CITY AND COUNTY OF DENVER

Transcription

1 Denver, Colorado In planning and performing our audit of the financial statements of CITY AND COUNTY OF DENVER (the City) as of and for the year ended December 31, 2015, in accordance with auditing standards generally accepted in the United States of America, we considered the City s internal control over financial reporting (internal control) as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control. Accordingly, we do not express an opinion on the effectiveness of the City s internal control. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses and, therefore, there can be no assurance that all deficiencies, significant deficiencies or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control that we consider to be a material weakness and other deficiencies that we consider to be significant deficiencies. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct misstatements of the City s financial statements on a timely basis. A deficiency in design exists when a control necessary to meet a control objective is missing or an existing control is not properly designed so that, even if the control operates as designed, a control objective would not be met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or competence to perform the control effectively. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City s financial statements will not be prevented or detected and corrected on a timely basis.

2 Page 2 We observed the following matters that we consider to be deficiencies, significant deficiencies or material weaknesses. MATERIAL WEAKNESSES Municipal Airport System Accounting for Capital Assets Criteria or Specific Requirement: Under accounting principles generally accepted in the United States of America (US GAAP), capital assets should be accounted for at their historical cost and in the period in which the asset is acquired. Accounting guidance that addresses the proper recognition and accounting of capital assets includes Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments and various implementation guidance issued by the GASB. Condition: The Municipal Airport System over-capitalized $41.8 million costs of projects within the Hotel and Transit Center and Other Capital Improvement Projects program. Effect: Audit adjustments were proposed and recorded to: $39.7 million to reduce capital assets and increase construction-in-progress $2.1 million to reduce the allocation of capitalized interest to the associated discrete assets capitalized Cause: Due to the tracking and allocation of expenses among the multiple assets being performed by an external consultant under contract with the City Department of Finance, management collaborated with the consultant working with the Hotel and Transit Center project management team, who were tracking costs incurred throughout the life of the project. Significant work was performed by management and the external consultant in 2015 to categorize construction-in-progress costs into meaningful discrete assets that could be capitalized and depreciated over estimated useful lives. Amounts provided by the external consultant included total project-to-date costs, which included $39.7 million of costs written off in previous years, notably 2010 and The over-capitalization occurred due to the lack of support from the time the decision was made in 2010 and 2011 to write off costs. Additionally, the over-allocation of costs from construction-in-progress to capital assets resulted in an over-allocation of $2.1 million of capitalized interest to associated assets capitalized.

3 Page 3 Recommendation: As the remainder of the Hotel and Transit Center project is placed into service in 2016 and additional costs are incurred in completion of the project, we recommend management continue to challenge whether the costs assigned to the discrete assets are proper. As the Airport System enters into future high-profile projects which involve multiple assets being constructed from multiple funding sources and multiple contractors, we recommend Municipal Airport System accounting personnel work with project management teams from inception to develop tracking mechanisms, which are useful for both program financial assurance and financial reporting. As significant decisions are made by management, in these future projects, we recommend documentation be maintained of those decisions. This may prevent significant work on the back end of the project in segregating individual assets, as well as help to ensure that assets are reported using an appropriate level of detail in the future. Additionally, we recommend the Municipal Airport System continue to update its written policies and procedures for activity related to construction projects. Such updated policies and procedures will also help the Municipal Airport System continue to be accountable to public, to make sure that transactions are processed consistently and to identify potential conflicts of interest. Views of Responsible Officials and Planned Corrective Actions: The City agrees with the finding. The deficiency relates to a process implemented specifically for the HTC project more than five years ago. The Municipal Airport System implemented a new process in 2015 creating cross-functional teams that include accounting staff responsible for tracking the progress of construction projects and working closely with project managers to ensure proper recording of assets. In addition, a new Project Control group will be established that will have responsibility for updating written policies and procedures for all activity related to construction projects including tracking mechanisms. Person(s) responsible for implementing: Josh Schulz, Senior Manager of Accounting and Matthew Karnes, Director of FP&A. Implementation date: Cross-functional project teams with accounting staff were implemented in the fourth quarter of 2015 and the Project Control group is planned for activation by December 31, 2016.

