CEDARBURG SCHOOL DISTRICT CEDARBURG, WISCONSIN REQUIRED AUDIT COMMUNICATIONS TO THE BOARD OF EDUCATION. Year Ended June 30, 2018

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1 CEDARBURG SCHOOL DISTRICT CEDARBURG, WISCONSIN REQUIRED AUDIT COMMUNICATIONS TO THE BOARD OF EDUCATION Year Ended June 30, 2018 Johnson Block and Company, Inc. Certified Public Accountants 2500 Business Park Road Mineral Point, Wisconsin (608) Fax: (608)

2 CEDARBURG SCHOOL DISTRICT CEDARBURG, WISCONSIN Year Ended June 30, 2018 Index Page Communication With Those Charged With Governance Management Letter... 4 Explanation of Adjusting Journal Entries and Passed Journal Entries Other Comments on Operations and Internal Control Concluding Remarks Appendices Appendix 1 - Adjusting Journal Entries Appendix 2 - Passed Journal Entries

3 COMMUNICATION WITH THOSE CHARGED WITH GOVERNANCE To the Board of Education Cedarburg School District Cedarburg, Wisconsin We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Cedarburg School District (District) for the year ended June 30, Professional standards require that we provide you with information about our responsibilities under generally accepted auditing standards and Government Auditing Standards, the Uniform Guidance, and the State Single Audit Guidelines, 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 March 28, 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 District are described Note 1 to the financial statements. As described in Note 1 to the financial statements, the District changed accounting policies related to other postemployment benefits by adopting Statement of Governmental Accounting Standards (GASB Statement) No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, in Accordingly, the cumulative effect of the accounting change as the beginning of the year is reported in the Statement of Activities. We noted no transactions entered into by the District 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. The most sensitive estimates affecting the District s financial statements were: 1) The estimated lives of its capital assets is based on management s knowledge of such matters. 2) Estimates of the net pension asset or liability, deferred outflows and inflows of resources are based on various factors. These estimates were computed by the pension plan administrator. 3) The other postemployment benefits and supplemental pension liabilities are based on various factors. The estimated liabilities were computed by actuarial studies. We evaluated the key factors and assumptions used to develop the estimates in determining that they are reasonable in relation to the financial statements taken as a whole. - 1

4 The financial statement disclosures are neutral, consistent, and clear. Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are clearly trivial, and communicate them to the appropriate level of management. Appendix 1 summarizes misstatements detected as a result of audit procedures that were corrected by management. Appendix 2 summarizes uncorrected misstatements of the financial statements. Management has determined that their effects are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. 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 November 14, 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 District 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 District s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention

5 Other Matters We applied certain limited procedures to the budgetary comparison information, District net OPEB liability schedules, District supplemental pension plan schedules, local retiree life insurance fund schedules, and the Wisconsin Retirement System schedules, 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 non-major fund financial statements, schedule of changes in activity accounts, and schedules of expenditures of federal and state awards, 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 the financial statements themselves. Restriction on Use This information is intended solely for the information and use of the Board of Education, management, the Wisconsin Department of Public Instruction and other funding agencies, and is not intended to be, and should not be, used by anyone other than these specified parties. Very truly yours, Johnson Block and Company, Inc. Mineral Point, Wisconsin November 14,

6 MANAGEMENT LETTER To the Board of Education Cedarburg School District Cedarburg, Wisconsin In planning and performing our audit of the financial statements of the Cedarburg School District for the year ended June 30, 2018, we considered the District s internal control in order to determine our auditing procedures for the purpose of expressing an opinion on the financial statements and not to provide assurance on internal control. However, during our audit we became aware of other matters that are opportunities for strengthening internal controls and operating efficiency. The following pages that accompany this letter summarize our comments and suggestions regarding those matters. This letter does not affect our report dated November 14, 2018, on the financial statements of the Cedarburg School District. We would like to take this opportunity to acknowledge the many courtesies extended to us by the District s personnel during the course of our work. We shall be pleased to discuss any of the matters referred to in this letter. Should you desire assistance in implementing any of the following suggestions, we would welcome the opportunity of assisting you in these matters. Johnson Block and Company, Inc. Mineral Point, Wisconsin November 14,

