Derry (N.H.).

Annual reports of the Town of Derry, New Hampshire (Volume 1994) online

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assurance that assets are safeguarded against loss from
unauthorized use or disposition, that transactions are ex-
ecuted in accordance with management's authorization and
recorded properly to permit the preparation of general pur-
pose financial statements in accordance with generally ac-
cepted accounting principles. Because of inherent limitations
in any internal control structure, errors or irregularities may
nevertheless occur and not be detected. Also, projection of
any evaluation of the structure to future periods is subject to
the risk that procedures may become inadequate because of
changes in conditions or that the effectiveness of the design
and operation of policies and procedures may deteriorate.

For the purpose of this report, we have classified the
significant internal control structure policies and procedures
in the following categories:
Activity Cycles

• Budgeting

• Treasury or financing

• Revenue/receipts

• Purchases/disbursements

• External financial reporting

• Payroll/personnel

• Data processing

For all the internal control structure categories listed
above, we obtained an understanding of the design of rele-
vant policies and procedures and whether they have been
place in operation, and we assessed control risk.

Under the standards established by the American Institute
of Certified Public Accountants, reportable conditions in-
volve matters coming to our attention relating to significant
deficiencies in the design or operation of the internal control
structure that, in our judgment, could adversely affect the
Town's ability to record, process, summarize, and report
financial data consistent with the assertions of management



—42—



in the general purpose financial statements. A material
weakness is a reportable condition in which the design or
operation ':-f one or more of the internal control structure
eleir tri:s does not reduce to a relatively low level the risk that
errors or irregularities, in amounts that would be material in
relation to the general purpose financial statements being
audited may occur and not be detected within a timely period
by employe; s in the normal course of performing their assign-
ed functions. Our considerations of the internal control struc-
ture would not necessarily disclose all matters in the internal
control structure that might constitute reportable conditions
and, accordingly, would not necessarily disclose all repor-
table conditions that are also considered to be material
weaknesses as defined above.
GENERAL ACCOUNTING SYSTEM

As indicated in our previous letter, we are pleased the the
Town has set goals for upgrading its computer capabilities
and is presently looking at all aspects of its accounting
system. Unfortunately, systems development has not been
realized to the extend planned and the Town continues to
struggle with the limitations of its present system. Where
many of the conditions cited in our previous letter were still
present in the accounting system at June 30, 1993, the follow-
ing is considered an update of our previous report dated
September 1, 1992.

During the course of our review, the following conditions
were noted that were considered to be material weaknesses as
defined above:
Computerized Systems and Personnel Resources

Of particular concern during our current audit is an ap-
parent erosion of the quality of Town's accounting records.
Mostly, weaknesses appeared to relate to the expanding
volume and complexity of accounting matters. As the Town
has continued to become more sophisticated in its operations,
the level of accounting aDihty within the department has
declined. Further, overall development of accounting systems
is handicapped by electronic data processing Hmitations. Our
audit disclosed a number of situations where accounting
records were not complete or did not balance, especially in
the areas of capital projects, fixed assets and interfund
balances. We further observed that current personnel are fin-
ding it difficult to complete all that is required of the depart-
ment. While management has indicated that this is the direct
result of a decrease in department personnel, we believe that a
number of changes could be made which would provide for
greater internal control, overall efficiency and better use of
personnel resources.

It was apparent from our audit testing that deficiences in
the accounting records were not identified and corrected in a
timely manner during the course of the year. As a result, we
spent considerable additional time during the course of audit
fieldwork to reconcile the accounting records in order to
prepare financial statements and to satisfy audit re-
quirements. Given the size of the community and complexity
of operations, it is imperative that accounting records be up
to date and accurate. Otherwise, management decisions made
on the basis of such information could be disastrous.

We therefore, recommend that serious consideration be
given to the development of accounting systems and to raising



the level of accounting knowledge and experience within the
department.

Also, the following reportable conditions were noted that
we do not consider to be material weaknesses:
Payroll Deductions

Our audit of payroll transactions disclosed that the value of
insurance premiums in excess of $50,000 of coverage was not
being taxed to employees. Apparently, personnel responsible
for preparing the payroll were not aware of these tax laws.

We reviewed these IRS requirements with appropriate per-
sonnel during the course of our audit fieldwork.
Duplications in the Accounting Records for Fixed Assets

Our testing of fixed asset revealed deficiencies in the ap-
pUcation of accounting procedures to construction in pro-
gress. Amounts were being recorded during the course of con-
struction projects and in total when the project was com-
pleted. Generally accepted accounting principles require that
capital project costs be accumulated separately as "Construc-
tion in Progress" during the construction phase and then
capitalized in appropriate asset categories when the project is
completed.

Further dupUcation was noted due to a lack of accounting
for the removal of assets which had been replaced or disposed
of in connection with a given capital project.