4 Page 4 SIGNIFICANT DEFICIENCIES Accounting and Financial Report for Capital Assets Criteria or Specific Requirement: Accounting principles generally accepted in the United States of America (US GAAP) that addresses the proper recognition and accounting of capital assets includes: Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments (GASB 34) Governmental Accounting Standards Board (GASB) Statement No. 37, Basic Financial Statements and Management s Discussion and Analysis for State and Local Governments: Omnibus an amendment of GASB Statements No. 21 and No. 34 (GASB 37) Governmental Accounting Standards Board Statement No. 51, Accounting and Financial Reporting for Intangible Assets (GASB 51) Governmental Accounting Standards Board Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements (GASB 62) Various implementation guidance issued by GASB In accordance with this guidance, and specifically GASB 34 and GASB 51, capital assets, including intangible assets, should be reported at their historical cost at the date of acquisition, reported within the appropriate asset classification, and removed from accounting records when disposed. Controls must be in place over the various tracking mechanisms (tracking spreadsheets, Asset Manager, etc.) to ensure information is properly captured and recorded in the general ledger.

5 Page 5 Condition: The following conditions are noted: Management discovered that approximately $19 million of intangibles were improperly recorded under the classification of furniture and major office equipment in previous years. Management posted an entry to reclassify the assets as intangibles. The net book value was immaterial and there was no change in total capital assets after this reclass was made. A capital asset addition was correctly recorded as an addition to infrastructure, but the related item in construction-in-progress was not removed from construction-in-progress at year-end, causing ending capital assets to be overstated by approximately $3 million. Management posted an adjustment to correct this error. The City recorded an addition to land as both a land addition and building addition while simultaneously recording a building deletion. The amount of the transaction was approximately $1 million. This error resulted in overstatement by that amount in both building additions and building deletions although the ending capital asset ending balance was properly stated. Management posted a proposed audit adjustment to correct the amounts of building additions and deletions. Depreciation expense for library books was understated by approximately $1.3 million. Management posted a proposed audit adjustment to correct this error. When recording capital asset additions for traffic signals built by outside contractors, the City s practice is to capitalize the average amount for each signal outlined in the contractor s bid document, rather than the actual cost of the individual traffic signal. Furthermore, the City uses a first in, first out approach when disposing of traffic signals. Instead of writing off the actual item that was disposed or replaced, the City removes the oldest remaining traffic signal from its capital asset inventory. The net result of this procedure is not material and did not result in adjustment, but could potentially lead to material errors. Effect: The conditions noted above resulted in several adjustments being made to capital asset and depreciation balances, as well as several modifications to the City s capital asset rollforward during the audit process. In addition, insufficient or ineffective controls over financial reporting could lead to significant reporting inaccuracies in the City s Comprehensive Annual Financial Report.

6 Page 6 Cause: Established internal controls were not effective in preventing or detecting and correcting clerical errors in the recording and recognition of capital assets in a timely manner. Recommendation: We recommend that management review both new capital asset classification and the classification on existing capital asset inventories to ensure that all capital assets are recorded in the most appropriate category. In addition, we recommend that management review controls over how construction-in-progress is recorded, monitored, and removed from the construction-in-progress ledger as items are placed into service. We also recommend that management review controls over traffic signals to ensure the methodologies used in accounting for these assets do not lead to material errors. Management should also review controls over recording capital assets in general, including a robust review of capital asset-related journal entries and key spreadsheets. Finally, we recommend additional training be provided to relevant staff in order to ensure that all capital assets are recorded in accordance with City policies. Views of Responsible Officials and Planned Corrective Actions: The City agrees with the finding. The Controller s Office will review the classifications on assets to ensure they are in the proper category. We will also review controls over the recommended areas and update procedures and perform training as necessary to ensure capital assets are recorded accurately. Person(s) responsible for implementing: Kelli Bennett, Director of Accounting and Financial Reporting. Implementation date: December 31, INTERNAL CONTROL OVER COMPLIANCE In planning and performing our audit, we considered the City s internal control over compliance with the requirements that could have a direct and material effect on a major federal 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 Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City s internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over compliance that might be significant deficiencies or material weaknesses and, therefore, there can be no assurance that all deficiencies, significant deficiencies or material weaknesses have been identified. However, as discussed below, we identified certain deficiencies in internal control over compliance that we consider to be deficiencies.

