounting records for other grant programs are maintained on
the accrual basis, i.e., when the revenue has been earned and the liability is incurred.
The information in this schedule is presented in accordance with the requirements of OMB
Circular A-133, Audits of States, Local Governments, and Non-profit Organizations.
NOTE 3 — SUBRECIPIENTS
Of the federal expenditures presented in the schedule of expenditures of federal awards, the City
of Evanston provided federal awards to subrecipients as follows:
Program Title
Emergency Shelter Block Grant
Community Development Block Grant (CDBG)
Federal CFDA
Number
14.231
14.218
Amount
Provided to
Subrecipients
$81,318
$500,919
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CITY OF EVANSTON
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
For the Year Ended February 29, 2008
NOTE 4 — PROGRAM INCOME
The City of Evanston received the following program income amounts for the year ended February
29, 2008. The balances of receipts are from letter of credit drawdowns for the program. The
program expenditures for the year include expenditures of this program income. Program income
is not included in the award amount.
Program CFDA No. Amount
Community Development Block Grant 14.218 $104,559
(CDBG)
HOME Investment Partnership (HOME) 14.239 $66,503
NOTE 5 — LOANS RECEIVABLE OUTSTANDING
The City of Evanston had the following loan receivable balances outstanding at February 29, 2008:
Program
Community Development Block Grant (CDBG)
HOME Investment Partnership (HOME)
NOTE 6 — IEPA LOANS PAYABLE
CFDA No. Amount
14.218 $1,637,052
14.239 $3,039,495
During the year ended February 29, 2008, the City has 26 outstanding loans from the IEPA.
Federal funds are commingled with the IEPA loan balances. The city will repay loans solely from
revenues derived from the sewer system; the loans do not constitute a full faith and credit
obligation of the City. They will be repaid with equal installments consisting of principal plus
simple interest, on unpaid principal balances, over a period of 20 years. Initial balances will
consist of disbursements and interest accrued during construction. Repayments begin not later
than six months after completion of the construction.
- 11 -
CITY OF EVANSTON
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
For the Year Ended February 29, 2008
Fiscal Year ending
February 28
Principal
Interest
2009
$ 7,534,224 $
2,771,347
2010
7,791,791
2,575,069
2011
8,019,014
2,347,755
2012
8,252,971
2,113,703
2013
8,371,194
1,872,709
2014 - 2018
3,5312,564
6,120,640
2019 - 2023
20,346,086
2,248,441
2024 - 2028
7,722,421
433,060
2029 - 2033
60,622
758
Total
$ 103,410,887 $
20,483,482
mpm
CITY OF EVANSTON, ILLINOIS
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED FEBRUARY 29, 2008
Section [-Summary of Auditor's Results
Financial Statements
Type of auditor's report issued: Unqualified
Internal control over financial reporting
Material weakness(es) identified? X yes no
Significant deficiency(s) identified
not considered to be material weaknesses? X yes none reported
Noncompliance material to financial statements noted? yes X no
Federal Awards
Internal Control over major programs:
Material weakness(es) identified? yes X no
Significant deficiency(s) identified
not considered to be material weaknesses? yes X none reported
Type of auditor's report issued on compliance
for major programs: Unqualified
Any audit findings disclosed that are required
to be reported in accordance with
Circular A-133, Section .510(a)? ves X no
Identification of major programs:
Name of Federal Prooram or Cluster
Community Development Block Grants (CDBG)
Capitalization Grants For Clean Water State Revolving Funds
Dollar threshold used to distinguish
between Type A and Type B programs:
Auditee qualified as low -risk auditee?
CFDA Number
14.218
66.458
$300,000
yes X no
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CITY OF EVANSTON, ILLINOIS
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED FEBRUARY 29, 2008
Section II -Financial Statement Findings
Finding number: 2008-1
Criteria: The City must have functioning internal controls over information technology.
Condition: Significant deficiencies in internal control over information technology were found
during our audit.
Context: During the course of our audit, we assessed the internal controls over information
technology (IT). Several information technology deficiencies were found such as
weak passwords, lack of a system lifecycle policy or software acquisition policy, lack of
review of access or permissions of the City's systems, lack of obtaining SAS 70 reports
for the effectiveness of controls of third party providers, lack of a procedure to handle
information technology emergencies, and lack of a formal IT operations schedule in
place.
Effect: Deficiencies in control over information technology could result in system errors or the
compromise of the City's systems and thus impact the financial information of the City.
