Transcript Common Deficiencies in Government Finances & Practices

Best Practices for
Local Governments
& Legislative Auditor's
Update
October 7, 2009
GFOA Fall Conference
Purpose of Best Practices Checklist?
The Best Practices Checklist is intended to
(1) assist you in improving controls over the
municipality’s financial operations; (2) provide you
with good business practices; and (3) ensure
compliance with state laws.

More than just a checklist – it requires:
 Inquiry
 Reviewing source documents
 Reviewing procedures and controls
 Analytical procedures
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• The checklist is not all-inclusive
• As we provide advisory services we find more
common deficiencies
• We plan to keep the checklist updated as we
continue to provide advisory services to local
government
• Our recommendations are presented to improve the
controls that safeguard, manage, and account for
assets of the entity and ensure compliance with
applicable state laws. However, management
should consider the costs of implementing these
recommendations compared to the benefits they
will provide. For those recommendations not
implemented, management should be aware of the
risks of not implementing such controls.
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Since the checklist was prepared, other problem areas have
been identified that we need to include on the checklist.
For example, contracting for services:
• Are all contracted services supported by a written
contract?
• Are contracted services necessary or needed, and is
contracting out services the most cost-efficient manner
for accomplishing the objectives?
• Are competitive prices obtained? Although the public
bid law does not require services (professional or
otherwise) to be bid, a competitive atmosphere would
ensure that fees paid for services are cost-effective
• Are all contracts reviewed by legal advisor before the
contracts are signed?
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•
Do consultant invoices contain sufficient details
as to the work performed?
•
Is there a centralized review and oversight of all
contracts to ensure that services received
comply with the terms and conditions of the
contracts?
• Examples of contracts:
•
Information System (Computer) Services
•
Public Relations and Marketing Plan
•
Lawn Maintenance
•
Legal
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Written Policies and Procedures
 No formal, written policies and procedures-biggest problem that we see
 Necessary to provide a clear understanding of:
• What should be done
• How it should be done
• Who should do it
• When it should be done
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Written Policies and Procedures
Why are they important?
 Lessens the risk of violating state
law and local ordinances
 Establishes controls that can deter
theft and other losses
 Ensures continuity of operations
 Helps to cross-train staff
 Holds staff accountable
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Budgeting
The questions are intended to cover both compliance with
the Local Government Budget Act (R.S. 39:1301 - 1315)
and management’s responsibility in using the budget as a
tool to manage the entity and control spending.
Are there written budget policies and procedures for
preparing, adopting, monitoring and amending the budget?
Yes □ No □
3. Does the agency’s budget include the following
(R.S. 39:1305)?
• Adopted budget for the General Fund and
all special revenue funds ?
Yes □ No □
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Budgeting
Budget message, including the preparer’s signature?
Yes □ No □
• Estimated fund balances at the beginning of the year ?
Yes □ No □
• Estimated fund balances at the end of the year?
Yes □ No □
• Proposed budget adoption instrument that defines the
authority and powers of management and governing
body in making changes to budget ?
Yes □ No □
•
 Ordinance (effect of law) vs. Resolution (effect of opinion)
 Lawrason Act – Budget and Amendments (by ordinance)
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Financial Statements
8.
9.
10.
11.
Is there a written policy that provides the
nature, extent, and frequency of financial
reporting information that should be provided
to management and the governing body?
Yes □ No □
Are monthly financial statements for all funds
prepared and presented to the governing body?
Yes □ No □
Do these monthly financial statements include
a comparison with the adopted budget?
Yes □ No □
Does the governing body discuss the budget and actual
financial results at its regular or finance committee
meetings? If so, is this action reflected on the monthly
meeting agenda and clearly documented in the minutes?
Yes □ No □
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Purchasing
1. Are there written purchasing policies and
procedures?
Yes □ No □
• If not, there is a high risk of control weaknesses and
violations of state laws.
• Formal/written policies and procedures are necessary
as a clear understanding of what should be done, how
it should be done, who should do it, and when it
should be done, and that the procedures followed
meet management’s expectations.
• Written procedures aid in continuity of operation and
for cross-training of staff.
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The purchasing policies and procedures
should include, at a minimum, the following:
 How purchases are initiated
 Use of purchase requisitions
 Types of requisitions (capital assets,
supplies, travel, et cetera)
 Approval process for requisitions
 Preparation and approval process of
purchase orders
 Checks and balances to ensure
compliance with the bid law
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 Procedures for requests for proposals
 Documentation to be maintained regarding
all bids. For example:
 Bid notification letters that include the
contract, plans, and specifications
 Documentation that the bids were
properly advertised
 Bid opening documentation that include
the submitted bids, bid tabulation sheet,
and indication of which bid was accepted
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Purchasing/Disbursements
12. Are there written procedures for disbursing
funds?
Yes □ No □
16. Are at least three telephone or facsimile quotations obtained
and documented as part of the approval process for purchases
of materials or supplies costing between $10,000 and $20,000,
as required by R.S. 38:2212?
Yes □ No □