7 Page 7 A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. We observed the following matters that we consider to be deficiencies Single Audit Control Deficiency-1 SNAP Cluster Internal EBT Card Quarterly Reviews Finding: Internal audit at Denver Department of Human Services (DDHS) helps to ensure compliance with DDHS policies and procedures in addition to federal and state regulations related to EBT card security, issuance, inventory and destruction by performing quarterly reviews over the various EBT card processes. During our testing, we noted that due to limited staffing and other required reviews within DDHS s internal audit department; only one quarterly review over EBT cards was performed between October 2013 and May This review was dated October 15, 2015 and covered the period of June 1, 2015 to August 31, Recommendation: We recommend that the DDHS Internal Auditor conduct quarterly EBT card reviews at all three locations to help ensure compliance with federal and state regulations. Views of responsible officials and planned corrective actions: The City agrees with the finding. With the addition of one extra staff member it will be possible to increase the number of reviews on a yearly basis. In 2015, the DDHS SNAP program implemented new policies to ensure timely information dissemination to the audit function for review on a sample basis. Person(s) responsible for implementing: William Doyle, Internal Auditor Supervisor. Implementation date: March 1, Single Audit Control Deficiency-2 HOME Investment Partnerships Program (HOME) ST&P Maximum per Unit Subsidy and Underwriting Requirements Finding: On an annual basis, the local HUD office sends out the Federal Housing Administration (FHA) mortgage limits for the upcoming year. These rates are used to evaluate each housing project in accordance with guidelines to help ensure that the combination of federal assistance to the project is not any more than is necessary to provide affordable housing. During our testing, we noted that federal assistance was not more than the 2015 FHA limits, however; the mortgage limits used in the analysis were the 2012 limits instead of the 2015 limits. Recommendation: We recommend that the Office of Economic Development department develop policies and procedures to help ensure that rates are reviewed and obtained annually at

8 Page 8 the start of the year. Once received, all related applications and handouts should be updated to recognize the new annual limit. Views of responsible officials and planned corrective actions: The City agrees with the finding. The control deficiency is recognized as a management concern. Existing HOME policies and procedures are currently being updated to reflect changes in the regulations. Among these are underwriting criteria to be in alignment with the maximum subsidy limits as issued by the local HUD Region 8 Office. An interim policy will be put into place that the current HUD HOME maximum subsidy limits will be updated yearly no later than March 31 st of the program year. This will be the responsibility of the Housing Program Manager and will be reflected in the Manager s required duties within the HOME policies as well as the Manager s performance evaluation plan. Person(s) responsible for implementing: Doug Selbee, Housing Program Manager. Implementation date: Update to maximum subsidy limits May Interim policies issued to staff June Update to permanent HOME policies and procedures completed in Single Audit Control Deficiency-3 Temporary Assistance for Needy Families (TANF) Cluster Case Comments Finding: Case comments are an essential part of the case documentation process for both team based and case assignment approach programs. Each time there is activity related to the case, a case comment should be created using the approved case comment template. During testing, we noted that case comments were being properly utilized in most instances but not across the board resulting in inconsistent documentation. Specifically, we noted the case comment template was not utilized to document an intake interview and/or case comments were missing altogether. Recommendation: We recommend that DDHS enforce their formal policy detailing when and why case comments should be entered into the system. This guidance could vary by program. Furthermore, DDHS should encourage the case workers to utilize the most recent case comment template approved by the Colorado Department of Human Services to ensure all required information is captured and documented. Views of responsible officials and planned corrective actions: The City agrees with the finding. In February 2016 a revised Case Comment Template was developed and sent to all staff for immediate use. The expectation is that a Case Comment Template is used for each task. Case reviews will continue to review to this standard to ensure that gaps are identified and corrected. Person(s) responsible for implementing: Tammie Hoffman, Training Manager. Implementation date: February 12, 2016.

