Trustee Caulfield went on to state that part of the reason that he asked for it, was at the time there were some questionable activities, or prior to this administration, the folks that were involved in the Financial Administration of the Village (the Treasurer and the Village Administrator and an outside auditor). He stated that he began to think that this administration has the same titles in place, and nothing has really changed, and no safeguards have really been put into place, if any were needed.

He stated that on the other side of the coin, the Village is in a large growth mode, and the size of the budget is $12,000,000.00 plus, and growing yearly. The Village needs to be prepared to deal with the increased demands that will be placed on the finances of the Village.

Trustee Caulfield stated that a month earlier, there was a Finance Committee meeting that gave an update from the audit, and it was said at that meeting that when the auditors finished with the investigation, they would prepare a report and present it. That presentation was being made this evening.

Mr. Charneske began by apologizing for his tardiness to this meeting. He had a few more items he wished to add to the reports, which put him behind schedule.

Mr. Charneske stated he would first speak about the reasons why his firm was engaged, and his firm’s understanding of their engagement. He stated that as they began this engagement, the understanding was that there was some history within the Village; that the Village was going through a tremendous growth stage, and they didn’t feel there were any changes in procedures that really protected the Village from incidents that had happened before. He stated that as they began to speak with some of the Trustees about the engagement, questions started to arise as to the intent of this engagement. He clarified that the intent of this engagement was not to perform an audit or duplicate any work that has already been performed and/or paid for. Their task was to more or less come in and observe the Village of Antioch and look at how business is being conducted today, and see where changes need to be made.

Mr. Charneske stated he understands that Antioch is a small municipality, however, based on the growth pattern, and based on some of the other changes that have occurred, what can be done to strengthen the municipality and put in building blocks for a Municipality that is going to go through tremendous growth. His firm wants to provide assurances to the Village Members that their Village is going to be solid financially with all the additional expectations of this growth, whether it might be infrastructures, water and sewer, sales tax issues, etc. He stated they want to bring some confidence to the members of the Village and to the Trustees, who ultimately sit on this Board and take responsibility for the actions conducted by others. He stated that the whole purpose of this engagement was primarily to put in safeguards. They learned history about the Village of Antioch, and follow through where the Village has been over the last couple of years, and where the Village is heading to, in order to get a good understanding of what changes need to be made. The Village was once at Point A, now it is at Point B, and there are no safety nets, and things can happen again. Now that the Village has responded, and the Village looks forward to the future of the Village, what can be done to strengthen the Village; reinforce what is already in place, and look at going forward.

That being said, Mr. Charneske stated that his firm came into this study and performed some procedures. The procedures consisted of inquiry into Trustees, the legal representation of the Village and other employees of the Village. The inquiries ranged from lists of questions, to actually walking right behind some of the employees and looking right over their shoulders. It required Trustees and other members of the Village to go back and dig through some files and document items and perform research. This information, along with the inquiries, helped to create a picture of how each person was conducting business and their day-to-day activities. It could be someone at the counter receiving money coming from a payment, to some of the water and sewer billing. The employees have a job, but what is it that they are actually doing and what are the job responsibilities. Also, who is watching these people? How are the Trustees getting the reports and information for them to make decisions? Their study went very in depth in the offices. That is what needed to be done for his firm to perform this study.

As a result of all of the work, his firm has produced a 70+ page report. He stated that they needed to go a bit beyond their proposal of producing a report of the findings and things that were identified. He stated that they took it a step further, and instead of just stating what was found, they wanted to find out the cause of these problems, and what could happen as a result of the existing conditions that are present. From there, the last part is a recommendation of changes that the Village could make to improve on its current standing. These changes are presented in the report, and it will be up to the Trustees to decide what kind of time line the Village is on as far as implementing these changes, what the priorities are, and what the restrictions and limitations are. This is a small municipality compared to some of the other municipalities, so some of the recommendations made are based on not only where Antioch is today, but also where Antioch will be five years and ten years from now. This is laying the groundwork for a municipality of 25,000 people. He stated he realizes that the budgets are based on $12,000,000.00 today, and not every item will be able to be implemented. However, this report will give some of the structure and framework so that the Village can have a sound foundation financially and through the Administration moving forward. The recommendations cover issues of internal controls, management, Policies and Procedures, governances over employees, job descriptions and responsibilities, and any other issues that needed to be addressed.

Mr. Charneske stated he would like to present this report to the Trustees, but he wanted to caution them that in the report, it includes some very sensitive information to the Village. As this report explains where the Village is at, and knowing that Antioch is a small municipality, there are some limitations, whether financial or human resources (staffing). When explaining these items that might happen within the Village, the report goes into depth to make the Village aware of these items. These are also items that have happened in other Townships and Municipalities. He stated that as he goes into this information, it is important that some of this sensitive information be safeguarded, because any other person coming into the Village in a job position would know how to circumvent the current conditions of the municipality. It allows some room for abuse. He stated that he does not want to teach anyone how to abuse the municipality, however, he does want to teach everyone what to look out for, so that someone else does not abuse the system.

Mr. Charneske stated that if the recommendations are followed, the risk of these abuses could be reduced greatly.

Trustee Caulfield stated that in light of Mr. Charneske’s comments related to the sensitivity of some parts of the report, he wanted some advice as to how to handle those sections.

Attorney Long stated he would refer to a copy of the Open Meetings Act. He stated that he did not see any provision that allows for closed meetings involving financial affairs of any kind. He stated that the fact that there is obviously the usual exceptions for Executive Session consisting of litigation, purchase of property, settlement of lawsuits, discipline of an employee, etc. He stated there were approximately 23 or 24 exceptions, however, there is nothing in this Act specifically for finances.

Attorney Long stated that to the extent that the report deals with personnel issues, the Board may determine it appropriate to go into Executive Session.

Mr. Charneske stated that there were, in fact, a few issues in the report that do deal with some personnel of the existing staff. It speaks specifically about some of the roles and responsibilities of these people.

Attorney Long stated that the purpose of the Open Meetings Act is that people have a right to know what is going on. In fact, that is exactly what the point of the Open Meetings Act is. It is for the need to avoid back room politics and the evils that go along with it. Although there are 22 exceptions, many of them are specific to things like the State of Emergency Medical Disciplinary Board or the Prison Review Board. It is not nearly as broad as it might sound. Essentially, there is nothing in the Act that deals with a specific situation such as this.

Attorney Long stated that the Act essentially states that unless there is some issue that relates to the appointment of employee compensation, discipline, performance or dismissal of specific employees of a public body, even if it was, the balance of the report would have to be issued.

Mr. Charneske stated once again that Antioch is a small municipality, so it has limited resources from a Human resource standpoint. He stated that there are only a couple of people in the front office that run the operation on a day-to-day basis. As a result of the responsibilities of some of those people being very broad and involved in many different facets of the operation of the Municipality, different job titles come up often in the report, which reflect back on the individuals handling these responsibilities throughout the report. Some of this information could be very sensitive to those individuals who are working. There is some discussion in this report about restructuring of this department, and there are probably some issues as far as giving some individuals additional responsibilities, but also taking away responsibilities.

Attorney Long stated that it will be up to the Board to decide what portions would be shared. He felt that they would have to review the report and decide what portions to release.

Mr. Charneske stated that the report is 70 pages long.

Attorney Long stated that it would become problematic, because no one had seen it up until now. It would be difficult to guess in advance.

Mr. Charneske offered an example of where some Municipalities are sophisticated enough that they can accept credit cards over the Internet for payments of water and sewer. He then went on to explain that if he came in and found deficiencies within the security of the credit card information, he could come to the Board and tell them how a computer programmer could go into the system and get everyone’s credit card number. That is a comparison to some of the data in the report. He stated that he doesn’t really want to tell people how to get to sensitive information within the Village that could hurt others within the Village.

