Presented by: Susan K. LaFollett CPA Managing Partner LaFollett and Abbott PLLC Certified Public...
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City of Van Alstyne 2013 Annual Financial Report Presented by: Susan K. LaFollett CPA Managing Partner LaFollett and Abbott PLLC Certified Public Accountants March 17, 2014
Presented by: Susan K. LaFollett CPA Managing Partner LaFollett and Abbott PLLC Certified Public Accountants March 17, 2014
Presented by: Susan K. LaFollett CPA Managing Partner LaFollett
and Abbott PLLC Certified Public Accountants March 17, 2014
Slide 2
Objectives of Audit Scope of Audit Annual Financial Report
Financial Highlights Summary of Audit Results Required Governance
Communications Recommendations
Slide 3
Objectives Conduct our audit in accordance with Government
Auditing Standards Plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement
Slide 4
Full Scope Audit Governmental Activities Business-type
Activities water, sewer and sanitation Discretely Presented
Component Units Economic Development Corporation (EDC) Community
Development Corporation (CDC) Each Major Fund General Fund and Debt
Service Fund
Slide 5
Financial Section Independent Auditors Report (pgs. 1-2)
Managements Discussion and Analysis (pgs. 3-7) Government-Wide
Financial Statements (pgs. 8-9) Fund Financial Statements (pgs.
10-16) Notes to Financial Statements (pgs. 17-39)
Slide 6
Required Supplementary Information (RSI) General Fund Budgetary
Comparison (pg. 40) Texas Municipal Retirement System (TMRS)
Schedule of Funding Progress (pg. 41)
Slide 7
Compliance and Internal Controls Section Independent Auditors
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 (pgs. 42-43)
Slide 8
Statement of Net Position (pg. 8) Statement of Activities (pg.
9) Includes the Primary Government Governmental Activities
Business-type Activities Includes Component Units Discretely
Presented EDC CDC Prepared on a full accrual basis
Slide 9
Statement of Net Position (pg. 8): Total City Assets -
$15,547,914 Primarily net capital assets of $12,400,794 Total City
Liabilities - $9,326,639 Includes long-term debt of $8,113,757 with
current portion of $478,469 due and payable in FY14 Citys Net
Position - $6,221,275 Net Position equals the amount by which
assets exceed liabilities
Slide 10
Statement of Net Position (pg. 8): Net Position Indicator of
whether the Citys financial health is improving or deteriorating
Citys net position increased $124,840 or 2% for FY13 and $125,848
or 2% for FY12 Investment in capital assets $4,290,956 (total
capital assets less related long-term debt) Unrestricted net
position is $1,069, 733 and may be used to meet the Citys ongoing
obligations to citizens and creditors
Slide 11
Statement of Activities (pg. 9): Total City Revenues -
$5,442,299 Program Revenues - $3,509,698 charges for services,
grants, and contributions General Revenues - $1,932,601 property,
sales, and franchise taxes Total City Expenses - $5,317,459 Citys
Net Position increased $124,840 or 2% FY12 total revenues
$5,252,186, total expenses $5,126,338, and net increase of
$125,848
Slide 12
General Fund (pgs. 10 and 12): Total Assets - $1,558,375 Total
Liabilities - $929,146 Total Fund Balances - $629,229 Unassigned
Fund Balances - $468,000 May be used to meet the Citys ongoing
obligations Citys General Fund has 1.82 months reserves Unassigned
General Fund Balances/ Total General Fund Expenditures X12 months 3
to 6 months reserve is optimal
Slide 13
General Fund (pgs. 10 and 12): Total Revenues - $3,066,899
Total Expenditures - $3,093,378 Net Change (decrease) in Fund
Balances ($26,479) FY12 - Revenues $3,221,153 Expenditures
$3,300,059, Net Decrease ($78,906) General Fund has seen a decrease
in Fund Balances for the past two years
Slide 14
General Fund (pgs. 10 and 12): Total General Fund
Revenues/Other Sources - decreased $154,254 (5%) from FY12
Ambulance Revenues decreased $245,898 (41%) from FY12 due to a
transition in third party billing agencies Property Tax Revenues -
increased $96,092 (12%) from FY12 due to adopted tax rate increases
Sales tax revenue increased $32,858 (6%) from FY12
Slide 15
Water & Sewer Fund (pgs. 14 - 16): Total Assets -
$10,905,170 Total Liabilities - $6,186,371 Total Net Position-
$4,718,799 Unrestricted Net Position - $10,748 May be used to meet
ongoing obligations Citys Water & Sewer Fund has less than 1
