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HomeMy WebLinkAboutRDA Mgmt Letter of Internal Review of RPM Company J ./ n ♦ INTER t -,,,,i- MEMO '41=e E3" OFFICE IIiuS To: EXECUTIVE DIRECTOR, HONORABLE CHAIRMAN AND MEMBERS OF THE REDEVELOPMENT AGENCY BOARD From: Paul S. Gibson, Director of Finance/City Treasurer Subject: Management Letter of the Internal Control Review of RPM Company relating to the Audit of the Palm Desert Housing Authority. Date: April 8, 1999 RECOMMENDATION: Receive and file the management letter for the Palm Desert Housing Authority for the fiscal year ending June 30, 1998. BACKGROUND: On January 29, 1998, the City acquired seven apartment complexes from the Riverside County Housing Authority. The Palm Desert Housing Authority contracted RPM Company to manage the apartment complexes for the Redevelopment Agency. The following are the City's solutions to the Internal Control Management comments as presented by our Auditors. Bank Reconciliations In order to receive the monthly financial statements for the seven apartment complexes, in a timely manner, the City allowed RPM Company to reconcile the bank statements on the 25th of each month. Our solution to the auditor's comment is to ensure that RPM Company has reconciled the bank statement to June 30th. The City will also ensure that the bank reconciliations include the sweep account. Cash Disbursements The City's staff will be randomly selecting invoices from the apartment complexes and confirming that the Auditor's recommendation has been implemented. (Will be implementing this procedure as of March, 1999). Payroll The City's staff will conduct a review of RPM Company's procedures to ensure that the Auditor's recommendation has been implemented. Executive Director, Honorable Chairman and Members Of The Redevelopment Agency Board Page 2 March 31, 1999 Security Deposits We have met with representatives of RPM Company and issued a letter regarding the procedure that will be implemented. Basis of Accounting The City's staff will continue to review RPM Company's general ledger and request that necessary adjustments be made prior to the beginning of each fiscal year financial audit. Capitalization Policy The City has provided RPM Company with a capitalization policy. Staff will be reviewing RPM Company's itemized inventory schedule before the fiscal year end. The management letter was received and filed by the Investment& Finance Committee on March 24, 1999. Staff recommends to receive and file the management letter for the Palm Desert Housing Authority for the fiscal year ending June 30, 1998. Respectfully submitted, Paul S. Gibson Director of Finance/City Treasurer 1.42.taitA1k t 0..P BY RDA ON —2 9 Ig VERIFIED BY. . • . Original on file with City CI 's Office C:W CCTG98\AUDIT\AUDITL-2\HOMEMAG.W PD PALM DESERT HOUSING AUTHORITY MANAGEMENT LETTER YEAR ENDED JUNE 30, 1998 1.�LEI L, E(Ta12i. & eomfiarzy, L_KP CERTIFIED PUBLIC ACCOUNTANTS&CONSULTANTS C0iea' . ogzmi/o CERTIFIED PUBLIC ACCOUNTANT 2121 ALTON PARKWAY,SUITE 100 a joint venture ctober 28' 1998 74-133 EL PASEO,SUITE 8 IRVINE,CALIFORNIA 92606-4906 v PALM DESERT,CALIFORNIA 92260 (949)757-7700 (760)773-4078 Agency Members Palm Desert Redevelopment Agency Palm Desert, California In planning an performing our audit of the financial statements of Palm Desert Housing Authority for the period ended June 30, 1998, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control structure. Our study and evaluation was more limited than would be necessary to express an opinion on the system of internal accounting control taken as a whole and we do not express such an opinion. The management of Palm Desert Housing Authority (RPM Company) is responsible for establishing and maintaining a system of internal accounting control. In fulfilling this responsibility, estimates and judgements by management are required to assess the expected benefits and related costs of control procedures. The objectives of a system are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly. During our audit, we noted other matters involving the internal control structure and its operation that we wish to call to your attention. These matters are set forth below with our recommendations for improvement. Bank Reconciliations Auditor Comment and Recommendation: During our review of the bank reconciliation we noted the following: 1) Bank reconciliations were prepared as of June 25, 1998, rather than as of the fiscal year (June 30, 1998). 2) Balances in sweep accounts were not included as part of the bank balance in the bank reconciliation. Instead cumulative transactions from sweep accounts were shown as reconciling items in the bank reconciliation. We recommend the bank reconciliation for the month of June be prepared to include all transactions through the end of the fiscal year. In addition, sweep accounts balances need to be included in the amount reported in the bank reconciliations for cash in bank. 1 Management Response: We were not aware prior to the audit to change the bank statements transactions from June 25, to June 30, 1998. There was a verbal agreement with the City of Palm Desert staff to close our bank statements of the 25th of each month for cash receipts collections. For future year ends, we will prepare the bank statements to reflect all transactions as of June 30, 1998. We treated the operating account and sweep account as one bank reconciliation. Our reason being, we were under the impression that the funds being transferred went into the City of Palm Desert General Fund for investment. We did not receive the sweep account bank statements until July 98, when we were asked to book the interest through June 98. To date, the sweep account is being booked accordingly and interest posted