Trustee Turner then asked if Mr. Charneske felt this report would embarrass or upset an employee of the Village, personally. She stated if it were she, she would not want it broadcast to the public, if it was the specific employee being embarrassed for merely doing one’s job day to day.

Mayor Maravelas stated that he feels the Mayor and Trustees have a commitment to the constituents. He stated he did not feel they should separate for one or two individuals, or for the 10,000 people who live in this community.

Trustee Turner stated she understood, however, the Board goes to Executive Session when speaking of any employee of the Village to protect them.

Mayor Maravelas then asked if the employees are stated by name.

Mr. Charneske stated that he has removed the names, but because there are only so many people in the office in the title of that position, it is very clear who each person is. He stated that the only way he could refer to the responses to his questions by stating who had said it.

Mayor Maravelas then stated if anyone wanted to make a Motion or a suggestion, the Board can then go to Executive Session.

Trustee Larson asked how a Motion could be made on a document that has yet to be seen by the Board. She stated that she does not know what is in the report, and she had asked earlier to have a copy of the report, so the Board could look at it and ask intelligent questions, and it was not forthcoming.

Mayor Maravelas stated that he felt the Board should let the consultants go through the report, and if there are a couple of individuals…

Trustee Larson then asked why the Board could not look at it at their leisure, and ask the consultants questions individually. She stated that is why she wanted the document ahead of time.

Mr. Charneske stated it was up to the Board how they would like to handle it. He stated he could give them each a report, and then reschedule this meeting.

Trustee Caulfield stated that it is his feeling that the whole idea of this report is to be an independent observation of where the Village was and where the Village is, and make recommendations for the future. As part of that independence, he stated he has not seen the finished report, either. He stated he does think that if the Village really wants to know what is going on, and really wants to get to the bottom of it and solve and set the foundation, he believes it would be important for the Board to hear the presentation now from the firm that was asked to complete this task.

Mayor Maravelas stated that he supports the Finance Chairman.

Trustee Pierce stated that he would like to hear the presentation, but he stated he would ask that when it gets to the point where it becomes a sensitive issue, particularly since some of it is performance related, which Mr. Long stated that the Board would have the opportunity to make a motion to go to Executive Session. He stated that no matter where we are, whether we’re a community of 10,000 or 1 employee, it is very important that we are as sensitive to the rights of one person as we are to 10,000 people.

Mayor Maravelas stated that he feels there is enough cover up in this Village for the past 12 years. He stated he feels that it is time for Mr. Charneske to present the report and let the Village citizens know what’s really going on in this Village once and for all.

Trustee Caulfield stated that he would like to ask that the report be given, and as Trustees, there is always the right to ask, and if we get to a point where Trustees would like for that to be covered, that perhaps we could limit it to that specific section and maybe go through the report and leave those sections for the end. He asked if that was possible.

Mr. Charneske stated that he once again, did want to repeat that their engagement was not intended to be an audit. It was not to audit the auditors. It was not to audit the staff. They were not in the Village to particularly look for fraud, but rather, make recommendations to build this foundation for the Village going forward and to help provide the Village with the information necessary to build a safety net to protect the Village from anything happening again.

He stated there were a few inquiries to their investigation when they started this process, where certain questions were posed upon their firm about prior transactions. This was not governed by their proposal, and once again, did not handle or respond to those questions other than to stay focused on where we are at today, moving the Village forward. If based on information contained in the report the Board decides that these items need another look, that’s fine, but that was not the intent here. The intent was not to go looking for past problems or answers to unanswered questions.

Mr. Charneske stated that Stephanie Zaher has been very intimately involved in the day-to-day operations. He stated that they followed people, speaking and inquiring with a lot of the Trustees and employees, and Stephanie conducted a lot of that. Her background is very extensive and very impressive, as far as municipalities she has worked with and cleaned up, some of which have been named in the newspapers. She has seen many of the more difficult municipalities where there were a lot of fraudulent activities going on.

If anything came up in the engagement that was felt was fraudulent, their firm would note that as well. However, based on their observations of what was happening, they did not find anything occurring. He clarified by stating that they were not auditing, and they did not look through every transaction, and they were not looking for fraud. They were looking for ways to improve the Municipality.

Stephanie stated that she would like to start with the first point, which is the organization hierarchy of the Village. She referred to Attachment 1 on Page 60, which is what a proper organization chart for a Municipality would look like. Specifically, in the Finance Department, a Municipality usually employs a Finance Director who has an extensive governmental accounting background. With that, the Finance Director has an assistant Finance Director, and there is a Treasurer who works underneath them, along with the basic accounting staff.

The Village does not have this sort of structure. The Village is lacking two employees, a Finance Director and an Assistant Finance Director. It is understood that the Village is understaffed, and there are some financial problems, and that is what has halted the Village from hiring anyone else in that department. As the population grows, the current hierarchy may not be able to handle the volume of transactions that are going to be flowing through the Village.

Trustee Larson stated that she made a few telephone calls to some other municipalities to inquire as to what their structure was. Gurnee has a Mayor who appoints a Village Administrator, who is also the Village Treasurer. There is a Finance Director under him. Gurnee has substantially more resources and more population than Antioch does. So, what is being referred to would be in a perfect world.

Stephanie stated that yes, she is talking about a “perfect world.”

Trustee Larson stated that she also called Libertyville, Lake Bluff, Lake Zurich, Round Lake, Lake Villa and Deerfield. Some of them just had a Treasurer the same as Antioch does. Round Lake, who’s population, according to a new concuss, is 10,160, which is comparable to where Antioch is right now.

Stephanie asked what the background of the Treasurer was at this other Village. She asked if they had a college degree in accounting. She asked if any of the municipalities mentioned had a Treasurer handling all of the accounting operations…what is their background?

Trustee Larson stated that the backgrounds differ from Village to Village. She stated that some were appointments from the Mayor. Round Lake has an Administrator and then they have a Treasurer, who is also handles the entire Finance Department with no staff at all.

Stephanie asked Trustee Larson if she inquired as to whether these people had a college degree in accounting.

Trustee Larson stated some did and some did not.

Stephanie stated that due to the commission that was seen in the Financial Statements, she feels that it is imperative that the Village hires someone with an accounting degree and an extensive background. She stated that they also note deficiencies in the audit report, which is in another exhibit that will be covered later.

She stated that their recommendation (Page 3) is not to have the Village jump into this sort of hierarchy right away. They do suggest that a Finance Director be hired who has a minimum of a four year college degree, with a major in accounting, and at least seven years of supervisory experience in a governmental environment. The Finance Director will supervise all Accounting Department activity, while being responsible for budget preparation and monitoring and organizing the annual audit, preparing the general purpose Financial Statement and annual financial report, which goes to go the State Comptroller’s office. This person will also present monthly financial status reports to the Village and Board of Trustees. It is also recommended that certain responsibilities be transferred over to the Finance Director from various employees within the Accounting Department.

She stated that it is mentioned in the report that the Village Clerk was supervising the Accounting Department underneath the Village Administrator. They believe that the Village Clerk should be relieved from Accounting Department supervision responsibilities, so that he/she could concentrate on Village record maintenance. It is also recommended that the Village Treasurer be relieved of account department supervision duties, given the Village would hire a Finance Director, and the Treasurer would then concentrate on bank reconciliation preparation and other basic bookkeeping tasks. The Village should also hire a part time Clerk to assist the Accounting Department with collections throughout the day. It is also recommended that each department have Human Resources responsibilities with the Village Administrator as the monitor, until the Village Administrator can hire a Human Resource and Benefits Director. Lastly, it is recommended that the Village to hire a part time IT technician to handle software purchasing and installation, along with general computer and system maintenance.

Trustee Larson asked about the recommendation in the report to hire a Finance Director with a four year college degree, at approximately $50-60,000.00 per year, plus the Treasurer who is working here, and there is also recommended that a part time person. She stated that the Village is financially strapped right now. She asked if there was another recommendation in this report as to how duties could be allocated differently to protect the Village.