We reviewed appropriate procedures with management
and accounting personnel during the course of audit
fieldwork.
Basis for Recording of Fixed Assets

Our testing found that current additions to infrastructure
type assets are being capitalized at a standard cost rate;
disregarding the actual costs incurred to acquire or construct
the given asset. The standard cost rates were developed to
establish an estimate of what the historical cost of the fixed
assets were in order for the Town to have a starting point to
account for fixed assets. From that point forward actual costs
must be used. Therefore, over a period of time, the estimate
originally established will be replaced by actual historical cost
as fixed assets are added and deleted. We reviewed these
generally accepted principles with accounting personnel.
Commitment of Water Rents

Presently, only water rents to be taken to lien are commit-
ted to the Tax Collector.

RSA 38:22, Municipal Lighting and Water Systems - Liens
and Collection of Charges States that "A municipality may
commit bills for charges to the Tax Collector with a warrant
signed by the appropriate municipal officials requiring him to
collect them ..." Accordingly, we recommend that a formal
commitment of all water rents be made. This provides the
Collector with proper authority for collection of amounts due
and also documents approval of these billings.

In addition to the foregoing reportable conditions, the
following other matters came to our attention that we have
discussed with management as opportunities for efficiency
and/or cost savings related to the administration of the
Town:
Updating of the Present Data Processing System

While greater flexibility would be possible with certain
software modifications, it is possible for the Town to utilize



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its present system differently for greater efficiency. Based on
our discussions with management and the Town's present
software vendor, it has been determined that accounting for
interfund transactions could be automated, thereby, remov-
ing the need for several checking accounts along with the con-
trol measures necessary for maintaining balance in the pre-
sent system. This alone would save the Accounting Depart-
ment, Treasurer and Independent Auditors considerable
time.
Overlapping Receipts and Disbursement Systems

Also because the present system does not provide for the
automation of interfund activities, it is easier for the Town to
maintain separate checking accounts and make separate
deposits from collection sources to the General, Water and
Sewer Fund accounts. Unfortunately, this creates difficulties
for the Treasurer in reconcihng the various accounts. As
previously mentioned, the automation of interfund transac-
tions would allow the Town to utihze a single cash disburse-
ment system for all funds. We further recommend that con-
sideration be given to centralizing collection activities. Cash
could then more easily be managed and currently needed
overlapping functions could be eliminated.
Purchasing Controls

In addition to cash management and the easing of book-
keeping difficulties, we beheve that further improvements
and efficiency are possible within the network-based system
by programming certain levels of control. By programming
purchase policies and entering purchasing requests from
department offices, time in processing purchase orders could
be saved by capturing data at the point of origin. This infor-
mation would not need to be checked against budgets and re-
entered by accounting personnel if these functions could be
automated.

Spreadsheet Based Accounting Records

Currently, becuase the existing general ledger system is in-
capable of maintaining and reporting project-to-date infor-
mation, a number of detailed records are maintained on per-
sonal computers at various department locations in order to
provide information that is needed by management. This
creates the need for a layer of control that could otherwise be
eliminated if the basic general ledger system could provide for
the type of reporting that is needed. This is very inefficient in
that information must be entered more than once to several
places. Further, accounting information on PCs that are out-
side of the Finance Department may not be entirely accurate
if it is not routinely reconciled to the central general ledge
system. In a centralized network-based system, all users
would be able to share the same information and download
specific data for analysis as individual dpeartment needs
arise. The layer of control between department records and
the General Ledger would, as a result, not be required.
Library Accounting Records

In the past, we have recommended that consideration be
given to the maintenance of the Library accounting records as
individual funds on the Town's central accounting system as
with any other department. With an appropriate system, we
continue to believe that this would be possible.
Documentation of Receipts - Charges for Services



Using the Building Department as an example, our audit of
cash receipts transactions disclosed that remittances are not
usually detailed as to the individual transactions which make
up the total of permits collected. While the Building Depart-
ment has a very good record of each permit issued, the Ac-
counting Department does not. Whenever possible,
numerical control should be exercised by those persons
responsible for the Town's bookkeeping records. Further,
responsibilities for the rendering of services and collections
should be segregated.

In its efforts to upgrade its computer facihties, the Town
should consider its present inabihty to account for revenue
transactions in detail. As a result, each department maintains
these records manually, but they are not reconciled with
general ledger accounts. If this level of automation were
possible, the need for departmental records would not be
necessary as it could be made available from the central ac-
counting system.
Tax Accounting Applications

The Tax Collector's computer system is Umited as to the
types of reports that can be printed, thus, a clear audit trail
does not exist for amounts reported on the Summary of War-
rants.

In upgrading computer systems, we recommend that con-
sideration be given to these needs.