7 CEDARBURG SCHOOL DISTRICT CEDARBURG, WISCONSIN Year Ended June 30, 2018 ADJUSTING JOURNAL ENTRIES We are frequently requested by our clients to discuss the overall condition of their accounting records and what our role is as your audit firm. We believe that these matters should be discussed at each audit. The following section describes your accounting process in general terms and the ways in which we work with your staff. The District processes accounting transactions based on the type of transaction involved. Money coming in is processed using a cash receipt system. The payment of bills is done through an accounts payable system. Employees salaries are paid using a payroll system. These systems are responsible for recording and summarizing the vast majority of your financial transactions. Beyond the systems described in the preceding paragraph, another system is used to make corrections and to record non-cash transactions. This system involves preparing general journal entries. Journal entries provide the ability to make changes to the financial data entered in the other systems. As your auditor, our role is to substantiate year end financial balances and information presented by your accounting personnel, and compare it to supporting information and outside confirmations. When information in your records does not agree with audit evidence, an adjusting entry is necessary to correct your records. Sometimes these entries are identified by your staff as they get ready for the audit. Other adjustments are prepared by us as we discover that your general ledger balances need to be changed to reflect the correct balances. For the June 30, 2018 audit, we proposed adjustments and reclassifications to your records. The proposed entries were accepted by the District s management. All of these changes are reflected properly in your audited financial statements. Because we are providing assistance to your staff by proposing changes to correct your financial information, you should be aware of these processes. Many of our clients rely on us to make year-end adjustments as we have described. In many cases, we have the experience or expertise to compute, and identify, corrections to your records. We work with many clients on similar issues, so it may be more efficient for you to have us do some of the one-time adjustments, rather than your staff spending hours researching the proper adjustment. Due to the technical nature of financial reporting and complying with financial reporting standards, most clients have their CPA firm prepare the year-end financial statements and note disclosures. We have provided these services to your District

8 We are communicating this information to you to give you a better understanding of what we do and how the year end process works. Our job as auditors is to bring in an outside perspective and provide a level of comfort that your financial reporting system is materially correct and accurately reflects the financial activity for the year. However, in many cases, our services go beyond auditing. Our experience and training can provide a very costeffective means of providing the year end accounting assistance that you need. We hope that by providing this information on what we do, you will have a better understanding of our role, and the various ways that we work with your staff. PASSED JOURNAL ENTRIES Passed journal entries may occur due to transaction timing, industry practices or lack of overall significance. See Appendix

9 OTHER COMMENTS ON OPERATIONS AND INTERNAL CONTROL Fiduciary Activities 1) Governmental Accounting Standards Board (GASB) issued Statement No. 84, Fiduciary Activities GASB Statement No. 84, Fiduciary Activities, is effective for fiscal years beginning after December 15, It must be implemented for fiscal year For activities that are not pension plans or OPEB plans, Statement No. 84 provides criteria for governments to determine if a fiduciary activity exists and should be reported as a fiduciary fund in the basic financial statements. The criteria centers on the control of assets and the beneficiaries with whom the fiduciary relationship exists. Practical considerations before implementing GASB Statement No. 84 include the following: a. Evaluate the types of assets the District controls. Part of this evaluation includes determining the extent of administrative or direct financial involvement with the assets. i. If your District has student activity funds and that a District employed advisor has administrative involvement with the funds or makes most of the decisions on how the funds are spent, those accounts would need to be moved to the general fund or to a special revenue trust fund. To maintain these funds in a fiduciary account, students need to be the decision makers. Staff advisers would only advise, but not make decisions regarding funds. Students need to approve how the funds are spent and should need to indicate their approval on transactions. ii. If the District has administrative or direct financial involvement with scholarship funds, review scholarship trust agreements to ensure activities are in accordance with agreements. Scholarships not governed by trust agreements likely need to be moved to the general fund or to a special revenue trust fund. Our understanding is that the District is not aware of any written trust agreements in place for the Fund 72 Scholarships. We recommend that the District receive and keep Trust Agreements on file. These agreements should include the donor of the funds and whether the funds are restricted for a specific purpose. If an agreement is not in place, the activity may need to be moved to a special revenue fund. b. The use of agency funds has been eliminated and replaced with custodial funds. Agency funds only required the presentation of assets and liabilities, whereas custodial funds will also require a statement of changes in fiduciary net position. The District should evaluate the controls in place surrounding student activity and scholarship accounts to determine if these are fiduciary activities or whether they may need to be moved in the future

