Independent Auditor s Report and Financial Statements December 31, 2016
Table of Contents Page Independent Auditor s Report... 1-2 Financial Statements Balance Sheet... 3 Statement of Revenue, Expenditures and Changes in Fund Balances... 4 Notes to Financial Statements... 5-10 Other Required Supplementary Information Statement of Revenues and Expenditures Budget to Actual (Non-GAAP Budgetary Basis) Capital Project ACEDP Grant # 790-08872-10... 11 Schedule of Expenditures of Federal Awards... 12 Notes to Schedule of Expenditures of Federal Awards... 13-14 Other Required Reports Independent Auditor s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards... 15-16 Independent Auditor s Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance... 17-18 Schedule of Findings and Questioned Costs... 19-20 Schedule of Prior Year Findings and Questioned Costs... 21-22
INDEPENDENT AUDITOR S REPORT To the Mayor and City Council City of McCrory, Arkansas McCrory, Arkansas Report on the Financial Statements We have audited the accompanying financial statements of the of City of McCrory, Arkansas, as of and for the year ended December 31, 2016 and the related notes to the financial statements as listed in the table of contents. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of the USDA Water and Waste Disposal Systems for Rural Communities Grant, which is a major program representing 93% of the federal funds expended, and the revenues of the Federal Award Programs of City of McCrory. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Federal Award Programs of City of McCrory, is based solely on the report of the other auditors. We conducted our audit 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the respective financial position of the of City of McCrory, Arkansas, as of December 31, 2016, and the respective changes in financial position for the -1-
year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 1, the financial statements present only the of City of McCrory, Arkansas and are not intended to present fairly the net position and results of operations of the City of McCrory, Arkansas, in conformity with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Management has omitted the management s discussion and analysis that accounting principles generally accepted in the United States of America require to be presented to supplement the basic financial statements. Such missing information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. Our opinion on the basic financial statements is not affected by this missing information. Other Information Our audit was conducted for the purpose of forming an opinion on the basic financial statements of the of City of McCrory, Arkansas taken as a whole. The accompanying supplementary information, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is also not a required part of the basic financial statements. The schedule of expenditures of federal awards and other supplementary information are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America, and in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated September 7, 2017, on our consideration of the City of McCrory, Arkansas internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City s internal control over financial reporting and compliance. Batesville, Arkansas September 7, 2017 Welch, Couch & Company, PA Certified Public Accountants -2-
Report on the City of McCrory, Arkansas Balance Sheet December 31, 2016 Special Revenue Capital Project Department Department Department of Housing of of and Urban Agriculture Agriculture Development Assets Current assets Grant receivables $ - $ 1,500 $ - Total current assets - 1,500 - Noncurrent assets Restricted cash and cash equivalents 36,100-51 Total noncurrent assets 36,100-51 Total assets $ 36,100 $ 1,500 $ 51 Liabilities and Fund Balance Liabilities Accounts payable $ 29,896 $ 1,500 $ - Unearned revenue 6,204-51 Total liabilities 36,100 1,500 51 Fund balance Restricted - - - Total fund balance - - - Total liabilities and fund balance $ 36,100 $ 1,500 $ 51 The notes to financial statements are an integral part of this statement. -3-
Report on the City of McCrory, Arkansas Statement of Revenue, Expenditures and Changes In Fund Balances For the Year Ended December 31, 2016 Special Revenue Capital Project Department Department Department of Housing of of and Urban Agriculture Agriculture Development Revenues: Federal grant proceeds - USDA $ 39,000 $ 1,830,361 $ - Federal grant proceeds - HUD - - 108,949 Local match 17,113 - - Total revenues 56,113 1,830,361 108,949 Expenditures: Construction costs - 1,755,252 91,500 Equipment 56,113 - - Design fees - 72,552 13,500 Attorney fees - 2,557 - Contract administration - - 3,168 General administration - - 781 Total expenditures 56,113 1,830,361 108,949 Change in fund balance - - - Fund balance - beginning of year - - - Fund balance - end of year $ - $ - $ - The notes to financial statements are an integral part of this statement. -4-
Notes to Financial Statements December 31, 2016 Note 1 Reporting Entity City of McCrory, hereafter referred to as the City, is incorporated under the laws of the State of Arkansas and operates under an elected mayor/city council form of government. These financial statements include only the federal awards received from U.S. Department of Agriculture and the U.S. Department of Housing and Urban Development. All other activities of the City are subject to separate reporting and are not included in this report. Other activities, funds, accounts, groups, and programs are included in a government-wide audit conducted by the State of Arkansas Division of Legislative Audit. This report includes only the federal funds activities of the City for the fiscal year ending December 31, 2016. The comprehensive annual financial report of the City can be obtained at: City of McCrory P O Box 897 McCrory, Arkansas 72101 Note 2 Summary of Significant Accounting Policies Measurement Focus, Basis of Accounting and Basis of Presentation The accounts of the City are organized and operated on the basis of funds and account groups. A fund is an independent fiscal and accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance-related legal and contractual provisions. The following fund type is presented in these financial statements. Governmental funds are used to account for the City s general government activities. Governmental fund types use the flow of current financial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual; that is, when they are measurable and available. Measurable means that the amount of the transaction can be determined and available means collectible within the current period or soon enough thereafter to pay liabilities of the current period. Grant revenues are resources arising from restricted sources and are only recognized when the conditions of the grant or program are met. Expenditures are the primary factor for determining eligibility to receive the program resources; therefore, revenue is recognized when the resources have been expended in accordance with the terms of the program. This practice is called an expenditure driven recognition of revenue and is required by GASB Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance. -5-
