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HomeMy Public PortalAbout2017 Audit - Management Letter CITY OF PARKVILLE, MISSOURI REQUIRED COMMUNICATIONS AND MANAGEMENT LETTER For the Year Ended December 31, 2017 City of Parkville, Missouri Required Communications and Compliance Report For the Year Ended December 31, 2017 Table of Contents Page Number Required Communications and Management Letter 1-5 Compliance Report: Independent Auditor’s Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 6-7 Schedule of Findings and Responses 8 COCHRAN HEAD VICK & CO., P.C. Certified Public Accountants May 29, 2018 To the Honorable Mayor and Board of Aldermen City of Parkville, Missouri We have audited the financial statements of the governmental activities, business- type activities, each major fund, and the aggregate remaining fund information of the City of Parkville, Missouri (the City) for the year ended December 31, 2017. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated August 1, 2017. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2017. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. Significant accounting estimates used by the City’s management include determining the allowance for doubtful accounts, the estimated historical cost of infrastructure and the related estimated useful lives used in recording depreciation and accumulated depreciation for capital assets, value of land held for redevelopment, and the estimated obligation relating to pension benefits. We evaluated the key factors and assumptions used in developing the above estimates in determining that they are reasonable in relation to the financial statements taken as a whole. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. The most sensitive disclosure affecting the financial statements was the disclosure of certain special assessments in Note 7 to the financial statements. The financial statement disclosures are neutral, consistent and clear. 1251 NW Briarcliff Pkwy Suite 125 Kansas City, MO 64116 (816) 584-9955 Fax (816) 584-9958 Other Offices in Missouri and Kansas Difficulties Encountered in Performing the Audit We encountered no difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such misstatements. The following material misstatement detected as a result of our audit procedures was corrected by management.  Adjustment to record all proceeds from issuance of the loan agreement of $1,329,725. Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated May 29, 2018. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Other Matters We applied certain limited procedures to the City’s management’s discussion and analysis, budgetary comparison information, schedule of changes in net pension liability and related ratios and schedule of employer contributions, which are required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the combining and individual fund statements and schedules which accompany the financial statements but are not RSI. With respect to the supplementary information accompanying the financial statements, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. 2 In planning and performing our audit of the financial statements of the governmental activities, the business- type activities, each major fund, and the aggregate remaining fund information of the City of Parkville, Missouri as of and for the year ended December 31, 2017, in accordance with auditing standards generally accepted in the United States of America, we considered the City’s internal control over financial reporting (internal control) as a basis for designing our auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore material weaknesses or significant deficiencies may exist that were not identified. However, as discussed below, we identified certain deficiencies in internal control that we consider to be material weaknesses. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency in the City’s internal control described under Financial Reporting to be a material weakness. As part of our annual audit, we try to identify opportunities for improving the management of financial resources and for improving the internal controls over financial reporting. We are submitting, for your consideration, our observations and recommendations with regard to these matters. Management’s responses to our comments are included with this report. We did not audit the City’s responses and, accordingly, we express no opinion on them. CURRENT YEAR COMMENTS Financial Reporting – Material Weakness Management is responsible for establishing, maintaining and monitoring internal controls over financial reporting, and for the fair presentation of the financial statements and related notes in conformity with U.S. generally accepted accounting principles. Under our professional standards, we have to assess the City’s controls over preparing the financial statements including assessing the skills and competencies necessary to prevent, detect, and correct a material misstatement. Our audit procedures identified an adjustment that was required to properly report a certain transaction of the City in accordance with generally accepted accounting principles. This adjustment was not initially identified by the City’s internal controls over financial reporting. We recommend that management review year-end closing procedures to ensure that transactions are properly recorded in accordance with generally accepted accounting principles. In addition, due to the complexities of financial reporting, we recommend that management explore various alternatives for improving the controls over financial reporting including the use of governmental accounting standards, reference guides and continuing education and