Finance and Administration Committee 2014 FINANCIAL AUDIT PLAN BKD, LLP

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1 Page 1 of 8 MEMORANDUM TO: Finance and Administration Committee FROM: Bob Schauer, Director-Finance ( ) SUBJECT: 2014 FINANCIAL AUDIT PLAN BKD, LLP DATE: February 9, 2015 Attached to this memo is a letter to the Finance & Administration Committee from the Commission s financial auditors, BKD, LLP. The purpose of the letter (in compliance with auditing standards) is a required communications with the Finance & Administration Committee relating to the planned scope and timing for the December 31, 2014 audit of the Commission s financial statements. The field work for the 2014 financial audit will begin in March 2015 with a presentation of the audit results expected to be at the May 4, 2015 Finance and Administration Committee meeting. Representatives from BKD will not be at the February meeting. However, if Commissioners have any questions, staff or a representative from BKD, LLP will respond as appropriate. THIS IS AN INFORMATIONAL ITEM ONLY; NO COMMITTEE ACTION REQUIRED

2 Page 2 of 8 Pre-audit Communication with the Finance and Administration Committee and Management For the Year Ended December 31, 2014 (1)

3 Page 3 of 8 Contents Review of Our Services to You... 1 Timetable... 1 Service Team... 2 Planning Materiality Estimates and Financial Statement Misstatements... 2 Audit Risks and Other Considerations in Our Planning... 3 Considerations of Fraud... 3 Auditor Independence... 4 Accounting & Auditing Matters... 4 Contacts... 4 (i)

4 Page 4 of 8 Review of Our Services to You The purpose of this communication is to summarize various matters related to the planned scope and timing of our engagement. Our engagement includes the audits of the financial statements of the Minneapolis/St. Paul Metropolitan Airports Commission, Inc. (the Commission), as of December 31, 2014, and of its compliance with specified requirements applicable to its major federal award programs. We will conduct our audits in accordance with auditing standards generally accepted in the United States of America, the standards for financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Nonprofit Organizations. Those standards require that we plan and perform: The audit of the financial statements to obtain reasonable rather than absolute assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. 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. The audit of compliance with the types of compliance requirements described in the U.S. Office of Management and Budget Circular A-133 Compliance Supplement that are applicable to each major federal award program to obtain reasonable rather than absolute assurance about whether noncompliance having a direct and material effect on a major federal award program occurred. Please refer to our engagement letter, dated July 28, 2014, for additional information and the terms of our engagement. Timetable We will coordinate the completion of the above projects, with the following proposed timetable, which has been discussed with management: Planning and risk assessment interim fieldwork December 1-5, Audit Fieldwork weeks beginning March 9, 2015, March 16, 2015 and March 23, 2015 Delivery of the draft of financial statements and management letter will be furnished prior to the May 2015 Finance and Administration Committee meeting. Final reports will be issued shortly after approval at the May 2015 Finance and Administration Committee meeting. (1)

5 Page 5 of 8 The 2014 audits will include significant participation by the Commission personnel, and BKD, LLP (BKD) considers them part of the project team. We will request copies of certain analyses, reconciliations, etc., for our use, as well as completion of a limited number of workpapers specific to the audit preparation. The timely completion of these requests will help ensure our meeting your reporting deadlines. Service Team The following individuals will be serving the Commission during this year s audit: Engagement Executive Joe Vande Bosche Concurring Review Partner Mary McKinley Audit Senior Derek Johnson Audit Senior Lawrence Green Audit Associate Wes Terry Audit Intern Caroline Bennett IT Senior Consultant Phil Diekhoff NOTE: Based on discussions with management and due to a lack of sufficient resources, Internal Audit will not be assisting with the audit this year. Planning Materiality Estimates and Financial Statement Misstatements We will conduct our audit in accordance with auditing standards generally accepted in the United States of America. Those standards 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 are required to make a preliminary computation of financial statement materiality during our audit planning process. This estimate is used in designing our substantive audit procedures. At the conclusion of our audit work, we re-evaluate this preliminary computation and evaluate any passed adjustments. We will also consider unrecorded, financial statement misstatements from current and prior periods. Additionally, we will consider any internal control deficiencies identified as a result of the 2014 audit. (2)