Notes to Financial Statements December 31, 2016 Note 2 Summary of Significant Accounting Policies (Cont.) Restricted Assets Restricted assets represent cash and cash equivalents that are restricted for federal grant projects. When the City has both unrestricted and restricted resources available to finance a particular program, it is the City s policy to use restricted resources before unrestricted resources. Grants Receivables Grants receivable consist of amounts due from federal awarding agencies for program funds earned and receivable at fiscal year end. The City does not maintain an allowance for doubtful accounts because there is very little uncertainty related to this type of receivable. This departure from generally accepted accounting principles does not have a material effect on the financial statements taken as a whole. Liabilities Accounts payable represents amounts due to vendors as of December 31, 2016. Unearned revenue represents federal funds received and not yet expended at December 31, 2016. Estimates The preparation of financial statements and related disclosures are prepared in conformity with accounting principles generally accepted in the United States of America. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and that affect the disclosure of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Income Taxes Funding related to these federal award programs financial statements is not subject to state or federal income taxes. Accordingly, no uncertain tax positions that would require disclosure in the financial statements were noted. -6-
Notes to Financial Statements December 31, 2016 Note 2 Summary of Significant Accounting Policies (Cont.) New Accounting Pronouncements The GASB had issued the following statements which were adopted by the City in 2016: GASB Statement No. 72, Fair Value Measurement and Application, addresses accounting and financial reporting issues related to fair value measurements. This statement provides guidance for determining a fair value measurement for financial reporting purposes. This statement also provides guidance for applying fair value to certain investments and disclosures related to all fair value measurements. The implementation of this statement did not result in any changes to the financial statements. GASB Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, was issued to improve the usefulness of information about pensions included in the general purpose external financial reports of state and local governments for making decisions and assessing accountability. The requirements of this statement are not effective until fiscal year 2017. GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plan, was issued to improve the usefulness of information about postemployment benefits other than pensions (other postemployment benefits or OPEB) included in the general purpose external financial reports of state and local governmental OPEB plans for making decisions and assessing accountability. The requirements of this statement are not effective until fiscal year 2017. GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions, was issued to improve accounting and financial reporting by state and local governments for postemployment benefits other than pensions (other postemployment benefits or OPEB). It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. The requirements of this statement are not effective until fiscal year 2018. GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, was issued to identify in the context of the current governmental financial reporting environment the hierarchy of generally accepted accounting principles (GAAP). This statement reduces the GAAP hierarchy to two categories of authoritative GAAP and addresses the use of authoritative and nonauthoritative literature in the event that the accounting treatment for a transaction or other event is not specified within a source of authoritative GAAP. The implementation of this statement did not result in any changes to the financial statements. -7-
Notes to Financial Statements December 31, 2016 Note 2 Summary of Significant Accounting Policies (Cont.) New Accounting Pronouncements (cont.) GASB Statement No. 77, Tax Abatement Disclosures, requires disclosure of tax abatement information about a reporting government s own tax abatement agreements and those that are entered into by other governments and that reduce the reporting government s tax revenues. The requirements of this statement improve financial reporting by giving users of financial statements essential information that is not consistently or comprehensively reported to the public at present. The implementation of this statement did not result in any changes to the financial statements. GASB Statement No. 78, Pensions Provided through Certain Multiple-Employer Defined Benefit Pension Plans, was issued to address a practice issue regarding the scope and applicability of Statement No. 68, Accounting and Financial Reporting for Pensions. This statement amends the scope and applicability of Statement 68 to exclude pensions provided to employees of state or local governmental employers through a cost-sharing multipleemployer defined benefit pension plan that meets three specific requirements. The implementation of this statement did not result in any changes to the financial statements. GASB Statement No. 79, Certain External Investment Pools and Pool Participants, addresses accounting and financial reporting for certain external investment pools and pool participants. Specifically, it establishes criteria for an external investment pool to qualify for making the election to measure all of its investments at amortized cost for financial reporting purposes. The implementation of this statement did