Youngsville Borough Council heard a presentation at its meeting Monday evening on the results thus far of the borough's annual audit.
James Alexander from accounting firm Buffamante, Whipple, Buttafaro, P.C. (BWB) gave an overview of the audit findings and a look back at the borough's finances through 2013.
Alexander noted the firm has not issued a final audit for Youngsville and is currently awaiting some further information before completion. The presentation was based on the draft version of the audit.
"I'd say we're about 95 percent done with the audit," Alexander told council.
He began by explaining the borough uses a cash basis system of accounting, rather than the accrual-basis system in compliance with generally accepted accounting principles. Under an accrual-based system, revenues are recorded when earned and expenses are recorded when the expense occurs. Under a cash-basis system, revenue is recorded when received and expenses recorded when paid. The difference, he noted, led directly to some of the audit findings.
As for the audit of the borough's financial transactions itself, Alexander said BWB issued a "clean" audit, meaning there were no findings on the actual financial statements of the municipality.
There were two findings included in the audit of internal controls on financial reporting and compliance, though he said both were common to smaller organizations and non-profit entities.
BWB's first finding related to the preparation of the actual financial statements being audited. The firm noted financial statements were prepared by the auditor itself, and not internally by the borough. According to the draft audit, that could result in errors in the statements going undetected.
The finding is common and not a cause for concern, according to Alexander.
The second finding related to internal controls involved segregation of duties regarding finances in the borough.
Alexander noted this was also common to smaller organizations and is a result of limited staff. In larger organizations, it is less common for a single individual to fulfill multiple roles.
"I think you have good controls in place for the size of organization you have," he said.
The draft audit included two findings related to compliance issues.
The first involves the form financial statements furnished yearly by the borough to the Pennsylvania Infrastructure Investment Authority (PENNVEST) as part of the debt agreement between the two.
While the borough has fulfilled its duty to furnish the financial statements required in the agreement, the actual loan covenant specifies statements should be in accordance with generally accepted accounting principles. Alexander noted that the statements furnished to PENNVEST reflect the modified cash-based accounting used by the borough rather than an accrual-based system used in generally accepted accounting principles.
The borough has been submitting its statements in the cash-basis form so far and PENNVEST has accepted them, but Alexander warned the state agency was not obligated to and could demand statements reflecting an accrual-based system.
The draft audit recommends the borough attempt to obtain a waiver from PENNVEST officially allowing for submission of financial statements reflecting the cash-basis accounting system it utilizes.
The second compliance-related finding involves a borough practice of making transfers in excess of budgeted amounts from the general and other funds to the capital reserve fund at the end of the year.
The borough accounts for some transfers in its annual budget. The audit finding only concerns amounts in excess of what has been officially budgeted transferred to reduce fund balance at the end of the year and then returned to the fund at the beginning of the next year.
The audit recommends the borough discontinue the practice or require official council approval to make the transfer.
Alexander said he recommends discontinuing the practice altogether, rather than requiring council approval.
In the draft audit additional comments section, BWB made a number of additional recommendations.
BWB recommended the borough follow suit with other governmental bodies in reviewing computer and internet usage, travel reimbursement, credit card usage and regulation and personal use of asset policies.
The firm also recommended establishing official whistleblower and conflict of interest policies.
The draft audit recommended the borough perform an annual inventory of property and equipment and institute a perpetual inventory system for supplies.
While the borough reconciles current year taxes owed with those actually collected, according to the draft audit, it does not reconcile delinquent taxes on a regular basis. The firm recommended the borough implement a system reconciling outstanding delinquent taxes with county records on a minimum of an annual basis.
BWB found that the borough allocates a portion of some employees' salaries from the general fund to other borough funds, such as the sewer fund, on the basis of estimates of time expended working in the accompanying department. The draft audit recommends the borough conduct a time study to assess actual time spent working in the various departments.
The draft audit recommends the borough consider switching from a cash-basis accounting system to an accrual-basis one in compliance with generally accepted accounting principles.
BWB recommended the borough provide whichever council member is handling invoice reviews in a particular month with a check register report to enable them to monitor check sequence.
Council members review invoices on a rotating basis.
The draft audit also recommended providing a credit memo report from the water, sewer and sanitation billing software as an additional safeguard against possible fund misappropriation, as a single individual is responsible for billing and collection for those services. A credit memo report would provide a list of any time a customer's account was credited for a payment.