HomeMy WebLinkAboutCOM 0121.001 2010-2012JNSY•�F h'qh.
Colleen M. Schrandt ;+
Legislative Auditor
Alailing Address:
Business Address:
Hawaii County Building ( � 1266 Kamehameha Avenue
25.9upuni Street 1(� v laf ;Infunt i Ironworks Building, Room .4 - 1
Hilo, Hawaii 96720 Hilo, Hawaii 96720
OFFICE OF THE LEGISLATIVE AUDITOR
Telephone: (808) 961 -8386 Facsimile: (808) 961 -8905
Date: March 8, 2011
To: Dominic Yagong, Chairman
And Members of the County Council v
From: Colleen Schrandt �
Legislative Auditor
RE: Supplemental to Post -Audit Report for Fiscal Year Ending June 30, 2010
This letter transmits for your review the Internal Control and Business Issues Report for Fiscal
Year Ending June 30, 2010, as prepared by Accuity LLP. The purpose of the report is to provide
further information regarding Accuity's testing of the County's internal controls over financial
reporting and compliance and the results of that testing. The report contains their observations
and recommendations designed to help the County improve internal controls and achieve
operational efficiencies.
Accuity LLP will be present at the Finance Committee meeting on March 15, 2011, to answer
any questions you may have regarding this report.
In the meantime, please feel free to contact me should you require further information.
Enclosures
Cc w/o enclosures: Cindy Yee, Accuity LLP
Department of Finance
(Note: The "Internal Control and Business Issues Report June 30, 2010"
is on file in the Office of the County Clerk,)
Serving the Interests of the People of Our Island
Hawaii County is an Equal Opportunity Provider and Employer
Comm. No. 1 1 • 1
Ref. To: --
' f, Date MAR 15 20l11
•
C U I t LLP
y
CERTIFIED PUBLIC ACCOUNTANTS
County of Hawaii
State of Hawaii
Internal Control and Business Issues Report
June 30, 2010
Quality Integrity Insight
ACcu i tylLP
CR.RTIFTED PUBLIC ACCOUNTANTS
December 30, 2010
To the Chair and Members of the County Council
County of Hawaii
Hilo, Hawaii
In planning and performing our audit of the basic financial statements of the County of Hawaii, State of
Hawaii, (the "County") as of and for the year ended June 30, 2010, we considered its internal control
in order to determine our auditing procedures for the purpose of expressing our opinion on the basic
financial statements and not to provide assurance on internal control. However, we noted certain matters
involving internal control and its operation, and are submitting for your consideration our observations
and recommendations designed to help the County improve internal control and achieve operational
efficiencies.
This communication is intended solely for the information and use of the Legislative Auditor, the County
Council, and management of the County, and is not intended to be and should not be used by anyone
other than these specified parties.
Very truly yours,
cx,k
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999 BisnoP STREET, SUITL 1900
HoroLUuT. Hntk.4ri 96813
TL1.L1111oNi:: 808 531 1400 FAcsiun_L: 808 5313433
County of Hawaii
State of Hawaii
Index
June 30, 2010
Page
Current Year Comments
Proper Classification of Restricted Assets and Net Assets.....
Recordation of RereivahlPS
Internal Controls Over Federal Awards .... ...............................
Prior Year Comments
Collection of Receivables ......................... ...............................
Access to Programs and Data .................. ...............................
........................... ..............................1
i
........................ 2
....................................... ............................... 3
....................................... ............................... 3
County of Hawaii
State of Hawaii
Current Year Comments
June 30, 2010
1. Proper Classification of Restricted Assets and Net Assets
Certain audit adjustments were required to properly classify restricted assets and net assets in the
financial statements. Approximately $88,964,000 of cash and cash equivalents and investments
were reclassified as restricted assets and approximately $12,337,000 of net assets restricted for
capital projects were reclassified as unrestricted net assets.
Assets and net assets should be restricted if there are restraints imposed by creditors, grantors,
contributors, or laws in accordance with generally accepted accounting principles ( "GAAP ").
Recommendation
We recommend that the County establish formal procedures to identify and evaluate restrictions on
its assets regularly.
2. Recordation of Receivables
During our audit, we noted the following errors related to the recordation of receivables:
• Approximately $6,851,000, $2,494,000, and $169,000 of receivables from other governments
for the general fund, capital projects fund, and other governmental funds, respectively, were
improperly recorded due to errors in the application of payments, errors in the manual
calculation of receivables, and improper recognition of receivables.
• Real property taxes interest and penalties receivables of approximately $5,689,000 were
not accrued as of June 30, 2010 due to the County's accounting practices that were not in
accordance with GAAP.
• An allowance for doubtful accounts of approximately $46,000 was initially not recorded in the
financial statements for uncollectible receivables for Ouili Ekahi Affordable Housing Project
due to a lack of procedures to evaluate the collectability of the receivables.
