HomeMy Public PortalAbout2015 Audit - Management LetterCITY OF PARKVILLE, MISSOURI
REQUIRED COMMUNICATIONS
AND MANAGEMENT LETTER
For the Year Ended December 31, 2015
qv
COCHRAN HEAD VICK & CO., P.C.
&C
Certified Public Accountants
City of Parkrrille, Missouri
Required Communications and Compliance Report
For the Year Ended December 31, 2015
Table of Contents
Page
Number
Required Communications and Management Letter 1-7
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
8-9
Schedule of Findings and Responses 10
Clly
COCHRAN HEAD VICK & CO., P.C.
&Co
1251 NW Briarcliff Pkwy
Suite 125
Kansas City, MO 64116
(816) 584-9955
Fax (816) 584-9958
Other Offices
1333 Meadowlark Lane
Kansas City, KS 66102
(913) 287-4433
(913) 287-0010 FAX
5709 Broadmoor Street, Suite 202
Mission, Kansas 66202
(913) 378-1100
(913) 378-1177 FAX
400 Jules Street
Suite 415
St, Joseph, MO 64501
(816) 364-1118
(816) 364-6144 FAX
Certified Public Accountants
June 15, 2016
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, 2015.
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 engagement letter
to you that is incorporated as an exhibit to the professional auditing services
agreement dated November 2, 2015. 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. The City implemented Government Accounting Standards
Board (GASB) Statement No. 68 Accounting and Financial Reporting for Pensions —
an amendment of GASB Statement No. 27 and GASB Statement No. 71, Pension
Transition for Contributions Made Subsequent to the Measurement Date in 2015. In
addition, as described in Note 11, management determined that certain adjustments
to beginning net position/fund balances were necessary. 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, 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 and adjustments to beginning net position/fund balances
disclosed in Note 11 to the financial statements.
The financial statement disclosures are neutral, consistent and clear.
1
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 misstatements
detected as a result of our audit procedures were corrected by management. The adjustments include both
current year adjustments and prior period adjustments:
> An adjustment was required to reduce leases payable for principle payments of $149,350.
> Adjustments to record trust account activity and debt service payments related to the SRF bonds of
$520,906.
> Adjustments to record special assessment receivables related to general obligation debt of $8,292,395
and additional accrued liabilities of $4,854.
> An adjustment to record the expiration of prepaid insurance of $84,969.
> Adjustments to record additional accounts payable of $17,609.
> Adjustments to correct capital assets of $640,450 for the proprietary fund.
> Adjustments to correct capital assets of $1,950,932 for governmental activities.
> Adjustment to properly recognize sales tax revenues of $103,023.
> Adjustment to eliminate land held for resale of $8,472,776.
> Adjustment to record allowance for uncollectable sewer receivable $40,000.
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. There was a disagreement regarding the recording of land held for redevelopment. We are
pleased to report that the disagreement was satisfactorily resolved.
Management Representations
We have requested certain representations from management that are included in the management
representation letter dated June 15, 2016.
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.
2
Other Matters
We applied certain limited procedures to City's management's discussion and analysis, budgetary
comparison information, schedule of changes in net pension liability and related ratios, schedule of
employer contributions and comparison of needed -to -actual maintenance/preservation of infrastructure
capital assets, 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.
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, 2015, 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
deficiencies in the City's internal control described under Financial Reporting to be material weaknesses.
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.
3
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.
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
The audit of the city's 2013 financial statements made a similar recommendation that, "the City would find it
beneficial if personnel had some knowledge of future accounting changes and their impact on Parkviiie's
financial statements." Staff and the Board of Aldermen responded to the recommendation and, since that
time, has increased the budget and time available for professional development for finance staff. Finance
staff attended multiple seminars covering topics such as Long -Term Financial Planning and Fiduciary Facts,
Fallacies -How the SEC's Municipal Advisor Rule is Fairing and Why it Matters and Pension Challenges
Ahead-GASB Update. Additionally, the City's Finance/Human Resources Director will be attending the
Government Finance Officers Association of Missouri's Accounting Academy in May 2016. This intensive
four -day workshop combines lecture, discussion and exercise for an overview of governmental accounting,
auditing and financial reporting.
With regard to audit adjustments, in the past staff routinely made the adjustments following consultation
with the auditor during the audit review process. This was intentional since often there was discussion about
the proper application of accounting principles or auditing standards. For example, during the fiscal year
2014 audit, staff challenged the appropriateness of reporting approximately $8.5 million of land held for
resale. This was related to property in the Brush Creek Drainage and Brink Meyer Road Neighborhood
Improvement Districts (NIDs). Staff was assured by the previous auditor that this was the best way to
account for the asset, even though the City did not own the underlying land. In the future, staff will make the
appropriate adjustments during the year-end closings prior to review by the auditor. 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.
