CITY OF ATWOOD, KANSAS Independent Audit ReportCITY OF ATWOOD, KANSAS Independent Audit Report January 1, 2010 to December 31, 2010 MAPES & MILLER Certified Public Accountants Norton,

CITY OF ATWOOD, KANSASIndependent Audit Report

January 1, 2010 to December 31, 2010

MAPES & MILLERCertified Public Accountants

Norton, Kansas

CITY OF ATWOOD, KANSASFinancial Statements

January 1, 2010 to December 31, 2010

TABLE OF CONTENTS Page

FINANCIAL SECTION Number

Independent Auditor's Report 1

STATEMENT 1Summary of Cash Receipts, Expenditures and Unencumbered Cash 3Composition of Cash 4

STATEMENT 2Summary of Expenditures - Actual and Budget 5

STATEMENT 3Statement of Cash Receipts and Expenditures - Actual and Budget

General 6Airport 8Library 9Special Highway 10Special Parks and Recreation 11Tourism and Convention 12Obert Park 13Atwood Township 14Atwood Centennial 15Atwood Walkway 16Community Playground 17 Bond and Interest 18Jayhawk Theater Commission 19

Waterworks 20Water Loan 21Sewer 22Sewer Loan 23Landfill 24Recycling 25

Statement of Cash Receipts and Expenditures - Actual Special Street Equipment 26Second Century Donations 26Special Equipment 26Airport Fuel 26Atwood Beautification 27Theater Reserve 27Water Project 27

STATEMENT 4Summary of Cash Receipts and Cash Disbursements - Agency Funds 28

Notes to the Financial Statements 29

TABLE OF CONTENTS – (Continued)

Page Number

Report on Internal Control Over Financial Reporting and on Compliance and OtherMatters Based on an Audit of Financial Statements Performed in AccordanceWith Government Auditing Standards 37

Report on Compliance with Requirements Applicable to Each Major Program and OnInternal Control Over Compliance in Accordance with OMB Circular A-133 39

SCHEDULE 1Schedule of Expenditures of Federal Awards 41

SCHEDULE 2Schedule of Findings and Questioned Costs 43

MAPES & MILLERCERTIFIED PUBLIC ACCOUNTANTS

JOHN D. MAPES, CPA THOMAS CARPENTER, CPADENIS W. MILLER, CPA A PARTNERSHIP OF PROFESSIONAL CORPORATIONS DON TILTON, CPA

Members of American Institute of Certified Public Accountants

and the Kansas Society of Certified Public Accountants

418 E. Holme

Norton, KS 67654-1412(785) 877-5833

FAX - (785) 877-5442email – [email protected]

711 3 rd StreetP.O. Box 266

Phillipsburg, KS 67661-0266(785) 543-6561

FAX – (785) 543-6563email – [email protected]

503 Main St.P.O. Box 508

Stockton, KS 67669-0508(785) 425-6764


230 Main St.

P.O. Box 412Quinter, KS 67752-0412(785) 754-2111


117 N. Main St.

P.O. Box 73WaKeeney, KS 67672-0073(785) 743-5512


306 N. Pomeroy

Hill City, KS 67642-1720(785) 421-2163FAX – (785) 421-2164

email – [email protected]

INDEPENDENT AUDITOR'S REPORT

Honorable Mayor and City CouncilCity of AtwoodAtwood, Kansas 67730

We have audited the accompanying financial statements of the City of Atwood, Kansas, as of and for the year ended December 31, 2010, which collectively comprise the basic financial statements of the City’s primary government as listed in the table of contents. These financial statements are the responsibility of the City of Atwood, Kansas’ management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in the Government Auditing Standards, issued by the Comptroller General of the United States, and the guidance in the Kansas Municipal Audit Guide. Those standards and guidance require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

The financial statements do not include financial data for the City’s legally separate component units. Accounting principles generally accepted in the United States of America require the financial data for those component units to be reported with the financial data of the City’s primary government unless the City also issues financial statements for the reporting entity that include the financial data for its component units. The City has not issued such reporting entity financial statements. The effect on the financial statements of the omission of the component units, although not reasonably determinable, is presumed to be material.

As described more fully in Note 1, the City has prepared these financial statements in conformity with accounting practices prescribed by the State of Kansas to demonstrate compliance with the cash basis and budget laws of the State of Kansas, which practices differ from accounting principles generally accepted in the United States of America. The effect on the financial statements of the variances between these regulatory accounting practices and accounting principles generally accepted in the United States of America, although not reasonably determinable, is presumed to be material.

1

2

Honorable Mayor and City CouncilCity of AtwoodPage Two

In our opinion, because of the omission of the component units, as discussed above, and because of the effects of the matter discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of the City of Atwood, Kansas, as of December 31, 2010, or the changes in financial position for the year then ended.

Also, in our opinion, the financial statements referred to above present fairly, in all material respects, the cash and unencumbered cash balances of the primary government of the City of Atwood, Kansas, as of December 31, 2010, and its cash receipts and expenditures, and budgetary comparisons for the year then ended, taken as a whole, on the basis of accounting described in Note 1.

In accordance with Government Auditing Standards, we have also issued our report dated September 26, 2011, on our consideration of the City of Atwood’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting andcompliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the City of Atwood’s basic financial statements. The schedule of expenditures of federal awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations, and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with the auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole on the basis of accounting described in Note 1.

This report is intended solely for the information and use of the governing body and management of the City of Atwood, Kansas, and for filing with the Kansas Department of Administration, Division of Accounts and Reports, and other federal and state agencies to whose jurisdiction the City is subject and is not intended to be and should not be used by any one other than these specified parties. This restriction is not intended to limit the distribution of this report, which upon acceptance by the City Council, is a matter of public record.

