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Home My WebLink AboutCC AG PKT 2002-08-26 #O AGENDA REPORT DATE: August 26, 2002 TO: Honorable Mayor and City Council THRU: John B. Bahorski, City Manager FROM: Pamela Arends -King, Director of Administrative Services /Treasurer SUBJECT: Interim Review Management Comment Letter J SUMMARY OF REQUEST: Staff requests Council receive and file the fiscal year 2001 -2002 interim review management comment letter. BACKGROUND: Attached is a copy of the interim review management comment letter from Lance Soll & Lunghard, the City's independent audit firm contracted to complete the fiscal year 2001- 2002 audit. During the interim review the auditors consider the City's internal control structure to determine their auditing procedures for the purpose of ultimately expressing an opinion on the City's financial statements. The letter's conclusion states they found the City's accounting records to be in good order except there were four matters that they brought to our attention. During the auditors test of transactions to trace the collection of water receipts to the daily utility cash receipts proof list it was noted not all customers submit their remittance advice with their payments. They recommended that when a customer does not submit a remittance advice with their payment a copy of the check marked "void ", is used to substitute as the remittance advice. This will allow the necessary audit trail to verify all the day's collections are being properly accounted for. Staff is currently following the recommendation of making a copy of the check to substitute for the remittance advice to create the necessary audit trail to verify that collections are being properly accounted for. As the auditors were completing their fixed asset field test, they noted there were a few items on the City's fixed asset listing that could not be located in the field and visa versa. Agenda Item 0 As noted in the letter, staff is currently transferring the fixed assets data base from a stand alone software to the Springbrook software, therefore the list was not complete, also, a list of fixed assets is sent to each department to review for accuracy. At the time of the interim review, the departments were still working on the fixed assets list. Although the auditors recommend that the City maintain a comprehensive and accurate fixed asset listing it is very difficult for the Finance Department to do this because of limited staffing. While reviewing opening fund balances the auditors noted that Fund 74 (local Law Enforcement Block Grant) opening fund balance did not agree with our prior year's report. As stated in the letter staff is aware of the problem due to changing the chart of accounts several times during the accounting software conversion and it has been corrected for the fiscal year audit. During the auditors review of the Appropriations Limit they noted a mathematical error was made. The amended Appropriations Limit was submitted to the City Council and approved at the June 24, 2002 council meeting. The letter also discusses the implementation of GASB No. 34. The City's implementation will be fiscal year 2002 -2003. As the auditors state, this implementation will involve some major changes to the City's current reporting model and they anticipate that there will be a considerable amount of additional analysis required from both the City and them. They recommend the City consider increasing the Finance Department's budget to allow for adequate staffing to accommodate the additional workload. Staff is currently attending training courses on how to implement GASB No. 34. One major area of change in reporting in regards to GASB No. 34 is the documentation of the costs of all major fixed assets such as the construction of streets, storm drains, sidewalks, buildings, and pump stations. Since there has never been a need to document these costs it will take considerable time and effort to approximate the costs of these major fixed assets. Due to the Finance Department's limited staff council will be asked to provide additional . funding to implement GASB No. 34. RECOMMENDATION: Staff recommends council receive and file the interim review management comment letter prepared by Lance Soll & Lunghard. Pamela Arends -King Di - o 77ces/easurer 4 John Bahorski Cy anager • • Lance 203 North Brea Boulevard �% 44 Suite 203 Soil & Brea, CA 92821-4056 � � / 7 1h Lunghard 7 s 72 0 [/ LP rd ( Fax (714) �1 l#i www•Islcpas pNN CERTIFIED PUBLIC ACCOUNTANTS 29 - 199 Rr 1949.1999 Brandon W. Burrows Donald L. Parker Michael K. Chu David E. Hale A Professional corporation Donald G. Slater Richard K. Kikuchi Refired Robert C. Lance 1914-1994 Richard C. Soli July 10, 2002 Fred J. Lunghard, Jr. 1928-1999 To John B. Bahorski, City Manager and Members of the City Council The City of Seal Beach, California We have completed an interim review of the City operations as part of our audit for the fiscal year 2001 -2002. This review does not constitute a complete audit as all areas of the City were not examined; however, it does fit into a program which, when completed, will allow us to express an opinion on the City's financial statements. In planning and performing our interim review of City operations for the fiscal year 2001- 2002, we considered its internal control structure in order to determine our auditing procedures for the purpose of ultimately expressing our opinion on the financial statements and not to provide assurance on the internal control structure. We noted the following matters that we would like to bring to your attention. Water As part of our interim review, we randomly selected one day for which to trace the collection of water receipts to the daily utility cash receipts proof list. We attempted to foot the remittance advices for that day and trace them to the proof list; however, we were unable to complete this testing because not all the customers were submitting their remittance advices with their payments. We recommend that in such instances a copy of the check, marked "void ", be made and included in the stack of daily remittance advices. This will allow the necessary audit trail to verify all the day's collections are being properly accounted for. Fixed Assets As part of our fixed asset field test, we selected a very small sample of fixed assets to trace from the field to the listing and visa versa. During this testwork, we noted that there were a few items on the City's fixed asset listing that could not be located in the MEMBER CALIFORNIA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS ■ 3an Lunghard LLP CERTIFIED PUBLIC ACCOUNTANTS To John B. Bahorski, City Manager and Members of the City Council The City of Seal Beach, California field and visa versa. Further discussions with the Finance Director indicated that the department is aware that the listing is incomplete and that they are in the process of conducting an inventory and cleaning up the listing as part of their new fixed asset policy and system conversion. We recommend that the City maintain a comprehensive and accurate fixed asset listing. Fund Balance During this contact, we noted that Fund 74 (Local Law Enforcement Block Grant) opening fund balance did not agree with our prior year's report. The Finance Director is aware of the problem and will have this corrected by year -end. Appropriations Limit During our review of the Appropriations Limit we noted that the City's calculation was incorrect due to an addition, instead of multiplication, of the percentage change factors. This comment has been submitted to City Council as part of a separate Accountant's Report on the Appropriation Limit. We recommend that the corrected Appropriation Limit be submitted to City Council for approval. GASB No. 34 Implementation The City's implementation of GASB Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments (new reporting model) will be in fiscal year 2002 -2003. Since this implementation will involve some major changes to the City's current reporting model, we do anticipate that there will be a considerable amount of additional analysis required from both the City and us. With this in mind, the City may wish to consider increasing the Finance Department's budgeted hours in order to allow for adequate staffing to accommodate the additional workload. Conclusion Except for the areas noted above, we found the City's accounting records to be in good order. We would like to thank the Finance Department and its staff for their assistance during the audit. The above matters have been discussed with the personnel involved. Should any questions arise regarding the above or City operations in general, please do not hesitate to contact us. to'ear, jet' 5 Prige4