Capital Assets
During our audit we noted that the City could not provide a detailed listing of governmental infrastructure
capital assets. City staff subsequently provided a detail listing of governmental infrastructure after substantial
research. We recommend that the City maintain and update the listing as activities occur.
Management Response
Prior to this year, the City did have an inventory of assets but did not associate a value with the assets
listed in the inventory. That work is complete and will be updated annually as part of the year-end closing
process and as new assets are added to the City's inventory.
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Budgeting
For the year ended December 31, 2015, actual expenditures exceeded budgeted appropriations in the
following funds:
Expenditures in
Excess of Budget
Fund Appropriations
Economic Development $ 2,777
Nature Sanctuary 10,450
Parks Donations 13,351
Debt Service Fund (Certificates of Participation 4,692,581
Reserve Fund 178,124
We recommend that management review its processes and procedures for monitoring and amending the
budget.
Management's Response
Management is not aware that the City has ever previously adopted a budget amendment_ it has not been
done in recent history, since there is no statutory requirement to do so. in each instance of expenditures
exceeding budgeted appropriations, adequate funds were available for the purchase, and the purchase was
authorized by the appropriate authority in accordance with the City's adopted purchasing policy. Based on
the recommendation of the auditor, staff will prepare and present budget amendments as needed in the
future. The expense in the Economic Development Fund was a result of the City's participation with the
Parkville Economic Development Council in the 2015 Platte County Community Development Day. The
expense in the Parkville Nature Sanctuary Fund occurred after funds were expended in 2015 for tree
trimming in Sullivan Nature Sanctuary. The City received a Tree, Resource Improvement and Maintenance
(TRIM) grant that fully funded the tree trimming expense, but the funds were not received until 2016. The
expense in the Parks Donation Fund resulted from timing of costs associated with the architectural design
of the English Landing Park restroom project that were anticipated to occur in 2016. The Debt Service Fund
expense reflects payments of principal and interest made to the escrow agent as part of the refinancing of
the 2006 series of Certificates of Participation bonds to more favorable interest rates. This refinancing
benefitted the City with lower annual debt payments and a reduction in total debt of $1,246,278. The
Reserve Fund expense was the amount needed to cover the debt service payments due from the Brink
Meyer NID Fund. As no assessments were collected for this fund in 2015, reserve funds were used to
cover the payments. The City intends on reimbursing the Reserve Fund to the extent that there are
available resources should the recovery of delinquent assessments occur.
Sewer Allowance for Doubtful Accounts
During the audit we noted that the City's sewer accounts receivable consisted of several outstanding
balances that were deemed to be uncollectible. We recommend that management periodically analyze and
review the receivable accounts to identify accounts that are uncollectible. We also suggest that the City
review their collection efforts and monitoring of slow paying or past due accounts to improve overall
collections. -
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Management's Response
In 2013-14, following the transition of sewer billing from the water company back to the City, the City did
extensive work to create policies and procedures for collecting delinquent sewer payments. The new
process included provisions for property liens and water shutoffs for delinquent customers. Within six
months, the City collected approximately $40,000 of delinquent payments_ This process worked well until a
staff transition in mid -2015. The delinquency process was abandoned for approximately six months, but it
has since been reinstated through additional staff training and support. Staff previously identified a batch of
account balances deemed to be uncollectible, but at that time staff was researching a possible relationship
with a collection company to pursue overdue balances. That work was also abandoned following the staff
transition. Staff is working now to revise the listing of uncollectible accounts to make a recommendation to
the Board of Aldermen for writing off bad debt In addition, staff is now better documenting the various tasks
for sewer billing and delinquency collections to ensure continuity in the event of future staff changes.
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 was
not reconciled on a timely basis and carried an account balance of $12,971 as of December 31, 2015. 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.
Managements Response
Court and finance staff continue to research the account balance to determine the source and the
appropriate distribution of these funds. Court staff currently reconciles bank accounts manually each month
and each reconciliation- is reviewed by the Finance/Human Resources Director. Future reconciliations will
be conducted by City finance staff
Administrative and Support Services
The General Fund provides administrative and support services for the benefit of the Sewer Fund. The
administrative and support services fee is based on managements estimate of the administrative and
support service costs attributable to the Sewer Fund. We recommend that management implement
additional procedures to better document and support the administrative and support services fees paid to
the General Fund.
Management's Response
Management agrees with the recommendation and, in fact, previously identified the need during the 2016
budget process. Management engaged the city's financial advisor Springsted, Inc_ to perform a Wastewater
Administration Charge Allocation Study to review and recommend a wastewater administrative charge
allocation for General Fund activities performed for the Sewer Service Fund. The work will be completed
well in advance of the 2017 budget process.
