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Sample Government, FLORIDA SCHEDULE OF FINDINGS AND QUESTIONED COSTS (Continued) SECTION II - FINANCIAL STATEMENT FINDINGS (Continued) Effect The potential effect was that without the above noted adjustments, the City's financial statements could have been materially misstated. Recommendation We recommend that each accountant responsible for an area perform an in-depth review of balance sheet, revenue and expenditure/expense accounts and determine and record the required adjustments prior to producing the final trial balances. Any reconciling differences should be corrected before the books are closed at year end. This process should reduce the adjusting journal entries required after the trial balances are provided to the auditors. View of Responsible Officials and Planned Corrective Actions We concur with this comment. The City received the fixed asset schedule from the consultant after the trial balances were produced. This resulted in numerous adjustments. The City is no longer using a third party consultant to maintain and adjust its fixed asset records. The City hired a Fixed Asset Accountant who is responsible for reconciling and updating fixed asset records. Departments report their fixed asset activity to the Fixed Asset Accountant on a bi-weekly basis to ensure all related accounts are reconciled in a timely manner. In addition to the fixed asset entries, other correcting entries were made to the account balances. A more thorough review process will be implemented at year end to ensure that all account balances are supported and agree to their associated transactions prior to producing the final trial balances. 09-02 Capitalized Interest Criteria Capital assets are initially recorded at their historical cost. The cost of a capital asset, for this purpose, should include "any ancillary charges necessary to place the asset in its intended location and condition for use". When an enterprise fund uses debt to finance construction of a capital asset, one of these capitalizable ancillary charges is the interest expense incurred during construction. The interest capitalization period ends when an asset is substantially complete and ready for use. Condition We noted that, for certain projects in the Utility Fund, interest continued to be capitalized although the related asset was complete and put into service, We further noted that, in the prior year, the incorrect amount of interest was capitalized on projects funded by the 2007 debt issue. These errors resulted in a prior period adjustment of approximately $2.4 million. 2