City of Overland Park, Kansas Report to the Finance, Administration and Economic Development Committee

Transcription

1 City of Overland Park, Kansas Report to the Finance, Administration and Economic Development Committee June 24, 2013

2 June 24, 2013 Finance, Administration and Economic Development Committee City of Overland Park, Kansas 8500 Santa Fe Drive Overland Park, Kansas We are pleased to present this report related to our audit of the basic financial statements and compliance of the City of Overland Park, Kansas (the City) for the year ended December 31, This report summarizes certain matters required by professional standards to be communicated to you in your oversight responsibility for the City s financial and compliance reporting process. This report is intended solely for the information and use of the Finance, Administration and Economic Development Committee and Management and is not intended to be and should not be used by anyone other than these specified parties. It will be our pleasure to respond to any questions you have about this report. We appreciate the opportunity to continue to be of service to the City of Overland Park, Kansas.

3 Contents Required Communications Our Responsibilities with Regard to the Financial Statement Audit... 1 Overview of the Planned Scope and Timing of the Financial Statement Audit... 1 Accounting Policies and Practices... 1 Audit Adjustments... 2 Uncorrected Misstatements... 2 Disagreements with Management... 2 Consultations with Other Accountants... 2 Significant Issues Discussed with Management... 2 Significant Difficulties Encountered in Performing the Audit... 2 Summary of Significant Accounting Estimates... 4 Summary of Uncorrected Misstatements... 6 Exhibit A Significant Written Communications between Management and Our Firm Representation Letter Written Communications on Accounting, Auditing, or Operational Matters (Control Deficiency Letter)

4 Required Communications Generally accepted auditing standards (AU-C 260, The Auditor s Communication with Those Charged with Governance) require the auditor to promote effective two-way communication between the auditor and those charged with governance. Consistent with this requirement, the following summarizes our responsibilities regarding the financial statement audit as well as observations arising from our audit that are significant and relevant to your responsibility to oversee the financial reporting process. Area Our Responsibilities with Regard to the Financial Statement Audit Overview of the Planned Scope and Timing of the Financial Statement Audit Accounting Policies and Practices Comments Our responsibilities under auditing standards generally accepted in the United States of America, Government Auditing Standards issued by the Comptroller General of the United States, provisions of OMB Circular A-133 and OMB s Compliance Supplement; and the Kansas Municipal Audit Guide have been described to you in our arrangement letter dated December 13, We have issued a separate communication regarding the planned scope and timing of our audit and have discussed with you our identification of and planned audit response to significant risks of material misstatement. Preferability of Accounting Policies and Practices Under generally accepted accounting principles, in certain circumstances, management may select amount alternative accounting practices. In our view, in such circumstances, management has selected the preferable accounting practice. Adoption of, or Change in, Accounting Policies Management has the ultimate responsibility for the appropriateness of the accounting policies used by the City. In the current year, the City adopted the following Governmental Accounting Standards Board (GASB) Statements: GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. This Statement is intended to improve financial reporting by providing citizens and other users of state and local government financial reports with information about how past transactions will continue to impact a government s financial statements in the future. This Statement provides a new statement of net position format to report all assets, deferred outflows of resources, liabilities deferred inflows of resources, and net position (which is the net residual amount of the other elements). The Statement requires that deferred outflows of resources and deferred inflows of resources be reported separately from assets and liabilities. This Statement also amends certain provisions of Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments, and related pronouncements to reflect the residual measure in the statement of financial position as net position, rather than net assets. The adoption of this Statement changed the presentation of the basic financial statements to a statement of net position format. Page 1