monthly. Cash Disbursements Auditor Comment and Recommendation: During our testing of cash disbursements we noted instances where approval of invoices was not documented. We also noted that paid invoices are not canceled upon payment. To prevent possible duplication of payments or payment of unauthorized expense, we recommend that all vendor invoices be stamped "paid" at the time of payment and a new policy to be implemented which prevents the processing of invoices that have not been properly approved. Management Response: Our Company procedure was as follows: Invoices are reviewed and signed off by the site manager, they are inputted into the computer. This process produces an invoice journal by vendor, amount, invoice number and grand total. The invoices and journal is then reviewed and corrected by the property manager. The property manager sign's off on the journal and the completed package is forwarded to the home office for processing. The home office reviews and checks are printed and signed for payment. During the mailing process the top remittance check copy, which is stapled to the invoice, is then stamped paid, dated and filed. When reviewed with the auditors, we agreed to change the stamp paid location to the invoices and the procedure is now in effect. Payroll Auditor Comment and Recommendation: Our testing of payroll transactions disclosed an instance where a time sheet was not approved by a supervisor. We also noted instances where personnel forms authorizing the hiring of employees were not signed by an authorized official of the management company. We recommend that approvals for time sheets and addition of new employees be documented as required. Policies should be adopted that will prohibit the processing of any payroll checks unless proper approvals are obtained. 2 Management Response: We review the instance where the time cards weren't signed off by the property manager. In this instance the employees were site managers and their salary status with the company is as full-time salary employees. In reference to personnel forms, this instance was during set up and we have since verified all documents for authorized signatures. Our company policy has been reviewed and steps have been taken to eliminate future occurrence. Security Deposits Auditor Comment and Recommendation: Under the present system, security deposits received from tenants and amounts retained from security deposits are not transferred and deposited in the property bank account in the month when the transaction occurs. In some instances, we noted differences in the amount of cash reported in the security deposit account with the amount reported in the security deposit report. We recommend for security deposits to be deposited directly to trust accounts and transfers of retained security deposits to be made to the operating account in the month when the rent is earned. Deposits in trust accounts should be reconciled on a monthly basis to security deposit reports. Differences should be promptly investigated and required adjustments should be made immediately in order to maintain these two accounts reconciled. We also recommend that management company adopt a policy that will require tenants to pay security deposits with a separate check. Management Response: The security deposit records we received from the housing authority of Riverside County did not agree with the leases on site. We have however, reconciled the security report on a monthly basis to the general ledger showing the differences until we could verify the correct amounts and update the security deposit report accordingly. We will follow the auditors recommendation to require tenants to pay security deposits with a separate check, and deposit those funds in the Security Trust Account. Basis of Accounting Auditor Comment and Recommendation: Our review of the financial records of the Palm Desert Housing Authority (the authority) maintained by RPM Company (the management company) disclosed that the management company is using the cash basis of accounting method to prepare the financial records of the authority. As a result adjustments had to be made to record receivables from tenants, prepaid rents and certain liabilities accounts. The management agreement calls for the financial records to be maintained on the modified accrual basis of accounting. 3 We recommend that financial records be properly adjusted at the end of the year to allow for the presentation of financial statements prepared on the accrual basis of accounting. Management Response: With regards to prepaid rents and liabilities not being posted at the year end. This refers back to the bank closing of cash receipts of June 25th, for prepaid rents and delinquent rents. The liabilities (accrued accounts payable) were posted with the exception of a late utility bill. Future year-ends will reflect the modified accrual accordingly. Capitalization Policies Auditor Comment and Recommendation: At the present time the management company does not have a formalized capitalization policy. We recommend a policy be prepared and implemented which will establish the minimum dollar value that will be used to capitalize cost incurred in purchasing fixed assets. Management Response: The City of Palm Desert has supplied us with a formalized capitalization policy that will be followed by all apartment complexes. These matters were considered in determining the nature, timing and extent of the audit tests to be applied in our of the Palm Desert Housing Authority's Financial Statements. This report is intended for the information and use of the Palm Desert Housing Authority and management. However, this report, upon acceptance by the Agency, is a matter of public records its distribution is not limited. D , E 4