This report is intended solely for the information and use
of management and others within the administration. This
restriction is not intended to limit distribution of this report,
which is a matter of public record.



August 26, 1993



PLODZIK & SANDERSON
Professional Association



INDEPENDENT A UDITOR 'S REPOR T ON THE

INTERNAL CONTROL STRUCTURE USED IN

ADMINISTERING FEDERAL FINANCIAL

ASSISTANCE PROGRAMS

To the Members of the Town Council
Town of Derry
Derry, New Hampshire

We have audited the general purpose financial statements ,
of the Town of Derry, as of and for the year ended June 30, ,
1993, and have issued our report thereon dated August 26,
1993. We have also audited the compliance of the Town of
Derry with requirements applicable to major federal financial
assistance programs and have issued our report thereon dated
August 26, 1993.

We conducted our audit in accordance with generally ac-
cepted auditing standards; Government Auditing Standards,
issued by the Comptroller General of the United States; and
office of Management and Budget Circuleu A- 128, Audits of
State and Local Governments. Those standards and OMB
Circular A- 128 require that we plan and perform the audit to
obtain reasonable assurance about whether the general pur-
pose financial statements are free of material misstatement
and about whether the Town of Derry complied with laws
and regulations, noncompliance with which would be
material to a major federal financial assistance program.



In planning and performing our audits for the year ended
June 30, 1993, we considered the internal control structure of
the Town of Derry, in order to determine our auditing pro-
cedures for the purpose of expressing our opinions on the
general purpose financial statements of the Town of Derry
and on the compliance of the Town od Derry with re-
quirements applicable to major programs, and to report on
the internal control structure in accordance with OMB Cir-
cular A-128. This report addresses our consideration of inter-
nal control structure policies and procedures relevant to com-
pliance with requirements applicable to federal financial
assistance programs. We have addressed internal control
structure policies and procedures relevant to our audit of the
general purpose financial statements in a separate report. In-
dependent Auditor's Report on the Internal Control Struc-
ture based on an Audit of General Purpose Financial
Statements Performed in Accordance with Government
Auditing Standards, dated August 26, 1993.

The management of the Town of Derry is responsible for
establishing and maintaining an internal control structure. In
fulfilling this responsibility, estimates and judgments by
management are required to assess the expected benefits and
related costs of internal control structure policies and pro-
cedures. The objectives of an internal control structure are to
provide management with reasonable, but not absolute,
assurance that assets are safeguarded against loss from
unauthorized use or disposition, that transactions are ex-
ecuted in accordance with management's authorization and
recorded properly to permit the preparation of general pur-
pose financial statements in accordance with generally ac-
cepted accounting principles, and that federal financial
assistance programs are managed in compliance with ap-
plicable laws and regulations. Because of inherent limitations
in any internal control structure, errors, irregularities, or in-
stances of noncompliance may nevertheless occur and not be
detected. Also, projection of any evaluation of the structure
to future periods is subject to the risk that procedures may
become inadequate because of changes in conditions or that
the effectiveness of the design and operation of policies and
procedures may deteriorate.

For the purpose of this report, we have classified the
significant internal control structure policies and procedures
used in administering federal financial assistance programs in
the following categories:
Activity Cycles

• Budgeting

• Treasury or financing

• Revenues/receipts

• Purchases/disbursements

• External financial reporting

• Payroll/personnel

• Data processing
General Requirements

• Political activity

• Civil rights

• Cash management

• Federal financial reports

• Allowable costs/cost principles

• Drug-free workplace

• Administrative requirements



Specific Requirements

• Types of services

• Eligibility

• Matching, level of effort and earmarking

• Reporting

• Cost allocation

• Special requirements, if any

• Monitoring subrecipients

Claims for Advances and Reimbursements
Amounts Claimed or Used for Matching

For all of the internal control structure categories listed
above, we obtained an understanding of the design of rele-
vant policies and procedures and determined whether they
have been placed in operation, and we assessed control risk.

During the year ended June 30, 1993, the Town of Derry
expended 96 percent of its total federal financial assistance
under major federal financial assistance programs.

We performed tests of controls, as required by OMB Cir-
cular A-128, to evaluate the effectiveness of the design and
operation of internal control structure policies and pro-
cedures that we considered relevant to preventing or detecting
material noncompliance with specific requirements, general
requirements, and requirements governing claims for ad-
vances and reimbursements and amounts claimed or used for
matching that are applicable to each of the Town of Derry's
major federal financial assistance programs, which are iden-
tified in the accompanying Schedule of Federal Financial
Assistance. Our procedures were less in scope than would be
necessary render an opinion on these internal control struc-
ture policies and procedures. Accordingly, we do not express
such an opinion.