Mapes & MillerCertified Public Accountants

Norton, KansasSeptember 26, 2011

STATEMENT 1Page 1

AddOutstanding

Beginning Prior Year Ending Encumbrances

Unencumbered Cancelled Cash Unencumbered and Accounts Ending

Funds Cash Balance Encumbrances Receipts Expenditures Cash Balance Payable Cash Balance

Governmental Fund Types:General $ 137,569 0 680,429 651,894 166,104 20,798 186,902

Special Revenue Funds:

Airport 138 0 4,913 5,000 51 0 51

Library 470 0 38,916 38,949 437 0 437

Special Highway 5,108 0 28,260 25,497 7,871 0 7,871

Special Parks and Recreation 5,503 0 4,431 6,162 3,772 0 3,772

Tourism and Convention Promotion 16,277 0 4,189 7,600 12,866 0 12,866

Obert Park 8,163 0 2,500 7,863 2,800 0 2,800

Atwood Township 1,037 0 60,478 57,655 3,860 0 3,860

Atwood Centennial 7,362 0 0 0 7,362 0 7,362

Atwood Walkway 3,459 0 1,575 1,442 3,592 0 3,592

Community Playground 1,583 0 0 500 1,083 0 1,083

Special Street Equipment 13,224 0 0 0 13,224 0 13,224

Special Equipment 1,409 0 0 0 1,409 0 1,409

Second Century Donations 0 0 4,500 1,500 3,000 0 3,000

Atwood Beautification 0 0 16,754 6,621 10,133 0 10,133

Debt Service Funds:

Bond and Interest 5,133 0 62 0 5,195 0 5,195

Proprietary Fund Types:

Enterprise Funds:

Airport Fuel 8,758 0 10,953 5,556 14,155 0 14,155

Jayhawk Theater 2,324 0 0 2,324 0 0 0

Theater Reserve 40,019 0 29,274 45,863 23,430 0 23,430

Waterworks 366,165 0 450,601 417,373 399,393 1,922 401,315

Water Loan 505,323 0 243,889 87,819 661,393 0 661,393

Water Project 1,477,531 0 3,991,702 4,762,877 706,356 0 706,356

Sewer 51,674 0 69,850 38,237 83,287 403 83,690

Sewer Loan 310,351 0 104,417 64,290 350,478 0 350,478

Landfill 8,492 0 4,906 6,375 7,023 0 7,023

Recycling 47 0 5,675 5,024 698 0 698

Total Primary Government (Excluding

Agency Funds) $ 2,977,119 0 5,758,274 6,246,421 2,488,972 23,123 2,512,095

CITY OF ATWOOD, KANSASSummary of Cash Receipts, Expenditures and Unencumbered Cash

For the Year Ended December 31, 2010

The notes to the financial statements are an integral part of this statement.

3

CITY OF ATWOOD, KANSAS STATEMENT 1

Composition of Cash Page 2


Cash on Hand $ 150

The Bank of Atwood, Atwood, Kansas

Checking Account 778,663

NOW Account 706,355

Farmers State Bank, Atwood, Kansas

Certificate of Deposit 15,877

Farmers Bank & Trust, Atwood, Kansas

Checking Account 6,592

Savings Accounts 995,155 Certificate of Deposit 10,000

Total Cash 2,512,792

Less Agency Funds per Statement 4 (697)

Total Primary Government per Statement 1, Page 1 $ 2,512,095


4


Summary of Expenditures - Actual and Budget


Adjustment

for

Qualifying Total Budget Expenditures Variance

Certified Budget for Chargeable to OverDescription Budget Credits Comparison Current Year (Under)

General $ 658,990 15,985 674,975 651,894 (23,081)


Airport 5,000 0 5,000 5,000 0

Library 38,949 0 38,949 38,949 0

Special Highway 39,189 0 39,189 25,497 (13,692)

Special Parks and Recreation 9,742 0 9,742 6,162 (3,580)

Tourism and Convention 8,132 0 8,132 7,600 (532)

Obert Park 8,220 0 8,220 7,863 (357)

Atwood Township 79,676 0 79,676 57,655 (22,021)

Atwood Centennial 3,681 0 3,681 0 (3,681)

Atwood Walkway 2,500 0 2,500 1,442 (1,058)

Community Playground 797 0 797 500 (297)

Debt Service Funds:

Bond and Interest 4,653 0 4,653 0 (4,653)

Enterprise Funds:

Jayhawk Theater Commission 0 2,324 2,324 2,324 0

Waterworks 420,000 5,564 425,564 417,373 (8,191)

Water Loan 203,061 0 203,061 87,819 (115,242)

Sewer 91,054 0 91,054 38,237 (52,817)

Sewer Loan 64,292 0 64,292 64,290 (2)

Landfill 7,200 0 7,200 6,375 (825)

Recycling 6,500 0 6,500 5,024 (1,476)


5

CITY OF ATWOOD, KANSAS

GENERAL FUND Page 1

Statement of Cash Receipts and Expenditures

Actual and Budget


Variance

Over

Actual Budget (Under)

Cash Receipts:

Taxes

Ad Valorem $ 209,933 218,767 (8,834)

Delinquent 3,662 0 3,662

Motor Vehicle 40,049 41,033 (984)

Recreational Vehicle 615 599 16

16/20M Vehicle 1,993 2,077 (84)

Intangibles 30,858 32,000 (1,142)

Local Sales 134,504 62,000 72,504

Neighborhood Revitilazation Rebate (2,648) 0 (2,648)

Intergovernmental

Local Alcoholic Liquor 4,431 5,407 (976)

Franchise Fees 108,156 100,000 8,156

Licenses, Permits and Fees 3,137 2,100 1,037

Fines 31,590 16,500 15,090

Swimming Pool 8,223 7,000 1,223

Theater 50,278 35,000 15,278

Interest on Idle Funds 1,329 14,000 (12,671)

Donations and Grants 0 2,000 (2,000)

Insurance Claim - Police Car 27,949 0 27,949

Insurance Claim - Police Truck 2,855 0 2,855

Miscellaneous 6,722 600 6,122

Reimbursed Expenses 15,985 0 15,985

Geometric Improvements 808 0 808

Total Cash Receipts $ 680,429 539,083 141,346

(Continued)

STATEMENT 3


6


GENERAL FUND Page 2


Actual and Budget


Variance

Over

(Continued) Actual Budget (Under)

Expenditures:

General Government $ 109,244 128,649 (19,405)

Street Department 66,878 106,638 (39,760)

Police Department 217,684 139,699 77,985

Court 6,633 10,500 (3,867)

Fire Department 32,603 14,000 18,603

Street Lighting 30,375 31,000 (625)

Park and Pool 30,921 28,000 2,921

Employee Benefits 32,728 60,704 (27,976)

Capital Outlay 0 89,800 (89,800)

Economic Development Appropriation 14,000 8,000 6,000

Library 1,061 0 1,061

Theater 52,065 42,000 10,065

Appropriation to County-Pool Sales Tax 57,702 0 57,702

Adjustments for Qualifying Budget Credits:

