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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.