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5.d) City of Scandia Internal ControlsCITY OF SCANDIA INTERNAL CONTROL POLICY The City of Scandia seeks to balance its internal accounting control in such a way as to ensure public confidence and maintain the integrity of its financial systems and assets, without unduly inhibiting the ability to efficiently carry out its mission. Goal The goal of the City Council in establishing an internal control system is to safeguard the assets of the City and to ensure an appropriate level of fiduciary responsibility. Whenever possible, no financial transaction shall be handled by only one person from beginning to end. I. Claims Procedures and Bank Reconciliations Objective The objective of the City Council is to ensure that cash is disbursed only upon proper authorization of management for valid governmental purposes and that all disbursements and receipts are properly recorded. Procedures a. Payment of claims shall be authorized by the Scandia City Council. Department heads must sign off on all claims, but may have recurring claims (Xcel, Verizon, Ecolab, LMC, etc.) which they would not need to sign off on. b. Payments are recorded by the Deputy Clerk and the disbursements are reviewed by the Treasurer. c. A monthly disbursement register shall be prepared for each Council Meeting that details the date of the claim, invoice number, amount of the claim and description of expense and expense code for final Council approval. d. Checks shall be signed by the City Administrator, the Treasurer and the Mayor. In the absence of the Mayor, another council member shall be designated to sign checks. All checks shall require three signatures. e. Checks shall be properly verified for authorization and signature by the City Administrator. All signed checks shall be mailed promptly by the Office Assistant or the Treasurer in the absence of the Office Assistant. f. Blank checks shall not be signed in advance. g. All disbursements, except those from petty cash and approved electronic transfers, shall be made by pre -numbered checks. h. Checks by which claims are paid shall have printed on the reverse side, above the space for endorsement "The undersigned payee, in endorsing this order check, declares that the same 1 Internal Controls Policy Page 2 of 6 is received in payment of a true, just and correct claim against the City and that no part has heretofore been paid." i. Financial reports and bank reconciliations shall be prepared by the Treasurer and presented to the Council on a monthly basis. Bank statements and reconciliation reports are reviewed by the City Administrator monthly. j. Unpaid invoices shall be maintained in a separate file. Invoices and requests for reimbursement will be checked for accuracy and reasonableness before approval. Any invoice or statement that is questionable will be investigated by the Deputy Clerk or Treasurer. k. It is not permissible to draw checks payable to Cash. Checks made payable to the City made be issued for Petty Cash or prize money for a City sponsored event, such as Vinterfest. 1. In accordance with Minn. Stat. §471.425 subd. 2, claims of the City shall be paid within 35 days from the date of receipt, or as otherwise stipulated by the terms of the contract. Claims not paid within this time frame will be subject to penalty and interest charges assessed by the vendor, as provided for in Minn. Stat. 471.425, subd. 4. in. Credit card purchases shall only be allowed as legally provided for under Minn. Stat. §471.382 and by authorization of the City Council. The Purchasing Policy approved by the City Council on covers use of credit cards vendor, as provided for in Minn. Stat. §471.425 subd. 4, except for those for which a legitimate dispute or delay exists. n. Invoices will be marked "Paid" and include the date paid. o. Check copies and/or stubs shall be attached to the corresponding claim and electronically filed on a monthly basis by the Deputy Clerk. II. Payroll Obiective The objective of the City Council is to ensure that payroll disbursements are made only upon proper authorization to bona fide employees, that payroll disbursements are properly recorded, and related legal requirements (such as payroll tax deposits) are complied with. Procedures a. Time sheets are required to document employee hours, including overtime, and leave time. b. Time sheets must be signed by the employee's immediate supervisor authorizing payment for work. c. Payroll checks will be processed by the Deputy Clerk. Internal Controls Policy Page 3 of 6 d. A list of payroll checks (direct deposits) written, with appropriate taxes withheld, will be maintained in a separate payroll register that has been reviewed and signed by the City Administrator and the Treasurer. e. All payroll checks will be issued by direct deposit, except for temporary workers. f. The Deputy Clerk shall mail unclaimed paychecks within 24 hours of issuance. g. The Deputy Clerk will prepare all payroll related tax withholding deposits and reports with disbursements reviewed and signed off on by the City Administrator and Treasurer. h. The Deputy Clerk shall prepare year-end W -2's to employees and respond to inquiries regarding the same. i. Employment records will be maintained for each employee that details wage rates, benefits, taxes withheld and any changes in employment status. j. Payroll -related taxes, including employer share, shall be withheld and paid to the appropriate government agency on a timely basis. k. Written personnel policies shall dictate the accounting of holidays, paid time off and other benefits. V. Petty Cash Obiective The objective of the City County is to provide guidelines for the use, safekeeping and reporting standards of the petty cash fund, while allowing for small purchases or reimbursements, in cash, for items such as stamps, parking, etc. using the following guidelines: Procedures a. The Treasurer shall be the custodian of the Petty Cash Fund and shall be responsible for reconciling the fund on a monthly basis. b. The Treasurer will arrange for replenishment of the Petty Cash Fund. c. The Petty Cash will not exceed the amount of $50. d. Supporting documentation (receipts, invoices, etc.) must be kept with the Petty Cash register. e. Under no