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HomeMy WebLinkAboutFY 2015-16 Audit Communication LetterDecember 28, 2016 To the Honorable Mayor and Members of the City Council City of Azusa, California We have audited the financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Azusa (City) for the year ended June 30, 2016. Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards, Government Auditing Standards and the Uniform Guidance, as well as certain information related to the planned scope and timing of our audit. We have communicated such information in our letter to you dated May 23, 2016. Professional standards also require that we communicate to you the following information related to our audit. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in the notes to the financial statements. Statement of Governmental Accounting Standards (GASB Statement No. 72), Fair Value Measurement and application was implemented in fiscal year 2015-2016. This implementation is noted in footnote No. 3 of Cash and Investments. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. Management’s estimate of its net pension liability and Other Post Employment Benefit (OPEB) Liability is based on actuarial valuation specialist assumptions. We evaluated the key factors and assumptions used to develop the proportionate share of the net pension liability and OPEB liability in determining that it is reasonable in relation to the financial statements taken as a whole. The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered difficulties in performing and completing our audit due to the lack of readiness for the audit fieldwork. We recommend that accounts be fully reconciled, adjusting journal entries completed, requested audit preparatory schedules and reports be ready, and a completed trial balance provided prior to the start of the audit. 203 N. Brea Blvd., Suite 203 Brea, CA 92821 Phone: 714.672.0022 An Association of Independent Accounting Firms To the Honorable Mayor and Members of the City Council City of Azusa, California Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. These differences are described below. In addition, we detected misstatements as a result of audit procedures which were material, and were subsequently corrected by management. The details of these misstatements are described in a separate letter December 28, 2016. Unadjusted Audit Differences City cash and investments overstatement 29,736$ Cumulative effect 29,736$ Current Year Over (Under) Revenues and Expenditures/Expenses and Changes in Fund Balance/Equity Disagreements with Management For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated December 28, 2016. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the City’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention.  The City’s cash and investments balances are overstated by $29,736. During the course of the audit, cash and investments balances were adjusted to reduce the City’s recorded amounts by $23,001,509 in order to properly reconcile. Over the years, the City has consistently experienced difficulties in performing proper reconciliations of its cash and investment balances. We recommend the City perform a thorough review of its cash handling and reconciliation procedures to ensure accurate and timely reconciliations. To the Honorable Mayor and Members of the City Council City of Azusa, California Other Matters We applied certain limited procedures to management’s discussion and analysis, and budgetary comparison statement for the General Fund, and Grants and Seizure Fund, and Schedule of Changes in Net Pension Liability, Schedule of Contributions, Schedules of Investments, Schedule of Proportionate Share of Net Pension Liability, which are required supplementary information (RSI) that supplements the basic financial statements. Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion or provide any assurance on the RSI. We were engaged to report on the combining and individual nonmajor fund financial statements and the budgetary comparison schedules which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certain inquiries of management and evaluated the form, content, and methods of preparing the information to determine that the information complies with accounting principles generally accepted in the United States of America, the method of preparing it has not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financial statements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare the financial statements or to the financial statements themselves. New Auditing Standard No. 130 This new auditing standard is effective for financial periods ending on or after December 15, 2016; for most California municipalities it is effective for the period July 1, 2016 through June 30, 2017 and future periods thereafter. The standard allows CPA firms to issue an opinion on the financial statements conformity with generally accepted accounting principles, as well as an opinion on the operating effectiveness of internal controls over financial reporting through an integrated audit. This standard does not change the objectives of a financial statement audit, it only enhances the value and scope of a financial statement audit and increases the level of assurance provided by CPA firms on financial controls. Municipalities should look to perform an integrated audit for more assurance on the operating effectiveness of internal controls over financial reporting. New Accounting Standards The following new Governmental Accounting Standards Board (GASB) pronouncements were effective for fiscal year 2015-2016 audit: GASB Statement No. 72, Fair Value Measurement and Application. GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. GASB Statement No. 79, Certain External Investment Pools and Pool Participants. The following Governmental Accounting Standards Board (GASB) pronouncements are effective in the following fiscal year audit and should be reviewed for proper implementation by management: Fiscal year 2016-2017 GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement No. 68, and Amendments to Certain Provisions of GASB Statement Nos. 67 and 68. To the Honorable Mayor and Members of the City Council City of Azusa, California GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans. GASB Statement No. 77, Tax Abatement Disclosures. GASB Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans. GASB Statement No. 80, Blending Requirements for Certain Component Units-an Amendment of GASB Statement No. 14. GASB Statement No. 82, Pension Issues an Amendment of GASB Statements No. 67, No. 68, and No. 73. Fiscal year 2017-2018 GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions. GASB Statement No. 81, Irrevocable Split Interest Agreements. Restriction on Use This information is intended solely for the use of the City Council and management of City and is not intended to be, and should not be, used by anyone other than these specified parties. Very truly yours, Brea, California