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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 72 — Fair Value Measurement and Application, effective for the fiscal year
beginning on January 1, 2016.
D GASB Statement 73 — Accounting and Financial Reporting for Pensions and Related Assets That
Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB
Statements 67 and 68, effective for the fiscal year beginning on January 1, 2016_
➢ GASB Statement 74 — Financial Reporting for Postemployment Benefit Plans Other Than Pension
Plans, effective for the fiscal year beginning on January 1, 2017.
> 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 76 — The Hierarchy of Generally Accepted Accounting Principles for State and
Local Governments, effective for the fiscal year beginning on January 1, 2016.
> GASB Statement 77 Tax Abatement Disclosures, effective for the fiscal year beginning on_
January 1, 2016.
➢ GASB Statement 78 — Pensions Provided through Certain Multiple -Employer Defined Benefit
Pension Plans, effective for the fiscal year beginning on January 1, 2016.
> GASB Statement 79 — Certain External Investment Pools and Pool Participants, effective for the
fiscal year beginning on January 1, 2016.
➢ GASB Statement. 80 — Blending Requirements for Certain Component Units — an amendment of
GASB Statement No. 14, effective for the fiscal year beginning on January 1, 2017.
➢ GASB Statement 81— Irrevocable Split -Interest Agreements, effective for the _fiscal year beginning
on January , 2017.
➢ GASB Statement 82 - Pension Issues — an amendment of-GASB Statements No. 67, Na 68, and
No. 73, effective for the fiscal year beginning on January 1, 2017.
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.
CONCLUSION
We hope the above comments are beneficial. We would welcome the opportunity to provide additional
information or assistance regarding internal controls or enhancement of operational efficiency or to assist in
the implementation of suggestions or recommendations made during our audit.
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.
1/,
7
COMPLIANCE REPORT
Clly
COCHRAN H EAD VICK & CO., P.C.
& Co
251 NW Briarcliff Pkwy
Suite 125
Kansas City, MO 64116
(816) 584-9955
Fax (816) 584-9958
Other Offices
1333 Meadowlark Lane
Kansas City, KS 66102
(913) 287-4433
(913) 287-0010 FAX
5790 Broadrnoor Street, Suite 202
Merriam, Kansas 66202
(913) 378-1100
(913) 378-1177 FAX
400 Jules Street
Suite 415
St, Joseph, MO 64501
(816) 364-1118
(816) 364-6144 FAX
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 Parkvifle, 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 Raytown, Missouri (the City), as of and for the year ended December 31, 2015, and
the related notes_ to the financial statements, which collectively comprise the City's
basic financial statements and have issued our report thereon dated June 15, 2016.
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.
Our consideration of internal control was for the limited purpose described in the
preceding paragraph and was not designed to identify all deficiencies ininternal
control that might be material weaknesses or significant deficiencies and therefore,
material weaknesses or significant deficiencies may exist that were not identified.
However, as described in the accompanying schedule of findings and responses, 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 deficiencies described in the accompanying schedule of
findings and responses as item 2015-01 to be material weaknesses.
8
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 responses to the findings identified in our audit are described in the accompanying schedule of
findings and responses. The City's responses were not subjected to the auditing procedures applied in the
audit of the financial statements and, accordingly, we express no opinion on them.
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
June 15, 2016
9
City of Parkville,_Missouri
Schedule of Findings and Responses
For the Year December 31, 2015
2015-01 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
The audit of the city's 2013 financial statements made a similar recommendation that, "the City would find
it beneficial if personnel had some knowledge of future accounting changes and their impact on
Parkville's financial statements." Staff and the Board of Aldermen responded to the recommendation and,
since that time, has increased the budget and time available for professional development for finance
staff. Finance staff attended multiple seminars covering topics such as Long -Term Financial Planning and
Fiduciary Facts, Fallacies -How the SEC's Municipal Advisor Rule is Fairing and Why it Matters and
Pension Challenges Ahead-GASB Update. Additionally, the City's Finance/Human Resources Director
will be attending the Government Finance Officers Association of Missouri's Accounting Academy in May
2016. This intensive four -day workshop combines lecture, discussion and exercise for an overview of
governmental accounting, auditing and financial reporting.
With regard to audit adjustments, in the past staff routinely made the adjustments following consultation
with the auditor during the audit review process. This was intentional since often there was discussion
about the proper application of accounting principles or auditing standards. For example, during the fiscal
year 2014 audit, staff challenged the appropriateness of reporting approximately $8.5 million of land held
for resale. This was related to property in the Brush Creek Drainage and Brink Meyer Road Neighborhood
Improvement Districts (NIDs). Staff was assured by the previous auditor that this was the best way to
account for the asset, even though the City did not own the underlying land. In the future, staff will make
the appropriate adjustments during the year-end closings prior to review by the auditor. 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.
10