Reimbursed Expenses 0 15,985 (15,985)

Total Expenditures 651,894 674,975 (23,081)

Cash Receipts Over (Under) Expenditures 28,535

Unencumbered Cash, Beginning 137,569

Unencumbered Cash, Ending $ 166,104

STATEMENT 3


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AIRPORT FUND Page 3


Actual and Budget


Variance

Over


Cash Receipts:

Taxes

Ad Valorem $ 4,067 4,154 (87)

Delinquent 71 0 71

Motor Vehicle 776 795 (19)


16/20M Vehicle 39 40 (1)

Neighborhood Revitilization Rebate (52) 0 (52)

Total Cash Receipts 4,913 5,001 (88)

Expenditures:

Appropriations to Board 5,000 5,000 0

Cash Receipts Over (Under) Expenditures (87)

Unencumbered Cash, Beginning 138

Unencumbered Cash, Ending $ 51

STATEMENT 3


8


LIBRARY FUND Page 4


Actual and Budget


Variance

Over


Cash Receipts:

Taxes

Ad Valorem $ 10,193 10,619 (426)

Delinquent 178 341 (163)

Motor Vehicle 1,943 1,992 (49)


16/20M Vehicle 97 101 (4)

Neighborhood Revitilization Rebate (129) 0 (129)

Intergovernmental

Rawlins County 26,604 25,867 737


Expenditures:

Appropriations to Board 38,949 38,949 0




STATEMENT 3


9


SPECIAL HIGHWAY FUND Page 5


Actual and Budget


Variance

Over


Cash Receipts:

Intergovernmental

State of Kansas $ 28,260 31,660 (3,400)

Expenditures:

Personal Services 25,497 29,975 (4,478)

Commodities 0 9,214 (9,214)





STATEMENT 3


10


SPECIAL PARKS AND RECREATION FUND Page 6


Actual and Budget


Variance

Over


Cash Receipts:

Intergovernmental

Local Alcoholic Liquor Tax $ 4,431 5,000 (569)

Expenditures:

Contractual Services 4,964 9,742 (4,778)

Commodities 1,198 0 1,198


Cash Receipts Over (Under) Expenditures (1,731)



STATEMENT 3


11


TOURISM AND CONVENTION FUND Page 7


Actual and Budget


Variance

Over


Cash Receipts:

Transient Guest Tax $ 4,189 2,100 2,089

Expenditures:

Contractual Services 7,600 8,132 (532)




STATEMENT 3


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OBERT PARK FUND Page 8


Actual and Budget


Variance

Over


Cash Receipts:

Obert Trust Donation $ 2,500 5,000 (2,500)

Expenditures:

Personal Services 7,863 3,600 4,263

Contractual Services 0 4,620 (4,620)

Total Expenditures 7,863 8,220 (357)




STATEMENT 3


13


ATWOOD TOWNSHIP FUND Page 9


Actual and Budget


Variance

Over


Cash Receipts:

Intergovernmental

Atwood Township $ 60,478 77,899 (17,421)

Expenditures:

Lake 45,930 47,676 (1,746)

Cemetery 11,725 32,000 (20,275)





STATEMENT 3


14


ATWOOD CENTENNIAL FUND Page 10


Actual and Budget


Variance

Over


Cash Receipts $ 0 0 0

Expenditures:

Contractual Services 0 3,681 (3,681)

Cash Receipts Over (Under) Expenditures 0



STATEMENT 3


15


ATWOOD WALKWAY Page 11


Actual and Budget


Variance

Over


Cash Receipts:

Donations $ 1,575 1,600 (25)

Interest on Idle Funds 0 20 (20)


Expenditures:

Walkway Maintenance 1,442 2,500 (1,058)




STATEMENT 3


16


COMMUNITY PLAYGROUND Page 12


Actual and Budget


Variance

Over


Cash Receipts:

Interest on Idle Funds $ 0 5 (5)

Expenditures:

Playground Maintenance 500 797 (297)




STATEMENT 3


17


BOND AND INTEREST FUND Page 13


Actual and Budget


Variance

Over


Cash Receipts:

Taxes

Delinquent $ 2 0 2

Interest on Idle Funds 60 0 60

Total Cash Receipts 62 0 62

Expenditures:

Cash Basis Reserve 0 4,653 (4,653)




STATEMENT 3


18


JAYHAWK THEATER COMMISSION FUND Page 14


Actual and Budget


Variance

Over


Cash Receipts $ 0 0 0

Expenditures:

Transfer to Theater Reserve 2,324 0 2,324

Adjustment for Qualifying Budget Credits:

Residual Equity Transfer 0 2,324 (2,324)

Total Expenditures 2,324 2,324 0




STATEMENT 3


19


WATERWORKS FUND Page 15


Actual and Budget


Variance

Over


Cash Receipts:

Service Fees $ 435,072 420,000 15,072

Hook-up and Reconnect Fees 1,950 0 1,950

Penalities 7,460 0 7,460

Miscellaneous 555 0 555

Reimbursed Expense 5,564 0 5,564

Total Cash Receipts 450,601 420,000 30,601

Expenditures:

Production 2,721 25,000 (22,279)

Treatment 14,679 15,000 (321)

Distribution 65,912 65,000 912

Administration 80,300 68,561 11,739

Operations 13,761 15,439 (1,678)

Capital Outlay 0 27,000 (27,000)

Transfer to Water Loan 240,000 204,000 36,000

Adjustments for Qualifying Budget Credits:

Reimbursed Expenses 0 5,564 (5,564)





STATEMENT 3


20


WATER LOAN FUND Page 16


Actual and Budget


Variance

Over


Cash Receipts:

Interest on Idle Funds $ 3,889 5,000 (1,111)

Transfer from Water 240,000 204,000 36,000


Expenditures:

Principal 19,000 44,774 (25,774)

Interest 68,819 158,287 (89,468)





STATEMENT 3


21


SEWER FUND Page 17


Actual and Budget


Variance

Over


Cash Receipts:

Service Fees $ 69,850 77,500 (7,650)

Expenditures:

Personal Services 16,977 15,207 1,770


Commodities 2,869 5,200 (2,331)

Capital Outlay 4,296 35,000 (30,704)

Sewer Line Cleaning 0 15,000 (15,000)