Stephanie stated that the Board does not have to follow the recommendations. They are merely suggestions, and it is up to the Village to decide if they would like to follow these suggestions.

Mr. Charneske stated that basically, they are looking to re-structure the department. He stated that they are not suggesting that anyone needs to be fired. That is not what is being said in the report. The report is stating that this person should be relieved of certain responsibilities. They will be given other responsibilities throughout this restructure. But, given their current education, right now the Village does not have someone with a strong accounting background. As a result, that is what is creating the problems that are being seen in here. He stated that things can happen within a municipality, and there is no alarm system. There is not someone who is educated enough to catch the mistakes. Fraud happens in places where it is allowed to happen. He stated he likes to compare fraud to mold. Mold can only grow in a place that is damp. If it is damp, then fraud can happen, or mold can grow. What this report is saying, is that the current conditions may be wet and damp, and there is no alarm system to catch it if it happens. They are not saying that it happened. However, if it does happen, the Village does not have the people who are going to catch it, or the people in place who know to ask the right questions. The purpose of this report is to build a safety net within the Village that protects the Village from things happening, or from mold growing. What they are finding out is that this is what is currently here, and if the Village wants to take steps to protect the Village, reduce the risk and manage the risk of the Village, then certain changes have to occur. This begins with staffing.

Trustee Caulfield referred to the last paragraph on Page 2. It states that without a Finance Director…he asked Mr. Charneske to explain.

Mr. Charneske stated that without a Finance Director, the Village is not complying with many of the GASB, which is Governmental Accounting Standard Board, or performing any type of financial planning for the Village’s future. The Village should not rely on its Village Administrator or Village Clerk to handle such responsibilities, as their job tasks have been accumulating rapidly in accordance with the Village’s population. These people in these positions are being asked to do all kinds of responsibilities and wear many hats. The Village has put these people in these positions. They are wearing many hats and doing many different things that they are not trained or educated to do. As a result, the Village is not complying with everything that it needs to be complying with.

Mayor Maravelas asked Mr. Charneske if it is a State or Federal law that anyone is involved with the Treasurer Department has to have a GASB license?

Mr. Charneske stated that it is not a license. It is actually the governing board that lays out the rules and regulations that the Villages are required to comply with.

Ms. Zaher stated that the Village has a qualified opinion, which means the auditors are stating that the Financial Statements are not acceptable. There are no records on any prior year fixed assets. There are extremely large variances and balances, and that is discussed in another area of the report.

Mr. Charneske stated that without having the people in place to assist and manage and overlook and handle these issues, the Village is paying the price. The bond rating is affect by the audit report, which is costing the taxpayers money. The Village was at Point A, and now at Point B, not in full compliance. The GASB has now applied new requirements on Villages. There are no restrictions or exceptions for smaller municipalities. This Village is not in a position, nor do they have anyone knowledgeable enough, to implement what is required by GASB.

Ms. Zaher then referred to Page 57. She wanted to discuss the area about qualifying the audit opinion. The second paragraph under conditions, it states that although the audited Financial Statements disclose a policy for its capital assets, the Village does not record this activity within its own General Ledger. Per the October 31, 2003 trial balance, the total in Fund 49, the Village has accumulated depreciation stated at $7,055,224.00, which is in excess of its fixed assets stated at $2,400,000.00. The trial balance is saying that the depreciation is much higher than fixed assets. Per generally accepted accounting principals, this is not proper. Depreciation must either equal the value of the asset, or be less than the asset. She stated they do not know why these amounts are so far off from each other, as they did not look through accounting records or audited Financial Statements. They did not go into much detail, as they were merely observing.

Mr. Charneske stated that to preface this report, they are trying not to go line by line through this report. It is 70 pages, and they could be here all evening if they go through it line by line. He stated that it has been laid out in a format to not only tell the Village what it is required to do or have, but also the conditions of what is truly here right now, what was found when they looked, what could be the cause of the condition, and then the effects as a result of having the current conditions. These are things that could be occurring and happening. Lastly, the actual effect of what is happening and the recommendations to the Village, keeping in mind the limitations and restrictions that the Village has. In order for the Village to move forward, there needs to be some restructuring based on the recommendations, and based on the priorities that the Trustees put on all of these issues on a time line going forward.

Mayor Maravelas asked if under the current conditions, can this Village stand on its two feet today.

Mr. Charneske stated that right now, there are things happening within the Village. There are reports that are insufficient and insignificantly being represented to the Trustees. He stated that he does not know that the Trustees actually have an accurate reflection of where the Village truly is from day to day. The Board is being forced to make decisions without the proper financial data.

Ms. Zaher stated that in the monthly Treasurer’s Report, the cash amounts that are not shaded in gray, one of those amounts has a balance of about $700,000.00, is the Capital Projects Fund. That money is restricted. As you look at the balances, that amount needs to be removed, because it is not to be freely spent. It is restricted by Bond Ordinance to be used for specific purposes.

Trustee Pierce stated that he had a question. He asked that for positions, such as Village Clerk and Village Treasurer, he understands that these were elected positions a long time ago, and are now appointment positions, is there anywhere within state law that governs exactly what each of those positions is required to do.

Ms. Zaher stated that it addressed by Village Ordinance.

Attorney Long stated that there are some duties of the Village Clerk that are laid out. The Clerk has to do these items. It does not say anything about what else the Clerk may do.

Ms. Zaher referred to Page 7 where they noted many weaknesses in internal control regarding separation of duties and physical cash handling and control. Under the area of Conditions, there are many weaknesses noted. The first weakness is that the Treasurer position opens all mail containing incoming receipts containing cash. The Treasurer also has access to recording all revenues and cash revenues. The Treasurer also prepares the bank reconciliation. Proper internal control dictates that an employee having no access to cash receipts or accounts receivable records, open the mail containing cash payments.

The Treasurer is responsible for investigating any NSF checks for checks charged by the bank. Proper internal control dictates that an employee independent of the deposit preparation and posting of accounts receivable detail be responsible for investigating such matters. The Village also does not have an employee free from cash access prepare a list of all mail receipts received for the day and compare it to the daily cash received listed. Cash receipts are also kept in an unlocked drawer in the counter from the time of receipt until the time of bank deposit. The general cashier function, the person who collects money throughout the day, is not segregated from the General Ledger function. The Treasurer also collects cash receipts and has access to the General Ledger.

Per review of the bank statements and bank reconciliation, the checks clearing in November and December of 2002 appear to be out of sequence.

The Village could not provide details of the restricted revenues. All checks are not prepared by employees who are independent of invoice approval. The Treasurer has authority to approve checks less than $500. There is not a proper review process for completed bank reconciliation. Bank reconcilations are not reviewed at all throughout the year. Approval for cash adjustments is not required. The Treasurer prepares all the bank reconcilations, has access to record cash receipts and disbursements, approves checks written for vendors, creates the checks written for vendors, prepares deposit slips and physically deposits the money at the bank. This lack of separation of duties enables an opportunity for theft and improper accounting. When an employee both opens mail-containing receipts, and prepares bank reconcilations, this opportunity is increased. Ms. Zaher stated they are not saying they saw anything, they are merely stating that the opportunity is increased with this lack of separation of duties.
There is an extensive recommendation that goes from Page 8 – 11 on how the Village can organize their Accounting Department’s internal structure.

Mr. Charneske stated that one of the other things that was noted, some of which is sensitive information, this person collecting the cash, and discovering that the cash drawer is not kept locked, and is accessible to anyone who walks into the Village. Anyone could walk back, open up the container, and take cash that is sitting there. He stated this is an example of some of the sensitive information that is in this report that could come up that people would be aware of.

Ms. Zaher stated the report recommends that the Village segregate the process of accounts receivable to four different functions. This is basic internal control from an auditing textbook. The four functions are: record keeping, authorization, and asset custody and reconciliation function.