We also noted a trend of increasing real property taxes receivable over the last few years
increasing from approximately $9,536,000 at June 30, 2008 to approximately $15,430,000 at
June 30, 2010.
Recommendation
We recommend that the County perform the following:
• Improve procedures for preparing and reviewing the receivables from other governments.
• Establish procedures to ensure that real property taxes interest and penalties receivables
are properly recorded.
• Establish procedures to assess and evaluate the collectability for all receivables.
• Ensure proper monitoring of real property taxes receivable collections.
County of Hawaii
State of Hawaii
Current Year Comments
June 30, 2010
3. Internal Controls Over Federal Awards
We audited the following major programs and noted control deficiencies related to federal awards
that were not present in all major programs but were common to at least two or more major
programs:
CFDA
Numbers
Name of Federal Program or Cluster
14.228/14.255
CDBG — State - Administered Small Cities Program Cluster
14.871
Section 8 — Housing Choice Vouchers
17.258/17.259/17.260 WIA Cluster
20.205 Highway Planning and Construction
20.500 Federal Transit — Capital Investment Grants
20.509 Formula Grants for Other Than Urbanized Areas
66.458 Capitalization Grants for Clean Water State Revolving Funds
66.468 Capitalization Grants for Drinking Water State Revolving Funds
• Lack of monitoring over internal controls to assess the quality of internal control performance
over time.
• Lack of segregation of duties between performance, review and recordkeeping.
• Lack of training of personnel responsible for administering federal awards.
• Resources (including County policies and procedures, cost principles circulars) are not
provided to all personnel administering federal awards.
• Lack of formal policies and procedures over federal compliance requirements or policies and
procedures that are outdated.
The Office of Management and Budget Circular A -102 Common Rule requires that non - federal
entities receiving federal awards establish and maintain internal control designed to reasonably
ensure compliance with federal laws, regulations, and program compliance requirements. The
characteristics of internal control are presented in the context of the components of internal control
discussed in Internal Control - Integrated Framework published by the Committee of Sponsoring
Organizations of the Treadway Commission.
Management of the County is responsible for setting the tone of the organization, ensuring
compliance with federal requirements is given priority, and that appropriate personnel and
resources are dedicated to ensure compliance.
Recommendation
We recommend that the County reevaluate the internal controls related to federal awards to ensure
that controls are adequately designed.
2
County of Hawaii
State of Hawaii
Prior Year Comments
June 30, 2010
The following is the status of the prior year comments as identified by the predecessor auditors.
1.
Collection of Receivables
During the prior year audit, it was noted that the landfill and sewer receivables outstanding for more
than 90 days accounted for a significant portion of the respective balances.
K
It was recommended that the Department of Environmental Management continue to work with the
Department of Finance to improve collection efforts on delinquent accounts.
Status
Unresolved. We noted at June 30, 2010 that the more than 90 days and total receivable balances
were $1,146,381 and $2,208,927, respectively, for landfill receivables (52% of total) and
$1,091,996 and $1,800,885, respectively, (61 % of total) for sewer receivables.
Access to Programs and Data
During the prior year audit, IT general controls issues related to information security policy,
passwords, user access, review of user access, and physical access were noted.
It was recommended that an information security policy be developed, approved, and
communicated; password parameters should be implemented; segregation of duty controls should
be implemented for user access; management should conduct periodic reviews of user access;
and the server room should remain locked at all times.
Status
We noted similar issues in the current year. See Finding No. 2010 -01 in the Single Audit of
Federal Financial Assistance Programs Report. This comment will not be carried forward.
3
2009
2008
Landfill receivables
90+ days
$ 1,108,085 $
1,609,116
Total receivable
2,193,457
3,814,499
Percentage of total
51%
42%
Sewer receivables
90+ days
$ 960,825 $
846,018
Total receivable
1,684,233
1,544,642
Percentage of total
57%
55%
K
It was recommended that the Department of Environmental Management continue to work with the
Department of Finance to improve collection efforts on delinquent accounts.
Status
Unresolved. We noted at June 30, 2010 that the more than 90 days and total receivable balances
were $1,146,381 and $2,208,927, respectively, for landfill receivables (52% of total) and
$1,091,996 and $1,800,885, respectively, (61 % of total) for sewer receivables.
Access to Programs and Data
During the prior year audit, IT general controls issues related to information security policy,
passwords, user access, review of user access, and physical access were noted.
It was recommended that an information security policy be developed, approved, and
communicated; password parameters should be implemented; segregation of duty controls should
be implemented for user access; management should conduct periodic reviews of user access;
and the server room should remain locked at all times.
Status
We noted similar issues in the current year. See Finding No. 2010 -01 in the Single Audit of
Federal Financial Assistance Programs Report. This comment will not be carried forward.
