City of Glens Falls

Internal Controls over Water and Sewer Billed Receivables - Executive Summary

The City of Glens Falls (City) has approximately 14,400 residents. The City provides police and fire protection, street maintenance, water and sewer services, and public transportation, among other services. The Common Council (Council), consisting of the Mayor and six council members, is responsible for the overall management of the City. The City Controller is the Chief Fiscal Officer and is responsible for performing virtually all of the City’s financial duties such as maintaining accounts of all receipts and expenditures including water and sewer fund transactions.

In addition to the Council, the City has a Water and Sewer Commission (Commission), which is responsible for the general oversight of water and sewer operations. The Commission has the authority to set water and sewer rates, prepare the annual operating budgets, and enter into contracts on behalf of the water and sewer department, although all resolutions are subject to the Council’s final approval. For the 2005 fiscal year, budgets of $2.3 million and $3.6 million were adopted for the water and sewer funds, respectively.

Scope and Objective

Our objective was to review the billing, collecting, and recording practices related to the City’s water and sewer billed receivables for the period January 1, 2004 through October 5, 2005. Our audit addressed the following related question:

• Are internal controls over billed receivables for water and sewer operations appropriately designed and operating effectively?

Audit Results

Our audit found significant weaknesses in the City’s internal controls over water and sewer billed receivables. The Council has not adopted written policies and procedures for the billing and collection of unpaid water and sewer bills. On December 31, 2000 the City entered into a contract with Earth Tech, a private company, for the management of the City’s water and sewer systems. Earth Tech was also responsible for billing water and sewer customers. City officials did not require Earth Tech to prepare a master billing report nor did they provide for billing approval prior to the distribution. Earth Tech’s billing system was linked into the City’s general ledger system.

Certain individuals had excessive levels of authority and incompatible duties were not adequately segregated. A single Earth Tech employee, who also prepared the bills, made all billing adjustments. Of the 94 adjustments totaling $573,000 that we reviewed, only two, totaling $118,000, were properly approved by the Commission. Except for the two adjustments approved by the Commission, none of the adjustments had supporting documentation to ascertain that they were made for appropriate and reasonable purposes.

In 2005, the City changed its billing cycle so the four billings were within the calendar year. In order to decrease the impact on customers from having two bills sent to them within a short time frame in the beginning of 2005, the City Controller directed Earth Tech to reduce the penalty rate for the February 7, 2005 billing from 10 percent to 5 percent. The Controller did not receive Council authorization to reduce the penalty rate on the February 7, 2005 billing. Due to the reduction, the City received $17,000 less in revenue from penalties for that collection period.

Comments of Local Officials

The results of our audit and recommendations have been discussed with City officials and their comments, which appear in Appendix A, have been considered in preparing this report. City officials generally agreed with our recommendations and indicated they planned to initiate corrective action.