Northwest Indiana Discussion

http://nwigazette.com/2014/02/16/hammond-sanitary-district-2m-overdrawn-3-8m-owed-to-nipsco/


Hammond Sanitary District-$2M Overdrawn, $3.8M Owed to NIPSCO
By Ken Davidson - Published: 02/16/2014 - Section: Uncategorized

Nearly $4M in Overdue NIPSCO Bills Due as of July, 2013; Accounts Overdrawn

A newly issued report from the Indiana State Board of Accounts details numerous accounting errors at the Hammond Sanitary District. The District, which serves Hammond and Munster residents, is in the process of preparing a 30% rate increase case to be presented at some time in the future, according to the report. The report covers the time period January 1, 2012 through December 31, 2012 and was released in January 2014. A note in the report indicates that the contents of the report were discussed with City officials in September, 2013:

The contents of this report were discussed on September 24, 2013, with Robert Lendi, CPA, Controller; Rachel Montes, Business Manager; and Marty J. Wielgos, Chief of Staff

Apparently, Munster Town officials were not notified in advance of the report findings.

Among the findings in the report were unreconciled bank transactions. The report states:

BANK ACCOUNT RECONCILIATIONS

The Hammond Sanitary District (District) payroll bank reconcilement at December 31, 2012, included many adjustments that were not adequately documented. The reconciling items totaled $10,859.02. Some of the reconciling items dated back to 2011; others were not properly dated and did not note the fund for which the adjustment was required. The District has not made adjustments to the records in a timely manner. The
majority of the adjustments included with the December 31, 2012 reconcilement are also included with the reconcilement at July 31, 2013.

Indiana Code 5-13-6-1(e) states: “All local investment officers shall reconcile at least monthly the balance of public funds, as disclosed by the records of the local officers, with the balance statements provided by the respective depositories.”

The report further found that the Utility was delinquent in numerous payments, including payments for gas and electric utilities in the amount of $1,390,221 and $2,330,846, as of December 31, 2012, and July 31, 2013, respectively.

Additionally, the report found several overdrawn accounts:

OVERDRAWN CASH BALANCES

Overdrawn cash balances at December 31, 2012, were as follows:

Fund Overdrawn Amount
Sanitary District Operating $1,313,692
Sanitation Utility Operating $378,065
Recycling Utility Operating $667,185

or financial statement reporting, the Sanitary District’s Bond and Interest Fund, a restricted fund, was reduced by the amount of the overdrafts. The overdrafts are reported as “Due From Sanitary District Unrestricted Funds” on the Statement of Net Position.

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. (Accounting and Uniform Compliance Guidelines Manual for Special Districts, Chapter 10)

See the Full Text of the Report: Hamond Sanitary District SBOA Report Full Text

EDITOR’S NOTE: An earlier version of this article contained a headline with an incorrect amount for the unreconciled transactions. The Gazette apologizes for the error. The correct amount of unreconciled transactions is $10,859.02

-7-
SANITARY DISTRICT
CITY OF HAMMOND
NOTES TO FINANCIAL STATEMENTS

I. Summary of Significant Accounting Policies
A. Reporting Entity

The financial statements reflect only the activity of the Sanitary District, a department of the City of
Hammond, and are not intended to present fairly the position of the City of Hammond (City), and the
results of its operations and cash flows of its enterprise funds. The Sanitary District, whose operations are controlled by the City, represents a substantial portion of the City's enterprise funds.

The Sanitary District comprises the Sanitary District, Storm Water Utility, Sanitation Utility, and
Recycling Utility.


-10-
SANITARY DISTRICT
CITY OF HAMMOND
NOTES TO FINANCIAL STATEMENTS
(Continued)

7. Long-Term Obligations
Long-term debt and other long-term obligations are reported as liabilities in the Statement of Net
Position. Bond premiums and discounts, as well as issuance costs, are deferred and amortized
over the life of the bonds using the straight-line method. Bonds payable are reported net of the
applicable bond premium or discount. Bond issuance costs are reported as deferred charges
and amortized over the term of the related debt.


http://nwigazette.com/wp-content/uploads/2014/02/sanitary.pdf page 12
II. Detailed Notes on All Funds
A. Deposits
Custodial credit risk is the risk that in the event of a bank failure, the government's deposits may not
be returned to it. Indiana Code 5-13-8-1 allows a political subdivision of the State of Indiana to
deposit public funds in a financial institution only if the financial institution is a depository eligible to
receive state funds and has a principal office or branch that qualifies to receive public funds of the
political subdivision.

The Sanitary District does not have a deposit policy for custodial credit risk.

At December 31, 2012, the Sanitary District had deposit balances in the amount of $16,591,031 for Sanitary District; $1,490,490 for Storm Water Utility; $(296,507) for Sanitation Utility; and $(667,185) for Recycling Utility.