The main goal of the record keeping function would be to create and maintain department records. The individual in charge of this area would track all revenue receipts through the cash receipt system, record sales in a separate log, prepare the cash receipt back up listing, and post the charges and payments to the accounts receivable software system.

The second area is the authorization function. This individual assigned to this area would be responsible for reviewing and approving the transactions. Duties would consist of approving voids, refunds and other correcting entries, approval of deposits by fund, and investigation of any unusual transactions.

The responsible individual of the asset custody function would be in charge of handling and controlling physical cash. The duties of this area consist of monitoring all areas of cash receipts, the lock boxes, and insuring the safety of funds from theft. Also, this individual would be in charge of the Petty Cash Fund, plus any returned checks would be returned to this individual to ensure accurate record keeping.

If the Village decides to hire a Finance Director or Assistant Finance Director, that person should fill the position of reconciliation function. This person will assure that the truncations recorded by the previous areas of the accounts receivable area are proper and accurate. To carry out this function, this person would reconcile the deposit tickets of the accounts receivable module, compare the collections to the daily deposit, and reconcile the Accounts Receivable listing to the General Ledger. Therefore, each of the following duties and responsibilities should be ideally segregated: cash receipts, cash accounts, bank deposits, deposit received reconciliation, bank reconciliations, and posting of deposits and cash disbursements.

The opportunity for fraud to occur is greater since one Village employee has the authority to collect cash, deposit receipts, record the collection, and disburse Village funds. It is also recommended that the Village consider investing in a cash register, which will only open if collecting cash. Therefore, an employee would not be able to access cash as easily as the current organization in the Accounting Department where the cash drawer isn’t locked and can be accessed without typing in a transaction.

There are also several other control objectives listed that the Village should highly consider placing in operation such as assuring each receivable transaction be correctly verified as to amounts, account coding and description. Cash must be safeguarded while in physical possession of the Village.

Appropriate personnel must be responsible for overseeing cash control processes such as a Finance Director. If the Village invests in a cash register, the cash register tape should be reconciled to the amount of the cash in its drawer. An independent listing should be prepared before the receipts are submitted to an Accounts Receivable Clerk. An independent person should verify the listing against the deposit slips. A person independent of the cash receipts and accounts receivable function should compare entries to the cash receipts journal with authenticated bank deposit slips and deposits per the bank statement.

The Village should also evaluate using a lock box service, staffing levels and work loads.

Trustee Larson commented that in the front office, there is a Clerk, a water Clerk, the Treasurer and the Mayor’s secretary. At any given time, they all take in revenue from vehicle stickers and water bills. She asked if the report recommends that only one person do this. She stated that is part of the duty of having four people sit up front. If someone is out to lunch, they cover for each other.

Ms. Zaher stated that she addressed this issue with the front office staff. She stated that they are very supportive of having a part time Clerk up there as they have many interruptions in their daily operations and work. If the Village hires a part time Clerk, there can be designated hours that people can come in to make payments.

Trustee Larson stated that the Village is service oriented. She stated she simply wanted a clarification of the recommendation.

Mr. Charneske stated that it does not hurt to have some people cross-trained to understand the other procedures in handling it. Ultimately, there needs to be one person responsible for it. By having a cash drawer, there is at least another procedure there for another safety net. Maybe someone else could do it, but before, there was no safety over who did it or what was going on. Now, maybe the other person does it, but there is another procedure in place, which is the cash register. If something were going to happen, it would take more than one person to commit a fraud.

Mayor Maravelas asked Trustee Larson if she knew what the net worth of the Village was.

Trustee Larson stated that to a penny, no she did not.

Mayor Maravelas stated that the purpose of this report is to help us understand. None of us know what is happening in this Village. This firm was hired to give recommendations, so that we can move forward with the business of running this Village.

Trustee Caulfield wanted to point out that regarding the cash handling situation, some people might take light of this. He used the example of going to the grocery store where the person who is assigned to use the register was not there, that the bagger or the deliveryman rang up the sale. We are not too far off from that situation if there is no one dedicated or specifically assigned with a procedure in place to make sure that we know who is in the cash drawer.

Trustee Hanson stated that if we get a cash register that has an employee function key, and there are two or three people, we will know who is in that register. They all have a code, and that is how that is handled. He stated he feels that we should be listening to this report, and we are getting off on points.

Mayor Maravelas reiterated that we are here to listen to the people who we have paid (to prepare this report) because there has been a problem in this Village. They will give their recommendations, and help us to implement this recommendation into the Village affairs so that we can be better for the future in the Village. That is the bottom line.

Trustee Pierce stated that is what everyone wants. However, there are some issues that come up that might require additional explanation.

Mayor Maravelas stated this is not the time to ask these questions. Let them finish the report and then the elected officials can do their duty after that.

Trustee Pierce stated that if the consultants are reading it page for page, there should be ample time to ask questions as well.

Trustee Hanson stated that it seems like the Board is trying to solve the problems while we are going along. That is not what should be being done.

Trustee Larson stated she was merely asking for clarification.

Trustee Hanson said that Larson commented there were four people up in the front office. We all know that there are four people up there doing a job. The consultants did the interviewing; the Trustees did not do the interviewing.

Mr. Charneske interjected that when money is missing, someone needs to be responsible. Fraud is fraud whether it is $10.00 or $100,000.00.

Ms. Zaher then went on to Page 12, per the instructions of Mayor Maravelas, regarding General Governmental Accounting Theory Knowledge. She stated that the Village Accounting Department employees are in charge of the overall financial responsibilities, and those people who are in charge of it should understand basic governmental accounting theory.

Trustees expressed that they did not want this section read aloud, and the Mayor then asked for a Motion to go into Executive Session.

Trustee Caulfield asked if the Board could hold out items for Executive Session to the end. He expressed that since the Public was here in this room, he did not want to get held up in Executive Session.

Ms. Zaher then went on to speak about Page 13, Inter-fund Loans and Transfers. She asked if the Board understood the difference between inter-fund loans and inter-fund transfers.

She stated that inter-fund loans needed to be paid back, and inter-fund transfers are transferred for a specific purpose, and are not paid back to the fund that funded it. Per review of the 2003 audited draft of the Village’s general-purpose Financial Statement, there is a total of $976,951 in outstanding balances that need to be paid back to other funds.

It could not be determined as to when the Village plans to repay the funds that loaned monies to those with a deficit balance at the end of the 2003 fiscal year. Also, the inter-fund loans are carried forward each month, and the Village’s external auditor needs to adjust the inter-fund loans and inter-fund transfer activity at the end of each fiscal year. It is not kept up throughout the year. This has occurred because the Village relies heavily on its external auditors for guidance on a periodic basis, while this is more a daily activity, which should be monitored by the Village’s accounting staff.

Therefore, since the Village does not make necessary inter-fund loan and transfer entries on a daily basis, the Village, Mayor and Board of Trustees are not aware as to the up to minute cash balances it has to spend. They are also not aware as to the actual cash balances after all inter-fund loans and transfers are made, until the annual audit is issued by the external auditors. The recommendation is for the Village Accounting Department to keep a daily log of all cash overdrafts for each fund on a monthly basis, and before each Village meeting, prepare all necessary inter-fund loan and transfer entries in order to eliminate any cash overdrafts so that the Mayor and Board and Trustees fully understands the financial condition of the Village at that particular date. Also, this allows the Village Board to discuss the nature of these loans. This is something that might be handled by the Finance Director.

Regarding payroll classes, it was noted that some employees in the Administrative Department are being paid fully out of the Water and Sewer Fund, when in reality; they are working on about 80% of activities that really belong in the General Fund. Looking at Attachment 2 on Page 61, it describes the percentage that should be allocated of the payroll to each fund. The effect of this, since the proper allocation is not practiced, is that the Village is not matching expenditures and expenses to revenues correctly. Therefore, the Village may not be spending revenues received from the State in accordance with state law. It is recommended that the Village properly allocate the employees’ time to each department. This will include re-classifying employees to different departments in the payroll register, and preparing a journal entry to properly allocate the payroll expenditures and expenses and payroll taxes to the proper department on the Village’s General Ledger.

