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Numerous supplemental spreadsheets and schedules necessary to
calculate capital asset balances and related depreciation
Department has not agreed ending recalculations with its Common
Inventory System
Accumulated Depreciation required to be calculated manually
Adequate documentation not maintained for additions, deletions and
transfers
$54 million related to Office of Water Resources sites not included
on Department records
$39 million related to bikeways not included on Department records
Invoices lacked supporting documentation of approval and necessity of
purchase
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FINDINGS, CONCLUSIONS, AND
RECOMMENDATIONS
INADEQUATE CONTROLS OVER THE CALCULATION AND SUBMISSION OF CAPITAL
ASSET INFORMATION FOR GAAP REPORTING PURPOSES
The Department’s primary capital asset and property control
system, the Common Inventory System (CIS) was not adequate for the proper
calculation and submission of capital asset information for GAAP reporting
purposes. As a result, the Department
had to utilize numerous supplemental spreadsheets and schedules to calculate
capital asset balances and related depreciation in accordance with Generally
Accepted Accounting Principles (GAAP).
We noted the following problems with CIS and the Department’s fiscal
year 2007 GAAP packages submission of the SAMS
to GAAP Reconciliation – Capital Assets (SCO-537) and the Capital Asset Summary (SCO-538) forms,
as well as the financial schedule – Schedule of Capital Assets:
·
Previous audits noted numerous errors regarding the
SCO-537 and 538 at June 30, 2002, 2003, 2004, 2005 and 2006 in order to meet
reporting requirements under GASB 34. As of June 30, 2007, the Department still had not agreed the
ending recalculations with CIS, including asset categorization and related
accumulated depreciation amounts.
·
Due to the incompleteness of CIS records, the
Department could not obtain ending balances for each capitalization category
from property control records without numerous supplemental
spreadsheets.
·
Since the Department was not relying on CIS for
calculations, accumulated depreciation was required to be calculated
manually.
·
The Department was unable to provide adequate
documentation of actual additions, deletions and transfers without numerous
supplemental spreadsheets.
·
The Department still has not included Office of Water
Resources sites, totaling approximately $54 million, related to dams,
seawalls, levees and other properties on its property control records.
·
The Department still has not included Department of
Transportation managed projects, totaling approximately $39 million, related
to bikeways on it property control records.
·
The Department was unable to properly apply the
categorization threshold to determine which parcels of land should be
capitalized.
·
3 of 75 (4%) invoices lacked a purchase requisition
or other supporting documentation of approval and necessity of purchase.
·
1 of 25 (4%) items tested was classified
improperly. During expanded testing,
an additional seven items were noted to be improperly categorized, totaling
approximately $2 million.
Based on our prior
recommendation, the Department attempted to reconcile its CIS records to
previously recomputed GAAP balances.
However, the CIS system is outdated, making reconciliation difficult
and not cost beneficial. During the
fiscal year, the Department obtained a new property control system, but due to
timing of the conversion process, the system was not available for capital
asset reporting as of June 30, 2007.
Additionally, the Department implemented procedures to ensure that the
Department’s capital assets would be reported in an accurate and complete
manner. Specifically, the Office of
the Comptroller assisted the Department with capital asset reporting,
including the preparation and reconciliation of subsidiary supplemental
spreadsheets and schedules. (Finding
1, pages 13-15) This finding has been
repeated since 2002.
We recommended the
Department complete its conversion of its property control records to the new
system, and implement procedures to ensure property control records contain
accurate data, allowing for proper categorization, valuation, and application
of thresholds. (For the previous
Department response see Digest Footnote #1.)
Department
officials agreed with our finding and stated they are working diligently to
complete the conversion of their capital asset data for GAAP reporting
purposes, as well as their property control data and procedures from the
outdated CIS application to their new application. They expect to have the conversion completed in fiscal year
2008.
AUDITORS’ OPINION
We conducted a
financial audit of the Department’s Capital Asset Account for the year ended
June 30, 2007. Our special assistant
auditors stated that the Department’s capital asset account as of June 30,
2007 is presented fairly in all material respects.
___________________________________
WILLIAM
G. HOLLAND, Auditor General
WGH:JSC:pp
AUDITORS ASSIGNED
Our special assistant auditors for this engagement were
Sikich LLP.
DIGEST FOOTNOTE
#1 – INADEQUATE CONTROLS OVER THE CALCULATION AND
SUBMISSION OF CAPITAL ASSET INFORMATION FOR GAAP REPORTING PURPOSES
Department Response
2006: We partially agree. We agree that the CIS system is
antiquated, and necessitates a large amount of manual intervention and should
be replaced. The agency will seek to
do so. However, we do not believe
this report fairly and objectively states the conditions present in the
Department as of June 30, 2006 – especially since there were NO adjustments
made to the capital asset financial statements presented to be audited. Furthermore – the auditors expressed an
unqualified opinion on the financial statements presented in prior
years.
Additional procedures were implemented in FY 2006 to
ensure that the Department’s capital assets would be reported in an accurate
and complete manner. Specifically,
the Office of the Comptroller, on their own initiative, volunteered to assist
the Department because as they stated, they were more familiar with the
deficiencies in CIS and as such would be able to obtain more reliable reports
from CIS. Accordingly, with their
assistance, the Department did agree ending recalculations of asset category
balances and related accumulated depreciation as of June 30, 2005, with CIS
and including the first three quarters of FY 2006 at March 31, 2006. This reconciliation was offered to the
auditors to test in June 2006 and they opted not to do so. Further, this reconciliation was updated
for the fourth quarter of FY 2006 and submitted to the Comptroller on August
14, 2006 when it was also available to the auditors.
Auditor Comment
The finding primarily
addresses the inadequacies in the CIS system and the fact it cannot be relied
upon to properly calculate capital asset information for GAAP reporting
purposes. The finding does not
focus on audit adjustments – it addresses the fact that the Department’s
primary fixed asset accounting system cannot generate required GAAP financial
schedules. Prior audits did express
unqualified opinions, but only after significant audit
adjustments.
The Office of the
Comptroller originally became involved with this process in late fiscal year
2005 only after the Department was unable to prepare capital
asset schedules in a timely manner.
The Comptroller originally offered assistance in fiscal year 2005 in
order to facilitate the timely preparation of the statewide financial
statements, and, to ensure timeliness and accuracy, continued the assistance
in fiscal year 2006.
The Department did prepare
interim capital asset schedules at March 21, 2006 (which were available to us
in June, 2006). The auditors are
opining on a capital asset balance at a point in time. Since we are opining on the June 30, 2006
balance, it would be inefficient and unproductive to audit the March 31, 2006
balances and again perform procedures at June 30, 2006.
August 14, 2006 was when
information was provided to the Comptroller, and not to the
auditors. After Comptroller revisions
and adjustments, the revised capital asset information was not made
available to us until November 8, 2006.
We did perform testing as information was made available to us.
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