City Council and Audit Committee City and County of Denver Denver, Colorado

Transcription

1 City Council and Audit Committee City and County of Denver Denver, Colorado As part of our audits of the financial statements and compliance of the City and County of Denver (the City) as of and for the year ended December 31, 2015, we wish to communicate the following to you. Auditor s Responsibility Under Auditing Standards Generally Accepted in the United States of America and the Standards Applicable to Financial Audits Contained in Government Auditing Standards Issued by the Comptroller General of the United States and U.S. Office of Management and Budget (OMB) Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) An audit performed in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States and U.S. Office of Management and Budget (OMB) Uniform Guidance is designed to obtain reasonable, rather than absolute, assurance about the financial statements and about whether noncompliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on a major federal program occurred. In performing auditing procedures, we establish scopes of audit tests in relation to the financial statements taken as a whole. Our engagement does not include a detailed audit of every transaction. Our engagement letter more specifically describes our responsibilities. These standards require communication of significant matters related to the financial statement and compliance audits that are relevant to the responsibilities of those charged with governance in overseeing the financial reporting process. Such matters are communicated in the remainder of this letter or have previously been communicated during other phases of the audit. The standards do not require the auditor to design procedures for the purpose of identifying other matters to be communicated with those charged with governance. Audits of the financial statements and compliance do not relieve management or those charged with governance of their responsibilities. Our engagement letter more specifically describes your responsibilities.

2 City Council and Audit Committee City and County of Denver Page 2 Qualitative Aspects of Significant Accounting Policies and Practices Significant Accounting Policies The City s significant accounting policies are described in Note I (A-E) of the audited financial statements. Alternative Accounting Treatments We had discussions with management regarding alternative accounting treatments within accounting principles generally accepted in the United States of America for policies and practices for material items, including recognition, measurement and disclosure considerations related to the accounting for specific transactions as well as general accounting policies, as follows: No matters are reportable Management Judgments and Accounting Estimates Accounting estimates are an integral part of financial statement preparation by management, based on its judgments. The following areas involve significant areas of such estimates for which we are prepared to discuss management s estimation process and our procedures for testing the reasonableness of those estimates: Self-insurance reserves (IBNR) Other postemployment benefits liability implicit rate subsidy Allowances for accounts, grants and notes receivable Compensated absences Depreciable lives of capital assets Legal liabilities Pollution remediation obligations Fair value of derivative instruments Financial Statement Disclosures The following areas involve particularly sensitive financial statement disclosures for which we are prepared to discuss the issues involved and related judgments made in formulating those disclosures: Revenue recognition Investments

3 City Council and Audit Committee City and County of Denver Page 3 Capital assets Long-term debt Derivative instruments Retirement plans Fund balance constraints and restricted net position Other postemployment benefits implicit rate subsidy Fund balance Audit Adjustments During the course of any audit, an auditor may propose adjustments to financial statement amounts. Management evaluates our proposals and records those adjustments which, in its judgment, are required to prevent the financial statements from being materially misstated. Some adjustments proposed were not recorded because their aggregate effect is not currently material; however, they involve areas in which adjustments in the future could be material, individually or in the aggregate. Areas in which adjustments were proposed include: Proposed Audit Adjustments Recorded Entries to correct amount recorded in capital assets Proposed Audit Adjustments Not Recorded Attached is a summary of uncorrected misstatements we aggregated during the current engagement and pertaining to the latest period presented that were determined by management to be immaterial, both individually and in the aggregate, to the financial statements as a whole Auditor s Judgments About the Quality of the City s Accounting Principles During the course of the audit, we made the following observations regarding the City s application of accounting principles: During 2015, the City adopted Governmental Accounting Standards Board Statement (GASB) No. 68, Accounting and Financial Reporting for Pensions an amendment of GASB Statement No. 27, as amended by Governmental Accounting Standards Board Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date an amendment of GASB Statement No. 68

4 City Council and Audit Committee City and County of Denver Page 4 Other Information in Documents Containing Audited Financial Statements The audited financial statements are included in the City s Comprehensive Annual Financial Report (CAFR). As part of our procedures, we read the entire report to determine if financial information discussed in sections outside the financial statements materially contradicts the audited financial statements. If we identify any such matters, we bring them to management s attention and review subsequent revisions. Disagreements with Management The following matters involved disagreements which if not satisfactorily resolved would have caused a modified auditor s opinion on the financial statements: No matters are reportable Consultation with Other Accountants During our audit, we became aware that management had consulted with other accountants about the following auditing or accounting matters: No matters are reportable Significant Issues Discussed with Management Prior to Retention During our discussion with management prior to our engagement, the following issues regarding application of accounting principles or auditing standards were discussed: No matters are reportable During the Audit Process During the audit process, the following issues were discussed or were the subject of correspondence with management: Adoption of new accounting standards as detailed in Note I.E.

5 City Council and Audit Committee City and County of Denver Page 5 Difficulties Encountered in Performing the Audit Our audit requires cooperative effort between management and the audit team. During our audit, we found significant difficulties in working effectively on the following matters: No matters are reportable Other Material Written Communications Listed below are other material written communications between management and us related to the audit: Management representation letter (attached) Management letter dated May 27, 2016 * * * * * This letter is intended solely for the information and use of the Audit Committee, City Council, and management and is not intended to be and should not be used by anyone other than these specified parties. May 27, 2016