Are there recurring purchases of like commodities that in the
aggregate exceed the bid limit?
Yes □ No □
18. Is there an adequate system of checks and balances over the
purchasing and disbursement functions (e.g., same employee
that prepares the checks also reconciles the bank account
would not be a proper system of checks and balances)?
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Yes □ No □
Purchasing/Disbursements
20. Are all disbursements supported by adequate
documentation (purchase order, receiving report,
vendor invoice, et cetera)? Yes □ No □
22. If a check signing machine is used, is access
restricted to the key and/or combination?
Yes □ No □
25.
Are bank statements and related canceled checks
and validated deposit slips reviewed and reconciled
timely (monthly) to the general ledger balances?
Yes □ No □
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Credit Cards
31. Does the entity use credit cards? If so,
is there a written policy for using credit
cards?
Yes □ No □
33. Are there itemized/detailed receipts and other
appropriate documentation for all credit card
charges appearing on the monthly statement?
Yes □ No □
34. Is the business purpose clearly documented for
all charges appearing on the credit card
statements, including names of persons
participating?
Yes □ No □
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Grants and Gifts
35. Are funds, credit, property, or things of
value loaned, pledged, or donated to or
for any person, association, or
corporation?
Yes □ No □
17
Article VII, Section 14 of the LA Constitution of
1974
Examples of gifts include:
 insufficient effort to collect
delinquent accounts receivable
 paying bonuses
 purchasing flowers or gifts for
employees or others
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 using public funds for a Christmas party
 using public funds to help defray the cost
of a banquet honoring retirees
 giving or donating funds to groups for
which there is no cooperative endeavor
agreement in place
36.
Are grants to nonprofits or other entities
supported by adequate cooperative
endeavor agreements?
Yes □ No □
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Cooperative Endeavor Agreement
• Must be public purpose for expenditure
• The expenditure must not appear to be
gratuitous
• Must be evidence demonstrating that the
municipality has a reasonable
expectation of receiving a benefit or
value at least equivalent to the amount of
the expenditure.
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Travel
37.
39.
Is there a travel policy?
Yes □ No □
Are standardized expense reports for
reimbursement prepared and do they
include all appropriate documentation
(itemized receipts, registration forms,
conference brochures, mileage logs, et
cetera) supporting the business nature of
the expenditures?
Yes □ No □
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Payroll and Attendance Records
Payroll is generally the largest expenditure/expense of any
government entity. Therefore, it is important that controls over
payroll are in place and working properly.
41.
43.
Do all entity personnel prepare and file
time/attendance reports?
Yes □ No
 Are reports approved by supervisor?
Yes □ No
Are there adequate records maintained to account for
vacation and sick leave earned and taken by all
employees?
Yes □ No
 Are personnel files maintained on all employees?
Yes □ No
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Payroll and Attendance Records
45.
Is there a computer-generated report available
that shows all changes made to payroll
(employees added/deleted and pay rate
changes)? If so, does someone independent of
the payroll and human resources departments
review this report each pay period for accuracy
and to ensure that all changes are authorized?
Yes □ No □
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Accounts Receivable
51. Is the accounts receivable balance in the
general ledger reconciled monthly with the
detailed accounts receivable listing?
Yes □ No □
 Not reconciling the detailed accounts
receivable listing and detailed listing of
customers’ meter deposits to the balances
in the general ledger on a monthly basis is
a fraud risk factor.
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Accounts Receivable
52.
53.
54.
Is the meter deposit liability in the general
ledger reconciled monthly with the detailed
listing of customers’ meter deposits and the
related cash in bank?
Yes □ No □
Are adjustments approved by someone who is
not involved in the billing process and is the
approval documented?
Yes □ No □
Is there a formal policy for collecting delinquent
accounts receivable? If so, is the policy being
followed?
Yes □ No □
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Collections
 Fidelity bond insurance
 Separate cash drawer/trays
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Capital Assets
57.
Are capital assets tagged for ownership
and control purposes?
Yes □ No
 Are decals on vehicles?
58.
Yes □ No
Are physical inventories conducted
periodically of all capital assets?
Yes □ No
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Special Taxes (e.g. Sales Tax and Ad Valorem Tax)
60.
Have there been any loans or inappropriate
transfers of dedicated taxes?
Yes □ No □
 Are separate bank accounts maintained
for dedicated taxes?
Yes □ No □
 Are expenditures of dedicated taxes
clearly identified in general ledger?
Yes □ No □
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Ethics
66. Does the entity have a written ethics
policy?
67.
Yes □ No □
Does the entity obtain annual certification
letters from board members and
employees attesting to their compliance
with the ethics policy?
Yes □ No □
 Does entity engage in transactions with
related parties?
Yes □ No □
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Gasoline/Diesel
69.
Does the agency exercise adequate
controls (checks and balances) over its
gasoline/diesel pumps and/or credit
cards?
Yes □ No □
 Is a log maintained (e.g. date,
employee name, vehicle odometer
reading, tank meter reading, number
of gallons dispensed) and the miles
per gallon calculated on a periodic
basis for reasonableness?
Yes □ No □
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Traffic Tickets and Misdemeanor Summonses
70. Is the supply of traffic/misdemeanor ticket books adequately
safeguarded?
Yes □ No □
71. Are ticket books issued to police officers reconciled/agreed
with the issued citations returned by those officers?
Yes □ No □
74. Are all actions for traffic citations handled in court and
included in the court minutes?
Yes □ No □
75. Are traffic violations reported to the Louisiana Department of
Public Safety as required by state law [R.S. 32:393(c)]?
Yes □ No □
Other:

Mayor’s Court vs. Appointed Magistrate

Collection of fines
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Evidence Rooms
Are there policies and procedures for confiscated
items, including recording, maintaining, inventorying,
and disposing of evidence?
Yes □ No □
77.
Is a log maintained that provides the name,
date, time, and reason for entering the
evidence room?
Yes □ No □
82.
Are physical inventories of the evidence room
conducted periodically?
Yes □ No □
 Lack of control increases risk that evidence will
be lost, stolen, or disposed of improperly.
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Disaster Recovery/Business Continuity
 Sound business practices and good internal
controls require that the entity develop a written
disaster recovery/business continuity plan
(including computer system and continued
operations/functions of the entity) and to test the
plan at least annually.
 The plan should include a recovery plan to
obtain access to an offsite facility to provide for
the timely restoration of operations in the event
the entity’s facility is unavailable for an extended
period of time.
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Disaster Recovery/Business Continuity
104.
105.
106.
Does the agency have a written disaster
recovery/business continuity plan in the event of a
disaster?
Yes □ No □
Is the disaster recovery process tested annually?
Yes □ No □
Is the agency backing-up computer files daily and
storing these files offsite?
Yes □ No □
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Information Technology
110. Is physical access to the computer room
restricted?
Yes □ No □
35
Prior Year Audit Findings
Are the audit findings resolved on a timely
basis?
Yes □ No □
We suggest that the board/council be provided
a monthly status report until all findings are
satisfactorily resolved.
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Fraud Considerations
 Are there any incentives or pressures to
misstate the financial statements (e.g., pressure
to overstate revenue, understate
expenses/expenditures, etc.)?
Yes □ No □
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Fraud Considerations
113. Are there any employees that have recently
had or are having personal financial
hardships (e.g., loss of job by spouse, family
business failing, etc.)? If yes, do any of
these employees have access to cash or
other assets susceptible to theft?
Yes □ No □
115. Do all employees who have access to cash
or other assets susceptible to theft take an
annual vacation? If so, does someone
perform their duties in their absence?
Yes □ No □
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Conclusion:
 Whose responsibility is it to implement controls
in a government organization?
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 Management is responsible for
designing and implementing controls
to prevent and detect fraud
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LLA Update
Obtaining records for audit
 Confidentiality of records
 Energy efficiency contracts
 American Recovery and Reinvestment Act
 Best practices
 Internal controls—recession
 Federal funds and not for profits

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LLA Web site

http://www.lla.la.gov/localgovernment/bestpractic
es/
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For additional information contact:
Advisory Services Division
Louisiana Legislative Auditor
Post Office Box 94397
Baton Rouge, LA 70804
(225) 339-3800
(225) 339-3999 – fax
www.lla.la.gov
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