HomeMy WebLinkAbout2023 - Independent Auditors Report on Internal Control Letter Maner Costerisan 2425 E.Grand River Ave.,
(0,0.ffManer Suite 1,Lansing,MI 48912
n 517.323.7500
osterisanED 517.323.6346
INDEPENDENT AUDITOR'S 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 Mayor and
Members of the City Council
City of Lansing,Michigan
We have audited,in accordance with the 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,the financial statements of the governmental activities,the business-
type activities, the aggregate discretely presented component units, each major fund, and the aggregate
remaining fund information of the City of Lansing, Michigan (the City), as of and for the year ended June 30,
2023, and the related notes to the financial statements, which collectively comprise the City's basic financial
statements and have issued our report thereon dated December 18,2023.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements,we considered the City's internal control over
financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the
circumstances 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's internal control. Accordingly, we do not express an
opinion on the effectiveness of the City's internal control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and was
not designed to identify all deficiencies in internal control that might be material weaknesses or significant
deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified.
However,as described below,we identified certain deficiencies in internal control we consider to be a material
weakness and significant deficiency.
A deficiency in internal control 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 and correct,
misstatements on a timely basis. A material weakness is a deficiency,or a combination of deficiencies,in internal
control such that there is a reasonable possibility that a material misstatement of the entity's financial
statements will not be prevented or detected and corrected on a timely basis. We consider the following
deficiency to be a material weakness:
2023-001 MATERIAL JOURNAL ENTRIES
Condition: Material journal entries for the proper recognition of various financial statement amounts within
the City's accounting records were recorded after year end,some of which were proposed by the auditors.
In addition, we received several revisions to the City's trial balance (the final version coming in early
December 2023), each of which contained material corrections to previous trial balances. A similar issue
was noted and reported last year as 2022-001.
2023-001 MATERIAL JOURNAL ENTRIES (concluded.
Criteria: Management is responsible for establishing,maintaining,and monitoring internal controls,and for
the fair presentation in the financial statements of financial position, results of operations, and cash flows,
including the recording of all appropriate journal entries to assure the trial balance from which the financial
statements are prepared, reflect amounts that are in conformity with U.S. generally accepted accounting
principles.
Cause: Over the past several years,the City's Finance Department,who prepares the reconciliations of all
accounts, has reduced in size due to budget reductions, staffing reductions, and staffing turnover. In
addition,the Finance Department relies significantly on other Departments providing information to them
for proper recording of transactions in the financial statements. A number of these Departments were
behind in getting this information to the Finance Department. These issues have placed a significant burden
on the month and year end close processes and have contributed to journal entries not being completed in
a timely manner. We noted that this process did improve in the current fiscal year,however this was still a
systemic issue for the City.
Effect: The accounting records were initially misstated by amounts material to the financial statements.
Certain applicable adjustments were brought to the attention of management and were subsequently
recorded in the general ledger.
Recommendation: We recommend that the City take steps to assure that material journal entries are not
necessary at the time future audit analysis is performed.
Corrective Action Response: The Finance Team will continue the efforts begun this year regarding the
identification and correction of potential errors in the financial statements prior to the beginning of future
audits. The Finance Team will meet to review adjustments made to this year's financial statements and
bottlenecks that were encountered and will develop a plan to address the most significant issues in a more
timely manner going forward. Within budget constraints, Management will look to increase staffing levels
and/or obtain temporary assistance earlier in the fiscal year,both within the Finance Department as well as
other key departments,in order to perform more timely analyses of the various account balances. In FY24,
Finance will continue working on the implementation of a new General Ledger software package, which
ultimately will also help to resolve this issue.
A significant deficiency is a deficiency,or a combination of deficiencies,in internal control that is less severe than
a material weakness,yet important enough to merit attention by those charged with governance. We consider
the following deficiency described below to be a significant deficiency:
2023-002 PAYROLL PROCESS
Condition: The City has procedures in place to ensure that employees are being paid at the correct rate and
for the actual number of hours worked,but much of the data entry of this process continues to be manual
and payroll can be submitted and paid before applicable department management reviews and approves
their departmental staff payroll data. While no inappropriate transactions were noted during our testing of
the payroll process,this is a systemic issue. A similar issue was noted and reported last year as 2022-002.
Criteria: Payroll should be reviewed and approved prior to disbursement of funds.
Cause: Proper up-front detective internal controls over the payroll process were not put in place to prevent
inaccurate amounts being paid to an employee.
Effect: Unauthorized amounts could be disbursed either as a result of an error or fraud and those
transactions could go undetected by management until"after the fact".
2
2023-002 PAYROLL PROCESS (concluded
Recommendation: We recommend an appropriate level of management,with no other access to the payroll
process, be authorized to approve payroll for their respective departments. There also should be an
overarching review of the payroll reports prior to each disbursement and that review should be
documented.
Corrective Action Response: Payroll now runs a listing of all transactions entered manually into the payroll
system outside of those entered on timecards. The report is reviewed,signed,and saved by the Payroll Tech
and the Payroll and Benefits Administrator to confirm no errors are made in typing. In addition,a summary
report of payroll totals is run and compared to prior payrolls for any significant differences. The report is
reviewed, signed, and saved by the Payroll Tech and the Payroll and Benefits Administrator. The Human
Resources Department,to whom Payroll reports,will work to implement appropriate corrective action over
the payroll process at the department level,as noted above,through the implementation process of the new
General Ledger software package.
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City's financial statements are free from material
misstatement,we performed tests of its compliance with certain provision of laws, regulations, contracts, and
grant agreements,noncompliance with which could have a direct and material effect on the financial statements.
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 the following instance of
noncompliance or other matters that is required to be reported under GovernmentAuditing Standards.
2023-003 UNFAVORABLE BUDGET VARIANCES
Condition: We noted that expenditures had exceeded the amounts appropriated for various areas of the
General Fund and certain Special Revenue Funds.
Criteria: The Uniform Budgeting and Accounting Act requires the City to amend the original adopted budget
"as soon as it becomes apparent that a deviation from the original general appropriations act is necessary
and the amount of the deviation can be determined." The Act also states that"an administrative officer of
the local unit shall not incur expenditures against an appropriation account in excess of the amount
appropriated by the legislative body."
Cause: The City did not adequately monitor expenditures in relation to budgeted amounts in the areas
where the overages occurred.
Effect: Having unfavorable budget variances as described above, the City is not in compliance with Public
Act 621 of 1978,as amended.
Recommendation: We recommend the City monitor expenditures against adopted budgets in all applicable
funds and make appropriate budget amendments as needed.
Corrective Action Response: The City will continue to make improvements in control of revenue and
expenditures and budget conservatively in order to maintain the City's fiscal health. The City now has a
Chief Strategy Officer/Budget Director and is working with departments to be more proactive and
responsive to City needs and to identify necessary changes during the fiscal year. Correcting this issue will
be one of their principal tasks. We will continue to work with the various departments to be more aware of
the status of their actual vs budget status throughout the year. Upgrades to the City's financial software will
also help with this in the future.
3
City of Lansing's Responses to Findings
The City's responses to the findings identified in our audit are described above. The City's responses were not
subjected to the auditing procedures applied in the audit of the financial statements and,accordingly,we express
no opinion on them.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and
the results of that testing,and not to provide an opinion on the effectiveness of the City's internal control or on
compliance. This report is an integral part of an audit performed in accordance with Government Auditing
Standards in considering the City's internal control and compliance. Accordingly, this communication is not
suitable for any other purpose.
//,/a,,, ;>e-
December 18, 2023
4