9 Page 9 In addition, we observed certain matters that we considered to be deficiencies that we communicated to management orally. OTHER MATTERS Although not considered material weaknesses, significant deficiencies or deficiencies in internal control over financial reporting, we observed the following matters and offer these comments and suggestions with respect to matters which came to our attention during the course of the audit of the financial statements. Our audit procedures are designed primarily to enable us to form an opinion on the financial statements and, therefore, may not bring to light all weaknesses in policies and procedures that may exist. However, these matters are offered as constructive suggestions for the consideration of management as part of the ongoing process of modifying and improving financial and administrative practices and procedures. We can discuss these matters further at your convenience and may provide implementation assistance for changes or improvements Municipal Airport System OM-1 Future Real Estate Development Projects Finding: During the audit, Municipal Airport System management brought to the attention of the auditors contracts entered into by the Municipal Airport System to develop land owned by the Municipal Airport System. The Municipal Airport System entered into such agreements with developers and another governmental entity for a gateway rail station on airport property. The contracts defined funding sources and future repayment of the Municipal Airport System by the developers. Generally, assets constructed on Municipal Airport System land is or will become Municipal Airport System assets, however the agreements did not define ownership of the assets, which resulted in confusion in the accounting and reporting of certain transactions outlined in the agreements. Recommendation: We recommend the Municipal Airport System collaborate with counterparties to clearly define ownership of assets as well as include the appropriate level of Municipal Airport System finance personnel in discussions to adequately account for potentially complex transactions during the process rather than subsequent to completion. Views of responsible officials and planned corrective actions: The City agrees with the finding. Airport Legal Services and DEN Real Estate will ensure the inclusion of Municipal Airport System finance personnel in all future planning meetings related to the negotiations of land and other asset agreements. Person(s) responsible for implementing: Dan Reimer, Assistant General Counsel and Darryl Jones, Chief Real Estate Officer/Executive Vice President. Implementation date: Immediately.

10 Page Single Audit OM-2 Community Development Block Grants IDIS Reports Finding: The program relies on a variety of Integrated Disbursement and Information System (IDIS) reports which document the City s progress and compliance with regards to requirements as outlined in the OMB Compliance Supplement. Reports from IDIS can only be generated real time which creates difficulties when trying to prove compliance as of a certain date. During our testing, we noted instances in which clear cut off for compliance purposes could not be determined and alternative reports were required to be utilized to review for compliance. Recommendation: We recommend that IDIS reports be printed and indicated as final once all required entries are recorded. This will allow for them to be relied upon as a control over the applicable compliance requirements. Views of responsible officials and planned corrective actions: The City agrees with the finding. OED will print final IDIS reports to include the final posting of the prior years activity. Person(s) responsible for implementing: Ami Webb, Accounting Manager. Implementation date: March 3, Single Audit OM-3 Adoption Assistance Controls Over Allowable Costs Finding: During our testing of controls over allowable costs, we noted that DDHS no longer requires monthly invoices be submitted by adoptive parents, as a result of a change in state regulations. These invoices were an important document to ensure payments were appropriate. Since the termination of this requirement, unless the parent notifies DDHS otherwise, DDHS has no concrete way of knowing if the child is still in the care of the adoptive parent. To compensate for this change, DDHS implemented controls, which includes reviewing a roster from TRAILS compared to the final monthly payroll reports and investigation of any variances noted. However, there appears to be some gaps in the rosters as they do not capture any case changes after the run date of the report (the 1 st of each month) or information included from any augmented payroll reports. The use of incomplete reports requires that case workers perform a manual reconciliation process in an attempt to ensure information is complete. Recommendation: We recommend the financial services division work with DDHS information technology personnel to develop a roster report from TRAILS that would capture those individuals not included on the current report as mentioned above to streamline the review process and minimize the amount of manual reconciliation required. Views of responsible officials and planned corrective actions: The City agrees with the finding. Financial services will utilize the new roster which will be developed by our data technology staff to assist in streamlining the review process as identified. The roster will be implemented as part of this internal/non-regulatory process beginning in July 2016.