STATEMENT 3


22


SEWER LOAN FUND Page 18


Actual and Budget


Variance

Over


Cash Receipts:

Service Fees $ 102,282 77,500 24,782

Interest on Idle Funds 2,135 3,000 (865)


Expenditures:

Principal 47,113 47,113 0

Interest 17,177 17,179 (2)





STATEMENT 3


23


LANDFILL FUND Page 19


Actual and Budget


Variance

Over


Cash Receipts:

Service Fees $ 4,906 6,000 (1,094)

Expenditures:

Landfill Costs 2,500 2,500 0

Transfer to Recycling 3,875 4,700 (825)





STATEMENT 3


24


RECYCLING FUND Page 20


Actual and Budget


Variance

Over


Cash Receipts:

Intergovernmental

Rawlins County $ 1,800 1,800 0

Transfer from Landfill 3,875 4,700 (825)


Expenditures:





STATEMENT 3


25


Nonbudgeted Funds Page 21



Special Second

Street Century Special AirportEquipment Donations Equipment Fuel

Cash Receipts:

Donations $ 0 4,500 0 0 Fuel Sales 0 0 0 10,953

Total Cash Receipts 0 4,500 0 0

Expenditures:

Commodities 0 1,500 0 0 Fuel Purchases 0 0 0 5,556

Total Expenditures 0 1,500 0 5,556

Cash Receipts Over (Under) Expenditures 0 3,000 0 5,397 Unencumbered Cash, Beginning 13,224 0 1,409 8,758

Unencumbered Cash, Ending $ 13,224 3,000 1,409 14,155


26


Nonbudgeted Funds Page 22



Atwood

Beauti- Theater Waterfication Reserve Project

Cash Receipts:

Donations $ 16,754 26,950 0

Transfer from Jayhawk Theater Commission 0 2,324 0

Reimbursed Expense 17,500

Bond Proceeds 0 0 2,367,000

USDA Grant 0 0 1,604,988 Interest on Idle Funds 0 0 2,214

Total Cash Receipts 16,754 29,274 3,991,702

Expenditures:

Contractual 2,652 0 0

Commodities 3,969 0 0

Capital Outlay 0 45,863 0

Temporary Note Principal 0 0 2,367,000

Temporary Note Interest 0 0 30,850 Project Costs 0 0 2,365,027

Total Expenditures 6,621 45,863 4,762,877

Cash Receipts Over (Under) Expenditures 10,133 (16,589) (771,175)Unencumbered Cash, Beginning 0 40,019 1,477,531

Unencumbered Cash, Ending $ 10,133 23,430 706,356


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Agency Funds

Summary of Cash Receipts and Cash Disbursements


Beginning Cash Ending

Cash Cash Disburse- Cash

Balance Receipts ments Balance

Sanitation $ 141 80,842 80,799 184

Cafeteria 125 Plan 0 11,100 10,587 513

Total Agency Funds $ 141 91,942 91,386 697

STATEMENT 4


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CITY OF ATWOOD, KANSASNotes to the Financial Statements

December 31, 2010

1. Summary of Significant Accounting Policies

Reporting Entity

The City of Atwood, Kansas, the primary government, operates as a third class city in accordance with the laws of the State of Kansas. The City operates under a mayor-council form of government and provides the following services: public safety (police and fire protection), highways and streets, water, sewer, sanitation, social, culture and recreation, planning and zoning, public improvements and general administrative services.

Generally accepted accounting principles require government financial statements to include the primary government and its component units. Component units of a governmental entity are legally separate entities for which the primary government is considered to be financially accountable and for which the nature and significance of their relationship with the primary government are such that exclusion would cause the combined financial statements to be misleading or incomplete. The primary government is considered to be financially accountable if it appoints a majority of an organization’s governing body and imposes its will on that organization. The primary government may also be financial accountable if an organization is fiscally dependent on the primary government, regardless of the authority of the organization’s governing board.

Based on the application of the criteria set forth by the Governmental Accounting Standards Board, management has determined that the following are component units of the City:

Atwood Public LibraryHousing Authority of the City of Atwood

Financial information for these component units has not been reported in the City’s financial statements. Accordingly, these financial statements present the activities of the primary government only and are not a complete presentation in accordance with generally accepted accounting principles.

Unaudited financial reports for the Atwood Public Library may be obtained from the Head Librarian, 102 South 6th Street, Atwood, KS 67730.

The Housing Authority of the City of Atwood issues separately audited financial statements that may be obtained from the Executive Director, Atwood Housing Authority, 801 South 3rd, Atwood, KS 67730.

Fund Accounting

In governmental accounting a fund is defined as an independent fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations.

The following types of funds comprise the financial activities of the City of Atwood for the year 2010:

Governmental Funds:

General Fund--To account for all unrestricted financial resources except those required to be accounted for in another fund.

30

Notes to the Financial Statements -- (continued) Page Two

Special Revenue Funds--To account for the proceeds of specific revenue sources (other than special assessments or major capital projects) that are restricted by law or administrative action to expenditure for specified purposes.

Debt Service Funds--To account for the accumulation of resources for and the payment of interest and principal on general long-term debt and the financing of special assessments which are general obligations of the City.

Proprietary Funds:

Enterprise Funds--To account for operations that are financed and operated in a manner similar to private business enterprises--where the stated intent is that the costs of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges--or where periodic determination of revenues earned, expenses incurred and/or net income is deemed appropriate for capital maintenance, public policy, management control, accountability or other purposes.

Fiduciary Funds:

Private Purpose Trust and Agency Funds--To account for assets held by the City in a trustee capacity or as an agent for individuals, private organizations, other governmental units and/or other funds.

Reimbursed Expenditures

Reimbursed expenses are defined as repayments of amounts remitted on behalf of another party. All reimbursed expenses shown in the financial statements meet the following criteria: 1) the related disbursement was made in the current year on behalf of the payee, 2) the item paid for was directly identifiable as having been used by or provided to the payee, and 3) the amount of the reimbursed expenses was directly tied to the amount of the original cash disbursement.