month reserves Unrestricted Net Position/ Total Water & Sewer
Fund Expenses X12 months 3 to 6 months reserve is optimal
Slide 16
Water & Sewer Fund (pgs. 14 - 16): Total Operating and
Other Revenues - $1,760,559 Transfers-in from Capital Projects Fund
- $124,239 Total Expenditures - $1,915,455 Net Change (decrease) in
Net Position ($30,657) FY12 - Revenues $1,570,688, Expenses
$1,644,128, Net Change (decrease) ($73,440) Water & Sewer Fund
has seen a decrease in Net Position for the past two years
Slide 17
EDC Discretely Presented (pgs. 8-9): Total Assets - $655,643
Total Liabilities - $199,791 Total Net Position - $455,852 Total
Revenues - $114,577 Total Expenses - $57,750 Net Change - increase
in Net Position $56,827
Slide 18
CDC Discretely Presented (pgs. 8-9): Total Assets - $183,772
Total Liabilities - $977 Total Net Position - $182,795 Total
Revenues - $100,476 Total Expenses - $65,528 Net Change - increase
in Net position $34,948
Slide 19
Independent Auditors Report (pgs. 1-2) Unmodified or Clean
Opinion Report Summarizes: Managements Responsibilities for the
Financial Statements Auditors Responsibilities
Slide 20
Independent Auditors 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 (pgs. 42-43) Given the limitations and
definitions per the report, we did not identify any deficiencies in
internal controls over financial reporting that we consider to be
material weaknesses. However, material weaknesses may exist that
have not been identified
Slide 21
Per our Letter, Significant Audit Findings: Qualitative Aspects
of Accounting Practices Sensitive estimates allowance for
uncollectible municipal court fines and ambulance services
Significant disclosures long-term debt in notes 5 - 7 Difficulties
encountered in performing the audit none Corrected and uncorrected
misstatements all recommended adjustments were accepted by the City
Disagreements with management none Management Representations we
have requested certain representations from management in a letter
dated March 17, 2014
Slide 22
Per our management recommendation letter, we became aware of
several matters that are opportunities to strengthen internal
controls and operating efficiency at the City These recommendations
should in no way be construed as derogatory We recommend the City
consider the following recommendations:
Slide 23
We noted less audit adjustments to the trial balance in FY13
than in FY12. However, the City did not resolve several issues and
adjustments until after the audit was in progress. We recommend the
City continue to work closely with their consultant to refine
year-end closing procedures to ensure all routine closing
adjustments are posted before the audit begins. Management accepts
and agrees with this comment. City staff will continue to work
closely with the consultant to finalize and post year-end
adjustments before the audit begins.
Slide 24
We noted the General Fund (GF) has an unassigned fund balance
of $468,000 at FY13, which represents less than two months of GF
operating expenses. We recommend the City continue to adopt budgets
that will eventually increase the unassigned fund balances for the
GF to an optimal amount of 36 months of operating expenses.
Management accepts and agrees with this comment. City staff will
continue to recommend budgets that will increase the unassigned
fund balances and work closely with City Council to insure said
balance is increased to the recommended amount.
Slide 25
We noted the Water and Sewer Fund (WSF) has a net decrease in
net position of $30,657 and an unrestricted net position of $10,748
for FY13. Further, we noted the unrestricted net position
represents less than one month of WSF operating expenses. The n
ewly adopted water rate increases may help these balances to
improve during FY14. We recommend the City continue to adopt
budgets for the WSF that will increase the net position and
eventually increase the unrestricted net position to an optimal
amount of 36 months of operating expenses.
Slide 26
Management accepts and agrees with this comment. It is believed
that the utility rate increases passed with the FY14 budget will
produce an increased net position for the WSF. City staff will
continue to recommend budgets that increase the unrestricted net
position and work closely with City Council to insure said balance
is increased to the recommended amount.