Number 11 discusses the Police and Fire Pension Certificate of Deposit. All of the Police and Fire Pension activities should be recorded on the Village’s books on a monthly basis. Per review of the Village’s trial balance at October 31, 2003, two certificates of deposit with material balances had not been recorded. Both are Police and Fire Pension Certificates, which do not appear on the General Ledger. The ones that are missing are stated in the report.

Trustee Pierce wanted to know if they were not correctly recorded, but not missing.

Ms. Zaher stated they are not recorded on the books at all. When the monthly report is produced, all of the cash will not be seen that it is in the Police and Fire Pension Fund.

Mr. Charneske clarified that they are not suggesting that they are missing, only that they are not on the books. When you look at the fund, it does not show up on the financial reports, which ultimately falls under the reporting conditions to all of the Trustees. Per discussions with the Village Treasurer and the external auditing firm, they are still trying to figure out how to recognize this on the General Ledger system with the existing computer system, and also some understanding with the Staff.

Attorney Long clarified that this is money that the Board is not going to spend.

Mr. Charneske stated that was correct, but it is required to be shown on the Financial Statements of the Village.

Ms. Zaher then moved onto Pension Bookkeeping, item Number 12 on Page 17. This is basically another part of Number 11. She stated that per their understanding, and with discussions with the external auditor, the pension activity is not recorded on the Village’s General Ledger system until the end of the year. This should be updated on a monthly basis.

On Page 18, Item Number 13, Special Service Area Financing, even though the Village is not responsible for the liability of the Special Service Area Financing, it still needs to be recorded on the General Ledger system because money does flow in and out of it. This has not been recorded to the General Ledger because employees had not examined the legal documents regarding this project. The recommendation of how this type of transaction should be recorded on the books is that the receipts should be recorded in an Agency Fund and construction expenditures should be accounted for in the Capital Projects Fund.

On Page 19, Number 14 is the Village Trial Balance. The criteria for this are that the Village Trial Balance must agree with the audited trial balance for the end of each fiscal year. The condition is that the Village Trial Balance does not agree with the audited trial balance at the end of Fiscal Years 2002 and 2003. Ms. Zaher stated that the cash does match from the audited Financial Statements and the Village’s trial balance. What is happening is that the Financial Statements are recorded using modified accrual and accrual basis of accounting, and the Village is operating on cash basis of accounting. She stated that per the Governmental Accounting Standards Board, the Village should be using modified accrual and accrual basis. Accrual basis is used in the Water and Sewer Funds, and it is operated like a regular business.

Modified accrual is used in Governmental type Funds such as the General Fund, Special Revenue Fund, Debt Service and Capital Projects.

Mr. Charneske stated that once again, this is a basic procedure that should go without saying. The auditors say this is what the balance is at end of the year is, it is pretty safe to assume that the Village’s accounting system should have the same balances. After all, the audit was conducted based on the Village’s financials, and it is really a task that is performed after the audit where it is tied out to bring the Village’s system in agreement with the audit in the Official Financial Statement of the Village. These are responsibilities of the Treasurer, and once again, it is believed that the reason that this is not happening is the fact that some people in these positions are not educated or trained. They have only been following what has been on in the past, and as a result of not having this particular knowledge, they are trying to rely on the outside auditor, who once again, it is not their job or responsibility, nor should they be part of that internal control procedure.

Ms. Zaher stated that another problem with not recording on the modified accrual or accrual basis is that on a monthly basis, there is a report on the warrants that are going to be paid.

Although they are prepared and said to be paid, there are some other invoices that you would not be aware of at this time because they are not reported on the warrant list because it is reported at cash basis. When going to accrual basis, that warrant listing will include everything that is outstanding that the Village needs to pay on a specific date.

Mr. Charneske stated that as a result of this, the Village does not have the adequate record keeping in place to document the fixed asset groups. This leads to the qualified audit opinion on the Financial Statements for the last two years because the documentation could not be provided to the auditors for the prior year balances. The qualified opinion, once again, affects the Bond Rating when the Village goes out for Bond.

Stephanie then referred to Page 22, Number 16, Check Signing.

The Village should have a control in place where one employee is given responsibility to sign checks under, for example, $100.00. Any amount over the stated limit should be reviewed, approved, and signed by a secondary employee. The current condition is that for all checks, two actual signatures and one stamped signature is required. The Treasurer is authorized to sign the checks, but also holds the Mayor’s signature stamp template kept in the Treasurer’s desk drawer, and this drawer is not locked. Therefore, anybody can go through the Treasurer’s desk and obtain the stamp template. The recommendation is that this responsibility should be transferred to someone who does not have a responsibility of an original signature. Someone other than that should be stamping the signature.

Attorney Long stated that something like this is an example of where the appropriate accounting procedures can provide greater security to the employee that is actually responsible because it removes the possibility of them being accused of fraud.

Mr. Charneske stated that this is a great point. These procedures not only help the Village go further, but also protects the employees in these positions. It helps to define their roles, and it helps them not get themselves in situations where they are not trained or educated. Antioch is not unique from everyone else in the world. All the other small municipalities have a lot of these same problems. Until financially this Village can overcome some of the limitations, then we can start to address these issues. Some of these responsibilities are shared by one person, but the education and backgrounds are in place to allow them to be able to carry on multiple resources until the municipality has the resources to add additional people.

Ms. Zaher went on to address Petty Cash on Page 23. The Village has several Petty Cash Funds. On a weekly basis, a test count should be performed and reconciled. A control should be in place as to the maximum disbursement allowed from the Petty Cash Funds. Currently, there are no restrictions as to the maximum amount for individual disbursements from the fund, or maximum disbursements in any one year. The Treasurer acts as the custodian for the Petty Cash Fund in the Accounting Department, and the Petty Cash Fund is also reconciled by the Treasurer. These two duties should be separated, and the person who handles all of the cash recording, such as the Treasurer position, petty cash maintenance should be transferred to a different person. The effects of this also refer to Number 5, which is the separation of duties, physical cash handling and control.

Number 18 on Page 24 deals with water receipts. The condition at the Village is that the water and sewer collections Clerk physically collects residential and commercial payments and records all receipt activity into the General Ledger. She is also responsible for reviewing usage measurements. The cause of this is that the Village is under staffed, and has considered hiring another employee in the Administrative Office, but has not pursued such action due to its current financial position. The effect of the separation of duties also comes into effect under this finding. The recommendation is that the Billing Department should be separate from usage measurement, accounts receivable, customer account maintenance and collection functions. The recommendation is again that the Village considers hiring a part time Clerk to assist in the accounting office; not only for water and sewer collection, but all accounting office collection functions.

Number 19 on Page 25 refers to Bond Covenants. The Village must comply with any covenants listed within its bond issues ordinance as documented. Per review of the Village’s October 31, 2003 fund listing report, cash and investments by fund report, and bond ordinances, 03-04-14 for the 805000 general obligation limited task corporate purpose bond series 2003, several of the covenants of the bond issue were not followed.

The Village did not deposit the funds into a special account designated Series 2003 Capital Projects Fund. The Village did not create a Bond Fund to pay the principal and interest, and if the village did deposit these funds, they are not easily detectible within its trial balance. The recommendation is that the Village review all bond convenants and make any noted changes required to the covenants. This is not saying that the money is missing. The money is there; it is just not designated as stated in the Bond Ordinance.

Number 26 talks about the Annual Budget. Currently, the Village Budget for miscellaneous expenditures, as in the Capital Projects Fund, the previous Village Administrator budgeted for $80,000 in miscellaneous expenditures for Fiscal Year 2002. Also, per review of the Village’s fiscal 2002 budget, the Village did not budget for the escrow recoveries in Fund 24, or the escrow water deposits in Fund 57. This lack of detail does not inform the Mayor or the Board of Trustees on how the Village plans to spend the estimated annual revenue. This $80,000 is not stated what it is going toward. Therefore, the Village Mayor and Board of Trustees are unaware of this.

