Northwest Indiana Discussion

http://www.in.gov/sboa/WebReports/B42998.pdf

Addition info found @ https://gateway.ifionline.org/.

$54,000,000 in Gaming revenue receipts!

And the Hammond Park Department is running a $3,467,000deficit.

Neighborhood Stabilization Program $144,220 deficit WITH $113,510 in personal services.

Henry Unit cost? $856,473

Community Development Block Grant started off with a $199,000 deficit; closed out the year $219,185 deficit.

Apparently Hammond's Inspection department after receiving over $862,383 with plus a carry over had a negative balance of $169,727.

Operations with a $1,735,189 deficit.

North Hammond TIF $4,275,526 spent.
Unilever Tif $2,907,124 spent

Sanitation with a $296,506 deficit

Recycling with a $667,185 deficit

Lost Marsh
Cash & Invest on hand at start of year $1,781,187
Disbursements: $1,608,054 (Really $1..6 million Spent! On What?)
Cash on hand @ end of year $630,948, but another category indicates a $244,270 deficit

Potash Bond Interest, $321,165

$1 million spent out of the Marina TIF

College Bound: $2,960,119 WITH NO INDICATION OF PERSONAL SERVICES COST....

An ominous notation in the report:

Note 7. Cash Balance Deficits
The financial statement contains several funds with
deficits in cash. Some are the result of reim-
bursements for expenditures of f
ederal and state grants not received by December 31, 2012. The
remaining funds with cash balance deficits are the result of expenditures exceeding receipts and
available cash balances.

http://www.in.gov/sboa/WebReports/B42998.pdf pg 45.

The City has not established effective controls to allow for the proper reporting of the City's financial
transactions and cash and investment balances. Reconciled trust and bank account balances were not veri-
fied by management which allowed material mis statementsin the original financial statement. The financial
statement was compiled from information entered by the City into the Annual Financial Report. The financial
statement presented for audit included the following errors and omissions which we believe constitute
material weaknesses:

1. The financial statement omitted three funds that were accounted for in the City's ledgers.
These funds included receipts of $39,029,641, disbursements of $38,881,449, and an ending
cash and investments balance of $148,192.

2. The financial statement omitted eight trust funds related to public improvement projects.
These funds were also not in the City's records and included receipts of $42,337,030,
disbursements of $31,467,555, and an ending cash and investments balance of
$10,869,475.

3. The receipts and disbursements of several Hammond Sanitary District funds were under-
stated by $32,116,943 and $35,030,385, in total, respectively. These errors also resulted in
the ending cash and investments balance of these funds to be overstated by a total of
$2,913,443. The misstatements were due to reporting the funds on the accrual basis of ac-
counting rather than the prescribed regulatory basis.

The City approved and made the necessary adjustments to correct these issues which results in a
financial statement that is fairly presented.

http://www.in.gov/sboa/WebReports/B42998.pdf pg 46.

INTERNAL CONTROLS AND COMPLIANCE OVER REPORTING FEDERAL
EXPENDITURES IN THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS

The City did not have a proper system of internal controls in place to prevent or detect and correct
errors on the Schedule of Expenditures of Federal Awards(SEFA). The City should have proper controls in
place over the preparation of the SEFA to ensure accurate reporting of federal awards. Without an effective
system of internal controls in place, material misstatements of the SEFA could remain undetected.

The City has not established controls to effectively identify, manage, and report federal financial
assistance. Under the current system, each department independently monitors their grant activities. Grant
agreements and requests for advances or reimbursements of federal funds are not always provided to the
City Controller.

Federal and state grant monitoring reports are prepared by each department based upon the
records of grant activities maintained by the departments. The City Controller relies on each department to
report their federal assistance activities for use in preparing the SEFA.
In failing to establish controls to effectively identify, manage, and report federal financial assistance,
the City materially misrepresented the federal assistance expended in 2012 on the SEFA presented for audit.
During the audit of the SEFA, we noted the following material errors and/or omissions which we
believe constitute material weaknesses:

1. The City initially reported federal expenditures of $3,848,615. Audit adjustments to the
SEFA were $1,039,784. The total of federal expenditures for 2012 has been determined to
be $4,888,399.