Slide 27
We noted the City did not evaluate the collectability of
municipal court fine receivables until during the audit. The
balance for this receivable is significant and has increased during
the year. We recommend the City review the court collection process
and perform an analysis of the outstanding receivables balance to
determine collectability and estimate the allowance for bad debts
on a regular basis and at least before the audit begins. Further we
recommend the City consider writing off old uncollectable
amounts.
Slide 28
Management accepts and agrees with this comment. The Municipal
Court has an extensive collection process, which begins the day the
citation is issued, and continues this process with multiple
notifications to defendant from us until the case is turned over to
collections where professional collectors try again to collect the
balance. The collection agency has advised that the amounts they
show as uncollectable are approximately 8% or less of our total
outstanding amount. Since these receivables pertain to criminal
court costs and fines, which included State of Texas court costs,
we should be extremely hesitant in deciding to dismiss costs that
belong to the state.
Slide 29
We noted ambulance revenue decreased approximately 40% and the
receivable balance increased approximately 8% from FY12. Although
variances appear to be due to a transition in the third party
billing agency, it is very important that the City monitor the
collection process. Also, the City did not reconcile the revenue
and receivables balances per the third party collection agency
reports to the general ledger until during the audit. Per the
collection reports at FY13, the City has approximately $5,175,000
of outstanding ambulance receivables with a large portion of the
balance one or more years old. We recommend the City review
ambulance collection process and perform an analysis of the
outstanding receivables balance to determine collectability and
estimate the allowance for bad debts on a regular basis and at
least before the audit begins. Further we recommend the City
consider writing off old uncollectable amounts.
Slide 30
Management accepts and agrees with this comment. In
transitioning from Intermedix to Emergidata and acquiring a
Medicare revalidation the City was not able to collect Medicare
payments for nine of the twelve months in FY13. All data to include
outstanding debt was transferred from Intermedix to Emergidata as
well. This transfer made the outstanding receivables unavailable
for an extended period of time and did not become available to City
staff until the audit process had begun. Currently, Emergidata is
working to invoice and collect all outstanding debt and the City is
collecting Medicare payments.
Slide 31
We noted that monthly internal financial statements as
presented to the City Council showed a negative balance for water
revenue for the month of October 2013. Further investigation
revealed that the negative balance occurred due to the manner in
which unbilled revenue is accrued and recorded. The annual revenue
for the year includes the 12 months of revenue for the period Nov
2012 to Oct 2013, which is correct based on billing cycles. We
recommend the City consider utilizing a separate account for
unbilled revenue and adjust this account at year end for the
accrual. This approach will not distort budgeted water revenue in
the internal reports. Management accepts and agrees with this
comment. City staff will implement the suggested procedure to
report annual accounting accruals.
Slide 32
We noted the depreciation schedule may contain fully
depreciated capital assets that are no longer in service. This does
not have a net effect on the financial statements given that assets
are fully depreciated. We recommend the City review depreciation
schedules and remove assets no longer in service. Management
accepts and agrees with this comment. City staff will work to
identify current capital assets and update the depreciation
schedule.
Slide 33
Fiscal Year 2012 Follow up Management has implemented the
following prior year recommendations: Reinstate fund 98 General
Fixed Asset Account Group and fund 99 Long Term Debt Account Group,
as required by GAAP. Reconcile revenue per the court system to the
general ledger system.
Slide 34
Fiscal Year 2012 Follow up (continued): Print details for court
receivables, utility receivables, ambulance receivables, and
accounts payable on the last day of the year and reconcile to the
general ledger as part of the closing process. Continue to follow
check disbursement policies.
Slide 35
EDC/CDC: Continue to refine the year-end closing procedures to
ensure all routine closing adjustments are posted before the audit
begins. Management accepts and agrees with this comment. The
EDC/CDC board treasurers and management have met and discussed ways
to prepare for the audit, including closing procedures and
adjustments, as well as, preparing the information on the request
list before the audit begins. EDC do not record depreciation on
land. Management implemented this recommendation. EDC implement
internal controls to ensure that quarterly 941 reports are filed on
time. Management implemented this recommendation.
Slide 36
Thank you LaFollett and Abbott PLLC, Certified Public
Accountants, would like to recognize: Frank Baker - City Manager
Jennifer Gould - City Clerk Eddie Peacock CPA - City Consultant
Kanita Larkins - EDC/CDC These individuals were very responsive to
all of our audit requests and a pleasure to work with on this
engagement Questions or Comments?