Northwest Indiana Discussion

Lost Marsh Golf had an operaing loss of ($826,764) until $950,000 was transfered in covering the loss.

CAPITAL ASSETS
The capital asset detail ledger did not agree to the control ledger for 2009. The detail record was $923,719 greater than the summary report. In addition, the City records capital asset additions for completed infrastructure projects; however, the cost of the original infrastructure that was replaced is not being deleted.

Every governmental unit should have a complete inventory of all capital assets owned which
reflect their acquisition value. Such inventory should be recorded in the Capital Assets Ledger. A complete
inventory should be taken every year for good internal control and for verifying account balances
carried in the accounting records.

This post is found in the State Board of Accounts Most Recent Report filed September 30th, 2010 for the fiscal year ending December 31st, 2009, Pages 29. http://www.in.gov/sboa/WebReports/B37601.pdf


Hammond received $24,250 grant and built two wind turbines, at a cost of $224,655.

The grant amounted to 11% of construction cost.

The fan blades on the turbines are to be removed during bird migratory season. What does that cost?

Who paid the $200,405 balance and could almost a quarter million dollars been used for a better purpose?

How much is this reducing the park's electricity cost?

Smell fishy?

DISBURSEMENTS NOT COUNCIL APPROVED
The City budgets the Gaming Revenues Fund to allow for the Mayor and each Council Member
to have "discretionary" funds. In other words, the Mayor and each Council Member can decide how to
spend their specific allotment. Some of the funds are used to pay for street paving, and purchases of
vehicles for the street department. In these instances, the vendor is paid directly and the claim is submitted
to the Council for approval. In other instances, the Mayor or Council Member may decide to
donate funds to other City departments. For example, funds are donated to the "Festival of the Lakes" or to the "Henry Unit." In these examples, a claim is prepared; however, it is not submitted to the Council for approval. These donations account for a significant dollar amount of the expenditures made from the Gaming Funds.IC 5-11-10-1.6 (c) states:
"The fiscal officer of a governmental entity may not draw a warrant or check for payment of a
claim unless: . . .
(5) payment of the claim is allowed by the governmental entity's legislative body or the
board or official having jurisdiction over allowance of payment of the claim."

ACCOUNTS PAYABLE VOUCHERS
Use of Credit Cards
Payments made by the City on the Mayor's American Express Card were not always supported
by detailed receipts. For example, a credit card receipt was provided with no detail of the meal for a Redevelopment Commission dinner at the China Grill in Las Vegas for $1,274.50. Someone handwrote on the receipt that it was an RDC dinner for 15 people, only food and water. Furthermore, credit card receipts were provided for budget meetings of four people from Giovanni's Restaurant and Lost Marsh
Restaurant for $92.63 and $83.53, respectively, which did not provide the detail of the items ordered. Yet
another receipt from Giovanni's Restaurant for $144 was provided without an itemized receipt and did not
disclose the nature of the meeting.

Per Section 37.093 of the travel policy for the City:
"The Mayor, the Clerk, the Judge and the members of the Common Council may, at their
option, be reimbursed for their expenses either by reimbursement, as provided above for
other employees, or by a per diem rate as follows:
(A) No more than $60 per day for meals, when such expenses are evidenced by original
receipts or bills is attached to the purchase order;
(B) Lodging at the prevailing rate of a hotel or motel for single occupancy rooms; and
(C) Reimbursement for travel expenses."
The State Board of Accounts will not take exception to the use of credit cards by a governmental
unit provided the following criteria are observed: . . .
7. Payment should not be made on the basis of a statement or a credit card slip only. Procedures
for payments should be no different than for any other claim. Supporting documents
such as paid bills and receipts must be available. Additionally, any interest or
penalty incurred due to late filing or furnishing of documentation by an officer or employee
should be the responsibility of that officer or employee.

PRIOR YEAR QUESTIONED COSTS PAID FROM TIF FUNDS
Tax Increment Funds (TIF) Funds are created from additional taxes collected once an economic
development area has been established as a TIF allocation. Expenditures from TIF funds should be used
for the specific allocation area the tax was collected for.

During the 2008 audit, the U.S. Department of Housing and Urban Development (HUD)
questioned costs $1,018,630 ineligible expenditures for the Community Development Block Grant ProgramQuestioned costs were repaid to HUD on May 11, 2010, from the TIF Allocation Woodmar Fund.
Documentation was not provided to ensure that the items noted as questioned costs benefited the TIF
allocation area..

