MARATHON COUNTY Marathon County, Wisconsin

Transcription

1 MARATHON COUNTY Marathon County, Wisconsin REPORT ON INTERNAL CONTROL (Including Memorandum on Accounting Procedures, Internal Controls and Other Matters) December 31, 2002

2 MARATHON COUNTY INDEX Page No. Status Of Prior Year Points Landfill Closure Payable 1 Informational Disclosures Major Changes Financial Reporting (GASB No. 34) 1 GASB No. 39: Determining Component Units 2 GAO Independence Standards 3 Required Communications with the County Board 4 Closing 5

3 To the Marathon County Board of Supervisors and the Finance and Property Committee Marathon County, Wisconsin In planning and performing our audit of the basic financial statements of Marathon County, Wisconsin for the year ended December 31, 2002, we considered its internal control in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control. However, we noted a certain matter involving the internal control and its operation that we consider to be a reportable condition under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of internal control that, in our judgment, could adversely affect Marathon County s ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. Our consideration of internal control was for the limited purpose described in the preceding paragraph and would not necessarily disclose all matters that might be reportable conditions. In addition, because of inherent limitations in internal control, errors or fraud may occur and not be detected by such controls. We noted the following reportable condition that is not believed to be a material weakness: Landfill Closure Payable This condition was considered in determining the nature, timing and extent of the audit tests applied in our audit of the December 31, 2002 basic financial statements, and this report does not affect our report on the basic financial statements dated May 8, We have not considered the internal controls since the date of our report. This report is intended solely for the information and use of the County Board, management and others within the county, and is not intended to be, and should not be, used by anyone other than these specified parties. Madison, Wisconsin May 8, 2003 Virchow, Krause & Company, LLP Certified Public Accountants & Consultants An Independent Member of Baker Tilly International

4 STATUS OF PRIOR YEAR POINTS LANDFILL CLOSURE PAYABLE (PER 12/31/00 LETTER) The county has set up a landfill closure payable for cell B to cover costs of closing the cell which is expected in To comply with the DNR s requirement that the county have $4,500,000 of funds on hand at the time of closing, the county is accumulating funds from the collection of tipping fees and investment earnings in an investment account that is monitored by the DNR. The estimated closure payable recorded at December 31, 2002 is equal to the book value of investments that the county has accumulated. Under generally accepted accounting principles, the amount of the closure payable should reflect the anticipated closure costs that have been projected by the county s engineering firm as part of cell B s plan of operation and not the amount of funds the county has available for covering closure costs. We recommend that the county evaluate the method it is using to calculate the closure payable to make sure that the balance recorded is actually based on projected costs of closing Cell B in 2008, which is independent of the amount of funds that the county has set aside for that purpose. Status (12/31/02) Management believes that their current way of presenting the closure payable is a conservative approach that records a larger payable than if they would base the computation on the engineers reports. At this time, they feel a more conservative approach is more appropriate. INFORMATION DISCLOSURES MAJOR CHANGES FINANCIAL REPORTING (GASB NO. 34) In our letters from the last two years, we have reported to you how GASB No. 34 was going to impact your financial statements and the steps that were going to be necessary to achieve this accomplishment. This process involved considerable county effort that was guided through consultations with us to assist the county in making decisions and delegating tasks to achieve the following items: 1. Created a Management Discussion and Analysis section that provided the readers an objective and easily readable analysis of the government s financial performance for the year. 2. Determined the cost of infrastructure assets, calculated depreciation on all capital assets, accrued additional liabilities that were previously reported in the long-term debt account group, presented revenues and expenses by function, and calculated new types of net asset breakdown. 3. Performed a reconciliation between the fund based statements and the new entity-wide statements. 4. Presented a statement to report both the original and amended budgets. 5. Significantly changed the notes to the financial statements so as to meet the new disclosure requirements. We commend the efforts of County personnel in accomplishing this major task. Page 1