Additionally, restricted funds may not be accounted for or monitored properly during the year. The recommendation is to provide more detail in the annual budget. It is also recommended that the Village’s appointed budget officer work closely with the Senior Planner to determine the proper budget amounts for the upcoming year concerning the escrow recovery.

Trustee Larson stated that she had a question about the budget. She stated that she had been on the Board for 11 years, and she has been that we are not legally bound to present the budget. What is important is the Appropriation Ordinance, because the Village cannot spend any money within the budget without that Appropriation Ordinance. She asked if that was correct.

Ms. Zaher said yes, unless it is created as a law by the Village Council. If it is in the Ordinance that there be a budget, then the Village is legally bound by that.

Trustee Larson then clarified that talking about the budget and lack of detail, the thought has always been to put it into the budget, and if it is not needed, it won’t be used. The Appropriation Ordinance is actually the document that legally binds the Board to what they can spend. The budget is a tool.

Stephanie stated that in prior years, the Dolly Speiring restricted funds were misused. So, if the budget does have more detail to it, it can be closely monitored.

Mr. Charneske stated that the budget being a tool, it is a very important tool. It is a tool that the Village should be looking at on a monthly basis to monitor where it is. The Village should be performing trend analysis and other reports, which are talked about in the report. The recommendation is that the Board pass an ordinance and opt make it a law that every Board and every Trustee be required to make a budget and stay to it. What this study is recommending is to take it a step further and make it an Ordinance, forcing the future administrations to be held to this budget requirement.

Trustee Larson said that in talking about an $80,000 for miscellaneous expenditures that is in a budget but not necessarily expended. She stated that she wanted to make the point that just because something is in a budget, does not mean that it is expended, it is simply there as a “what if” emergency situation.

Attorney Long asked if it was expended.

Ms. Zaher stated that in Capital projects, that is usually for specific purposes only and not for emergencies.

Mayor Maravelas then asked if these funds were simply set aside.

Ms. Zaher stated that was correct.

Attorney Long stated that it is different than an emergency reserve.

Ms. Zaher stated that yes, it is different.

Mr. Charneske stated that the budget is an outstanding tool that this Board needs to rely and take more time and detail because on a monthly basis, when one is not involved in the day to day operations, certain spikes, when comparing the current operation to the Budget, and unexpected increases or decreases are a red flag to say that something might not be right. It may warrant looking into it further. It is what forces the Trustees to question things and inquire further.

Ms. Zaher stated that the Illinois State Statute has budget processes for Municipalities stated. Since they have these budget processes stated, it can be assumed that it is recommended by the State that municipalities should have legally adopted budgets.

Attorney Long clarified stating that it is not required.

Ms. Zaher stated that the National Council on Governmental Accounting concludes that every governmental unit should prepare an annual comprehensive budget. To leave the accounting standard set in place by a national council that recommends that a budget should be established and followed.

Budgeting for inter-fund loans and transfers is not being done throughout the year, which should be done so that there are no surprises at the end of the year.

Number 24 on Page 30 describes the budgetary accounting system. There are actual accounts within the General Ledger that track how the money is being spent, and if you are going over budget at all. The recommendation is, due to the financial condition of the Village, that a budgetary accounting system be implemented within the General Fund and Special Revenue Fund. This is also recommended by the National Council of Government Accounting, Statement 1, Paragraph 89. This will also prevent the Village from spending any more restricted fund, because this has happened in the past.

On Page 31, Trend Monitoring is recommended to use for budget preparation. It is recommended due to comparing budget to actuals in the Financial Statement. For example, on the April 30, 2003 Financial Statement, the Village budgeted for approximately $4.8 million in expected expenditures, but only actually spent $3.2 million dollars. It is great that the Village was under, but the budget preparation was not very close. This also goes back to financial planning. If the budget preparations are not close to actual, we should revisit the way the budget is being prepared to try and come up with more accurate numbers. Trend monitoring is a great way to do that.

On Page 33, Number 26, the audit notes that the Village has not approved an ordinance regarding its budgetary system. The recommendation is that an ordinance should be passed regarding budget preparation.

On Page 34, Number 27 – Ms. Zaher asked if this should be discussed.

Mr. Charneske stated that we should back up one step further.

Some of the items being talked about in the recommendations are responsibilities that the new Finance Director would do. All of the recommendations are being made, and it has already been mentioned that the people who are here are already overloaded.

Additionally, someone has to have the education and background to handle some of these items and monitor them or understand how to create them. For example, the Finance Director should have the required education and background to do these types of things.

Number 29 on Page 36 regarding the set up of the Village’s General Ledger, it is not in accordance with stated Governmental Accounting. Currently, it is set up by fund and account. It should be set up by fund, department and account.

Basically, there are funds out there that have don’t have a cash balance, a fund balance or a retained earning. There are just expenses and revenues flowing through it. Those are really departments. Referring to Attachment 4, on Page 65, this is a proposed General Ledger revision. Ms. Zaher stated that she spoke with Vicki, who is the outside computer consultant, and she agrees that this is what she had usually seen at municipalities she has been programming for. She stated that she added account groups. Those are not being utilized within the system right now. Also, an Agency Fund should be added to this. This is just an evaluation of the Village’s current system.

Mr. Charneske stated that another items noted on this report as well is a lot of this can be improved or corrected by looking toward the accounting software itself. It needs to be determined if there is the capability of doing some of this, and another phase would be to look at what would it cost to take the existing system, if its capable of doing it, to help implement some of these things, versus bringing in a new state of the art software program that will have all of these capabilities already in it.

Ms. Zaher stated that when she spoke with the external computer consultant, she stated that every computer that uses the current accounting system will need to be reprogrammed to be able to match a proper municipal fund structure.

Attorney Long asked if there was additional hardware would be required.

Stephanie responded, No.

Stephanie went on to Page 38, Number 30 is Clearing Accounts.

It is noted that reconciliations are not prepared for the Clearing Account. A Clearing Account is an account set up in the General Fund where expenses flow through them from other funds such as the Water Fund checks flowing through the Clearing Account. It is noted that there is no reconciliation for it, and after performing a random examination on April 30, 2002, and one for October 31, 2003, and the Clearing Account balance totaled a cash shortage of approximately $1,300 each time it was looked at. With Clearing Accounts, it is supposed to be at a zero balance if operated properly. The Clearing Account was created to pool expenditures and expenses from different funds together to be paid from one bank account. This should be reviewed on a periodic basis, so that the number does zero out every month.

On Page 39, Number 31 deals with Separate Restricted Funds. The Village should monitor all Restricted Funds, such as TIF Funds and Capital Project Bond Proceeds to ensure that the Village complies with spending restrictions or bond covenants.

Currently, the Village co-mingles various funds and cash balances into one bank account, such as TIF Fund and Capital Project Proceeds are pooled in with the General Fund’s bank account. In prior years, the Village spent restricted funds, which balances are now being replaced with utility tax revenue. These bank accounts were organized by prior administration.

TIF Spending on Page 40, Number 32, before starting the project at the Village, they were made aware that nobody was monitoring the TIF spending. Since there was so much turn over within the Accounting Department, no one was really aware of what they were responsible for doing. The current Village Administrator turned this over to the Zoning, Planning and Building Department. It was turned over to the Senior Planner to monitor, and now all the TIF Funds go through the Village Administrator, but it is recommended that the Village Administrator only manage the TIF project with the Senior Planner, and a Finance Director, or someone within the Accounting Department, monitor the TIF spending. Also, the TIF report had not been sent into the State for the past two years. Currently, the Senior Planner is working on these reports to get them sent into the State.