IC 36-7-14-39(b) (2) states in part:
"Except as otherwise provided in this section, property tax proceeds in excess of those
described in subdivision (1) shall be allocated to the redevelopment district and, when collected,
paid into an allocation fund for that allocation area that may be used by the redevelopment
district only to do one (1) or more of the following:
(A) Pay the principal of and interest on any obligations payable solely from allocated tax
proceeds which are incurred by the redevelopment district for the purpose of financing or
refinancing the redevelopment of that allocation area.
(B) Establish, augment, or restore the debt service reserve for bonds payable solely or
in part from allocated tax proceeds in that allocation area.
(C) Pay the principal of and interest on bonds payable from allocated tax proceeds in
that allocation area and from the special tax levied under section 27 of this chapter.
(D) Pay the principal of and interest on bonds issued by the unit to pay for local public
improvements that are physically located in or physically connected to that allocation
area.
(E) Pay premiums on the redemption before maturity of bonds payable solely or in part
from allocated tax proceeds in that allocation area.
(F) Make payments on leases payable from allocated tax proceeds in that allocation
area under section 25.2 of this chapter.
(G) Reimburse the unit for expenditures made by it for local public improvements (which
include buildings, parking facilities, and other items described in section 25.1(a) of this
chapter) that are physically located in or physically connected to that allocation area.
(H) Reimburse the unit for rentals paid by it for a building or parking facility that is
physically located in or physically connected to that allocation area under any lease
entered into under Indiana Code 36-1-10.
(I) For property taxes first due and payable before January 1, 2009, pay all or a part of
a property tax replacement credit to taxpayers in an allocation area as determined by the
redevelopment commission. This credit equals the amount determined under the
following STEPS for each taxpayer in a taxing district (as defined in IC 6-1.1-1-20) that
contains all or part of the allocation area.
(J) Pay expenses incurred by the redevelopment commission for local public improvements
that are in the allocation area or serving the allocation area. Public improvements
include buildings, parking facilities, and other items described in section 25.1(a) of this
chapter.
(K) Reimburse public and private entities for expenses incurred in training employees of
industrial facilities that are located: (i) in the allocation area; and (ii) on a parcel of real
property that has been classified as industrial property under the rules of the department
of local government finance. However, the total amount of money spent for this purpose
in any year may not exceed the total amount of money in the allocation fund that is
attributable to property taxes paid by the industrial facilities described in this clause. The
reimbursements under this clause must be made within three (3) years after the date on
which the investments that are the basis for the increment financing are made.

The allocation fund may not be used for operating expenses of the commission."

FEDERAL TAXES

The City did not properly calculate Medicare wages and withhold Medicare tax from police
officers. The City did not include the police residency bonus of $1,800 as taxable Medicare wages in thecalculation of Medicare tax. The City also did not include the $955 taxable clothing allowance (nonaccountableplan) in the calculation of Medicare tax withholding. The 2009 total of all four quarters of the Employer's Quarterly Federal Tax Return (941) line 2,

Wages, tips and other compensation, did not agree to the total of box 1 on the City's total Wage and Tax Statement (Form W-2). The instructions for the 941, line 2, state: "Enter amounts on line 2 that would
also be included in box 1 of your employee's Form W-2." The Form W-2 wages exceeded the 941 wages
by $795,336.28. Internal Revenue Service, Circular E, Employer's Tax Guide, provides direction to employers for wages, bonuses, and fringe benefits.

Political subdivisions are required to comply with all grant agreements, rules, regulations, bulletins,
directives, letters, letter rulings, and filing requirements concerning reports and other procedural
matters of federal and state agencies, including opinions of the Attorney General of the State of Indiana,
and court decisions. Governmental units should file accurate reports required by federal and state agencies. Noncompliance may require corrective action

REDEVELOPMENT AUTHORITY
An annual organizational meeting of the Hammond Redevelopment Authority was not held in
2009 or 2010 as required by state statute.
IC 36-7-14.5-9 states in part:
"(a) Immediately after January 15 of each year, the board shall hold an organizational
meeting. It shall elect one (1) of the member's president, another vice president, and another
secretary-treasurer to perform the duties of those offices. These officers serve from the date
of their election and until their successors are elected and qualified. The board may elect an
assistant secretary-treasurer."

CONSTRUCTION IN PROGRESS INTERNAL CONTROLS – SANITARY DISTRICT
The Sanitary District does not maintain adequate financial records for construction in progress.
Two reports called "Bond Issue Actual/Budget" (the detail) were presented for examination. These
reports listed each project that was to be financed by the corresponding debt, the $17,225,000 SRF
(State Revolving Fund) Loan and the $4,635,000 Special Taxing District Bonds, 2007A.

These reports listed the budget for each project, the expenditures for each project as of December 31, 2009, and the remaining budget balance for each project. The expenditures year to date on these reports, compared to the construction in progress accounts in the Trial Balance, (the control), noted material differences. The detail exceeded the control by $1,094,980 and $2,037,084, respectively, for the two debt instruments.