Cause: This finding was caused by deficiencies in the information technology systems and
procedures.
Recommendation: We recommend that management evaluate their internal controls over information
technology and develop controls to prevent and detect system errors or breaches.
Management or information technology staff may consider seeking additional training in
this area.
Management Response: Access to the City's network and applications begins with the requirement of a "network"
username and password which is stored in Active Directory. The audit report inaccurately
states that there is no complexity requirement for network passwords. We follow industry
standards in our network password management: passwords must be eight or more
characters, can not be in the dictionary and must contain 3 different types of characters
(upper case, lower case, special character, number). In addition, they must be changed
every 90 days. Once a person has logged in to the network with their network username and
password, then they are eligible to log in to applications stored on our network systems such
as MSI, CryWolf and IRIS These applications are purchased applications and the City has
no ability to alter the password management for these applications. We should note that:
-MSI is being replaced by a new, purchased application that will allow Active Directory
management of usernames and passwords.
-An anticipated IRIS upgrade will enable it to integrate with Active Directory for user and
password management.
- PowerPark is no longer used at the City. It has been replaced by an outsourced system
provided by Duncan Solutions.
Implementation of these items will mean that the only major system at the City without
industry standard password management will be RecTrac.
We should also note that organizations as small as the City of Evanston do not generally
have a separate organization to handle network access. Any change to our current
responsibilities can not be determined by BPAT as we do not have the authority to assign
this to another department
14-
CITY OF EVANSTON, ILLINOIS
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED FEBRUARY 29, 2008
Section II -Financial Statement Findings
Finding number: 2008-1, cont.
The City does very little software development. Implementing and documenting a software
development life cycle policy would be costly and would not provide a significant benefit in an
organization our size.
While the City does not have a "software acquisition" policy, we do follow a rigorous process
when acquiring software. This process involves purchasing, application and technical
personnel in a coordinated way to acquire the best software possible for the City. BPAT
provides environmental requirements and reviews the vendor's technical specifications.
The City has no policy or process for periodic review of application user logins. We agree
that this would be an excellent thing to do. This would require the Department responsible
for each application to perform the audit. BPAT would be happy to assist in any way we can.
Appropriate application access is determined by department management, not by BPAT.
It is correct that Kubra has not provided a current SAS-70 to the City. They provided one for
2006 and were in the process of performing an SAS 70 type 2 at the time of the request
(February 2008). We have spoken with Kubra and they will be sending us their 2008
updated SAS-70.
While it was correct that there was no written, defined, formal process for "emergency"
changes to the financial system; it should be noted that we have created and documented an
emergency policy and procedure as a result of the audit.
There are three operational BPAT activities which are regularly scheduled. These are
payroll, accounts payable checks, and nightly/weekly backups. While it is correct that there
is no formal, separate, documented schedule for BPAT operations, this is because there are
only three regularly scheduled activities.
The audit incorrectly states that the there is no formal process for authorizing new hires or
changes in access for current employees. The City has a formalized, automated procedure
for identifying which individuals should be authorized to access the network as well as
application systems. In order for a person to be added to our network, a Department head or
designee must authorize the individual, delineate what kind of access this individual can have
and identify the application systems that the person should be allowed access to. In addition,
the person must sign the "City of Evanston — Information Technology Resources Policy on
Acceptable Use" agreement prior to gaining access to the City's network.
The City does not have an ironclad procedure or policy for terminating user network or
application accounts when a person's employment with the City is terminated. We do have
an automated system that extracts terminated employees from IRIS (the City's ERP system)
and an attempt is made from that report to identify network accounts that are affected. This
is not a guaranteed process. BPAT has repeatedly requested that such a process be put in
place and would absolutely encourage and support the development and implementation of
such a procedure.
15-
CITY OF EVANSTON, ILLINOIS
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED FEBRUARY 29, 2008
Section II -Financial Statement Findings
Finding number:
2008-2
Criteria:
The City must have functioning internal controls over its various transaction
cycles.
Condition:
The City has material weaknesses in its internal controls over cash disbursements and
accounts payable, payroll and human resources, licenses permits and fees, utility billing,
and account reconciliations. The City also has weaknesses in its entity level controls.
Context:
Below is a list of controls that should be in place to achieve a higher level of reliability
that errors or irregularities in the City's processes would be discovered by its staff. Our
procedures identified that these controls do not currently exist for the City of Evanston.
