the Audit Management Letter Recommendations
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CITY OF GREAT FALLS, MONTANA AGENDA # 4 AGENDAREPORT DATE December 18, 2001 ITEM Audit Report, FY 2000-2001 INITIATED BY Fiscal Services Department ACTION REQUESTED Accept Annual Financial Statements, Audit Report, and Responses to the Audit Management Letter Recommendations PREPARED BY Judy D. Hardinger, Accounting Technician Sr. REVIEWED AND APPROVED BY Coleen Balzarini, City Controller/Fiscal Services Director RECOMMENDATION: Staff recommends the City Commission accept the FY 2000-2001 Comprehensive Annual Financial Report (CAFR) and approve the responses to the auditor’s recommendations contained in the FY 2000- 2001 Audit Management Letter. MOTION: I move the City Commission accept the FY 2000-2001 Comprehensive Annual Financial Report and Independent Auditor’s report as presented as well as approve the responses to the Audit Management Letter recommendations as presented, and authorize staff to submit the responses to the State of Montana, Department of Administration and other government agencies as necessary. SYNOPSIS: Junkermier, Clark, Campanella, Stevens, P.C., Certified Public Accountants, conducted the City’s FY 2000-2001 Annual Audit. Based on the Independent Auditor’s report, the general purpose financial statements present fairly, in all material respects, the financial position of the City of Great Falls, Montana, as of June 30, 2001, and the results of its operations and the cash flows of its proprietary fund types for the year then ended in conformity with generally accepted accounting principles. Section 2-7-515, MCA, requires the City Commission notify the Montana Department of Administration within 30 days of receipt of the audit report as to what action is planned on any deficiencies and recommendations noted by the independent auditor. If accepted by the Commission, the attached responses will be forwarded to the state in compliance with this requirement. BACKGROUND: 1 The City’s Audit Committee received a copy of the FY 2000-2001 CAFR, the Independent Auditor’s report, responses to the GFOA’s (Government Finance Officers Association) comments on the FY 1999- 2000 CAFR and a brief summary of the FY 2000-2001 audit December 10, 2001. The Audit Committee recommends the City Commission accept the CAFR and annual Independent Auditor’s report. Along with the FY 2000-2001 Audit Report, the City’s auditors (Junkermier, Clark, Campanella, Stevens, P.C., Certified Public Accountants) issued a separate Audit Management Letter. The letter comments on internal control recommendations related to the operations of the City that could adversely affect the City’s ability to record, process, summarize, and report financial data. The attached document describes the auditor’s FY 2000-2001 recommendations, status of prior year recommendations, and the City’s response/disposition to each of the recommendations. The FY 2000-2001 CAFR will be submitted to the Government Finance Officers Association’s (GFOA) Certificate of Achievement Program for review. The prior year’s CAFR was submitted and subsequently awarded the Certificate of Achievement for Excellence in Financial Reporting. The City has received this certification every year since FY 1993-1994. It is anticipated the FY 2000-2001 CAFR will meet all requirements to receive the certification as well, since all comments and recommendations made by GFOA for improvement of presentation were implemented in the FY 2000-2001 CAFR. 2 CITY OF GREAT FALLS, MONTANA Financial and Compliance Audit For the Year Ended June 30, 2001 RESPONSE TO INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL STRUCTURE: CURRENT COMMENTS AND RECOMMENDATIONS CASH AND INVESTMENT PROCEDURES The City has checks that are outstanding for a period greater than one year. Recommendation: We recommend all checks outstanding be reviewed, investigated, and resolved in a timely manner. Any checks remaining outstanding for a period of one year or longer should be canceled by action of the City Council as required by Montana Code annotated. Response/Disposition: An agenda item has been prepared for the December 18, 2001 City Commission meeting to write off all checks with an issuance date of greater than one year that have been investigated without resolution. We noted that differences found on monthly bank reconciliations were not resolved in a timely manner. Recommendation: We recommend that differences found on monthly reconciliations be resolved at that time. Response/Disposition: Bank reconciliations will be reviewed monthly by the Accounting Supervisor to insure differences are resolved in a timely manner. CITY OF GREAT FALLS, MONTANA Financial and Compliance Audit For the Year Ended June 30, 2001 PAYROLL We noted that the City’s employees are required to turn their time cards in at a date prior to the end of the pay period. This is done