Controls were not in place to reconcile the ledger to these reports or to any other detailed listings of
expenditures for the projects. Failure to accurately track expenditures during the construction period of a
project could materially affect the reliability that all costs associated with each project, will be captured
when transferring the project costs to the capital asset record upon completion of the project. Because of
inadequate controls, the State Board of Accounts was unable to provide an unqualified opinion on the
Independent Accountant's Report for the separate examination financial statements.

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 managements' 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. (Accounting and Uniform Compliance
Guidelines Manual for Special Districts, State of Indiana, Chapter 10)

Every governmental unit should have a complete inventory of all capital assets owned which
reflects their acquisition value. Such inventory should be recorded in the Capital Assets Ledger.
Where construction work has not been completed in the current reporting calendar year, the cost
of the project should be carried as "construction work in progress." When the project is completed, it will
be placed on the inventory applicable to the assigned asset accounts. (Accounting and Uniform Compliance
Guidelines Manual for Special Districts, State of Indiana, Chapter 16)

Accounting records and other public records must be maintained in a manner that will support
accurate financial statements. Anything other than an unqualified opinion on the Independent Auditors' Report on the financial statements may have adverse financial consequences with the possibility of an increase in interest rate cost to the taxpayers of the governmental unit. (Accounting and Uniform Compliance
Guidelines Manual for Special Districts, State of Indiana, Chapter 16)

Compliance
In our opinion, the City complied in all material respects with the requirements referred to above
that are applicable to each of its major federal programs for the year ended December 31, 2009. However, the results of our auditing procedures disclosed instances of noncompliance with those requirements which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying Schedule of Findings and Questioned Costs as items 2009-3, 2009-4, 2009-5, and 2009-6.


Internal Control Over Compliance

Our consideration of internal control over compliance was for the limited purpose described in the
preceding paragraph and would not necessarily identify all deficiencies in the entity's internal control that
might be significant deficiencies or material weaknesses as defined below. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be significant deficiencies.

A control deficiency in a City's internal control over compliance 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 noncompliance with a type of compliance requirement of a
federal program on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. We consider the deficiencies in internal control over compliance described in items 2009-3, 2009-4, 2009-5, and 2009-6 of the accompanying Schedule of Findings and Questioned Costs to be significant deficiencies.

A material weakness is a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that material noncompliance with a type of compliance requirement
of a federal program will not be prevented or detected by the entity's internal control. Of the significant
deficiencies in internal control over compliance described in the accompanying Schedule of Findings
and Questioned Costs, we consider items 2009-3 and 2009-4, to be material weaknesses.
The City's response to the findings identified in our audit is described in the accompanying Corrective
Action Plan. We did not audit the City's response and, accordingly, we express no opinion on it.


A material weakness is a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that material noncompliance with a type of compliance requirement
of a federal program will not be prevented or detected by the entity's internal control. Of the significant
deficiencies in internal control over compliance described in the accompanying Schedule of Findings
and Questioned Costs, we consider items 2009-3 and 2009-4, to be material weaknesses.
The City's response to the findings identified in our audit is described in the accompanying Corrective
Action Plan. We did not audit the City's response and, accordingly, we express no opinion on it.

Section I – Summary of Auditor's Results


Financial Statements:
Type of auditor's report issued: Unqualified
Internal control over financial reporting:
Material weaknesses identified? yes
Significant deficiencies identified that are not considered to be
material weaknesses? yes
Noncompliance material to financial statements noted? no

Federal Awards:
Internal control over major programs:
Material weaknesses identified? yes
Significant deficiencies identified that are not considered to be
material weaknesses? yes
Type of auditor's report issued on compliance for major programs: Unqualified
Any audit findings disclosed that are required to be reported in
accordance with section 510(a) of Circular A-133? yes


Identification of Major Programs:
CFDA
Number
Name of Federal Program
14.218 Community Development Block Grants/Entitlement Grants
14.239 HOME Investment Partnerships Program
16.710 Public Safety Partnership and Community Policing Grants
66.458 Capitalization Grants for Clean Water State Revolving Funds
Dollar threshold used to distinguish between Type A and Type B programs: $300,000

Dollar threshold used to distinguish between Type A and Type B programs: $300,000
Auditee qualified as low-risk auditee? no

Section II – Financial Statement Findings
FINDING 2009-1, INTERNAL CONTROLS OVER BANK RECONCILEMENTS
A review of the December 2009 bank reconcilements prepared by the City noted the following
items:

1. The City did not reconcile the Redevelopment Authority Marina (Fund 409), Redevelopment Commission 2002 Revenue Bond Debt Service (Fund 406), or the Redevelopment
Commission 2002 Revenue Bond Debt Service Reserve (Fund 407) reported fund balances
of $6,891,952.76, $2,501.51, and $123.90, respectively, to the related bank statements.
A review of the bank statements noted that the Redevelopment Authority Marina
Fund earned $314,179.74 of interest and disbursed $7,206,082.50 for the pay-off of thedefeased 1999 Lease Rental Revenue Bonds and $50 reimbursed back to the Hammond
Port Authority before the account was closed in August 2009. The $2,501.51 and
$123.90 were disbursed to the Hammond Port Authority as reimbursements and the accounts
were closed as of May 2009. Since proper reconcilements were not performed,
the City understated receipts and disbursements and overstated the cash balances at
year end by the amounts noted above. Subsequently, the City has posted the appropriate
entries to the City's financial system to close the funds. In addition, the City Controller
has approved an adjustment to the financial statements presented herein to reflect
the activity and closing of the bank statements.