Statutory Basis of Accounting

The statutory basis of accounting, as used in the preparation of these statutory basis financial statements, is designed to demonstrate compliance with the cash basis and budget laws of the State of Kansas. Cash receipts are recognized when the cash balance of a fund is increased. Expenditures include disbursements, accounts payable, and encumbrances, with disbursements being adjusted for prior year’s accounts payable and encumbrances. Encumbrances are commitments related to unperformed (executory) contracts for goods and services, and are usually evidenced by a purchase order or written contract. For an interfund transaction, a cash receipt is recorded in the fund receiving cash from another fund and an expenditure is charged in the fund from which the transfer is made.

The City has approved a resolution that is in compliance with K.S.A. 75-1120a(c), waiving the requirement for application of generally accepted accounting principles and allowing the City to use the statutory basis of accounting.

Departure from Accounting Principles Generally Accepted in the United States of America

The basis of accounting described above results in a financial statement presentation which shows cash receipts, cash disbursements, cash and unencumbered cash balances, and expenditures compared to budget. Balance sheets that would have shown non-cash assets such as receivables, inventories, and prepaid expense, liabilities such as deferred revenue and matured principal and interest payable, and reservations of the fund balances are not presented. Under accounting principles generally accepted in the United States of America, encumbrances are only recognized as a reservation of fund balance; encumbrances outstanding at year-end do not constitute expenditures or liabilities. Consequently, the

31

Notes to the Financial Statements -- (continued) Page Three

expenditures as reported do not present the cost of goods and services received during the fiscal year in accordance with accounting principles generally accepted in the United States of America. Capital assets that account for the land, building, and equipment owned by the municipality are not presented in the financial statements. Also, long-term debt such as general obligation bonds, revenue bonds, capital leases, temporary notes, and compensated absences are not presented in the financial statements.

2. Budgetary Information

Kansas statutes require that an annual operating budget be legally adopted for the general fund, special revenue funds (unless specifically exempted by statute), debt service funds and enterprise funds. The statutes provide for the following sequence and timetable in adoption of the legal annual operating budget:

1. Preparation of the budget for the succeeding calendar year on or before August 1st.

2. Publication in local newspaper of the proposed budget and notice of public hearing on the

budget on or before August 5th.

3. Public hearing on or before August 15th, but at least ten days after publication of notice of hearing.

4. Adoption of final budget on or before August 25th.

The statutes allow for the governing body to increase the originally adopted budget for previously unbudgeted increases in revenue other than ad valorem property taxes. To do this, a notice of public hearing to amend the budget must be published in the local newspaper. At least ten days after publication the hearing may be held and the governing body may amend the budget at that time. There were no such budget amendments for this year.

The statutes permit transferring budgeted amounts between line items within an individual fund. However, such statutes prohibit expenditures in excess of the total amount of the adopted budget of expenditures of individual funds. Budget comparison statements are presented for each fund showing actual receipts and expenditures compared to legally budgeted receipts and expenditures.

All legal annual operating budgets are prepared using the statutory basis of accounting, in which, revenues are recognized when cash is received and expenditures include disbursements, accounts payable and encumbrances, with disbursements being adjusted for prior year’s accounts payable and encumbrances. Encumbrances are commitments by the City for future payments and are supported by a document evidencing the commitment, such as purchase order or contract. Any unused budgeted expenditure authority lapses at year-end.

A legal operating budget is not required for capital projects funds, fiduciary funds, permanent funds andthe following funds:

Statutory Authority

for Exemption


Special Street Equipment K.S.A. 12-1,117

Special Equipment K.S.A. 12-1,117

Enterprise Funds:

Theater Reserve K.S.A. 12-825d

Water Project K.S.A. 12-825d

Airport Fuel K.S.A. 79-2925

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Notes to the Financial Statements -- (continued) Page Four

Spending in funds which are not subject to the legal annual operating budget requirements are controlled by federal regulations, other statutes, or by the use of internal spending limits established by the governing body.

3. Property Taxes

Property taxes are levied November 1st of the calendar year. A lien is placed on the property when the taxes are levied. The taxes are due 1/2 on December 20th and 1/2 the following May 10th. Any taxes unpaid at the due dates are considered delinquent. Collection of current year property tax by the County Treasurer is not completed, apportioned nor distributed to the various subdivisions until the succeeding year: such procedure being in conformity with governing state statutes. Consequently, current year property taxes receivable are not available as a resource that can be used to finance the current year operation of the City and therefore are not susceptible to accrual.

It is not practicable to apportion delinquent taxes held by the County Treasurer at the end of the audit period and, further, the amounts thereof are not material to the financial statements taken as a whole.

4. Inventories and Prepaid Expenses

Inventories and prepaid expenses that benefit future periods are recorded as expenditures during the year of purchase.

5. Compensated Absences

Vacation Pay

Employees are eligible for paid vacation after completing one full year of full-time employment with the City. Employees with less than twenty years of service receive one day of paid vacation for each month worked. Employees with more than twenty years of service receive one and one half days of paid vacation for each month worked. A maximum of thirty-six days of unused vacation is allowed to accumulate. Employees are compensated for all unused accumulated vacation time upon termination of employment. The cost of accumulated vacation pay as of December 31, 2010 was $12,335.

Sick Leave

All full-time employees are eligible for paid sick leave immediately upon employment and receive one day of paid sick leave for each month worked with no limit on the number of days allowed to accumulate. Employees who voluntarily separate from employment with the City prior to retirement are compensated for a maximum of thirty days of unused accumulated sick leave at a rate of 33% of their regular pay rate. Employees who retire are compensated for a maximum of thirty days of unused accumulated sick leave at their current rate of pay. The cost of accumulated sick leave calculated at the 33% of regular pay as of December 31, 2010 was $2,855.

6. Defined Benefit Pension Plan

Plan Description

The City of Atwood, Kansas participates in the Kansas Public Employees Retirement System (KPERS), a cost-sharing multiple-employer defined benefit pension plan as provided by K.S.A. 74-4901, et. seq. KPERS provides retirement benefits, life insurance, disability income benefits, and death benefits. Kansas law establishes and amends benefit provisions. KPERS issues a publicly available financial report that includes financial statements and required supplementary information. That report may be obtained by writing to KPERS (611 S. Kansas, Suite 100; Topeka, KS 66603) or by calling 1-888-275-5737.