5 Area Audit Adjustments Uncorrected Misstatements Disagreements with Management Consultations with Other Accountants Significant Issues Discussed with Management Significant Difficulties Encountered in Performing the Audit Comments GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. This Statement clarifies the appropriate reporting of deferred outflows of resources and deferred inflows of resources to ensure consistency in financial reporting. GASB Concepts Statement (CON) No. 4, Elements of Financial Statements, specifies that recognition of deferred outflows and deferred inflows should be limited to those instances specifically identified in authoritative GASB pronouncements. Consequently, guidance was needed to determine which balances being reported as assets and liabilities should actually be reported as deferred outflows of resources or deferred inflows of resources, according to the definitions in CON 4. Based on those definitions, this Statement reclassifies certain items currently being reported as assets and liabilities as deferred outflows of resources and deferred inflows of resources. In addition, the Statement recognizes certain items currently being reported as assets and liabilities as outflows of resources and inflows of resources. As described in Note IV.I. to the basic financial statements, the City restated beginning net position for items previously reported as assets as a result of implementing this Statement. Significant or Unusual Transactions We did not identify any significant or unusual transactions or significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Management s Judgments and Accounting Estimates Summary information about the process used by management in formulating particularly sensitive accounting estimates and about our conclusions regarding the reasonableness of those estimates is in the attached Summary of Significant Accounting Estimates. Audit adjustments proposed by us and recorded by the City are attached with the representation letter included with Exhibit A. Uncorrected misstatements are summarized in the attached Summary of Uncorrected Misstatements. We encountered no disagreements with management over the application of significant accounting principles, the basis for management s judgments on any significant matters, the scope of the audit, or significant disclosures to be included in the financial statements. We are not aware of any consultations management had with other accountants about accounting or auditing matters. No significant issues arising from the audit were discussed with or the subject of correspondence with management. We did not encounter any significant difficulties in dealing with management during the audit. Page 2

6 Area 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 Significant Written Communications between Management and Our Firm Comments We have separately issued a report on internal control over financial reporting and on compliance and other matters based on an audit of the financial statements and major awards, as required by the Government Auditing Standards and OMB Circular A-133, and this communication is included within the separately issued compliance report for the year ended December 31, Copies of significant written communications between our firm and the management of the City, including the representation letter provided to us by management, are attached as Exhibit A. Page 3

7 City of Overland Park, Kansas Summary of Significant Accounting Estimates Year Ended December 31, 2012 Accounting estimates are an integral part of the preparation of financial statements and are based upon management s current judgment. The process used by management encompasses their knowledge and experience about past and current events and certain assumptions about future events. You may wish to monitor throughout the year the process used to determine and record these accounting estimates. The following describes the significant accounting estimates reflected in the City s December 31, 2012 basic financial statements: Estimate Accounting Policy Management s Estimation Process Basis for Our Conclusions on Reasonableness of Estimate Depreciable Useful Life of Capital Assets The depreciable useful life of capital assets is set at the estimated useful life of the related asset. The determination is made at the time the asset is placed into service and involves various judgments and assumptions based on prior experience. We believe the estimates used by management of the City are reasonable. Workers Compensation, Health Care and Other Risk Management Liabilities The City records an estimated reserve for workers compensation, health care and other risk management liabilities based on actual and estimated claims outstanding as of year-end, and calculations performed by a specialist and include numerous assumptions and estimates. The assumption factors to estimate the year-end liabilities include historical experience, general market experience, and claims lag timing. A specialist is hired by the City to provide an estimate, and the results are reviewed by management. We analyzed management s methodology and concluded the estimates are reasonable. Fair Value of Investments The City records its investments at the estimated fair value. Investment securities are based on quoted market prices. We tested the proprietary of information underlying management s estimates. Based on our procedures, we conclude that management s estimate is reasonable. Page 4

8 Estimate Accounting Policy Management s Estimation Process Basis for Our Conclusions on Reasonableness of Estimate Pension Plan Assumptions (Police, Fire, and Other Postemployment Benefits) Accounting and disclosures for pension plans and of other postemployment benefit plans is based upon calculations performed numerous assumptions and estimates. The employee-related factors include turnover, retirement age and mortality. These factors and the estimated discount rate used to determine the present value of liabilities and rate of return on retirement plan assets are based upon historical and general market data. The amounts were calculated by actuaries hired by the City, and the results are reviewed by management. We tested the information provided to the actuaries and obtained the actuarial valuation reports. We believe the estimates and processes used by management of the City are reasonable. Page 5