circumstances shall employees be permitted to borrow from or cash checks from the Petty Cash Fund. f. Unannounced counts of Petty Cash will be made on occasion by the City Administrator. g. The Petty Cash Fund will be kept in a locked drawer by the Treasurer. The Administrative Staff will have access to the funds. Internal Controls Policy Page 4 of 6 h. Payment for items costing over $20 must be made by check rather than reimbursed through petty cash. VI. Cash Receipts Obiective The objective of the City Council is to ensure that all cash intended for the City is received, promptly deposited, properly recorded, reconciled, and kept under adequate security. PrnrPrl n rvc a. The Deputy Clerk shall be responsible for receiving payments to the City, whether by mail or in person. In the absence of the Deputy Clerk, either the Office Assistance or Treasurer shall receive payments. b. All payments to the City received shall be immediately endorsed with a bank account stamp, or identified as "cash", recorded in two-part pre -numbered receipt book stating the date of the receipt, the amount of the receipt, a description of the item or service being paid for, and the initials of the staff member receiving payment. c. All endorsed checks and cash payments recorded in the receipt book shall be placed in a "Checks for Deposit" file kept in a locked cabinet. d. The Treasurer will be responsible for coding and recording receipts in the general ledger accounts of the city, and making bank deposits. e. Financial reports and bank reconciliations are prepared by the Treasurer, reviewed by the City Administrator, and presented to the City Council on a monthly basis in the Treasurer's Report. £ Invoices for City services shall be prepared by the Deputy Clerk. An accounts receivable register will be maintained. g. Invoices for Utility Billing shall be prepared by the Treasurer. An accounts receivable register will be maintained. h. Deposits shall be made in the City's bank account weekly or as needed. Deposits shall be taken to the bank by the Treasurer. i. Money received but not yet deposited shall be kept in a locked drawer in a secure place. VII. Journal Entries and Transfers Obiective The objective of the City Council is to provide effective policies and procedures for the journal entry review and approval process to ensure that all journal entries are complete, accurate, properly supported, and approved prior to posting in the general ledger. Internal Controls Policy Page 5 of 6 Procedures a. The Treasurer prepares all regular, recurring and adjusting journal entries and attaches proper supporting documentation. b. The City Administrator approves all journal entries prior to posting to the general ledger, noted by initializing the entry form. c. Incorrect journal entries shall be reversed at the batch level and should be properly supported and approved in the same manner as a regular journal entry. d. The City Council approves by motion or resolution all transfers of cash between funds. VIII. Financial Statement Preparation Obiective The objective of the City Council is to ensure that internal controls over financial reporting are in place and to provide for the preparation of annual financial statements. Procedures The City Council recognizes that staff limitations require staff to rely on their auditor's expertise in preparing financial statements. The Treasurer adjusts accounts at year-end to achieve their proper year-end balances with the assistance of the auditor. The City Council recognizes the need to record audit adjustments to correct misstatements in the trial balance and annually reviews financial statements and year-end adjustments as prepared by the auditors. IX. Electronic Payments and Receipts Obiective The objective of the City Council is to ensure that the appropriate procedures are in place to account for electronic transactions in a manner that will allow for cash to be electronically disbursed only upon proper authorization of management for valid governmental purposes, and that cash received electronically will be properly recorded and reconciled. Procedures a. The Treasurer shall monitor bank activity to determine when cash is electronically received or disbursed. b. Only expenditures approved in the City's general expenditure policy or specifically authorized by the City Council to be made electronically shall be paid by electronic transfer from the City's bank account. c. The City Administrator and Treasurer review and approve all electronic disbursements and receipts. d. Electronic receipts and disbursements shall be documented, supported and accounted for in the same manner as all other receipts and disbursements. Internal Controls Policy Page 6 of 6 X. Investments Obiective The objective of the City Council is to ensure that the appropriate procedures are in place to meet the investment objectives of the City's investment policy (need to write an investment policy) in a manner that will allow the City to earn a market rate of return on investments, while preserving and protecting the capital of the overall portfolio. Procedures a. The Treasurer is responsible for the investing of all funds in the custody of the City. b. Typically, investments will be purchased by the Treasurer and approved by the City Administrator. c. Interest revenue will be processed as a cash receipt in the same manner as for all other cash receipts. d. The Treasurer reconciles the monthly bank statements and general ledger accounts and provides a monthly investment report to the City Council. e. The monthly investment report is part of the Treasurer's Monthly Report which is reviewed by the City Administrator and approved by the City Council. Other Internal Controls a. The City Deputy Clerk and Treasurer may be required to periodically take time -off from work so that the City Council, or another individual as the Council sees fit, may internally review records, data, financial transactions, etc. to prevent fraud and theft. These reviews would be in addition to the annual audit. X. Approval of Internal Controls Policy This internal controls policy shall be formally approved and adopted by the City Council. Adopted by the City Council of the City of Scandia this day of , 2015. Approved: Attest: Mayor Administrator