11 Page 11 Person(s) responsible for implementing: Maurice Stenberg, Deputy Division Director. Implementation date: July 15, Single Audit OM -4 Adoption Assistance Reporting Finding: Negotiated subsidy rates for the adoption assistance program require a secondary review and approval by a supervisor which is documented on the Renewal Contract Form. In our testing of this review and approval, we noted there was one instance in a sample of 40 where the subsidy administrator negotiated and approved rates without documentation of a secondary approval of a supervisor. In addition, per our review of the contract addendums we noted several instances where it appeared that pre-populated forms were used, rather than blank templates, and key information such as child name, case ID, and rate were crossed out and changes were made by hand. While additional information in the file supported negotiated rates and information written on contracts, it is important for this information to be accurate and properly approved on all forms required. Recommendation: We recommend DDHS provide training to case workers preparing the contract addendums to emphasize the importance of having all information correct prior to requesting approval. We believe starting with a blank form will help ensure such information is correct. In addition, we recommend that all required approvals are obtained, documented and maintained in file documentation. Views of responsible officials and planned corrective actions: The City agrees with the finding. DDHS developed the Renewal Contract Form for the purpose of internal tracking of the children s negotiated rates. This document is not required by the state. In the particular instance which was sited, DDHS acknowledges this error and recognizes it as a one-time occurrence. DDHS will train the staff who complete this task to prevent further occurrence. DDHS will continue to require that approvals are obtained, documented and maintained in the file documentation. Person(s) responsible for implementing: Melissa Carson, Manager, Dane Anspach, Admin II, and Myra Stroup, Admin I. Implementation date: March 14, Single Audit OM -5 Child Care Case Reviews Finding: During 2015, the Child Care Assistance Program (CCAP) division implemented case review procedures to help ensure information included in CHATS is accurate, supported by documentation within the case file, and processed timely. The procedure requires 100% case reviews for all new employees until they achieve a 95% accuracy rating and case reviews for all

12 Page 12 on-going personnel at a rate of four case reviews per month. While tracking mechanisms are in place which document results and substantiate completion of the reviews, the case review sheets utilized were unable to be provided for three of the 40 selections tested. The case review sheets could be filed in any one of multiple locations as a consistent filing methodology has not been defined. Recommendation: We recommend CCAP division maintain all case review sheets completed during the year and continue to refine filing methodologies to help ensure information is easily accessible. Views of responsible officials and planned corrective actions: Response: The City agrees with the finding. The CCAP work unit has recently transitioned into WMS for case reviews. All review sheets and applicable data will now be stored in WMS and can be accessed at any time. Person(s) responsible for implementing: Camille Whisler, CCAP CMC Supervisor, Andie Garnand, CCAP Operations Manager. Implementation date: February 1, OM-6 New Accounting Pronouncements GASB Statement No. 72, Fair Value Measurement and Application (GASB 72): GASB 72 addresses accounting and financial reporting issues related to fair value measurements. The definition of fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GASB 72 provides guidance for determining a fair value measurement for financial reporting purposes that aligns with the Financial Accounting Standards Board s Topic 820. GASB 72 also provides that all assets meeting the definition of an investment in the statement should be measured at fair value, unless the statement provided otherwise. Certain disclosures related to all fair value measurements will be required. GASB 72 will enhance comparability of financial statements among governments by requiring measurement of certain assets and liabilities at fair value using a consistent and more detailed definition of fair value and accepted valuation techniques. GASB 72 will also enhance fair value application guidance and related disclosures in order to provide information to financial statement users about the impact of fair value measurements on a government s financial position. GASB 72 is effective for financial statements for fiscal years beginning after June 15, 2015 and any prior periods presented should be restated, including disclosures, if practical. Therefore, the statement is effective for the City s financial statements for the year ending December 31, 2016.