CONTROLS OVER CASH DISBURSEMENTS AND ACCOUNTS PAYABLE
1. The Accounts Payable Clerk has the ability to create new vendors
CONTROLS OVER PAYROLL AND HUMAN RESOURCES
1. There is a lack of segregation of duties in the payroll department. Individuals have full
access to the payroll module and can add and modify employee information, specifically pay
rate changes.
2. There was inadequate, inconsistent documentation of payroll salary worksheets within
Human Resource employee files. The City's policy is to document any increase in pay through
a standard form. Our testing indicated incomplete or missing change forms for employees
employed for a number of years.
CONTROLS OVER LICENSES, PERMITS, AND FEES
1. There are no segregation of duties over the cash receipts and revenue recording process.
The cashier both collects payments and enters the cash receipts information into the general
ledger or supporting ledger system.
CONTROLS OVER UTILITY BILLING
1. The City does not have a process to review new utility accounts to ensure that they were
created appropriately in the system.
2. The City's detailed utility accounts receivable records did not agree with the general ledger
control accounts.
CONTROLS OVER THE RECONCILIATION PROCESS
1. Due to staffing and responsibility constraints, we noted that monthly bank reconciliations are
not performed on a timely basis. As of July 17, 2008, a number of March 2008 bank
reconciliations were not performed.
16-
CITY OF EVANSTON, ILLINOIS
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED FEBRUARY 29, 2008
Section II -Financial Statement Findings
Finding number: 2008-2, cont.
ENTITY LEVEL CONTROLS
1. The ability to prepare and enter journal entries is delegated to various levels of finance;
however there is no formal review process of non -routine transactions. Therefore, an
entry could be made without the knowledge of the appropriate supervisor.
2. The City has established code of conduct which is communicated to all employees
upon hiring, but is not communicated or emphasized to employees on an annual basis.
Effect: Lack of proper internal controls could result in a potential material misstatement of the
financial statements.
Cause: This material weakness was caused by a lack of adequate staffing and procedures in
place to have an effective system of internal controls.
Recommendation: We recommend that management review these control deficiencies and decide which
controls management can implement to address these deficiencies.
Management Response: Controls Over Cash Disbursements and Accounts Payable
The City concurs with this finding but believes the operational efficiency outweighs
the internal control concern. It is the City's belief that Staff review Council approval of
the bills list prior to disbursement of funds serves as an adequate control measure.
These processes have been reviewed by the Auditor.
Controls Over Payroll and Human Resources
All pay rate changes are performed by Human Resources. In addition, it is City policy
that a personnel change form be completed for all pay adjustments, excluding across-
the-board annual cost of living increases which are approved in total after being
reviewed by Finance and Human Resources staff.
Controls Over Licenses, permits, and fees
The City concurs that cash collection and batch posting are performed by employees in
the Collections Division but the City believes that the cash balancing/reconciling
procedures followed by staff provide adequate controls for cash handling.
Controls over Utility Billing
The City concurs with item #1, although it is not normal practice for municipalities to
review newly created utility accounts by a second staff member and does not believe
this causes any security or financial concerns. Utility billing accounts receivable often
vary from the general ledger due to individual account adjustments but it is of the City's
opinion that this should not be considered an internal control issue.
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CITY OF EVANSTON, ILLINOIS
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED FEBRUARY 29, 2008
Section II -Financial Statement Findings
Finding number: 2008-2, cont.
Controls over the Reconciliation process
The City concurs that during audit season bank reconciliations are not completed on a
timely basis due to severe time constraints of accounting staff. This issue was further
exacerbated due to the Finance Department having four vacancies during the time
referenced in the comment.
Entity level controls
#1 Due to a rather small staff of accounting personnel, the City concurs that there is no
formal process of journal entry review by a second accountant. The City believes its
accounting staff is competent to enter journal entries, routine and non -routine, without
the requirement of approval by a supervisor. City funds are reviewed on a monthly basis
to ensure funds are in balance by the appropriate supervisory personnel. Journal entry
errors are corrected during the preparation of financial reports and also reviewed again in
creating audit workpapers and corrected prior to audit field work.
#2 The City feels that the code of ethics currently in place is proper and is this code is
communicated to all employees.
CITY OF EVANSTON, ILLINOIS
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED FEBRUARY 29, 2008
Section II -Financial Statement Findings
Finding number: 2008-3
Criteria: The City must have functioning internal controls over external financial reporting.