The TIF Audit Report on Page 41, Number 33, currently the Village receives one statement stating that they looked at the expenditures of the TIF Fund, and noted that they were properly spent, and a statement in back of it. This statement does not provide a balance sheet or a statement of changes in revenues, expenditures and changes in fund balances; it just shows changes in revenues and expenditures. When this was discussed with the current auditing firm, the auditors stated they were unable to obtain sufficient documentation from the predecessor-auditing firm regarding cumulative amounts, which is a required statement of the TIF report. There should be a cumulative column showing the progress of the TIF from its start date.

The State of Illinois does not have a published ideal format for the TIF audit. Therefore, the Village elected officials were not aware of the additional disclosures and Financial Statements that could be included in this audit report. These additional disclosure and Financial Statements can provide the Village Officials with a comprehensive TIF audit containing more informative information about the nature of the current TIF project. Another reason the audit report lacks sufficient information is the Village does not employee somebody with a vast governmental accounting background that would be aware of the required report in a TIF audit. It is recommended that the Mayor and Board of Trustees request a full disclosure audit report from their auditors. This would likely require performing a lot of work from prior years to get the cumulative balances column up to date.

On Page 42, Number 34, regarding the Vacation and Sick Day Policy, liabilities expected to be paid in excess of one year should be recorded in the General Long Term Account Group.

This means that if people have accumulated days, and they will get paid for those, they should be recorded in long-term debt. What was seen were current balances, meaning that all of these employees will be paid these amounts within one year. After reviewing the Village’s employee policy concerning sick and vacation time, it was noted that employees within the Village can accumulate up to 576 hours of sick time, but the employee will not be paid for unused hours at the date of their departure. At departure the employee will be paid for any unused hours of vacation time less than or equal to 80 hours. Currently, it states that all employees are being paid out within one year. It was decided to review the Police Department’s employment policy, as sometimes Union Agreements are different from Village Agreements. It was different.

Within the Police Department, employees may accumulate a maximum of 90 work days. It is this firm’s understanding that they are paid for this if they leave the police force. This liability was not recorded on the books. It is recommended that the Village does recognize this amount of liability because if everyone has about 90 work days accumulated within the Police Department, and they all decide to leave at one time, the Village will have to pay out for it, and at this time, that amount is now known, as it is not recorded on the books.

Mr. Charneske stated that this would affect future cash flows.

It cannot be anticipated when someone some is going to leave.

The objective is that if it is shown on the Financial Statements. If it does happen, it will be paid out of current year’s budgeted spending money to cover these expenses.

Ms. Zaher clarified that there should be reserve in place for that liability amount.

On Page 44, Number 35, per General Accounting Standards for Code Section C50.120, Insurance Funds may not be set up as Special Revenue Funds. They may only be set up as a General Fund or as an Internal Service Fund. Currently the Village classifies its General Liability Insurance Fund as a Special Revenue Fund, and this does not comply with the General Accounting Standards Board. It is recommended that this is re-classified this fund.

On Page 46, Number 36, it is noted that the Village does not have a formal written investment policy. Without a formal written investment policy identifying the legally allowed investments, the Village puts itself at risk of making a poor investment decision and possibly being in violation of state and federal rules and regulations. It is recommended that the Village adopt a formal investment policy defining general objectives, standards of care, safekeeping and custody, suitable and authorized investments, investment parameters, reporting requirements and any other policy considerations.

Mr. Charneske stated one of the other keys within this issue is that some of these problems are inherited from prior administrations. The whole purpose of this engagement was to make recommendations to help start making changes.

On Page 47, Number 37 is the Disaster Recovery Program.

Currently, the Village does not have a formal written disaster recovery program in effect. The Village does back up system files on a daily basis, but they are not stored off site. If there is a fire within the Village, all the records are lost and destroyed. The recommendation is long, and it goes onto Page 48. At a minimum, the Village Policy and Procedures for computer disaster recovery should include all of the following:

• Assign coordinators for each agency or department to form a disaster recovery team
• Require creation and preservation of back up data
• Make provision for all the alternative processing of data following a disaster
• Provide detailed instructions for restoring disk files
• Establish guidelines for the immediate after math of a disaster

On Page 48, Number 38, The Village’s current computer accounting system does not allow recording adjusting journal entry to the prior fiscal close out year. Therefore, at conclusion of the Village’s annual audit, the General Ledger cannot be adjusted so that the April 30 year-end accounts match the auditors audited trial balance. The audit entries are entered, but the Village cannot perform a check to make sure all entries were properly entered and that balances do match the audited trial balance.

Attorney Long commented that this also perpetuates the problem into ensuing years.

Mr. Charneske stated this could be part of the reason for some of the out of balance amounts and large variances. It could be that the current system is not capable of handling it. When accounting for differences, it could be that the accounting system is not capable of handling it. It requires a tremendous amount of work going all the way back to try and figure out
what the amounts are to reconcile and balance them.

Mayor Maravelas asked how far back one would have to go.

Mr. Charneske stated we would have to go back years.

Mayor Maravelas stated that as the Village goes backwards, he didn’t think we would get anywhere, as he does not think there were any records.

Mr. Charneske stated that obviously, there are some limitations there, but somewhere along the line, it needs to stop, and it has to be adjusted, corrected, and changes need to be made by either modifying the software package, or switching to another software package. Somewhere along the line, someone has to account for this.

Ms. Zaher stated that this module would have to be programmed into the current system. If the Village does choose to purchase a PC based software, this function is already part of the software package. The system that is being operated at this time (AS 400) only stores limited amounts of information.

Therefore, with the escrow accounts, the Zoning, Planning and Building Department cannot keep as detailed records as they want to on the network system. Separate spreadsheets have to be kept for themselves so that it can be tracked.

On Page 51, Number 42, an accounts payable system is mentioned. What should be happening is that the software should generate a report stating all open invoices at any given date. This would require the Accounting Department to input any invoice the day it is received. Currently, invoices are entered once a month at the end of the month. At any given day, a Trustee cannot walk in and ask what the bills are outstanding that need to be paid. It is recommended that this module be added to the Village’s system so that accounts payable can be recorded. Or, if the Village chooses to install a PC based software, this software for PC’s does have this feature already included.

On Page 53, Number 43, the system cannot general Financial Statements unless it is programmed to do so. Currently, the Village does not have this feature programmed. Additionally, most Village employees who enter data into the system have access to all accounts. There appear to be no controls set for employees’ access to accounting data. For example, the Village Clerk may access water billing accounts.

Mr. Charneske stated that this leaves an opportunity for people to make adjustments on other accounts, and there would be no way to control it or verify it as there are no alarms in place to catch these types of things.

Trustee Pierce stated that there seems to be a driving force of going to a PC based software system as a recommendation here.

He stated that any software they choose will have to be programmed to do what it wants to do.

Ms. Zaher stated that when it is first installed, some groupings and organization would have to be added. However, the PC software would match the growing rate of the Village.

She stated that this would be the perfect time to implement it.

Mr. Charneske stated that most of the current software that is currently out there is going to more up to date than the existing software that the Village has now. It would be written on a platform that would allow for more capabilities than what the Village now has. It comes in different modules, and these modules can be added. There will be some programming involved in order to modify these programs to meet the specific needs of the Village, such as the existing chart of accounts.

Stephanie stated that it would also limit who is capable of performing certain functions within the software. It is set up so that people in the Building Department, they are only allowed to see escrow accounts. In the water department, they are only allowed to see accounts related to water collections and billing. There are other features such as accounts receivable aging and accounts payable aging, which lets you monitor who is paying late or why are bills being paid late.

Currently, there is no accounts payable aging, so it is not known if bills are being paid late, or if late fees are being paid.

Mr. Charneske stated that in a lot of cases, the information is not available. Money may have already been spent, and the report reflects what is available to spend, but not what has already been spent for which invoices have not yet been received. That is pretty dangerous. The Village is still replenishing some restricted monies and still rebuilding and restructuring the Village. The Village is running close within the cash balance and the current budgets. This is really critical information.