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Notes to the Financial Statements -- (continued) Page Five

Funding Policy

K.S.A. 74-4919 establishes the KPERS member-employee contribution rate at 4% of covered salary. The employer collects and remits member-employee contributions according to the provisions of Section 414(h) of the Internal Revenue Code. State law provides that the employer contribution rate be determined annually based on the results of an annual actuarial valuation. KPERS is funded on an actuarial reserve basis. State law sets a limitation on annual increases in the contribution rates for KPERS employers. The employer rate established for the year ended December 31, 2010 is 7.14%. The City of Atwood, Kansas’ employer contributions to KPERS for the years ended December 31, 2010, 2009, and 2008 were $17,274, $13,168, and $10,123 respectively, equal to the required contributions for each year.

7. Other Post Employment Benefits

As provided by K.S.A. 12-5040, the City allows retirees to participate in the group health insurance plan. Each retiree would pay the full amount of the applicable premium, conceptually, the City would be subsidizing the retirees because each participant would be charged a level premium regardless of age. As of December 31, 2010 the City had no retirees participating in the group health insurance plan.

Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the City makes health care benefits available to eligible former employees and eligible dependents. Certain requirements are outlined by the federal government for this coverage. The premium is paid in full by the insured. There is no cost to the City under this program.

8. Deposits and Investments

At December 31, 2010, the City had no investments except for certificates of deposit which are considered as a component of deposits.

K.S.A. 9-1401 establishes the depositories which may be used by the City. The statute requires banks eligible to hold the City’s funds have a main or branch bank in the county in which the City is located and the banks provide an acceptable rate of return on the funds. In addition, K.S.A 9-1402 requires the banks to pledge securities for deposits in excess of FDIC coverage. The City has no other policies that would further limit interest rate risk.

K.S.A. 12-1675 limits the City’s investment of idle funds to time deposits, open accounts, and certificates of deposit with allowable financial institutions; U.S. government securities; temporary notes; no-fund warrants; repurchase agreements; and the Kansas Municipal Investment Pool. The City has no investment policy that would further limit its investment choices.

Concentration of Credit Risk

State statutes place no limit on the amount the City may invest in any one issuer as long as the investments are adequately secured under K.S.A. 9-1402 and 9-1405.

Custodial Credit Risk - Deposits

Custodial credit risk is the risk that in the event of a bank failure, the City’s deposits may not be returned to it. State statutes require the City’s deposits in financial institutions to be entirely covered by federal depository insurance or by collateral held under a joint custody receipt issued by a bank within the State of Kansas, the Federal Reserve Bank of Kansas City, or the Federal Home Loan Bank of Topeka, except during designated “peak periods” when required coverage is 50%. The City has not designated any “peak periods” with eligible depositories. All deposits were legally secured at December 31, 2010.

At December 31, 2010, the City’s carrying amount of deposits was $2,512,642 and the bank balance was $2,516,331. The bank balance was held by three banks resulting in a concentration of credit risk. Of the bank balance, $522,469 was covered by federal depository insurance, and the remaining $1,993,862 was collateralized with securities held by the pledging financial institutions’ agents in the City’s name.

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Notes to the Financial Statements -- (continued) Page Six

9. Capital Projects

Capital project authorizations with approved change orders compared with expenditures from inception are as follows:

Project Expenditures

Authorization To Date

Water System Project $ 6,337,500 3,405,532

10. Risk Management

The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets, errors and omissions; injuries to employees; and natural disasters. The City carries property and casualty, general liability, and worker’s compensation insurance coverage from commercial insurance carriers. Settled claims resulting from these risks of loss have not exceeded commercial insurance coverage in any of the past three fiscal years.

11. Interfund Transactions

Operating transfers were as follows:From To Authority Amount

Waterworks Water Loan K.S.A. 12-825d $ 240,000 Landfill Recycling K.S.A. 12-2104 3,875

Jayhawk Theater Theater Reserve K.S.A. 79-2938 2,324

12. Compliance with Finance Related Legal and Contractual Provisions

The City is in compliance with finance related legal and contractual provisions.

Notes to the Financial Statements (continued) Page Seven

13. Long-term Debt - (Continued)

Date of Balance Net BalanceInterest Date of Amount Final Beginning Reductions/ Change/ End of Interest

Issue Rates Issue of Issue Maturity of Year Additions Payments Adjustments Year Paid

General Obligation Bonds:Series 2004 Water System 4.375% 06/28/04 1,642,900 06/28/44 1,573,000$ 0 19,000 1,554,000 68,819 Series 2009 Water System 1.200% 11/19/09 2,367,000 12/01/11 2,367,000 0 2,367,000 0 30,850 Series A 2010 Water System 3.750% 12/28/10 1,500,000 12/28/50 0 1,500,000 0 1,500,000 0 Series B 2010 Water System 2.250% 12/28/10 867,000 12/28/50 0 867,000 0 867,000 0

Total General Obligation Bonds 3,940,000 2,367,000 2,386,000 3,921,000 99,669

KDHE Loans:

Water Pollution Control Project 3.490% 12/31/99 827,519 09/01/21 503,899 0 47,113 456,786 17,177

Total KDHE Revolving Loans 503,899 0 47,113 456,786 17,177

Capital Leases:

Bobcat and Attachments 5.250% 12/30/09 47,899 12/30/13 37,384 0 8,642 28,742 1,963 Police Vehicles 5.250% 03/08/10 58,844 12/30/14 0 58,844 11,046 47,798 2,514 Theater Equipment 5.250% 04/20/10 45,000 04/20/15 0 45,000 8,105 36,895 2,362

Total Capital Leases 37,384 103,844 27,793 113,435 6,839

Total Contractual Indebtedness 4,481,283 2,470,844 2,460,906 4,491,221 123,685

Compensated Absences:Vacation N/A N/A N/A N/A 12,852 (517) 12,335 Sick Leave N/A N/A N/A N/A 4,153 (1,298) 2,855

Total Long-Term Debt 4,498,288$ 2,470,844 2,460,906 (1,815) 4,506,411 123,685

Changes in long-term liabilities for the City of Atwood, Kansas for the year ended December 31, 2010, were as follows:

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Notes to the Financial Statements Page Eight

13. Long-term Debt - (Continued)

2011 2012 2013 2014 2015 2016-2020 2021-2025 2026-2030 2031-2035 2036-2040 2041-2045 2041-2045 Total

PRINCIPALGeneral Obligation Bonds:

Series 2004 Water System 20,000$ 21,000 22,000 23,000 24,000 138,000 171,000 215,000 267,000 331,000 322,000 0 1,554,000