13 Page 13 GASB Statement No. 74, Financial Reporting for Postemployment Benefits Other Than Pension Plans (GASB 74): GASB 74 addresses the reporting requirements for Other Postemployment Benefit (OPEB) plans that administer benefits on behalf of governments. GASB 74 replaces GASB Statement No. 43, Financial Reporting for Postemployments Benefit Plans Other Than Pension Plans and addresses the financial reporting of OPEB plans that are administered through trusts that meet certain criteria. GASB 74 requires the inclusion of a statement of fiduciary net position and a statement of changes in fiduciary net position in the financial reporting for the plan. GASB 74 also requires more extensive note disclosures and required supplementary information (RSI) related to the measurement of the OPEB liabilities and sets forth note disclosure requirements for defined contribution OPEB plans. GASB 74 is effective for financial statements for fiscal years beginning after June 15, GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pension (GASB 75): GASB 75 replaces the requirements of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. GASB 75 requires governments to report a liability on the face of the financial statements in accordance with the following: Employers that are responsible only for OPEB liabilities for their own employees and that provide OPEB through a defined benefit OPEB plan administers through a trust that meets specified criteria will report a net OPEB liability (the difference between the total OPEB liability and the assets accumulated in trust to make the benefit payments) Employers that participate in a cost-sharing OPEB plan that is administered through a trust that meets specified criteria will report a liability equal to the employer s proportionate share for the collective OPEB liability for all employers participating in the plan Employers that do not provide OPEB through a trust that meets specified criteria will report the total OPEB liability for their own employees GASB 75 requires more extensive note disclosures and required supplementary information (RSI) about the OPEB liabilities. GASB 75 is effective for fiscal years beginning after June 15, 2017 and requires restatement of any prior years presented, if practical. While not effective in the short term, we recommend the City begin assessing the potential impact on the financial statements of both of these statements and begin the process of communicating this impact with those charged with governance and other stakeholders. Similar to the adoption of GASB Statement No. 68, Accounting and Financial Reporting for Pensions, the adoption of GASB 75 will require advance coordination with plans and actuaries so that the required information is available.

14 Page 14 GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments (GASB 76): GASB 76 reduces the existing GAAP hierarchy to two categories of authoritative literature. Category A is GASB Statements and any GASB Interpretations issued prior to GASB 76 Category B is GASB Technical Bulletins, GASB Implementation Guides, and AICPA literature specifically cleared by the GASB GASB 76 also provides guidance for applying the hierarchy and the use of nonauthoritative literature (including GASB Concepts Statements, FASB pronouncements, AICPA literature not cleared by the GASB, and prevalent practice). The new hierarchy, particularly the elevation of GASB Implementation Guides to authoritative status, may prompt a change from how the City has been recognizing transactions in the past. GASB 76 is effective for financial statements for fiscal years beginning after June 15, GASB Statement No. 77, Tax Abatement Disclosures (GASB 77): GASB 77 requires certain disclosures related to tax abatement agreements. A tax abatement is defined as a reduction in tax revenues that results from an agreement between one or more governments and an individual or entity in which (a) one or more governments promise to forgo tax revenues to which they are otherwise entitled and (b) the individual or entity promises to take a specific action after the agreement has been entered into that contributes to economic development or otherwise benefits the governments or the citizens of those governments. Required disclosures include: Descriptions of the tax abatement programs in place Gross dollar amount by which tax revenues were reduced for the period Any other commitments made under tax abatement agreements GASB 77 is effective for financial statements for fiscal years beginning after December 15, 2015 and disclosures should be made for any prior periods presented, if practical. GASB Statement No. 79, Certain External Investment Pools and Pool Participants (GASB 79): GASB 79 replaces the term 2a7-like to describe certain external investment pools because of certain recent amendments the Securities and Exchange Commission made to Rule 2a7. Instead, a pool must meet the criteria set forth in GASB 79 in order to qualify for amortized cost reporting of its investments. Likewise, a pool must qualify under GASB 79 for its participants to measure their position in the pool at net asset value per share based on amortized cost. If a pool qualifies, a participant must disclose any restrictions on redemption.