training courses. Management’s Response Staff and the Board of Aldermen responded to the recommendation and, since that time, have increased the budget and time available for professional development for finance staff with the idea of both the Finance/Human Resources Director and the City Treasurer attending relevant training opportunities. The Finance/Human Resources Director attended the Generally Accepted Accounting Principles (GAAP) Update Webinar to learn about the most recent developments in accounting and financial reporting for state and local governments as well the National Government Finance Officer of Missouri (GFOA) Conference held this year in St. Louis, Missouri. He attended sessions including Accounting and Financial Reporting for Debt, Improving Communication between Accounting and Budgeting and Debt Management Best Practices. The City Treasurer attended the National GFOA Conference as well and attended classes including Accounting and Auditing Year in Review, Treasury Management Best Practices, Small Government Forum and Establishing an Investment Program. 3 With regard to audit adjustments, the loan agreement was not recorded in its entirety and all funds received by the City were not accurately reflected. This was an oversight. Staff will do a better job of working with our auditors during the year as questions arise that they might be able to provide direction on. Audit adjustments have decreased each year and staff will continue to strive for no audit adjustments in the future. Staff will use all available reference guides to provide a checklist of tasks to ensure accurate and timely financial reporting Staff understands that the City is ultimately accountable for the accuracy of the financial statements and will endeavor to increase the in-house knowledge of governmental accounting standards to improve this reporting process in the future. Other Comments Municipal Court The Municipal Court collects fines and court costs and deposits those funds into a bank account. The monies collected are to be distributed to the State of Missouri, the City of Parkville or other agencies in accordance with State Statute and City Ordinances. It was noted during the audit that the bank account carried an account balance of $10,673 as of December 31, 2017. The Court could not provide a detail of the amounts owed to the entities described above for the amount remaining in the fund. We recommend that the City reconcile the remaining amount in the fund to ensure that fines and court costs collected are appropriately distributed in accordance with state and municipal regulations. Management’s Response Court and finance staff have been unable to determine the source and the appropriate distribution of these funds. A new account has been opened and once all activity has ceased in the existing account, the account will be closed and funds distributed. Finance staff has contacted the State of Missouri for direction in the proper distribution of these funds. Court staff and Finance staff currently reconcile bank accounts manually each month jointly and accounts will be reviewed to ensure all balances are accurate. Future Accounting Pronouncements The Governmental Accounting Standards Board (GASB) has recently issued the following statements which may impact the City’s financial reporting requirements in the future:  GASB Statement 75 – Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, effective for the fiscal year beginning on January 1, 2018.  GASB Statement 83 – Certain Asset Retirement Obligations, effective for the fiscal year beginning on January 1, 2019.  GASB Statement 84 – Fiduciary Activities, effective for the fiscal year beginning on January 1, 2019.  GASB Statement 85 – Omnibus 2017, effective for the fiscal year beginning on January 1, 2018.  GASB Statement 86 – Certain Debt Extinguishment Issues, effective for the fiscal year beginning on January 1, 2018.  GASB Statement 87 – Leases, effective for the fiscal year beginning on January 1, 2020.  GASB Statement 88 – Certain Disclosures Related to Debt, including Direct Borrowings and Direct Placements, effective for the fiscal year beginning on January 1, 2019. We recommend management review these standards to determine the impact they may have on the City’s financial reporting. Management’s Response City staff will review all recent and upcoming GASB statements and ensure that any required changes are incorporated in future financial reporting. 4 PRIOR YEAR COMMENTS In the prior year, we issued certain comments and recommendations in regard to the City’s accounting, internal control and financial reporting issues. The following table summarizes the nature of these comments, the significance of the comments as described in the prior year’s reports, and our determination of the status of those comments. Prior Year Comment Description Significance Current Year Status Financial Reporting We identified several adjustments that were required to properly report certain transactions in accordance with generally accepted accounting principles. We recommended that management review year-end closing procedures to ensure that transactions are properly recorded and approved in accordance with generally accepted accounting principles. Improvements continue to be made to the year end closing processes, the comment is repeated as a material adjustment was required to properly report the lease purchase agreement proceeds in accordance with generally accepted accounting principles. Municipal Court During our audit we noted that the bank account for the Municipal Court fines carried a balance at year end. The balance is owed to various agencies based on State Statute and City Ordinances but details