6 City and County of Denver ATTACHMENT This analysis and the attached "Schedule of Uncorrected Misstatements (Adjustments Passed)" reflects the effects on the financial statements if the uncorrected misstatements identified were corrected. Business Type Activities (Government-Wide Statements) QUANTITATIVE ANALYSIS Before Subsequent to Misstatements Misstatements Misstatements % Change Total Assets & Deferred Outflows 6,270,868,000 6,270,868,000 Total Liabilities & Deferred Inflows (4,924,160,000) (4,924,160,000) Total Net Position (1,346,708,000) (1,346,708,000) General Revenues & Transfers (52,984,000) (52,984,000) Net Program Revenues/ Expenses (92,839,000) 3,280,433 (89,558,567) -3.53% Change in Net Position (145,823,000) 3,280,433 (142,542,567) -2.25%

7 Client: City and County of Denver Period Ending: December 31, 2015 Governmental Activities (Government-Wide Statements) SCHEDULE OF UNCORRECTED MISSTATEMENTS (ADJUSTMENTS PASSED) Net Effect on Following Year Factual (F), Judgmental (J), Assets Liabilities General Revenues & Transfers Net Program Revenues/ Expenses Net Position Change in Net Position Net Position Description Financial Statement Line Item Projected (P) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) Prior year turnaround to adjust for interest expense that was capitalized and related to noncapital projects F ,280,433 (3,280,433) 0 0 Beginning of year net position (3,280,433) Interest expense 3,280,433 Total passed adjustments ,280,433 (3,280,433) 0 0 Impact on Change in Net Position 3,280,433 Impact on Net Position 0

8 City and County of Denver ATTACHMENT This analysis and the attached "Schedule of Uncorrected Misstatements (Adjustments Passed)" reflects the effects on the financial statements if the uncorrected misstatements identified were corrected. Waste Water QUANTITATIVE ANALYSIS Before Subsequent to Misstatements Misstatements Misstatements % Change Current Assets 25,659,000 25,659,000 Non-Current Assets & Deferred Outflows 669,976,000 (189,183) 669,786, % Current Liabilities (34,808,000) (34,808,000) Non-Current Liabilities & Deferred Inflows (76,603,000) (76,603,000) Current Ratio Total Assets & Deferred Outflows 695,635,000 (189,183) 695,445, % Total Liabilities & Deferred Inflows (111,411,000) (111,411,000) Total Net Position (584,224,000) 189,183 (584,034,817) -0.03% Operating Revenues (126,260,000) (126,260,000) Operating Expenses 111,330, ,330,000 Nonoperating Revenues (Exp) (1,059,000) 189,183 (869,817) % Change in Net Position (25,528,000) 189,183 (25,338,817) -0.74%

9 Client: City and County of Denver Period Ending: December 31, 2015 Waste Water SCHEDULE OF UNCORRECTED MISSTATEMENTS (ADJUSTMENTS PASSED) Assets & Deferred Outflows Liabilities & Deferred Inflows Net Effect on Following Year Factual (F), Operating Operating Nonoperating Change in Net Judgmental (J), Current Non-Current Current Non-Current Revenues Expenses Revenues (Exp) Net Position Position Net Position Description Financial Statement Line Item Projected (P) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) (PAJE 1) - To record the impact of Capitalized Interest Error F 0 (189,183) , Interest Expense 189,183 Capitalized Interest (189,183) Total passed adjustments 0 (189,183) , Impact on Change in Net Position 189,183 Impact on Net Position 189,183

10 City and County of Denver ATTACHMENT This analysis and the attached "Schedule of Uncorrected Misstatements (Adjustments Passed)" reflects the effects on the financial statements if the uncorrected misstatements identified were corrected. Airport System QUANTITATIVE ANALYSIS Before Subsequent to Misstatements Misstatements Misstatements % Change Current Assets 225,743, ,743,000 Non-Current Assets & Deferred Outflows 5,302,978,000 (2,319,477) 5,300,658, % Current Liabilities (399,121,000) (399,121,000) Non-Current Liabilities & Deferred Inflows (4,404,147,000) (4,404,147,000) Current Ratio Total Assets & Deferred Outflows 5,528,721,000 (2,319,477) 5,526,401, % Total Liabilities & Deferred Inflows (4,803,268,000) (4,803,268,000) Total Net Position (725,453,000) 2,319,477 (723,133,523) -0.32% Operating Revenues (687,536,000) (687,536,000) Operating Expenses 600,517,000 2,319, ,836, % Nonoperating Revenues (Exp) (9,106,000) 3,280,433 (5,825,567) % Change in Net Position (116,608,000) 5,599,910 (111,008,090) -4.80%

11 Client: City and County of Denver Period Ending: December 31, 2015 Airport System SCHEDULE OF UNCORRECTED MISSTATEMENTS (ADJUSTMENTS PASSED) Assets & Deferred Outflows Liabilities & Deferred Inflows Net Effect on Following Year Factual (F), Operating Operating Nonoperating Change in Net Judgmental (J), Current Non-Current Current Non-Current Revenues Expenses Revenues (Exp) Net Position Position Net Position Description Financial Statement Line Item Projected (P) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) DR (CR) Prior year turnaround to adjust for interest expense that was capitalized and related to noncapital projects F ,280,433 (3,280,433) 0 0 Beginning of year net position (3,280,433) Interest expense 3,280,433 To remove items expensed in prior years from CIP additions in F, P 0 (2,319,477) ,319, (2,319,477) 2,319,477 To remove Hotel and Transit Center art capitalized out of construction in progress twice. Construction services expense - Factual 893,397 (893,397) 893,397 Construction services expense - Projected 1,426,080 (1,426,080) 1,426,080 Construction in progress - Factual (893,397) Construction in progress - Projected (1,426,080) Buildings and improvements (2,905,000) Construction in progress 2,905,000 F Total passed adjustments 0 (2,319,477) ,319,477 3,280,433 (3,280,433) (2,319,477) 2,319,477 Impact on Change in Net Position 5,599,910 Impact on Net Position 2,319,477

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