9 City of Overland Park, Kansas Summary of Uncorrected Misstatements Year Ended December 31, 2012 During the course of our audit, we accumulated uncorrected misstatements that were determined by management to be immaterial, both individually and in the aggregate, to the statements of financial position, results of operations, and cash flows and to the related financial statement disclosures. Following is a summary of those differences. Debit (Credit) to Correct the Misstatements Governmental Activities Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ (1,156,000) $ 1,156,000 $ - Current misstatement, factual: Reclass accounts payable and cash 248,000 (248,000) Alcoholic tax receivable 840, (840,000) - Overstated contracts payable at year-end (533,000) ,000 Overstated sales tax liability - 128,000 - (128,000) - Overstated expense to write off bond issue costs for GASB 65 adoption ,000 - (510,000) Subtotal $ 555,000 $ (120,000) (646,000) $ 188,000 $ 23,000 Effect of current year passed adjustments on net position 211,000 Total $ (435,000) Debit (Credit) to Correct the Misstatements Business-Type Activities Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ 49,000 $ - $ (49,000) Current misstatement, projected eliminate internal service fund allocation - (60,000) ,000 Subtotal $ - $ (60,000) 49,000 $ - $ 11,000 Effect of current year passed adjustments on net position 11,000 Total $ 60,000 Debit (Credit) to Correct the Misstatements General Fund Assets Liabilities Fund Balance Revenue Expense Description: Carryover impact from previous years $ - $ - $ - $ - $ - Current misstatement, factual: Reclass accounts payable and cash 248,000 (248,000) Overstated sales tax liability - 116,000 - (116,000) - Alcoholic tax receivable 280,000 (280,000) Subtotal $ 528,000 $ (412,000) - $ (116,000) $ - Effect of current year passed adjustments on fund balance (116,000) Total $ (116,000) Page 6

10 Debit (Credit) to Correct the Misstatements Sales Tax Fund Assets Liabilities Fund Balance Revenue Expense Description: Carryover impact from previous years $ - $ - $ - $ - $ - Current misstatement, factual: Overstated sales tax liability - 12,000 - (12,000) - Subtotal $ - $ 12,000 - $ (12,000) $ - Effect of current year passed adjustments on fund balance (12,000) Total $ (12,000) Debit (Credit) to Correct the Misstatements Street Improvement Fund Assets Liabilities Fund Balance Revenue Expense Description: Carryover impact from previous years $ - $ - $ - $ - $ - Current misstatement, factual, Overstated receivable at year-end (74,000) ,000 - Subtotal $ (74,000) $ - - $ 74,000 $ - Effect of current year passed adjustments on fund balance 74,000 Total $ 74,000 Debit (Credit) to Correct the Misstatements Aggregate Remaining Funds Assets Liabilities Fund Balance Revenue Expense Description: Carryover impact from previous years $ - $ - $ - $ - $ - Current misstatement, factual, Overstated receivable at year-end (98,000) ,000 - alcoholic tax receivable 560,000 (560,000) Subtotal $ 462,000 $ (560,000) - $ 98,000 $ - Effect of current year passed adjustments on fund balance 98,000 Total $ 98,000 Page 7

11 Exhibit A Significant Written Communications between Management and Our Firm

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22 Finance, Administration and Economic Development Committee City of Overland Park, Kansas Overland Park, Kansas In planning and performing our audit of the financial statements of the City of Overland Park, Kansas (the City) as of and for the year ended December 31, 2012, 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 audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion 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 deficiency in design exists when (a) a control necessary to meet the control objective is missing, or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or competence to perform the control effectively. 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. Certain deficiencies in internal control that have been previously communicated to you, in writing, by us or by others within your organization are not repeated herein. Following is a description of an identified deficiency in internal control that we determined did not constitute a significant deficiency or material weakness: Schedule of Disbursements of Federal Awards: During the audit, several changes were made to the original Schedule of Disbursements of Federal Awards (the Schedule) received upon commencement of our audit. The City s local match portion had been reported on several grants, and this Schedule should only report those disbursements reimbursed with federal grant funds. We recommend a thorough review be performed by management of the City during the preparation of the Schedule to ensure all grant activity is properly included and the information pertaining to each grant is accurately reflected. This communication is intended solely for the information and use of management, the Finance, Administration and Economic Development Committee, and others within the City, and is not intended to be and should not be used by anyone other than these specified parties. Kansas City, Missouri June 24, 2013