Ms. Zaher stated that the Accounts Payable module have a purchase order function where anybody within the Village making a purchase is going to have to fill out a purchase order before ordering supplies or anything. It immediately records onto the system, making that money unavailable to be spent.

On Page 54 and 55 shows that currently, the system is not providing aging reports for the water and sewer billing. This function can either be added to this system, or this will be included in a PC based software.

On Page 56, Number 45, currently the Village does not have formal written accounting Policies and Procedures. The cause of this is simply that one was never written. It is noted that there is a lack of cross training for certain positions in the Accounting Department. Since there is not an accounting Policies and Procedures manual written, if some individuals leave, and nobody is cross trained for these positions, nobody will know how to do it, and the Village will be at a halt. It is recommended that the Village develop a formal written accounting Policies and Procedures manual.

On Page 57, Number 46, Fixed Assets is discussed. This deals with new Governmental Accounting Standards Board statement Number 34, which requires a whole new reporting model for municipalities. It requires the Village to go to an accrual basis, and not operate on a cash basis. Therefore, anybody in the position of recording this activity must understand the concept of accrual accounting. It is also noted that the Village is not keeping records of their fixed assets. There is not a formal policy for general fixed assets. There is a difference between fixed asset groups. There are fixed assets within the Water and Sewer Fund, and those are accounted for.

Those were not amounts that caused a qualified opinion. The fixed assets that are in the Village are what caused the qualified opinion. There are no records on it, and no one is keeping track of it.

Also, it is uncertain if the Zoning and Planning department kept infrastructure records on street lights or street paving. These are required to be reported under the new GASB 34 statement.

Attorney Long asked how that can help anybody to know that information. He stated that he understands GASB 34 wants all of these items, but how does that help anyone in government anywhere do anything other than just keep track of useless information.

Trustee Caulfield stated that it seems that if the Village collected taxes and spent the money, it would be nice to know what the money was spent on and have a record of something.

Attorney Long stated he agrees with Trustee Caulfield’s statement, but keeping track of street lights and other items.

Mr. Charneske stated that the whole purpose is to account for these transactions because there have been tax shelters created for some of the higher income individuals at these big companies in corporate America, where they were involved in tax shelter trusts where they were working with very large municipalities actually purchasing and leasing infrastructures from them. There was a lot of money going back and forth, and it is very complex and very complicated, and a lot of people don’t even understand it, but there was fraud occurring as a result of these things.

There is some benefit in going back and accounting for this and making sure that it is properly stated on the Financial Statements. As the Village goes back, it may want to set up some type of capital reserve going forward for replacing infrastructure and so forth. In order to comply with GASB 34, the Village of Antioch is nowhere near being ready for that.

He stated that they are very happy to see that since the day this was started, that an engineer has come aboard. It is a very important step toward implementing this. There are going to be further recommendations to help the Village, given the current condition, to try to comply with this. It might be to bring in specialist evaluation type person who specializes in dealing with municipalities and try to assess a value on this.

Ms. Zaher stated that the recommendation is to comply with these accounting standards, or else the Village will continue to get qualified opinion every year, and it will continue to affect the bond rating.

On Page 59, Number 47, Financial Statement Foot notes and disclosures are not shown on the 2003 Financial Statement draft.

On Page 67, 68 and 69, there are some proposed revisions that should have been done to the Financial Statement draft to bring it up to par with GASB standards. All of the GASB codifications have been quoted where these requirements are stated.

On Page 64, Attachment 3, this firm did not feel that the current monthly Treasurer’s Report provided enough information as to the financial activity going on within the Village. This is a proposed new format for this report. The amounts are fictitious and for example purposes only. The date used for February 29, 2004. It separates out all fund types and who ever is in the position of handling of all of this cash will explain to the Board of Trustees and the Mayor what the difference is between all the different fund types and their purpose. First, there is a cash balance from the prior month, then there is what was invested in the prior month, and receipts that have been collected in the current month are stated, the investments that matured, the disbursements for the current month, the investments that were purchased in the current months, and a cash balance at the end of the month and investment balance at the end of the month. Those amounts are totaled and compared with where the Village was at that point in time in the prior year. Therefore, progress or deficiencies can be noted.

Mayor Maravelas asked Ms. Zaher if she recommends that this format be adopted.

Ms. Zaher stated yes. As a separate report, the Treasurer or the Finance Director will provide a monthly inter-fund loan reconciliation, and an inter-fund transfer statement that displays all the inter-fund transactions that have occurred that month, and why they occurred, as with the inter-fund transfers.

On Attachment Number 6, on Page 70, this shows additional methods in which the Village should consider for obtaining additional revenue or lowering expenditures and expenses. It is recommended that the Village perform a cost benefit study for bring garbage services in house rather than contracting them out. It is also recommended that the Village consider performing a sales tax inquiry of random local businesses to determine if the Village is receiving all the sales tax due from these operations. The Village should also consider passing some new ordinances. When comparing the Village’s trial balance to another municipalities of the same size, there are license and permits and other fees that other Villages collect that Antioch is not collecting. The Village should also consider performing a utility bill inquiry and analysis to determine if the Village is receiving the lowest priced telephone plan or lowest cable plan.

Lastly, on Page 71, there are other suggested controls that were mentioned by the Village Administrator and the Staff Finance Committee Chairman, such as legally approving through Village Ordinance a published salary scale for all open or filled position within the Village, installing a time clock for hourly employees in order to keep better payroll records.

Department heads should review the bi-weekly payroll register pertaining to its department before distributing checks to employees. Also, each department should disclose budgeted overtime to the Accounting Department during the Village’s annual budget preparation.

Mr. Charneske stated that this concluded the report. Some of the sensitive information was skipped over, as well as human resource information.

Mayor Maravelas stated that he would like to make a Motion before going into Executive Session, that the general public be able to direct questions to Mr. Charneske.

Dick Rench, 667 Garys Drive asked how old is the system that is in place at the Village.

Mayor Maravelas stated it was a long time.

Mr. Rench stated that as a homeowner and a small businessman, he has upgraded his system since Y2K. He felt that it was absolutely ridiculous to be running with anything archaic. He stated one could not expect to get good information out.

Mayor Maravelas stated that is why this study was done.

Mr. Rench complimented the accounting firm for their hard work.

Sandy Meyer congratulated the auditors. She stated that what the Village is doing now is absolutely right. She also asked how this information could make it into the newsletter.

Mayor Maravelas commented that this process was long overdue, and now the Village can look to the future.

Dave Dziki asked if this information would be available to the public.

Attorney Long stated that much of it needed to be gone through. This would be a Freedom of information Act issue.

Mr. Dziki stated that the Village should go back as far as it can to address these issues. He also commented that while change is difficult, it is necessary to have an organized structure.

Mr. Charneske again explained that this is a small municipality with many restriction and limited resources. He then spoke about the proposal for Phase II, which would be to begin implementing these changes. The Trustees will need to prioritize. The Village needs to think about adding new people, new software, and come up with a time line in which they would like to implement these changes. The Village needs to think about how it can get better and have a better safety net and alarm system.

Trustee Caulfield recommended that the Village go forth with the next step.

Mr. Charneske stated that compliance with the State Regulations of GASB34 needs to start yesterday. Additionally, the Village needs to look at hiring a Finance Director in order to get ready for the future.

Trustee Caulfield thanked Joe and Stephanie for their report.

Trustee Pierce made a Motion to accept this report into record, not for release to the public until the issues with Freedom of Information Act are addressed. The motion was seconded by Trustee Caulfield. On roll call the vote was:

YES: 6: Pierce, Larson, Caulfield, Porch, Hanson, Turner.
NO: 0
THE MOTION CARRIED.

Trustee Caulfield made a Motion to convene to Executive Session where personnel issues can be discussed, however the Board will take no action. The Motion was seconded by Trustee Porch. On roll call the vote was:

YES: 6: Pierce, Larson, Caulfield, Porch, Hanson, Turner
NO: 0
THE MOTION CARRIED.