Under standards established by the American Institute of
Certified Public Accountants, reportable conditions involve
matters coming to our attention relating to significant defi-
ciencies in the design or operation of the internal control
structure that, in our judgement, could adversely affect the
Town of Derry's ability to administer federal financial
assistance programs in accordance with applicable laws and
regulations. A material weakness is a reportable condition in
which the design or operation of one or more of the internal
control structure elements does not reduce to a relatively low
level the risk that noncompliance with laws and regulations
that would be material to a federal financial assistance pro-
gram may occur and not be detected within a timely period by
employees in the normal course of performing their assigned
functions. Our consideration of the internal control structure
policies and procedures used in administering federal finan-
cial assistance would not necessarily disclose all matters in the
internal control structure that might be reportable conditions
and, accordingly, would not necessarily disclose all repor-
table conditions that are also considered to be material
weaknesses as defined above. However, during the course of
our review, no matters were noted that were considered to be
material weaknesses as defined above.

This report is intended solely for the information and use
of management and others within the administration. This
restriction is not intended to limit distribution of this report,
which is a matter of public record.



August 26, 1993



PLODZIK & SANDERSON
Professional Association



-45—



INDEPENDENT A UDITOR 'S REPOR T ON
COMPLIANCE BASED ON AN A UDIT OF GENERAL
PURPOSE FINANCIAL STATEMENTS PERFORMED

IN ACCORDANCE WITH GOVERNMENT
AUDITING STANDARDS

To the Members of the Town Council
Town of Derry
Derry, New Hampshire

We have audited the general purpose financial statements
of the Town of Derry, as of and for the year ended June 30,
1993, and have issued our report thereon dated August 26,
1993.

We conducted our audit in accordance with generally ac-
cepted auditing standards and Government Auditing Stan-
dards, issued by the Comptroller General of the United
States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the finan-
cial statements are free of material misstatement.

Compliance with laws, regulations, contracts and grants
applicable to the Town of Derry is the responsibility of the
Town's management. As part of obtaining reasonable
assurance about whether the financial statements are free of
material misstatement, we performed tests of the Town's
compUance with certain provisions of laws, regulations, con-
tracts and grants. However, the objective of our audit of the
general purpose financial statements was not to provide an
opinion on overall compliance with such provisions. Accor-
dingly, we do not express such an opinion.

The results of our tests indicate that, with respect to the
items tested, the Town compHed, in all material respects, with
the provisions referred to in the preceding paragraph. With
respect to items not tested, nothing came to our attention that
caused us to beHeve that the Town of Derry had not com-
plied, in all material respects, with those provisions.

This report is intended solely for the imformation and use
of management and others within the Administration. This
restriction is not intended to limit distribution of this report
which is a matter of pubUc record.

August 26, 1993 PLODZIK & SANDERSON

Professional Association

INDEPENDENT A UDITOR 'S REPOR T ON

COMPLIANCE WITH THE GENERAL REQUIREMENTS

APPLICABLE TO FEDERAL FINANCIAL

ASSISTANCE PROGRAMS

To the Members of the Town Council
Town of Derry
Derry, New Hampshire

We have audited the general purpose financial statements
of the Town of Derry, as of and for the year ended June 30,
1993, and have issued our report thereon dated August 26,
1993.

We have applied procedures to test the Town of Derry's
compliance with the following requirements applicable to its
federal financial assistance programs, which are identified in
the Schedule of Federal Financial Assistance, for the year
ended June 30, 1993:



General Requirements

• PoHtical activity

• Civil rights

• Cash management

• Federal financial reports

• Allowable costs/cost principles

• Drug-free workplace

• Administrative requirements

• Claims for advances and reimbursements

• Amounts claimed or used for matching

Our procedures were limited to the applicable procedures
described in the Office of Management and Budget's Com-
pliance Supplement for Single Audits of State and Local
Governments. Our procedures were substantially less in scope
than an audit, the objective of which is the expression of an
opinion on the Town of Derry's compliance with the re-
quirements listed in the preceding paragraph. Accordingly,
we do not express such an opinion.

With respect to the items tested, the results of those pro-
cedures disclosed no material instances of noncomphance
with the requirements Hsted in the second paragraph of this
report. With respect to items not tested, nothing came to our
attention that caused us to believe that the Town of Derry had
not complied, in all material respects, with those re-
quirements.

This report is intended solely for the information and use
of management and others within the Administration. This
restriction is not intended to limit distribution of this report
which is a matter of public record.

August 26, 1 993 PLODZIK & SANDERSON

Professional Association

INDEPENDENT A UDITOR 'S REPOR T ON

COMPLIANCE WITH SPECIFIC REQUIREMENTS

APPLICABLE TO MAJOR FEDERAL

FINANCIAL ASSISTANCE PROGRAMS

To the Members of the Town Council
Town of Derry
Derry, New Hampshire

We have audited the general purpose financial statements
of the Town of Derry, as of and for the year ended June 30,


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