5 INFORMATION DISCLOSURES (cont.) GASB NO. 39: DETERMINING COMPONENT UNITS In order to improve governmental reporting for component units, the Governmental Accounting Standards Board (GASB) amended GASB No. 14 and issued Statement No. 39. This statement was issued in May 2002 and is effective for fiscal periods beginning on June 15, 2003 and later. For you, this would be your calendar year Previously, Statement No. 14 stated that all entities associated with a primary government are potential component units and should be evaluated for inclusion in the financial reporting entity. Now, Statement No. 39 sets up new criteria to determine if an organization should be reported as a component unit. These new criteria will likely result in more component units being included in the reporting entity. Statement No. 14 defined the financial reporting entity to include other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity s financial statements to be misleading or incomplete. Statement No. 39 has expanded those criteria. Entities (including nongovernmental entities) which are legally separate, tax-exempt organizations affiliated with a primary government and meeting all of the following criteria should be discretely presented within the primary government s financial reporting entity. The Qualifying Criteria The money received or held by the separate organization is entirely, or almost entirely, for the direct benefit of the primary government, its component units, or its constituents. The primary government (or its component units), is entitled to, or has the ability to otherwise access, a majority of the money received or held by the separate organization. While access does not necessarily imply control, the focus is on the ability to access, not whether it did so in the current period. For example, if an affiliated organization historically provides resources to a college, this would indicate that the college can otherwise access the resources even if no resources were transferred in the current year. The money received or held by an individual organization that the specific primary government, or its component units, is entitled to, or has the ability to otherwise access, is significant to the primary government. Significant means at least material to the financial statements taken as a whole. This criterion is aimed at concerns expressed that would have required school districts to always include parent teacher organizations (PTO) in their reporting entities. Unless the PTO provided significant financial support, they need not be included. Organizations meeting the criteria should be discretely presented within the primary government s financials as a component unit. It is still a matter of professional judgment. Examples of organizations which may need to be audited and included are groups such as Friends of the Library, or Swimming Pool Committee, etc. This may be an annual requirement, or it may only be necessary in the year of a significant construction project. We will continue to work with the county on this matter. Page 2

6 INFORMATION DISCLOSURES (cont.) GAO INDEPENDENCE STANDARDS We do not see a significant impact on the services we now provide to most of our clients. As a part of the major changes taking place in the CPA industry, the United States General Accounting Office (GAO) issued revised rules regarding auditor independence on governmental audits. The new rules were issued in January 2002, and take effect for fiscal years beginning on January 1, 2003 and later. The goal of the new rules is to protect the public interest and ensure public confidence in the independence of auditors of government financial statements. The new rules affect all audits of governmental organizations which are done in accordance with GAO standards (also known as The Yellow Book ). These standards currently apply to you. These standards typically apply to Federal grant audits, known as single audits. They may also be required by legislative action. For example, all audits of Wisconsin School Districts are required to follow Government Auditing Standards. You have a single audit every year because of the amount of federal funds you receive. The new rules rely on two overarching principles which auditors must follow: 1. Audit firms should not provide non-audit services that involve performing management functions or making management decisions. 2. Audit firms should neither audit their own work nor provide non-audit services in situations where the non-audit services are significant or material to the subject matter of the audit. There are a number of specific services that the new standard describes as allowable or not allowable. For example, the audit firm may not post the transactions to the entity s books, or process the entity s entire payroll. The audit firm may not supervise the operation of the entity s information technology system. Members of the audit firm may not serve on the entity s governing body, or otherwise make policy decisions for the entity. The auditor is allowed to perform a variety of services including the following: 1. Routine activities related to the audit, such as assisting with internal control issues, answering technical questions, and providing training. 2. Provide basic accounting assistance such as assisting with the drafting of financial statements and related footnotes, and preparing adjusting and closing entries. 3. Maintaining depreciation schedules. 4. Provide advice on information technology regarding system design and installation. 5. Evaluating potential candidates for job openings. Generally, the new rules require us to evaluate the various types of services clients request from us to determine whether such services are allowed under the new rules. At Virchow Krause, compliance with the rules and auditor integrity is extremely important. We have carefully evaluated the types of consulting/non-audit services clients receive from us, and do not see a significant impact to any of the services we typically provide. Since each client s needs are different, please contact us directly with any questions about this topic. Page 3

