Letter from Milo's Auditing firm dated 8/31/07September 17, 2007 - MILOJames W. WadmanCERTIFIED PUBLIC ACCOUNTANTJames W. Wadman, C.P.A. Ronald C. Bean, C.P.A. Kellie M. Bowden, C.P.A. Wanese L. Lynch, C.P.A. August 31,2007Independent Auditor's Communication of Reportable Conditions and Other MattersMembers of the Board of Selectmen Town of Milo Milo, ME 04463In planning and performing our audit of the Town of Milo, Maine for the year ended December 31, 2006, we considered the Town's internal control structure in order to determine the scope of our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements. Our review of these systems was not intended to provide assurance on the internal control structure and should not be relied on for that purpose.Under the standards established by the American Institute of Certified Public Accountants, reportable conditions involve matters coming to cur attention relating to significant deficiencies in the design or operation of the internal control structure that, in our judgment, could adversely affect the Town's ability to record, process, summarize, and report financial statements. A material weakness is a reportable condition in which the design or operation of one or more of the internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities, in amounts that would be material in relation to the financial statements being audited, may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might constitute reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses. However, we have determined items 2006-01 through 06 to be material weaknesses.This report is intended solely for the information and use of management and others within the administration. This restriction is not intended to limit distribution of this report, which is a matter of public record.Respectfully submitted,James W. Wadman, CPA TEL.(207)667-6500 FAX.(207)667-3636122 OAK STREETP.O. BOX 889ELLSWORTH, MAINE 04605 REPORTABLE CONDITIONS2006-01 Reconciliation of Taxes/Liens ReceivableThe Town's general ledger tax and lien accounts were not reconciled to subsidiary records on a monthly basis during the year. Abatements and supplements issued during the year were not filed in an organized manner and there were several supplements not accounted for. Failure to reconcile tax and lien accounts allows errors to go undetected and results in inaccurate and incomplete financial records. We spent a considerable amount of time reconciling the tax accounts and locating abatements and supplemental taxes. The board of selectmen voted on 2/1/2007 to adjust the tax accounts rather than spend more time reconciling.We recommend that the town's general ledger tax/lien accounts be reconciled on a monthly basis to the subsidiary ledgers. We also recommend that an organized system to account for abatements and supplemental taxes be implemented and that management monitor this situation to ensure that these procedures are being followed.2006-02 Expenditure of monies before funding is approvedThe Town has expended funds in fiscal year 2006 for a fire truck purchase and for the purchase of police department cameras before funding was approved and finalized. A fire truck was purchased in September 2006 but the loan for the fire truck was not approved by voters until the Town Meeting on 5/17/2007 and issued on 6/4/2007. Police department cameras were purchased on 9/28/2006 but the loan for the cameras was not issued until 3/5/2007. In addition, we found no voter approval for this particular borrowing.The Town has also expended funds on the Eastern Piscataquis Industrial Park before funding as been approved. A refinance loan in the amount of $250,000 was not approved by voters until 5/17/2007 and issued on 6/4/2007. Funds have also been expended before the grant monies have been released. The grant monies will not be disbursed until the environmental review has been approved.We recommend that funding be approved and finalized before expenditures are committed. 2006-03 Budgeting PracticesThe Town has budgeted for current year revenues using prior year accounts receivable balances. Revenues should be budgeted using current year revenues only, not money collected for prior year accounts receivables. We recommend management carefully review the budget and compare the current year budget to prior year budgets to identify any variances.2006-04 Minutes of Selectmen's MeetingsThe minutes of many selectmen's meetings were not written up in a timely manner. The minutes of twelve meetings were not available until March 2007. There are many issues discussed that should be documented in a timely fashion to avoid errors or biased interpretation.We recommend that minutes of selectmen's meetings are recorded timely and that management review them at the subsequent meeting to verify and approve the minutes.2006-05 Financial Statement PreparationBased on recently implemented auditing standards, inadequate design of internal control over the preparation of the audited financial statements is deemed to be a material weakness in the internal control structure. The material weakness in the internal control is due to the inability to effectively prepare and evaluate the audited financial statements and detect material misstatements in those financial statements.2006-06 GASB Statement 34On June 10, 1999, the Governmental Accounting Standards Board (GSAB) approved the issuance of GASB Statement 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments. This pronouncement established substantial new requirements for the annual financial reports of state and local governments. Basic financial statements require government-wide financial statements that consist of a statement of net assets and a statement of activities, which focuses on the government "taken as a whole" rather than on fund types. The statement of net assets reports capital assets, including infrastructure, and the statement of activities reports depreciation expense. Capital outlays are reported as fixed assets rather than expenditures. Long-term debt proceeds and principal payments are reported as long-term liabilities rather than other financing sources and expenditures. The statement of activities measures "net (expense) revenue" for each of the Town's functions and report revenues by program, with general revenues (such as taxes) reported separately.GASB 34 requires governments to present Management's Discussion and Analysis (MD&A) as required supplementary information before the basic financial statements. This presentation will be entirely new to governments that currently prepare only general purpose financial statements. GASB 34 requires MD&A to include a brief discussion of the basic financial statement, as well as:£.......Comparisons of the current year financial information to the prior year, based on government-wide information.me....An analysis of the government's overall financial position and results of operations to help users assess whether financial position has improved or deteriorated due to current budget activities.1m....An analysis of significant changes that occurred in individuals funds, as well as significant budget variances.m......A description of capital asset and long-term debt activity during the year.ęz.....A description of currently know facts, conditions, or decisions expected to have a significant impact on financial position or results of operations.GSAB 34 becomes effective in phases, depending on the government's total revenues. The Town of Milo, Maine was required to implement the changes with the fiscal year beginning January 1, 2004. Obviously, considerable staff time must be expended in planning for changes that will be significant to the Town's financial reporting.We recommend that the Town's management review GASB 34 in detail as soon as practical to determine the amount of work required of Town personnel, and outline plans for implementation.Comment added by Izzy :This audit firm is a competent and creditable company that enjoys a good professional reputation and is highly regarded by its clients, who include other municipalities. It leaves the towns with all the information that they need to provide to finalize their audit. There is also an exit interview to review the accounts and finalize and carry forward/lapsing balances as well as necessary adjusting entries. Meeting the GASB 34 requirements in another community required about two weeks. NOTE - This article reflects the views of the author and not necessarily those of the TRC Alliance Team.