Coconino County, Arizona Management Letter Year Ended ...

              Management Letter
A REPORT
TO THE
ARIZONA LEGISLATURE
Coconino County
Year Ended June 30, 2004
Financial Audit Division
Debra K. Davenport
Auditor General
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five
senators and five representatives. Her mission is to provide independent and impartial information and specific
recommendations to improve the operations of state and local government entities. To this end, she provides financial
audits and accounting services to the State and political subdivisions, investigates possible misuse of public monies, and
conducts performance audits of school districts, state agencies, and the programs they administer.
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.azauditor.gov
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
December 30, 2005
Board of Supervisors
Coconino County
219 East Cherry Avenue
Flagstaff, AZ 86001
Members of the Board:
In planning and conducting our single audit of Coconino County for the year ended June 30, 2004, we
performed the following as required by Government Auditing Standards (GAS) and Office of Management
and Budget (OMB) Circular A-133:
􀂃􈌠 Considered the County’s internal controls over financial reporting,
􀂃􈌠 Tested its internal controls over major federal programs, and
􀂃􈌠 Tested its compliance with laws and regulations that could have a direct and material effect on its
financial statements and major federal programs.
All audit findings that are required to be reported by GAS and OMB Circular A-133 have been included in
the County’s Single Audit Reporting Package for the year ended June 30, 2004. In addition, our audit
disclosed internal control weaknesses and instances of noncompliance with laws and regulations that do
not meet the reporting criteria. Management should correct these deficiencies to ensure that it fulfills its
responsibility to establish and maintain adequate internal controls and comply with laws and regulations.
Our recommendations are described in the accompanying summary.
In addition, as required by Arizona Revised Statutes §41-1279.21(A)(1), we reviewed the County’s financial
records to evaluate whether the County used Highway User Revenue Fund monies and any other
dedicated state transportation monies solely for authorized transportation purposes for the year ended
June 30, 2004. Our review identified certain instances of noncompliance, which are described in the
accompanying summary as Recommendation 1.
This letter is intended solely for the information of the Coconino County Board of Supervisors and is not
intended to be and should not be used by anyone other than the specified party. However, this letter is a
matter of public record, and its distribution is not limited.
Should you have any questions concerning its contents, please let us know.
Sincerely,
Dennis L. Mattheisen, CPA
Financial Audit Director
Office of the Auditor General
TABLE OF CONTENTS
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Recommendation 1: The County should ensure that
state highway user revenues are spent according to
state laws
Recommendation 2: The Treasurer’s Office should
ensure that responsibilities are properly separated
Recommendation 3: The County’s financial reporting
system should provide complete and accurate
information for federal reporting
County Response
page i
The County should ensure that state highway
user revenues are spent according to state laws
Each year, the State distributes Highway User Revenue Fund (HURF) monies and a
portion of the vehicle license tax (VLT) monies to the County and mandates that the
County use these monies solely for highway and street purposes. During the fiscal
year, the County Highway Department received almost $12.2 million in HURF and
restricted VLT monies, more than 68 percent of the Public Works Fund revenues.
Although the Department used most of these monies to help finance highway and
street construction, repairs, and maintenance, and to pay principal and interest on
transportation bonds, it also used them to pay costs that were not for highway and
street purposes. Auditors noted that the County Highway Department spent over
$160,000 of HURF and restricted VLT monies to finance unallowable costs, such as
liability insurance premiums and uninsured losses.
To help ensure that HURF and restricted VLT monies are used only for street and
highway purposes in accordance with the Arizona Constitution, Article 9, §14, the
County should:
• Work with the county attorney to develop a policy regarding the types of
expenditures that are appropriate uses of HURF and restricted VLT monies.
• Provide the policy to the County Highway Department officials who are
responsible for approving Public Works Fund expenditures.
• Reimburse the Public Works Fund for $160,000 spent inappropriately for liability
insurance premiums and uninsured losses with revenue from its General Fund
or other unrestricted revenue sources.
The Treasurer’s Office should ensure that
responsibilities are properly separated
The primary responsibility of the County Treasurer’s Office is to manage public and
trust monies of the County and related public subdivisions. At June 30, 2004, the
Treasurer’s Office was entrusted with over $168 million in public monies. To fulfill the
responsibilities of managing these monies, the Treasurer’s Office should ensure that
internal controls are in place and functioning properly to promote overall operational
Office of the Auditor General
page 1
efficiency and effectiveness, compliance with laws and regulations, and reliable
financial reporting. However, the Treasurer’s Office did not ensure that employee
responsibilities were separated so that no single employee had control over an entire
transaction cycle. Incompatible duties were being performed for the cash receipts
and investments transaction cycles.
To help ensure that the Treasurer’s Office adequately safeguards cash and
investments, the County should separate responsibilities between employees so that
the employees with access to cash receipts are not responsible for recording and
depositing the receipts. In addition, a supervisor should review the daily
reconciliations. Further, the County should separate investment responsibilities so
that the same employee does not initiate and approve investment transactions, or
monitor investment performance. If the responsibilities cannot be adequately
separated because of the small staff size, then a supervisor should review and
approve the transactions and related reconciliations.
The County’s financial reporting system should
provide complete and accurate information for
federal reporting
The County is required by the Office of Management and Budget (OMB) Circular A-
133 to prepare a Schedule of Expenditures of Federal Awards (SEFA). However, the
County’s financial reporting system did not provide sufficient detailed information to
comply with federal requirements. Specifically, the financial reporting system did not
separately identify federal, state, and local expenditures charged to each federal
program. In addition, the County did not always record federal revenues and
expenditures in the appropriate accounts that resulted in a $280,000 misstatement in
the SEFA. Also, expenditures for different federal programs were recorded in the
same funds and were not separately identified by federal program. Further,
numerous program titles and identification numbers reported on the SEFA were
incorrect. The County adjusted the SEFA for all significant errors noted by the
auditors.
The County must comply with the federal reporting requirements of OMB Circular A-
133 §§.300(a) and .310(b). To accomplish this, the County should clearly identify in
its accounts for each federal program the name of the federal program, name of
awarding federal agency and pass-through entity, CFDA number, and amount of
federal award expenditures during the period. In addition, for programs that include
both federal and other funding sources, the County should separately identify in its
accounting records expenditures of program monies by funding source. Also, the
County should have a second employee review the SEFA to ensure the accuracy of
program titles, identification numbers, and amounts.
State of Arizona
page 2