7 REQUIRED COMMUNICATIONS WITH THE COUNTY BOARD We are required to communicate with the County Board about the following issues: OUR RESPONSIBILITY UNDER U.S. GENERALLY ACCEPTED AUDITING STANDARDS, OMB CIRCULAR A-133, AND THE STATE SINGLE AUDIT GUIDELINES As stated in our engagement letter dated October 18, 2000, our responsibility, as described by professional standards, is to plan and perform our audit to obtain reasonable, but not absolute, assurance about whether the financial statements are free of material misstatement. Because an audit is designed to provide reasonable, but not absolute assurance and because we did not perform a detailed examination of all transactions, there is a risk that material errors, fraud, or illegal acts may exist and not be detected by us. In planning and performing our audit, we considered Marathon County s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. We also considered internal control over compliance with requirements that could have a direct and material effect on a major federal or state 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 and the State Single Audit Guidelines. As part of obtaining reasonable assurance about whether Marathon County s financial statements are free of material misstatement, we perform tests of its compliance with certain provisions of laws, regulations, contracts and grants, 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 is not an objective of our audit. Also, in accordance with OMB Circular A-133 and the State Single Audit Guidelines, we examine on a test basis, evidence about Marathon County s compliance with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement and the State Single Audit Guidelines applicable to each of its major federal and state programs for the purpose of expressing an opinion on Marathon County s compliance with those requirements. While our audit provides a reasonable basis for our opinion, it does not provide a legal determination on Marathon County s compliance with those requirements. SIGNIFICANT ACCOUNTING POLICIES Management has the responsibility for selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used in the preparation of the financial statements are discussed in Note 1 to the financial statements. There have been no material unusual transactions or controversial accounting issues. As described in Note I.B. to the financial statements, Marathon County changed accounting policies related to financial reporting by adopting Statements of Governmental Accounting Standards No. 33, Accounting and Financial Reporting for Nonexchange Transactions (GASB 33), No. 34 Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments (GASB 34), No. 37 Basic Financial Statement and Management s Discussion and Analysis For State and Local Governments Omnibus (GASB 37), and No 38 Certain Financial Statement Note Disclosures in Accordingly, the cumulative effect of the accounting change as of the beginning of the year is reported in the statement of net assets and the statement of activities. Page 4

8 REQUIRED COMMUNICATIONS WITH THE COUNTY BOARD (cont.) ACCOUNTING ESTIMATES 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. We are not aware of any particularly sensitive accounting estimates utilized by management in its financial statement process. AUDIT ADJUSTMENTS For purposes of this letter, professional standards define an audit adjustment as a proposed correction of the basic financial statements that, in our judgment, may not have been detected except through our auditing procedures. All audit and bookkeeping adjustments we prepared were included in your financial statements. Copies of these adjustments are available from management. OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS All the information included in the financial statements has been audited. Our responsibilities are addressed in the Independent Auditors' Report. DISAGREEMENTS WITH MANAGEMENT For purposes of this letter, professional auditing standards define a disagreement with management as a matter concerning a financial accounting, reporting, or auditing matter that could be significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements arose during our audit. CONSULTATIONS WITH OTHER ACCOUNTANTS To the best of our knowledge, management has not consulted with or obtained opinions from other independent accountants on auditing and accounting matters during the past year. ISSUES DISCUSSED PRIOR TO THIS YEAR S AUDIT We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to performing the audit. These discussions occurred in the normal course of our professional relationship and our responses were not a condition to the services performed as your auditor. DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT We encountered no significant difficulties in dealing with management in performing our audit. CLOSING In closing, we would like to thank you for allowing us to serve you. We are very interested in the long-term success of Marathon County, and our comments are intended to draw your attention to issues that need to be addressed for the county to meet its goals and responsibilities. Page 5

9 CLOSING (cont.) This letter, by its nature, focuses on improvements and does not comment on the many strong areas of the county s systems and procedures. The comments and suggestions in this report are not intended to reflect in any way on the integrity or ability of the personnel of the county. They are made solely in the interest of establishing sound internal control practices and improving the county s financial operations. The county s staff seemed genuinely concerned about maintaining the county s financial reporting system so that informed decisions can be made. They were receptive to our ideas, comments and suggestions. We will review the status of these comments during our next audit engagement. We have already discussed the previous comments and suggestions with various county personnel and we would be pleased to discuss them with you in further detail. Page 6