2. The City's checking bank account activity included deposits and/or electronic fund
transfers (EFTs) received between May and December 2009 totaling $3,260,477.59
which was not posted to the City's ledger as of December 31, 2009. Upon Auditor's verification
of the reconcilement, $2,500,000 of the total was determined to be an actual bank
to bank transfer from September 2009 between the City's checking and investment bank
accounts not posted to the City's financial system. The Auditor then determined that a
$2,500,000 bank to bank transfer out posted to the financial system for the City's investment
account in June 2009 was not actually transferred between bank accounts. In
December 2009, the City did post an entry to the investment bank account to adjust
$500,000; however, the year end reconcilement for the City's investment account did not
identify the September $2,500,000 transfer out not posted or the $2,000,000 transfer out
posted in error as reconciling items. The checking accounting reconcilement misrepresented
the $2,500,000 as an outstanding deposit at year end. Subsequently, the City
has either posted receipts to the ledger for the remaining $760,477.59 balance of outstanding
deposits or the appropriate adjusting entries for the bank to bank transfers. The
City Controller also approved an adjustment to the financial statements presented herein
to reflect the outstanding deposits in the correct accounting period.

3. A new payroll bank account that was opened in October 2009 was not properly reconciled
as of December 31, 2009, and did not include all reconciling items.

4. Another payroll bank account reconcilement noted monthly differences between the bank
activity and the City's ledger balance without further research. The reconcilement did not
include the bank's account analysis charge, totaling $4,452.93 for the year, as a reconciling
item nor were the charges posted to the City's ledger.

Controls are not in place to ensure that all funds are reconciled, that all reconciling items are
properly identified, and that all reconciling items noted on monthly bank reconcilements are timely posted
to the City's detail of receipts and disbursements ledgers so that material over or under statements of
receipts or disbursements does not occur.

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.

Controls over the receipting, disbursing, recording, and accounting for the financial activities are necessary to avoid substantial risk of invalid transactions, inaccurate records and financial statements and incorrect decision making.

FINDING 2009-4, REPORTING

Federal Agency: U.S. Department of Housing and Urban Development
Federal Programs: Community Development Block Grants/Entitlement Grants,
HOME Investment Partnerships Program
CFDA Numbers: 14.218, 14.239
Award Numbers: B-08-MC-18-0006, M-08-MC-18-0204


As the following information can not be copied and because of formatting, the Audit reports deficits/unaccounted differences between the Federal Report, the Ctiy's Ledger as follows:


Community Development Block Grant

Beginning cash balance:
Per Fed Cash transaction: (212,116) City's Ledger 405,018 Difference (617,134)

Receipts:
Per Fed Cash Transaction: $1,512,182 City's Ledger $1,639,810 Difference (127,628)

Disbursements:
Per Fed Cash Transaction: 1,643,518 City's Ledger $2,161,055 Difference (227,225)

Ending Cash Balance:
Per Fed Cash Transaction: (343,452) City's Ledger (116,227) Difference (227,225)[/color]


HOME INVESTMENT PARTNESHIP PROGRAM

Begining Cash Balance:
Per Fed Cash Transaction: 28,982 City's Ledger 196,043 Difference: (166,061)

Receipts:
Per Fed Cash Transaction: 627,164 City's Ledger 671,554 Difference: (44,390)

Disbursements:
Per Fed Cash Transaction: 777,213 City's Ledger 777,214 Difference: (1)
ending cash balance:
Per Fed Cash Transaction: (120,067) City's Ledger 90,383 Difference: (210,450)

The U.S. Department of Housing and Urban Development cannot adequately monitor the grant
funds, or adequately assess their needs if reports are incorrectly completed.
City officials could not identify the differences noted above. No attempt was made to reconcile
the City's receipts, disbursements, and balances ledger to the quarterly reports. Internal controls are not
in place to ensure the amounts reported agree to the City's ledger.

The city can not account for the differences between the Cash Reports and their ledger. With the Community Development Block grant there is a $1,250,000 difference, unaccounted.

The Home Investment Partneship Program has $210,450 un accounted for.