10 Fiduciary Activities (Continued) 2) Additional items specifically related to student activity accounts a. The District s policies and procedures for student activity funds does not currently address the following: procedures for disbursement of funds, actions taken on inactive student activity accounts, policies regarding negative activity account balances, or prohibiting the issuances of loans, credit, or compensation to school employees or other individuals. Those policies and procedures are a requirement of the Wisconsin Public School District Audit Manual. i. Nine student activity accounts had negative balances totaling approximately $9,600 at June 30, We recommend the District develop and implement a policy preventing individual student activity accounts to go negative. b. The Wisconsin Department of Public Instruction has determined that activity for certain student activity funds be accounted for in either fund 10 or fund 21 depending on the activities and management of the funds. According to the Wisconsin Department of Public Instruction, examples of student activity funds that should be accounted for in fund 60 are as follows: Student Government Drama Club Foreign Language Clubs Journalism Club Band Club National Honor Society Pep Club Class of 2XXX Debate Club Photography Club In contrast, District activity funds consist of co-curricular activities in which students participate, but are administered by the school district. District activity moneys belong to the school district, are deposited in the District s operating bank account and are disbursed through the school district s general cash disbursement procedures. According to the Wisconsin Department of Public Instruction, examples of district activity funds that should be accounted for in either fund 10 or fund 21 are as follows: Athletics Music Concerts Band Uniforms School Plays The District should review its student activity guidelines to determine that current policy is being followed. Wisconsin Department of Public Instruction guidelines and GASB 84 guidance should also be reviewed to ensure that amounts are properly recorded in Fund

11 Fund 73 Trust The DPI s employee benefit trust fund (fund 73) audit program indicates that the District should inform eligible plan participants paid through the trust that they are able to obtain a copy of the trust agreement. We recommend this communication occur on a consistent basis. Fraud Risk Controls The District is aware of the various fraud risks that exist in an entity, especially with limited opportunity to segregate all duties due to staff size. The Board believes it has conveyed to District employees the importance of communicating any fraudulent activity to management. We recommend that the District consider letting employees know of the District policy and who they should report to annually. Segregation of Duties The employee responsible for preparing checks is also responsible for entering the invoice in the accounting software and mailing the same check. Internal accounting controls could be strengthened if checks were printed and mailed by someone other than the person responsible for entering the invoice in the accounting software. School Based Services During our testing of a sample of students receiving SBS services, one student was selected from the listing of SBS eligible students provided by the district; it was determined that the student was not eligible and was not receiving SBS services. Additionally, one student did not have an updated and signed M-5 Form (consent to bill Medicaid). We recommend that the District periodically review eligible students for SBS services and update district records as needed for any changes. In addition, periodically sample student s files and review to determine that all forms are current

12 CONCLUDING REMARKS We would like to thank you for allowing us to serve you. We are committed to assisting you in the long-term financial success of the Cedarburg School District and our comments are intended to draw to your attention issues which need to be addressed by the District to meet its goals and responsibilities. The comments and suggestions in this communication are not intended to reflect in any way on the integrity or ability of the personnel of the District. They are made solely in the interest of establishing sound internal control practices required by changing professional standards. The District s staff is deeply committed to maintaining the financial reporting system so that informed decisions can be made. They were receptive to our comments and suggestions. We will review the status of these comments during each audit engagement. If you have any questions or comments regarding this communication or the financial statements, do not hesitate to contact us

13 Appendix 1 Adjusting Journal Entries

14 Cedarburg School District For the Year Ended June 30, 2018 Account Description Debit Credit Adjusting Journal Entries JE # 1001 Move crossing guard costs from Fund 83 to Fund 10. (Client requested entry) 10 E PAYMT TO MUNICIPALIT 10, A CASH 10, A CASH 10, E PAYMT TO MUNICIPALIT 10, Total 21, , Adjusting Journal Entries JE # 1002 Record food service allowance for uncollectible accounts receivable. Amounts generated by 17/18 revenues. 50 R FOOD SALE-PUPIL 20, A ACCTS REC NON RENTALS 20, Total 20, , Adjusting Journal Entries JE # 1003 Client provided: Move wages & benefits for an employee. 27 E PERMANENT PART-TIME 12, E RETIREMENT EMPLOYER E MEDICARE-EMPLOYER E SOC SEC-EMPLOYER E LIFE INSURANCE E PERMANENT PART-TIME 12, E RETIREMENT EMPLOYER E MEDICARE-EMPLOYER E SOC SEC-EMPLOYER E LIFE INSURANCE Total 14, ,566.88

15 Appendix 2 Passed Journal Entries

16 Cedarburg School District For the Year Ended June 30, 2018 Account Description Debit Credit Proposed JE # 6001 Record CESA refund as a June 30, 2018 receivable. Amount was received in October 2018 and related to 2017/2018 transactions. 27 A ACCTS REC NON RENTALS 16, R FED SPEC PR. GR 6, A DUE FROM OTHER GOVERNMNT 6, E PAYMENT TO CESA 6, E PAYMENT TO CESA 6, E PAYMENT TO CESA 2, Total 23, ,160.80