Series A 2010 Water System 16,739 17,367 18,018 18,694 19,395 108,446 130,361 156,708 188,379 226,450 272,214 327,229 1,500,000 Series B 2010 Water System 13,893 13,893 14,206 14,525 14,852 79,427 88,774 99,221 110,895 123,948 138,532 154,834 867,000

Total General Obligation Bonds 50,632 52,260 54,224 56,219 58,247 325,873 390,135 470,929 566,274 681,398 732,746 482,063 3,921,000

KDHE Loans:

Water Pollution Control Project 48,771 50,488 52,265 54,105 56,010 195,147 0 0 0 0 0 0 456,786

Capital Lease:

Bobcat and Attachments 9,096 9,570 10,076 0 0 0 0 0 0 0 0 0 28,742

Police Vehicles 11,050 11,625 12,241 12,882 0 0 0 0 0 0 0 0 47,798 Theater Equipment 8,525 8,978 9,449 9,943 0 0 0 0 0 0 0 0 36,895

Total Principal 128,074 132,921 138,255 133,149 114,257 521,020 390,135 470,929 566,274 681,398 732,746 482,063 4,491,221

INTERESTGeneral Obligation Bonds:

Series 2004 Water System 67,988 67,113 66,194 65,231 64,225 304,369 271,381 230,344 178,894 115,106 36,006 0 1,466,851 Series A 2010 Water System 56,250 55,622 54,971 54,295 53,594 256,501 234,584 208,238 176,567 138,496 92,731 37,716 1,419,565 Series B 2010 Water System 19,508 19,195 18,882 18,563 18,236 86,014 76,667 66,220 54,544 41,494 26,908 10,606 456,837

Total General Obligation Bonds 143,746 141,930 140,047 138,089 136,055 646,884 582,632 504,802 410,005 295,096 155,645 48,322 3,343,253

KDHE Loans:

Water Pollution Control Project 15,520 13,803 12,026 10,186 8,281 12,994 0 0 0 0 0 0 72,810

Capital Lease:

Bobcat and Attachments 1,509 1,034 529 0 0 0 0 0 0 0 0 0 3,072 Police Vehicles 2,509 1,935 1,319 676 0 0 0 0 0 0 0 0 6,439 Theater Equipment 1,942 1,489 1,018 522 0 0 0 0 0 0 0 0 4,971

Total Principal 165,226 160,191 154,939 149,473 144,336 659,878 582,632 504,802 410,005 295,096 155,645 48,322 3,430,545

Total Principal and Interest 293,300$ 293,112 293,194 282,622 258,593 1,180,898 972,767 975,731 976,279 976,494 888,391 530,385 7,921,766

Current maturities of long-term debt and interest for the next five years through maturity are as follows:

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418 E. HolmeNorton, KS 67654-1412

(785) 877-5833FAX - (785) 877-5442email – [email protected]

711 3rd Street

P.O. Box 266Phillipsburg, KS 67661-0266

(785) 543-6561FAX – (785) 543-6563

email – mmpburg@ruralte l.net


Stockton, KS 67669-0508(785) 425-6764FAX – (785) 425-6765



Quinter, KS 67752-0412(785) 754-2111FAX – (785) 754-2112


117 N. Main St.P.O. Box 73

WaKeeney, KS 67672-0073(785) 743-5512


306 N. Pomeroy

Hill City, KS 67642-1720(785) 421-2163FAX – (785) 421-2164


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

Honorable Mayor and City CouncilCity of AtwoodAtwood, KS 67730

We have audited the financial statements of the City of Atwood, Kansas, as of and for the year ended December 31, 2010, as listed in the table of contents, and have issued our report thereon dated September 26, 2011. Our report on the financial statements disclosed that, as described in Note 1 to the financial statements, the City of Atwood prepares its financial statements on a prescribed basis of accounting that demonstrates compliance with the cash basis and budget laws of the State of Kansas, which is a comprehensive basis of accounting other than generally accepted accounting principles. We conducted our audit in accordance with 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, and the guidance in the Kansas Municipal Audit Guide.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the City of Atwood’s internal control over financial reporting as a basis for designing our auditing procedures 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 over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over financial reporting.

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.

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, as described in the accompanying Schedule of Findings and Questioned Costs, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies.

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Honorable Mayor and City CouncilCity of AtwoodPage Two

A significant deficiency is a deficiency, or 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. We consider the deficiencies described in the accompanying Schedule of Findings and Questioned Costs to be significant deficiencies (2010-1 and 2010-2).

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the City of Atwood’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants 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 that are required to be reported under Government Auditing Standards.

The City’s response to the findings identified in our audit is described in the accompanying schedule of findings and questioned costs. We did not audit the City’s response and, accordingly, we express no opinion on it.

This report is intended for the information and use of management, the Mayor and City Council, others within the entity, federal awarding agencies, and pass-through entities, and is not intended to be and should not be used by anyone other than these specific parties.







418 E. Holme

Norton, KS 67654-1412(785) 877-5833

FAX - (785) 877-5442email – [email protected]

711 3 rd StreetP.O. Box 266

Phillipsburg, KS 67661-0266(785) 543-6561



Stockton, KS 67669-0508(785) 425-6764


230 Main St.

P.O. Box 412Quinter, KS 67752-0412(785) 754-2111


117 N. Main St.

P.O. Box 73WaKeeney, KS 67672-0073(785) 743-5512


306 N. Pomeroy

Hill City, KS 67642-1720(785) 421-2163FAX – (785) 421-2164


INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL

EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

Honorable Mayor and City CouncilCity of AtwoodAtwood, KS 67730

Compliance

We have audited the compliance of the City of Atwood, Kansas, with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended December 31, 2010. The City of Atwood’s major federal programs are identified in the summary of auditor’s results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements referred to above is the responsibility of the City of Atwood’s management. Our responsibility is to express an opinion on the City of Atwood’s compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance withthe types of compliance requirements referred to above that could have a direct and material effect on a major federal program identified in the accompanying Schedule of Findings and Questioned Costs occurred. An audit includes examining, on a test basis, evidence about the City of Atwood’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City of Atwood’s compliance with those requirements.

In our opinion, the City of Atwood complied, in all material respects, with the requirements referred to above that are applicable to each of its major federal programs identified in the accompanying Schedule of Findings and Questioned Costs for the year ended December 31, 2010.