of the amounts owed to each agency was not provided. We recommend that the City reconcile the remaining amount in the fund to ensure that fines and court costs collected are appropriately distributed in accordance with state and municipal regulations. Comment repeated. Budgeting During our audit we noted a fund where actual expenditures exceeded budgeted appropriations. We recommended that management review its processes and procedures for monitoring and amending the budget. Comment resolved. Sewer Allowance for Doubtful Accounts During our audit we noted that the City's sewer accounts receivable consisted of several outstanding balances that were deemed uncollectible. The City was not able to generate a historical aged accounts receivable trial balance form the utility billing system. We recommended that management periodically analyze and review the receivable accounts to identify accounts that are uncollectible. We also suggested that the City review their collection efforts and monitoring of slow paying or past due accounts to improve all collections. Comment resolved. This report is intended solely for the information and use of the Mayor and the Board of Aldermen and the management of the City, and is not intended to be and should not be used by anyone other than these specified parties. 5 COMPLIANCE REPORT COCHRAN HEAD VICK & CO., P.C. Certified Public Accountants Independent Auditor’s Report On Internal Control Over Financial Reporting And On Compliance And Other Matters Based On An Audit Of Financial Statements Performed In Accordance With Government Auditing Standards To the Honorable Mayor and Board of Aldermen City of Parkville, Missouri We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Parkville, Missouri (the City), as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements and have issued our report thereon dated May 29, 2018. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that have not been identified. We did identify a certain deficiency in internal control described in the accompanying schedule of findings and responses as item 2017-001 that we consider to be a material weakness. 1251 NW Briarcliff Pkwy Suite 125 Kansas City, MO 64116 (816) 584-9955 Fax (816) 584-9958 Other Offices in Missouri and Kansas Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. The City’s Response to the Findings The City’s response to the finding identified in our audit is described in the accompanying schedule of findings and responses. The City’s response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Kansas City, Missouri May 29, 2018 7 City of Parkville, Missouri Schedule of Findings and Responses For the Year December 31, 2017 2017-001 Financial Reporting Condition Our audit procedures identified adjustments that were required to properly report certain transactions of the City in accordance with generally accepted accounting principles. These adjustments were not initially identified by the City’s internal controls over financial reporting. Criteria Internal controls should be in place to ensure year-end balances and external financial reporting conforms to generally accepted accounting principles. Cause Year-end procedures were not sufficient to identify the adjustments noted above in a timely manner. Effect Potential exists for material misstatements to the financial statements. Recommendation We recommend that management review year-end closing procedures to ensure that transactions are properly recorded in accordance with generally accepted accounting principles. Additionally, due to the complexities of financial reporting, we recommend that management continue exploring various alternatives for improving the controls over financial reporting including the use of governmental accounting standards, reference guides and continuing education and training courses. Management’s Response/Corrective Action Staff and the Board of Aldermen responded to the recommendation and, since that time, have increased the budget and time available for professional development for finance staff with the idea of both the Finance/Human Resources Director and the City Treasurer attending relevant training opportunities. The Finance/Human Resources Director attended the Generally Accepted Accounting Principles (GAAP) Update Webinar to learn about the most recent developments in accounting and financial reporting for state and local governments as well the National Government Finance Officer of Missouri (GFOA) Conference held this year in St. Louis, Missouri. He attended sessions including Accounting and Financial Reporting for Debt, Improving Communication between Accounting and Budgeting and Debt Management Best Practices. The City Treasurer attended the National GFOA Conference as well and attended classes including Accounting and Auditing Year in Review, Treasury Management Best Practices, Small Government Forum and Establishing an Investment Program. With regard to audit adjustments, the loan agreement was not recorded in its entirety and all funds received by the City were not accurately reflected. This was an oversight. Staff will do a better job of working with our auditors during the year as questions arise that they might be able to provide direction on. Audit adjustments have decreased each year and staff will continue to strive for no audit adjustments in the future. Staff will use all available reference guides to provide a checklist of tasks to ensure accurate and timely financial reporting Staff understands that the City is ultimately accountable for the accuracy of the financial statements and will endeavor to increase the in-house knowledge of governmental accounting standards to improve this reporting process in the future. 8