3
William P. Kenoi
Mayor
County of Hawaii
Finance Department
25 Aupuni Street, Room 2103 • Hilo, Hawaii 96720
(808) 961 -8234 • Fax (808) 961 -8248
Date:
To:
From:
Subject:
February 22, 2011
Colleen Schrandt, Legislative Auditor
Nancy Crawford, Director
Fiscal Year 2010 Preliminary Draft Management Letter
Nancy E. Crawford
Director
Deanna S. Sako
Deputy Director
We have reviewed the fiscal year 2010 draft Management Letter concerning the current
year comments. Thank you for the opportunity to respond to the comments.
1. Proper Classification of Restricted Assets and Net Assets
We will formalize our procedures to identify and evaluate restrictions on our
assets. Our current procedures are consistent with our reporting method over the
last several years, however, we will be reevaluating them as part of our
implementation of GASB Statement No. 54, "Fund Balance Reporting and
Governmental Fund Type Definitions" in the coming year.
2. Recordation of Receivables
• We will work on formalizing our procedures regarding receivables from other
governments. In addition, we will be spending an increased amount of time in
the coming year working more closely with the departments to help prevent
future issues.
• We will be checking with the Government Finance Officers Association in the
coming months to determine the correct accounting for real property tax
interest and penalties. Our current approach is very conservative. If we were
to include the receivables for interest and penalties there would be no impact
on our budgetary fund balance.
• We will share our policies and procedures regarding collectability with the
Housing Agency. This particular instance is unusual as the receivables need
to be evaluated with the assistance of a rental agent.
HawaVi County is an equal opportunity provider and employer.
• We currently do monitor our real property tax receivables and collections. As
expected, the real property tax receivables have increased over the last few
years due to the declining economic environment. However, the County Code
requires us to wait until the receivable has been delinquent for three years
before beginning the foreclosure process. In addition, our tax collection
assistants make every effort to work on delinquent receivables as time and
staffing permits.
3. Internal Controls Over Federal Awards
We will look at reevaluating our internal controls related to federal awards to ensure that
our controls are adequately designed. However, due to staff size in many of the
departments, additional segregation of duties may not be feasible. Training has been
conducted and will continue to be conducted in the future — we will try to ensure that the
departments are sending the appropriate staff to the training. In addition, we will work
on formalizing our policies and procedures.
If you have any questions on the above responses, please feel free to contact Deanna
Sako, Deputy Director, or Kay Oshiro, Controller.
William P. Kenoi
Mayor
William T. Takaba
Managing Director
Frank J. DeMarco, P.E.
Director
Hunter Bishop
Deputy Director
DEPARTMENT OF ENVIRONMENTAL MANAGEMENT
25 Aupuni Street Hilo, Hawaii 96720
(808) 961.8083 Fax (808) 961 -8086
htti):Hco.hawaii.hi.us /directory- /dir envmn
MEMORANDUM
Date : February 22, 2011
To Colleen Schrandt, Legislative Auditor
From: FRANK J. DE MARCO, F.E., Director -
Subject: Fiscal Year 2010 Preliminary Draft Management Letter
We have reviewed the fiscal year 2010 draft Management Letter concerning the Prior Year Comments on
Collection of Receivables and concur with the statements.
We are continuing to work with the Department of Finance and the Office of the Corporation Counsel to
improve collection efforts.
To further increase our collection efforts, a new Credit and Collection Clerk position has been created and
was filled in May 2010. This new position is focusing on the collection of past due solid waste and sewer
accounts. Having one position dedicated to collections will provide more timely and consistent collection
efforts and allow us to put more focus on the larger accounts. While this position alone has collected
close to $200,000 in past due receivables over the last nine months, challenging economic times continue
to impact the receivable balances.
cc: Finance Director
County of Hawai `i is an Equal Opportunity Provider and Employer.
William P. Kenoi
Mayor
William T. Takaba
Managing Director
County of Hawaii
DEPARTMENT OF INFORMATION TECHNOLOGY
25 Aupuni Street • Hilo, Hawaii 96720 -4252
(808) 961 -8207 • Fax(808)981-2037
February 22, 2011
Colleen Schrandt
County of Hawaii Legislative Auditor
Iron Works Building
Hilo, HI 96720
To Colleen:
RE: Response to "Access to Programs and Data" comments 6130110
Burt Tsuchiya
Director
Please see our response to "Access to Programs and Data" comments identified
by predecessor auditors as of June 30, 2010.
Information security policy
• An information security policy is under development.
Password parameters
• The County Department of IT has recently updated its Active Directory
password policy to require complex passwords that must be changed
every 90 days and to disallow reuse of the last 5 passwords.
Segregation of duty controls
• The lack of total positions in the County Department of IT prevents us from
segregating job duties optimally.
Periodic reviews of user access
0 User access reviews are performed annually for our EDEN financial system.
If you have any questions or concerns, please feel free to contact me at
981 -8300.
Sincerely,
Burt Tsuchiya
Director
Hawaii County is an Equal Opportunity Provider and Employer