6 Page 6 of 8 Audit Risks and Other Considerations in Our Planning The assessment of risk is integral to the design of our audit approach. In our planning of the audit of the 2014 financial statements, we update our assessment of those areas that are deemed to be of higher risk or where the degree of risk has changed. This assessment is a matter of judgment, and can include areas that involve significant estimates, application of new accounting principles, new services, and evidence of key internal controls over financial reporting not operating as planned. For 2014, we have identified the following areas of focus and our approach to address the identified areas: Risk of Management Override of Controls Review of accounting estimates for bias; review of journal entries; evaluate business rationale for unusual transactions. Revenue Recognition Predictive test of landing fees, parking revenue and other revenue; vouch significant grant and passenger facility charge activity; other analytical procedures. Grants Receivable and Revenue Vouch grant related expenditures and accruals; perform cut-off testing to verify the completeness of the accrual for unclaimed grant reimbursements. Debt Recalculate gain/loss on refunding; vouch to underlying activity to validate proper accounting treatment; verify all required disclosures have been made. Review underlying agreements for new debt and verify proper accounting treatment and classification; verify all required disclosures have been made. We welcome any input you may have regarding the risk areas identified above, any other significant risk areas in your opinion, or other matters you believe warrant particular attention. Considerations of Fraud One of the most common questions we receive from audit committees is, How do you address fraud in a financial statement audit? Our responsibility, as it relates to fraud, in an audit of financial statements is addressed in auditing standards generally accepted in the United States of America. Our audit approach includes such procedures as: Engagement team brainstorming includes discussions on how or where the Commission s financial statements might be susceptible to material misstatement due to fraud, how management could perpetrate and conceal fraudulent financial reporting and how assets of the Commission could be misappropriated. (3)

7 Page 7 of 8 An emphasis is placed on the importance of maintaining the proper state of mind throughout the audit regarding the potential for material misstatement due to errors or fraud. Inquiries of management and others includes discussion of specific fraud risks and whether personnel have knowledge of suspected or known fraud. In connection with planning and risk assessment, we plan to interview the following individuals: Finance and Administration Committee Chair, Executive Director, Executive Vice President, Vice President of Finance and Administration, Director of Finance, Director of Internal Audit, General Counsel and others. Review of accounting estimates for bias. Evaluating business rationale for significant unusual transactions. Incorporating an element of unpredictability into the audit each year. Auditor Independence BKD provides no services to the Commission, including the above, which impair our independence with respect to the Commission. Accounting & Auditing Matters The following matters are, in our judgment, relevant to the planned scope of the audit, as well as your responsibilities in overseeing the financial reporting process. New accounting pronouncements with audit implications: Contacts o GASB Statement No. 68, Accounting and Financial Reporting for Pensions (an amendment of GASB No. 27) effective for 2015 with early application encouraged o GASB Statement No. 69, Government Combinations and Disposals of Government Operations effective for 2014 o GASB Statement No. 70, Accounting and Financial Reporting for Nonexchange Financial Guarantees effective for 2014 We understand the appropriate person in the governance structure with whom to communicate is Mr. Timothy Geisler, Chair of the Finance and Administration Committee. (4)

8 Page 8 of 8 If, for any reason, any member of the board of managers would need to contact us, please contact Joe Vande Bosche at , jvandebosche@bkd.com or Derek Johnson at , dsjohnson@bkd.com. This communication is intended solely for the information and use of those charged with governance, board of commissioners and management, and is not intended to be, and should not be, used by anyone other than these parties. Sincerely, Joseph P. Vande Bosche, CPA Partner (5)