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EXHIBIT #1 Regular Council Meeting of 01/24/2011 City of Dover Finance Department PO Box 475 Dover DE 19903-0475 Phone: (302-736-7018 FAX: (302) 760-4930 E-Mail: dmitchell @dover.de.us MEMORANDUM To: Members of Legislative, Finance, & Administration Committee From: Donna Mitchell, Controller/Treasurer Chief Hosfelt, Police Chief Copy: Mayor, City Council, City Manager, City Clerk, & Asst. Finance Director Date: December 29, 2010 Subject: Accounting Procedures for Federal Forfeiture Funds Background This past summer, it was brought to my attention that a separate bank account was being maintained by the Police Department and the transactions were not being accounted for in the City’s records. I met with Chief Hosfelt and he confirmed that this statement was correct. Chief Hosfelt also agreed to provide the documentation to have a compliance review completed of the deposits and disbursements and to explain to City Council the existence of the account and the purpose for which it was being used. Chief Hosfelt provided a discussion on the Criminal Investigation Fund to the Legislative, Finance, & Administration Committee on August 23, 2010. It was agreed that once all records and documents have been transferred to the Finance Department and an audit has been performed, an update will be provided to Committee members. Update Chief Hosfelt and the Police Department staff worked cooperatively with the Finance Department to close out the separate bank account and deposit the cash balance into our City account we currently use for Law Enforcement Grants. All activity is now being processed through the City’s accounting system in compliance with all policies and procedures. Please note, the previous bank account was being reconciled, financial reports were being prepared by the Police Department, and controls were in place to prohibit unauthorized spending per the Department’s internal policies. However, these activities were not shared with anyone outside of the Police Department. The Chief agreed to a compliance review conducted by the City auditor, Faw, Casson & Company, LLC to be paid for out of the federal forfeiture funds. It was decided to review a sample of transactions back to July 2006 (4 years) for time and cost purposes. Faw, Casson’s report is attached for your review. Most of the non-compliance items were a result of not using the City’s financial systems and has now been remedied. Also attached is a summary of the Fund Balances, Receipts, and Disbursements for the four years reviewed.

Accounting Procedures for Federal Forfeiture Funds December 29, 2010 Staff Recommendations We recommend that annual budgets be established for Police Grants and all other Criminal Investigation Funds. All estimated receipts and planned disbursements be adopted through the budget process and accounted for in the same manner as all other funds to insure visibility and accountability of the use of these funds. Everyone understands, through the use of the City’s budgeting and financial systems all policies and procedures will be adhered to. Until such time a budget can be established the Finance Department will issue a summary of activity for these funds in conjunction with our monthly report. Use of Federal Forfeiture Funds Federal Forfeiture Funds come with some restrictions for their use. We have included a summary of permissible uses and impermissible uses. General restriction – Sharing must be used to increase or supplement the resources of the receiving local law enforcement agency. Shared resources shall not be use to replace or supplant the appropriated resources of the recipient. The agency must receive a benefit from the shared funds. Example – A police department receives $100,000 in federal sharing money only to have its budget cut $100,000 by city council. In this instance, the police department has received no direct benefit from equitable sharing. Rather, the city as a whole has. Permissible Uses Law enforcement investigations Language assistance services Law enforcement training Transfers to other law enforcement agencies Law enforcement and detention facilities Law enforcement awards and memorials Law enforcement equipment, furniture, supplies Asset accounting and tracking; Grant audits Law enforcement travel and transportation Support of community based programs Drug and gang education and awareness Matching funds for the agency’s matching programs contribution in a federal program Pro rata funding – for the Police departments Exercise prudence to avoid the appearance of share of interdepartmental items or facilities. i.e. extravagance, waste, or impropriety computerized payroll system with 20% use for police payroll Impermissible Uses Salaries & benefits of current personnel unless Use of forfeited property by non-law permitted by: enforcement personnel. Includes equipment; (1) Express statutory authorization – i.e. Payment of education-related costs COPS program matching funds Uses contrary to the laws of the state or local (2) Overtime of officers and investigators government (3) New positions. First year salary & Non-official government use of shared assets benefits of a new officer that Purchase of food and beverages, unless for a supplements the current force conference package policy or meals during local (4) Salary of an officer hired to replace an operation officer assigned to a task force Page 2 of 3

Accounting Procedures for Federal Forfeiture Funds December 29, 2010 Federal Forfeiture Funds 2007 2008 2009 2010 Beginning Balance $ 73,475.84 $ 34,709.68 $ 15,533.02 $ 187,855.42 Receipts 20,223.32 6,288.49 208,678.31 8,939.93 Expenditures (58,989.48) (25,465.15) (36,355.91) (55,015.99) Ending Balance $ 34,709.68 $ 15,533.02 $ 187,855.42 $ 141,779.36 A hold was put on non-essential spending from this account until the auditor completed their review. We have received additional federal funds this fiscal year and the cash balance as of December 31 is $166,986. Included with the January monthly report will be a financial report on Police Grants for this fiscal year as included in the staff recommendation. Page 3 of 3

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