Condition: Material audit entries were required for the financial statements to be properly stated as of
February 29, 2008,
Context: During the course of our audit, material misstatements of the financial statements were found,
resulting in audit adjustments. The adjustments to the financial statements included the
following:
1. Calculation of the compensated absences payable from the General Fund and Governmental
Activities
2. Correction of the closing entry for the Mayor's Special Housing Fund into the Affordable
Housing Fund.
3. Correction of the reconciling entry of unsettled investments purchased.
4. Interfund borrowing for funds with cash deficit balances in commingled cash accounts.
5. Recognition of a non -exchange transaction — the property held for resale within the CDBG
Fund.
6. Correction of the current portion of claims payable in the Insurance Internal Service Fund.
7. Allocation of operating grants and contributions, premiums, deferred amount on refunding,
and amortization of premiums and discounts within Statement of Activities
8. Improper recognition of revenue and fund balance applied within the Statement of Revenues,
Expenditures and Changes in Fund Balance — General Fund.
Effect: Management was unaware of material errors to their financial statements.
Cause: This finding was caused by insufficient internal controls over the external financial reporting
process.
Recommendation: We recommend that management evaluate their internal controls over financial reporting
and develop controls to prevent and detect material misstatements in the financial records.
Management might consider seeking additional training in this area.
Management Response: In the past, the City has worked with our Auditors to ensure the above entries are
madeafter the close of the fiscal year. Due to the Auditor's increased regulatory
responsibilities these types of entries need to be made without consultation with the
Auditor. Please see a detailed response following:
1. The amount of $479,861 represents a reduction of accrued payouts to the employees
who have opted for ERI after 2/29/08.
2. This adjustment is due to a consolidation of the two Funds and required for
presentation purposes only.
3. This adjustment corrected the fact that cash was not reduced for a security
purchased and recorded as an investment due to a timing difference between the
purchase and settlement dates.
4 This adjustment is for financial statement presentation purposes only. At times a
Fund/s may have a negative cash balance if there is a pooling of cash with other Fund
having positive cash balances. This adjustment eliminated the negative cash balance i
three Funds and rather presented these deficit cash balances as interfund liabilities.
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CITY OF EVANSTON, ILLINOIS
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED FEBRUARY 29, 2008
Section II -Financial Statement Findings
Finding number: 2008-3, cont.
5. This adjustment capitalizes the City's (lessor) repossession of City owned property due to
lessee contract non-compliance.
6. Reclassification required to change reporting of liability (claims payable) from long to short
term. This entry required for financial report presentation purposes only.
7. This adjustment was to change revenue expense classification/category for financial
reporting purposes only.
8. This entry adjusts the financial report presentation by eliminating the use of "applied fund
balance" as a revenue source on the statement of Revenues, Expenditures and Changes in
Fund Balance.
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CITY OF EVANSTON, ILLINOIS
SCHEDULE OF FINDINGS AND QUESTIONED COSTS
FOR THE YEAR ENDED FEBRUARY 29, 2008
Section III -Federal Award Findings and Questioned Costs
None reported.
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CITY OF EVANSTON, ILLINOIS
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS
FOR THE YEAR ENDED FEBRUARY 29, 2008
Finding CFDA# Program Questioned Costs
06-01 14.218 Community Development Block Grant None
Find ing/Noncompliance
Wages should be monitored to insure that the provisions of the Davis -Bacon Act are met. The City could
not locate support for two of the thirteen disbursements tested to show that Davis -Bacon Act monitoring
took place and that the wage requirements were met. Subsequent testing determined that prevailing wage
rates were met or exceeded in all instances tested. Support for the monitoring should be maintained for at
least three years. The City should develop standard procedures for record retention that include the
amount of time to keep the files (a minimum of three years) and what information should be maintained
in those files.
Corrective Action Taken: All applicable Davis Bacon documents are now retained by the City. This is
not a repeated finding in fiscal year 2008.
Finding CFDA# Program Questioned Costs
07-03 14.218 Community Development Block Grant None
Finding / Noncompliance
Wages should be monitored to insure that the provisions of the Davis -Bacon Act are met. The City could
not locate support for three of the thirty two disbursements tested to show that Davis -Bacon Act monitoring
took place and that the wage requirements were met. Subsequent testing determined that prevailing wage
rates were met or exceeded in all instances tested. Support for the monitoring should be maintained for at
least three years. The City should develop standard procedures for record retention that include the
amount of time to keep the files (a minimum of three years) and what information should be maintained
in those files.
Corrective Action Taken: All applicable Davis Bacon documents are now retained by the City. This is
not a repeated finding in fiscal year 2008.
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