HomeMy Public PortalAbout2021 Audit - Management Letter
CITY OF PARKVILLE, MISSOURI
REQUIRED COMMUNICATIONS AND
MANAGEMENT LETTER
For the Year Ended December 31, 2021
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City of Parkville, Missouri
Required Communications and Management Letter
For the Year Ended December 31, 2021
Table of Contents
Page
Number
Required Communications and Management Letter 1-6
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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, 2021. 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 January 18, 2022. 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 2021. We noted no
transactions entered 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, 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.
The financial statement disclosures are neutral, consistent, and clear.
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. We assisted with certain adjustments necessary in
recording the crossover refunding of the Brush Creek and Brink Meyer refunding bonds, FEMA grant
receivables, and depreciation. The following material misstatements were detected as a result of our audit
procedures and were corrected by management.
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Adjustment to the project cash account as proceeds were transferred to the general account for project
costs $1,361,724.
Adjustments to record issuance of $2,985,000 2021A Certificates of Participation and associated
amounts; related transfer and retirement of the lease purchase agreement of $1,323,801.
Adjustment to record approved transfers from the ARPA Fund $275,000.
Adjustment to record $447,594 unearned revenue for the remaining amount of unspent ARPA funds.
Adjustment to record Route 9 grants receivable of $2,078,005 and related deferred inflow of $767,086.
Adjustment to pooled cash of $99,673 related to certain uncleared amounts.
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 September 16, 2022.
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 and other
required supplementary information (RSI) as listed in the table of contents which are required to supplement
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.
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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, 2021, 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. These controls should allow management or employees to
prevent, detect, and correct financial statements on a timely basis.
Our audit procedures identified adjustments 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.
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Management’s Response
Staff agrees with the adjustments recommended by our auditors. These were unique transactions related to
crossover refinancing of the 2021A Certificates of Participation and the subsequent retirement of the Lease
Purchase Agreement. Additionally, funds received in 2021 from the American Rescue Plan Act (ARPA) Fund
were properly recorded and expended. But a transfer entry and unearned revenue entry were not made.
ARPA funds received in 2022 will be entered correctly and fully. The failure to record the Route 9 grants
receivable was a timing issue as funds were anticipated to be received in 2021.
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. 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. To that end, City staff will be scheduling periodic meetings with our outside
audit firm personnel throughout the year as questions arise to be sure all unusual events are accounted for
correctly initially.
The Board of Aldermen approved a budget that increased funding and time available for professional
development for finance staff. Management has made the decision to split the Finance/Human Resources
Director position into two positions. The City has hired an interim Finance Director to assess City needs and
assist in the hiring of a new dedicated Finance Director. This change should bring about overall
improvements in processes and procedures throughout the Finance Department and make for smoother,
more efficient financial audits moving forward.
Grants Management
The City has a number of capital projects funded by grant agreements. Under these agreements, the City
will incur and pay project related costs upfront and then request reimbursement for eligible costs from the
Grantee. During our audit, we noted that there was a time lag between when the costs were incurred and
paid and when the City requested reimbursement from the Grantee. Such a time lag could create cash flow
concerns for the City. We recommend that the City review its grant reimbursement policies and procedures
to more timely request reimbursements in accordance with grant agreement.
Management’s Response
In 2021, the City had several projects that required Grant Management including two Route 9 improvement
projects. Staff was working with SEMA staff to finalize many of the FEMA project from the 2019
flooding. Public Works staff is small and is tasked with handling daily operations / maintenance tasks as
well as annual CIP project management. As the City grows, so do the demands on Public Works. In an
effort to maintain the standard level of service to the community, staff was spread thin with the additional
work required for managing these projects. In hindsight, staff realizes that additional staff resources through
temporary staff or on-call contracts could have been utilized to assist with these activities.
The City is aware of the need to improve on the time lag between the expenditure of capital project funds
and the reimbursement of eligible costs. The Public Works Director and the new Finance Director will work
in tandem to institute new processes to streamline the request and receipt of funds to reimburse the City as
timely as possible after the City has expended the funds.
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Cyber Security
Organizations are encountering more cyberattacks than in previous years partly due to the migration of
working remote. One example of a cyberattack is through phishing emails asking employees to click on a
link which deploys malware to encrypt the Organization’s system. We recommend that the City continue
reviewing current policies and procedures related to cyber security. Procedures should include training
employees on how to identify phishing emails and what to do if one is suspected, review cyber security
protocols for key systems, test back-up systems with key data, and developing an incident response plan if
an attack occurs.
Management’s Response
The City is committed to securing its computer network from the ever present cyber security threats. The
City uses security strategies that include network structure, virus/malware protection, ongoing employee
phishing training, daily backup and other security measures to guard the network against intrusion.
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 May 2021, in response to COVID-19 pandemic,
GASB issued Statement No. 95 - Postponement of the Effective Dates of Certain Authoritative Guidance.
The following statements reflect the revised effective dates:
GASB Statement 87 – Leases, effective for fiscal year beginning January 1, 2022.
GASB Statement No. 91 – Conduit Debt Obligations, effective for the fiscal year beginning January 1,
2022.
GASB Statement No. 92 – Omnibus 2021, effective for the fiscal year beginning January 1, 2022.
GASB Statement No. 93 - Replacement of Interbank Offered Rates effective for the fiscal year beginning
January 1, 2022.
GASB Statement No. 94 Public-Private and Public-Public Partnerships and Availability Payment
Arrangements, effective for the fiscal year beginning January 1, 2023.
GASB Statement No. 96 Subscription-Based Information Technology Arrangements, effective for the fiscal
year beginning January 1, 2023.
GASB Statement No. 97 Certain Component Unit Criteria, and Accounting for IRS Code Section 457
Deferred Compensation Plans, effective for the fiscal year beginning January 1, 2022.
GASB Statement 99 Omnibus 2022, generally effective for fiscal year beginning January 1, 2023.
GASB Statement 100 Accounting Changes and Error Corrections-an amendment of GASB Statement
No. 62, effective for fiscal year beginning January 1, 2024.
GASB Statement 101 Compensated Absences, effective for fiscal year beginning January 1, 2024.
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.
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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 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.
Comment is repeated as material
adjustments were required to properly
report certain transactions in
accordance with generally accepted
accounting principles were identified.
Budgeting During the audit we noted that the City did not formally amend the budget
for the proceeds from the issuance of the $3,995,000 Series 2020A,
Taxable Neighborhood Improvement District Limited General Obligation
Refunding Bonds (Brush Creek Drainage Area Neighborhood
Improvement Project) Bonds and the $2,730,000 Series 2020B, Taxable
Neighborhood Improvement District Limited General Obligation Refunding
Bonds (Brink Meyer Road Neighborhood Improvement Project) Bonds
(2020B bonds). As a result, the Brush Creek and Brink Meyer debt
service funds expenditures exceeded budget appropriations. We
recommended that management review its processes and procedures to
include formally amending the budget when these types of transactions
are approved by the Board of Aldermen.
There were no instances in which
actual expenditures exceeded
budgeted appropriations in 2021.
This report is intended solely for the information and use of the Mayor, Board of Alderman, and management
of the City, and is not intended to be and should not be used by anyone other than these specified parties.
Hood and Associates CPAs PC
Kansas City, Missouri
September 16, 2022
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