in order to allow the payroll department to process the payroll and pay the employees at the scheduled pay date. Recommendation: We recommend that the City adjust the pay date to one week following the end of the payroll period to allow for the five day processing time and to avoid making prior period payroll adjustments. Response/Disposition: The City acknowledges that changes in the pay date need to be made to avoid making prior period payroll adjustments. However, the City has contractual agreements that currently do not allow for a change in the pay date. City Staff will continue working towards resolution of this issue. DEBT During the year ended June 30, 2001, the City did not meet the rate covenant provision for the Golf Course revenue bonds. The percent of bond coverage was less than the required 140%. Recommendation: We recommend that the City prepare a schedule of altered rates, charges and rentals and place these changes in operation as soon as possible. Response/Disposition: The City proposes to implement increases in user fees in conjunction with a reduction in operating expenses for the months of March, April, May and June of 2002, that will allow the City to meet the Rates and Charges Covenant in Fiscal year 2002 and will also establish a sound basis for compliance with this covenant in future fiscal years. The statistical section of the CAFR contains the recommended schedules. A schedule of proposed altered rates, charges, and rentals is included on page 151. Projected results of the changes in revenue and expenses are reflected on page 152. CITY OF GREAT FALLS, MONTANA Financial and Compliance Audit For the Year Ended June 30, 2001 SWIMMING POOLS SPECIAL EMPHASIS AREA As noted in the Management Letter there were no reportable conditions found in the special emphasis area. “In addition, each year the audit committee decides on a specific area of the City that the auditors focus on to insure proper internal controls exist and to study operations. For the year ended June 30, 2001, the City selected the swimming pool operations, reported in the Swim Pool fund, for review. We formulated comments and management suggestions as a result of our review and have included them in a separate letter addressed to the Audit Committee.” Management will address the comments and suggestions made by the Auditors for the Swimming Pools during the 2002 swim season. CITY OF GREAT FALLS, MONTANA Financial and Compliance Audit For the Year Ended June 30, 2001 Summary of Prior Audit Report Comments and Responses/Dispositions: CASH AND INVESTMENT PROCEDURES We noted during our review of bank balances that most bank reconciliations were not prepared through adjusted year-end (period 13). Many book balances on the reconciliations did not tie out to the general ledger for this reason. Recommendation: We recommend that all bank reconciliations be prepared through adjusted year-end and that the appropriate employee periodically compare these bank reconciliation’s to the general ledger to assure completeness and accurateness. Current Status: Period 13 cash reconciled for FY 2000-2001 We noted during our review of investments that there is an investment that does not meet the provisions of Montana Code annotated. The noted investment has a maturity date exceeding five years from original purchase date. Recommendation: We recommend controls be established to insure that appropriate investments are purchased. Current Status: All current investments meet the provisions of Montana Code annotated. CITY OF GREAT FALLS, MONTANA Financial and Compliance Audit For the Year Ended June 30, 2001 ECONOMIC DEVELOPMENT ADMINISTRATION GRANT We noted during our review of the Major Federal Awards, the City received and Economic Development Administration grant, part of which was used in the construction of infrastructure (water main and sewer) belonging to the City. The grant was completely passed through to the Airport Authority; the City recorded no capital asset. Recommendation: We recommended that the City capitalize the costs associated with the construction of the assets and include these costs in Construction in Process since the project was not completed by June 30, 2000. Corrective action has been taken. Current Status: Project Complete and all costs/revenue recorded appropriately. SOLID WASTE DEPARTMENT: We tested and evaluated the waste rates charged by Waste Management of Montana, Inc. and determined they were in agreement with rates charged by High Plains landfill to Waste Management, and adhered to contracted rate structures. Based upon our review of billing statements, the only variances we noted related to the charges for excess tonnage in compactors. The charges exceeded the contracted rate structure. We recommend this be brought to the attention of all interested parties and the issue be resolved. Current Status: Charges are being made within the parameters of the contract.