2. The City failed to report Capitalization Grants for Clean Water State Revolving Funds which
were passed through the Indiana Finance Authority in the amount of $1,049,369. The
receipts and disbursements associated with this grant were accounted for by the Hammond
Sanitary District.

3. The City failed to report expenditures associated with the Highway Safety Cluster of $61,537
which passed through the Indiana Criminal Justice Institute. These funds were administered
by the Hammond Police Department and accounted for in the official records of the City
Controller.

4. The City made additional errors and/or omissions which totaled $71,122.

5. The City failed to correctly identify pass-through entities. This is a common them, a few years ago, a HUD auditor reported milliions of expenditures were not traceable because of failure to correctly id pass thru entities.

6. The City failed to report that the Energy Efficiency and Conservation Block Grant Program
was funded with American Recovery and Reinvestment Act of 2009 funds (ARRA).
Audit adjustments were proposed, accepted by the City, and made to the SEFA presented in this
report. These adjustments resulted in a presentation of the SEFA that is materially
correct in relation to the financial statement. A similar finding appeared in the prior report.

http://www.in.gov/sboa/WebReports/B42998.pdf pg 46.

INTERNAL CONTROLS OVER PAYROLL
We noted deficiencies in the internal control system of the City related to payroll processing. Controls
have not been established which would allow management and those charged with governance to detect and
prevent errors or omissions of payroll expenditures. The controls are also not effective in preventing
potential fraud through timely detection by management and those charged with governance.
Effective controls include establishing policies and procedures for ensuring federal, state, and local
laws and regulations are adhered to by management and staff.

http://www.in.gov/sboa/WebReports/B42998.pdfpg 46.

Salary Ordinance

Salaries require proper authorization by the City Council through the passage of a salary ordinance or
resolution. The salaries for the Department of Planning and Development's employees paid from federal or
state grants were not included in the 2012 Salary Ordinance approved by the City Council.

The union agreement for police officers refers to "specialty pay," which is to be paid in accordance
with the salary ordinance; however, in an effort to reduce the volume of the ordinance, the specialty pay
amount was removed from the salary ordinance.

The amount paid to police officers for specialty pay was based upon the amount authorized per the 2006 Salary Ordinance. All compensation and benefits paid to officials and employees must be included in the labor contract,
salary ordinance, resolution, or salary schedule adopted by the governing body unless otherwise authorized
by statute. Compensation should be made in a manner that will facilitate compliance with state and federal
reporting requirements. (Accounting and Uniform Compliance Guidelines Manual for Cities and Towns,
Chapter 7)

http://www.in.gov/sboa/WebReports/B42998.pdf page 49
Payment in Advance

Employee compensation, hours, and leave time are to be reported by the departmental payroll clerks
to the Controller's Office on a bi-weekly "Payroll Earnings Forecast" (forecast).
The forecasts must be sub-mitted for payroll processing by the Monday or Tuesday
prior to the pay date, which is on Friday.

Salaried employees are paid for the current and subsequent week and, are therefore,
paid in advance up to ten days prior to performing the service. This pay also cannot
reflect leave time used for the period covered.

Indiana Code 5-7-3-1 states in part: "Public officers
may not draw or receive their salaries in advance....

http://www.in.gov/sboa/WebReports/B42998.pdf pg 49


Leave Policies

The City abides by negotiated union agreements for sick and injured leaves and benefits for police
officers and firefighters. Both union agreements are effective for the period of January 1, 2009 through
December 31, 2012. Neither agreement specifies the details of the policy but instead state: "The present
sick and injured leave policies shall remain unchanged during the term of this Agreement . . . "We could not
determine what the policy entailed; therefore, it is possible that overpayments to employees could occur.

