INTRODUCTION

AUDIT OBJECTIVE

GENERAL CONCLUSION

SUMMARY OF FINDINGS AND RECOMMENDATIONS

Finding 2-1.  Revenues and bond proceeds, and expenditures and encumbrances for the I-Net project accounted for in the county’s financial system were fairly stated in all material respects.

The audit examined, on a test basis, evidence supporting the revenues and bond proceeds, and expenditures and encumbrances for the recorded I-Net project life-to-date amounts. Based on the audit work, cumulative revenue and bond proceeds of $21,231,778 (see Exhibit A) and expenditures of $14,110,848 (see Exhibit B) from 1995 through June 30, 2001, are shown appropriately in the county’s accounting records. We have also determined that the amount of encumbrances of $5,254,929 at June 30, 2001 is fairly stated in all material respects.

Finding 2-4.  The I-Net project fund incurred an arbitrage rebate liability of $277,000 to the U.S. Treasury from investing proceeds of tax-exempt bonds in higher yield rate investment instruments than stated on the bonds.

We found that I-Net project fund incurred an arbitrage rebate liability of approximately $277,000 because the fund’s investment earnings have exceeded the borrowing interest costs of the general obligation bonds. This excess "profit" resulted, primarily, from the county’s failure to use the bond proceeds, as opposed to other revenue sources, to pay for I-Net project costs first. However, the estimated arbitrage rebate liability has been accrued and funds have been set aside to be rebated to U.S. Treasury Department.

The audit recommended that the county should use proceeds from tax-exempt general obligation bonds first to pay for I-Net project costs.

The audit further recommended that the Department of Finance should develop a financial policy regarding the priority of disbursing bond proceeds when capital projects are funded by multiple sources.

Finding 3-1.  The project costs related to Civic Television (CTV), which is complete and operational, should be capitalized and accounted for under the general fixed assets account group.

The construction cost, amounting to about $1.24 million, for CTV was funded out of I-Net capital project fund. While the CTV project has been complete and operational since 1997, the cost of the project has not been recorded into the county’s fixed asset account group.

The audit recommended that the capital project costs related to CTV should be classified to general fixed asset account group in accordance with generally accepted accounting principles (GAAP).

Finding 3-2.  The I-Net operation does not have a separate fund to account for its operating revenues and expenses, and its operating activities have not been budgeted.

We found that, effective July 2001, approximately 70 I-Net sites have been completed and are operational. While these sites are generating revenues in the form of customer subscription fees, the I-Net operation does not have a separate fund to account for its operating revenues and expenses. Additionally, the completed portion of I-Net should be capitalized as a fixed asset to recognize the matching of revenue to the relevant expenditures. It should be noted, however, that the I-Net operation does not have an approved budget for 2001 to incur and pay expenses for the I-Net operation.

The audit recommended that the executive submit a proposed ordinance requesting the council to approve the creation of a separate enterprise fund to account for revenues and expenses of the I-Net operation.

The audit further recommended that the executive should submit to the council a request to approve a supplemental budget for the I-Net operation in 2001.

The audit further recommended that the Department of Finance should capitalize the portion of I-Net sites that are operational, in accordance with GAAP.