The bank balances were insured by the Federal Deposit Insurance Corporation or the Public Deposit
Insurance Fund, which covers all public funds held in approved depositories.

http://nwigazette.com/wp-content/uploads/2014/02/sanitary.pdfOVERDRAWN%20CASH%20BALANCES
page 25

Overdrawn cash balances at December 31, 2012, were as follows:

For financial statement reporting, the Sanitary District's Bond and Interest Fund, a restricted fund,
was reduced by the amount of the over drafts. The overdrafts are reported as "Due From Sanitary District
Unrestricted Funds" on the Statement of Net Position.

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. (Accounting
and Uniform Compliance Guidelines Manual for Special Districts, Chapter 10)

http://www.in.gov/sboa/WebReports/B41654.pdf



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SANITARY DISTRICT
CITY OF HAMMOND
EXAMINATION RESULTS AND COMMENTS
(Continued)
TEMPORARY LOANS BETWEEN FUNDS
On February 14, 2012, the District Board adopted Resolution 64-2
011 which authorized temporary loans between funds as follows:

Transferred To Transferred From Amount
Operations and Maintenance (Sanitary District) Replacement (Sanitary District) $1,200,0000
Sewer Maintenance (Sanitary District) Storm Water Utility $90,000
Recycling Utility Storm Water Utility $350,000


The loans were posted to the records in December 2011, prior to the authorization date. The loans
were recorded in December 2011 in order to avoid reporting a deficit cash balance as of December 31, 2011.
The loans were also authorized for repayment prior to December 31, 2012, by the Board per another
resolution also adopted on February 14, 2012. The repayments were recorded on April 9, 2012.


Indiana Code 36-1-8-4 states in part:
"(a) The fiscal body of a political subdivision may, by ordinance or resolution, permit the transfer of a prescribed amount, for a prescribed period, to a fund in need of money for cash flow purposes from another fund of the political subdivision if all these conditions are met:
(1) It must be necessary to borrow money to enhance the fund that is in need of money
for flow purposes.
(2) There must be sufficient money on deposit to the credit of the other fund that can be
temporarily transferred.
(3) Except as provided in subsection (b), the prescribed period must end during the
budget year of the year in which the transfer occurs.
(4) The amount transferred must be returned to the other fund at the end of the
prescribed period.
(5) Only revenues derived from the levying and collection of property taxes or special
taxes or from operation of the political subdivision may be included in the amount
transferred.


(b) If the fiscal body of a political subdivision determines that an emergency exists that requires an extension of the prescribed period of a transfer under this section, the prescribed period may be extended for not more than six (6) months beyond the budget year of the year in which the transfer occurs . . ."

http://www.in.gov/sboa/WebReports/B41654.pdf page 23

Audit period covering Jan 1 2011 to December 31st, 2011


-23-
SANITARY DISTRICT
CITY OF HAMMOND
EXAMINATION RESULTS AND COMMENTS
(Continued)
TEMPORARY LOANS BETWEEN FUNDS
On February 14, 2012, the District Board adopted Resolution 64-2
011 which authorized temporary loans between funds as follows:

Transferred To Transferred From Amount
Operations and Maintenance (Sanitary District) Replacement (Sanitary District) $1,200,0000
Sewer Maintenance (Sanitary District) Storm Water Utility $90,000
Recycling Utility Storm Water Utility $350,000


The loans were posted to the records in December 2011, prior to the authorization date. The loans
were recorded in December 2011 in order to avoid reporting a deficit cash balance as of December 31, 2011.
The loans were also authorized for repayment prior to December 31, 2012, by the Board per another
resolution also adopted on February 14, 2012. The repayments were recorded on April 9, 2012.


Indiana Code 36-1-8-4 states in part:
"(a) The fiscal body of a political subdivision may, by ordinance or resolution, permit the transfer of a prescribed amount, for a prescribed period, to a fund in need of money for cash flow purposes from another fund of the political subdivision if all these conditions are met:
(1) It must be necessary to borrow money to enhance the fund that is in need of money
for flow purposes.
(2) There must be sufficient money on deposit to the credit of the other fund that can be
temporarily transferred.
(3) Except as provided in subsection (b), the prescribed period must end during the
budget year of the year in which the transfer occurs.
(4) The amount transferred must be returned to the other fund at the end of the
prescribed period.
(5) Only revenues derived from the levying and collection of property taxes or special
taxes or from operation of the political subdivision may be included in the amount
transferred.


(b) If the fiscal body of a political subdivision determines that an emergency exists that requires an extension of the prescribed period of a transfer under this section, the prescribed period may be extended for not more than six (6) months beyond the budget year of the year in which the transfer occurs . . ."

http://www.in.gov/sboa/WebReports/B42998.pdf-44-

CITY OF HAMMOND
AUDIT RESULTS AND COMMENTS
(Continued)
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.

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.