Each governmental unit should adopt written policy regarding the accrual and use of leave time and
compensatory time and the payment of overtime. Negotiated labor contracts
approved by the governing board would be considered as written policy. The policy
should conform to the requirements of all state and federal regulatory agencies. (Accounting and Uniform Co
mpliance Guidelines Manual for Cities and Towns,
Chapter 7)

http://www.in.gov/sboa/WebReports/B42998.pdf pg 49

Employee Service Records

Time records or an Employee Service Record (General Form 99A) were not maintained by the
Corporation Council, a city employee, for 2012.

The Fire Department does not maintain employee service records. An attendance record is
maintained which is similar to the employee service record, but it does not provide information on leave
balances, leave accruals, and leave usage. Hours worked are also not recorded on the attendance record; a
"W" is recorded on days worked regardless of how many hours are worked. Leave time is also not reported
on the "Payroll Earnings Forecast" which is certified by the department head.

The Police Department maintains employee service records; however, overtime hours worked are not
reported. Leave time is not reported on the "Payroll Earnings Forecast" which is certified by the department
head. Additionally, compensatory leave accruals, usage, and balances are not reported. In many instances,
the Employee Service Records were not in agreement with the Payroll Earnings Forecast leave time reported.
The federal Fair Labor Standards Act (FLSA) requires that records of wages paid, daily and weekly
hours of work, and the time of day and day of week on which the employee's work week begins be kept for all
employees.

These requirements can be met by use of the following prescribed general forms:

http://www.in.gov/sboa/WebReports/B42998.pdf pg 48


INTERNAL CONTROLS OVER SELF-INSURANCE FUND DISBURSEMENTS


The City maintains a Self-Insurance Fund for the payment of employee health insurance claims. A
third party administrator initially receives the medical claims, processes them, and produces the vendor
checks for payment. The vendor checks are accumulated each month and are remitted to the City
Controller's office (controller) the following month, accompanied by a printed check register. The Controller
records the individual vendor payments in the City's ledger and also mails the checks to the vendors as funds
are available in the Self-Insurance Fund.

The Controller received October and November 2012 health insurance vendor checks which totaled
$2,266,335.32 in November and December 2012, respectively. These checks were not recorded in the City's
ledger or remitted to the vendors until January 2013.

Governmental units should have internal controls in effect which provide reasonable assurance
regarding the reliability of financial information and records, effectiveness and efficiency of operations, proper
execution of management's objectives, and compliance with laws and regulations. Among other things,
segregation of duties, safeguarding controls over cash and all other assets, and all forms of information
processing are necessary for proper internal control.

http://www.in.gov/sboa/WebReports/B42998.pdf

-49-
CITY OF HAMMOND AUDIT RESULTS AND COMMENTS
(Continued)
OVERDRAWN CASH BALANCES

The financial statement presented in this report included the following funds with overdrawn cash
balances at December 31, 2012:

101 General $23,409,240

201 Motor Vehicle Highway $2,519,739
204 Local Road and Street $373,283
252 Transit $375,309
204 Parks and Recreation $3,467,049
004 Centrex $76,646
253 Local Seizure $8,188
264 Ambulance Fees $125,000
270 Unemployment $461,132
276 HENRY Unit $856,473
293 Inspections/Rental $169,727
461 Golf Course $244,270

Sanitary District:
SD Operations $1,735,189
SD Sanitation $296,506
SD Recycling $667,185

Port Authority:
HPA Payroll Withholding 99.00

Total overdrawn funds $34,785,035

Funds with overdrawn cash balances as the result of grant expenditures awaiting reimbursement are
not included in the list above. The cash balance of any fund may not be reduced below zero. Routinely overdrawn funds could be an indicator of serious financial problems which should be investigated by the governmental unit.