HomeMy WebLinkAbout061518 CAFR Management LetterManagement Letter
June 15, 2018
To the Honorable Mayor and
City Council Members of the
City of West University Place, Texas:
The American Institute of Certified Public Accountants Statement on Auditing Standards No. 115,
Communicating Internal Control Related Matters Identified in an Audit (SAS 115), provides guidance to
auditors on communicating internal control matters to management and the governing body, board of
directors, or equivalent body.
It is important to note when reviewing findings reported within this letter that classification of the
findings is based on the definitions required by SAS 115 as further discussed below. Please note that
these classifications are based on the potential impact to the financial statements, not necessarily the
likelihood of actual loss to the City. Accordingly, the City's assessment of the "significance" or ranking
of severity will likely be substantially different based on a number of factors including, but not limited to,
its assessment of risk and the cost benefit of making the change.
Our report is as follows:
In planning and performing our audit of the financial statements of the governmental activities, the
business -type activities, each major fund, and the aggregate remaining fund information of the City of
West University Place, Texas (the "City ") as of and for the year ended December 31, 2017, in accordance
with auditing standards generally accepted in the United States of America, we considered the City's
internal control over financial reporting (internal control) as a basis for designing our auditing 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 discussed below, we identified certain deficiencies in internal control that we
consider to be significant deficiencies and other matters.
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.
iinnatvn BsBv>lis Auerlo All Offim, Governmental
3210 Bingle Rd., Ste. 300 RO.B.826 100 Congmss Aw., Ste. 2000 www.trnsaudimrsmm
Housmn,TX 77055 Beliville,TX77418 Austin,TX78701 info @txauditorsxrn Audit Quality Center
713.263.1123 713.263.1123 512.381.0222 713263.1550 fax
City of West University Place, Texas
Management Letter
Page 2 of 3
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.
Our findings and additional comments are as follows:
PRIOR YEAR MATTERS
Significant Deficiency.
2013 -001. ADJUSTMENTS LINE ITEM — POOLED CASH
Background
The City maintains a pooled cash and investment account. Each fund whose monies are deposited in the
pooled cash and investment account has equity therein. The City uses an `adjustments' line item on its
bank reconciliation to account for transactions other than outstanding checks and deposits, such as
transfers related to payroll, manual posting of accounts payable, and other miscellaneous transactions.
Any ending balance in adjustments is used to reconcile the bank balance to the general ledger.
Finding
During audit procedures, it was noted that there was a significant balance for the adjustments line item
that could not be specifically identified. Since many of the transactions accounted for through the
adjustments line item are system generated, it is difficult to trace and determine which transactions
cleared. In addition, the software system is unable to produce a direct listing that shows the detail for the
balance of the adjustments.
Recommendation
The City should ensure that there is adequate support for the adjustments balance at month end. During
the bank reconciliation process, the City should review all the transactions that were posted through the
adjustments line item to verify their validity and accuracy. The City should develop a process to directly
track the transactions that have not cleared and should produce a listing of outstanding items that ties to
the adjustments balance.
Other Matters:
2013 -002. CUSTODIAL CREDIT RISK— DEPOSITS
Background
Custodial credit risk, in the case of deposits, is the risk that in the event of a bank failure, an entity's
deposits may not be returned to it.
Finding
As of December 31, 2017, the Friends of West University Parks fund, a blended component unit of the
City, had bank accounts that were not fully insured by the Federal Deposit Insurance Corporation (FDIC)
or fully collateralized with pledged securities by the respective bank.
City of West University Place, Texas
Management Letter
Page 3 of 3
Recommendation
The City should seek to eliminate this risk by allocating funds to various banks or seeking pledged
securities from the banks as collateral for account balances in excess of FDIC.
This communication is intended solely for the information and use of management, City Council, and
others within the City, and is not intended to be, and should not be, used by anyone other than these
specified parties.
We would like to thank the City Council and the City's management for their cooperation during the
course of our audit. Please feel free to contact us at your convenience to discuss this report or any other
concerns that you may have.
060 LT q.L ARRIS CYAECHACEK, I I I
Belt Harris Pechacek, LLLP
Certified Public Accountants
Houston, Texas