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Honorable Mayor and City CouncilCity of AtwoodSeptember 26, 2011Page Two

Internal Control Over Compliance

The management of the City of Atwood, Kansas, is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the City of Atwood’s internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City of Atwood’s internal control over compliance.

A deficiency in internal control over compliance 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, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis.

Our consideration of the internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be deficiencies, significant deficiencies, or material weaknesses in internal control over compliance. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, we identified certain deficiencies in internal control over compliance that we consider to be significant deficiencies as described in the accompanying Schedule of Findings and Questioned Costs as item2010-3. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

The City of Atwood’s responses to the findings identified in our audit are described in the accompanying Schedule of Findings and Questioned Costs. We did not audit the City of Atwood’s response and, accordingly, we express no opinion on the responses.

This report is intended for the information and use of management, the Mayor and City Council, others within the entity, federal awarding agencies, and pass-through entities, and is not intended to be and should not be used by anyone other than these specific parties.




SCHEDULE 1

Page 1

SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


Federal Grantor/Pass-Through Grantor/ Federal CFDA Federal

Program Title Number Expenditures

U.S. Department of Agriculture

Water and Waste Disposal Systems for Rural Communities 10.760 2,213,495

ARRA - Water and Waste Disposal Systems for Rural Communities 10.781 182,382

Total Expenditures of Federal Awards $ 2,395,877

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CITY OF ATWOOD, KANSASSCHEDULE 1

Page 2NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS


Note A - Basis of Presentation

The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of the City of Atwood, Kansas, under programs of the federal government for the year ended December 31, 2010. The information in this schedule is presented in accordance with the requirements of the Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations.

Note B - Summary of Significant Accounting Policies

Expenditures reported on the Schedule of Expenditures of Federal Awards is prepared using the statutory basis of accounting to comply with the cash basis laws of the State of Kansas. Expenditures include disbursements, accounts payable, and encumbrances, with disbursements being adjusted for prior year’s accounts payable and encumbrances.

43


Page 1SCHEDULE OF FINDINGS AND QUESTIONED COSTS


SECTION 1 – SUMMARY OF AUDITORS’ RESULTS

FINANCIAL STATEMENTS

Type of auditors’ report issued:

In accordance with the statutory basis of accounting described in Note 1 tothe financial statements Unqualified

Internal control over financial reporting:

• Material weaknesses identified? ___ Yes _x_ No

• Significant deficiencies identified that are not considered to bematerial weaknesses? _x_ Yes ___ No

• Noncompliance material to financial statements noted? ___ Yes _x_ No

FEDERAL AWARDS

Internal control over major programs:

• Material weaknesses identified? ___ Yes _x_ No

• Significant deficiencies identified that are not considered to bematerial weaknesses? _x_ Yes ___ No

Type of auditors’ report issued on compliance for major programs:

Any audit findings disclosed that are required to be reported in accordance with section 510(a) of OMB Circular A-133? _x_ Yes ___ No

Identification of major programs: Unqualified

CFDA NUMBER NAME OF FEDERAL PROGRAM10.760 Water and Waste Disposal Systems for Rural Communities10.781 ARRA – Water and Waste Disposal Systems for Rural Communities

Dollar threshold used to distinguish between type A and type B programs: $300,000

Auditee qualified as low-risk auditee? ___ Yes _x_ No

44




SECTION II – FINANCIAL STATEMENT FINDINGS

2010-1 Segregation of Duties

Condition: The limited staff size does not provide for adequate segregating of duties.

Criteria: Segregation of duties should be maintained to strengthen internal control over accounting and compliance functions.

Cause: Because the entity is small, management does not feel it is feasible to hire more staff.

Effect: Lack of segregation of duties increases the risk of errors and noncompliance occurring and not being detected in a timely manner.

Recommendation: Duties of key financial and compliance personnel should be evaluated to determine if duties could be segregated.

Views of Responsible Officials and Planned Corrective Actions: We concur with the recommendation. However, the size of the entity does not make it practical to have a sufficient number of employees to achieve the optimum level of internal controls.

2010-2 Financial Statement Preparation

Condition: Management does not have the qualifications and training necessary to prepare the financial statements which would include the related footnote disclosures.

Criteria: Management must have controls over the preparation of the financial statements including footnote disclosures which would prevent or detect an omission/misstatement in the financial statements.

Cause: There are no procedures in place that require management to obtain the necessary qualifications and training.

Effect: The control deficiency allows for omission/misstatements in the financial statements including footnotes that may not be prevented, detected, or corrected.

Recommendation: Management would need to attend training classes and annual continuing education classes to gain an understanding on proper and complete preparation of the financial statements and footnote disclosures and to be aware of all of the current accounting standards by purchasing annual accounting subscriptions.

Views of Responsible Officials and Planned Corrective Actions: We concur with the recommendation. However, the cost of annual subscription services and the continuing education/training classes do not make it practical to obtain the competency and expertise required to correct the deficiency.

SECTION III – FEDERAL AWARD FINDINGS AND QUESTIONED COSTS

UNITED STATES DEPARTMENT OF AGRICULTURE

Water and Waste Disposal Systems for Rural Communities – CFDA No. 10.760 and ARRA - Water and Waste Disposal Systems for Rural Communities – CFDA No. 10.781 for the year ended December 31, 2010.

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2010-3 Segregation of Duties

Condition: The limited staff size does not provide for adequate segregating of duties.

Criteria: Segregation of duties should be maintained to strengthen internal control over accounting and compliance functions.

Cause: Because the entity is small, management does not feel it is feasible to hire more staff.

Effect: Lack of segregation of duties increases the risk of errors and noncompliance occurring and not being detected in a timely manner.


Views of Responsible Officials and Planned Corrective Actions: We concur with the recommendation. However, the size of the entity does not make it practical to have a sufficient number of employees to achieve the optimum level of internal controls.

Compliance finding – None found.

Questioned costs – None found.

SECTION IV – SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS

FINDING 2009-3

Condition: The limited staff size does not provide for adequate segregation of duties.


Current Status: The size of the entity does not make it practical to have a sufficient number of employees to achieve the optimum level of internal control.

Documents

CITY OF ATWOOD, KANSAS Independent Audit ReportCITY OF ATWOOD, KANSAS Independent Audit Report January 1, 2010 to December 31, 2010 MAPES & MILLER Certified Public Accountants Norton,