15 Page 15 GASB 79 is effective for financial statements for fiscal years beginning after June 15, 2015, with pools not required to meet certain criteria until years beginning after December 15, GASB Statement No. 80, Blending Requirements for Certain Component Units (GASB 80): GASB 80 amends Statement No. 14, The Financial Reporting Entity, to add an additional criterion for reporting a component unit through the blending method. If a component unit is a not-for-profit corporation and the primary government is the sole corporate member, the component unit should be blended. GASB 80 is effective for financial statements for fiscal years beginning after June 15, 2016, with earlier application encouraged. GASB Statement No. 82, Pension Issues an Amendment of GASB Statements No. 67, No. 68 and No. 73 (GASB 82): GASB 82 amends GASB Statement No. 67, Financial Reporting for Pension Plans, No. 68, Accounting and Financial Reporting for Pensions, and 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 Statements No. 67 and No. 68, by addressing issues regarding a) the presentation of covered-employee payroll in required supplementary information, (b) the clarification of deviations from the guidance in the Actuarial Standard of Practice, and (c) the classification of payments made by employers to satisfy employee/plan member contribution requirements. GASB 82 requires the presentation of covered payroll to be the payroll on which contributions to a pension plan are based, as opposed to the payroll of employees that are provided with pension through the pension plan as required under GASB Statements No. 67 and 68. Furthermore, the standard requires certain ratios to be presented based on the new definition of covered payroll. GASB 82 also clarifies that a deviation from the guidance in an Actuarial Standard of Practice as defined by those actuarial standards, is not considered to be in conformity with the requirements of GASB Statements No. 67, No. 68, or No. 73 relating to the selection of assumptions used in determining the total pension liability and related measures. Finally, GASB 82 clarifies that payments made by an employer to satisfy contribution requirements of plan members/employees, should be classified as plan member/employees contributions for the purpose of GASB Statement No. 67 and GASB Statement No. 68. GASB 82 also clarifies the recognition of the employer s expense/expenditures for these amounts. GASB 82 is effective for the City s year ending and measurement periods ending December 31, 2017.

16 Page 16 GASB Exposure Draft: Leases: In January 2016, GASB released an exposure draft (ED) relating to lease accounting for state and local governments. This ED proposes the creation of a single model for lease accounting resulting in potential significant changes in how governments account for their various lease obligations. For the lessee, the ED proposes the recognition of a lease asset and a lease liability measured at the present value of the payments expected to be made under the lease term (with certain adjustments made to the lease asset for payments made by the lessor and certain indirect costs). For the lessor, the ED proposes the recognition of a lease receivable and a deferred inflow of resources at the beginning of the lease. The ED includes an exception for leases that qualify as short-term leases. The comment period to the ED ended on May 31, 2016 and a final standard is currently expected in the fourth quarter of The proposed effective date would have the new standard effective for the City s year ending December 31, While several of these standards are not effective in the short term, we recommend the City begin assessing the potential impact on the financial statements of all of these statements and begin the process of communicating this impact with those charged with governance and other stakeholders. As GASB 72 is effective for the City s year ending December 31, 2016 the City should immediately assess the impact on the financial statements in preparation of the December 31, 2016 year-end. Management s written response to the deficiencies, significant deficiencies and material weaknesses identified in our audit has not been subjected to the auditing procedures applied in the audit of the financial statements, and accordingly, we express no opinion on it. * * * * * This communication is intended solely for the information and use of Management, members of the City Council, the members of the Audit Committee and is not intended to be and should not be used by anyone other than these specified parties. May 27, 2016