the Audit Management Letter Recommendations

							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.