not result in any changes to the financial statements. Fund Balances The City restricts those portions of fund equity which are legally segregated for a specific future use or which do not represent available expendable resources and therefore are not available for appropriation or expenditure. Unrestricted fund balance indicates that portion of fund equity which is available for appropriation in future periods. Note 3 Cash and Cash Equivalents Custodial Credit Risk is the risk that in the event of a bank failure, a government s deposits may not be returned to it. The City has no formal policy on managing credit risk; however, Arkansas State law requires collateralization of all deposits with federal depository insurance; a surety bond; U.S. Treasury and U.S. agencies and instrumentalities bonds or other obligation, in an amount at least equal to the amount of such deposit or by bond executed by a surety company authorized to do business in the State of Arkansas. At December 31, 2016, none of the federal awards program s cash balances were exposed to custodial credit risk. All federal funding is deposited with financial institutions insured by FDIC and is fully collateralized at December 31, 2016. -8-
Notes to Financial Statements December 31, 2016 Note 3 Cash and Cash Equivalents (Cont.) The carrying amounts of deposits are included in the City s balance sheet as follows: Carrying Bank Cash and Cash Equivalents Amount Balance Demand deposits $ 36,151 $ 36,151 Note 4 Risk Management The City is exposed to various risks of loss from torts, theft of, damage to, or destruction of assets, business interruption, errors or omissions, job-related illnesses or injuries to employees, and natural disasters. The City has purchased commercial insurance to mitigate its exposure for such losses. The various insurance policies are subject to deductible amounts and maximum coverage. If the deductibles and maximums are exceeded, they could expose the City to incur losses relating to such incidents. The ultimate outcome of uninsured losses cannot presently be determined, and no provision for any such liability that may result, if any, has been made in the financial statements. There are presently no claims against the City. Note 5 Litigation The City is subject to claims and lawsuits that may arise in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits, if any, will not have a materially adverse effect on the financial position of the City. Events such as unasserted claims could occur that cause the amount of ultimate loss to differ materially from management s expectations. Note 6 Contingencies The City is subject to possible examinations by federal regulators who determine compliance with terms, conditions, laws, and regulations governing funding to the City in the current and prior years. These examinations may result in required refunds from the City to federal grantors and/or program beneficiaries. -9-
Notes to Financial Statements December 31, 2016 Note 7 Subsequent Events Events or transactions may occur subsequent to the balance-sheet date but prior to the issuance of the financial statements that have a material effect on the financial statements and therefore require adjustment or disclosure in the statements. These occurrences are referred to as subsequent events. Subsequent events have been considered by management and evaluated by the independent auditor. The City did not have any subsequent events through September 7, 2017, which is the date the financial statements were available to be issued for events requiring recording or disclosure in the financial statements for the year ending December 31, 2016. -10-
Statement of Revenues and Expenditures Budget to Actual (Non-GAAP Budgetary Basis) Capital Project ACEDP Grant # 790-08872-10 For the Year Ended December 31, 2016 Current Year Actual Remaining Actual to Date Budget Balance Revenues: ACEDP Grant $ 108,949 $ 108,949 $ 121,000 $ 12,051 Total revenues $ 108,949 $ 108,949 $ 121,000 $ 12,051 Expenditures: Construction $ 91,500 $ 91,500 $ 90,000 $ (1,500) Design fees 13,500 13,500 15,000 1,500 Administration: Contractual 3,168 3,168 14,000 10,832 General 781 781 1,000 219 Audit - - 1,000 1,000 Total expenditures $ 108,949 $ 108,949 $ 121,000 $ 12,051 Percentage of completion 90% 90% 100% 10% -11-
Schedule of Expenditures of Federal Awards For the Year Ended December 31, 2016 Federal Grantor/ Grant Federal Federal Expenditures Pass-Through Grantor/ Number/ CFDA Receipts Federal to Program or Cluster Title Year Number (Cash Basis) Expenditures Subrecipient U.S. Department of Agriculture Direct Awards: Water and Waste Disposal Systems for Rural Communities (Grant and Loan Proceeds) FY 2016 10.760 $ 1,125,400 $ 1,830,361 $ - Community Facilities Loans and Grants FY 2016 10.766 16,000 16,000 - Community Facilities Loans and Grants FY 2016 10.766 23,000 23,000 - Total U.S. Department of Agriculture 1,164,400 1,869,361 - U.S. Department of Housing and Urban Development Passed-Through Arkansas Economic Development Commission Community Development Block Grants 790-08872-10 14.228 $ 109,000 $ 108,949 $ - Total U.S. Department of Housing and Urban Development 109,000 108,949 - Total $ 1,273,400 $ 1,978,310 $ - See accompanying notes to Schedule of Expenditures of Federal Awards. -12-
Notes to Schedule of Expenditures of Federal Awards For the Year Ended December 31, 2016 Note 1 Basis of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of City of McCrory, Arkansas and is presented on the modified accrual basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of City of McCrory, Arkansas Federal Funds, it is not intended to and does not present the financial position, changes in net assets, or cash flows of City of McCrory, Arkansas Federal Funds. Note 2 Summary of Significant Accounting Policies 1) Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. 2) Pass-through identifying numbers are presented when available. 3) The City has elected not to use the 10% de minimis indirect costs rate as allowed under the Uniform Guidance. Note 3 Subrecipients No awards were provided to subrecipients. Note 4 Matching Requirements Certain federal programs require that the City contribute non-federal funds (matching funds) to support the federal-funded programs. The City has complied with the matching requirements. The expenditures of non-federal matching funds is not included on the schedule. -13-
Notes to Schedule of Expenditures of Federal Awards (Cont.) For the Year Ended December 31, 2016 Note 5 Loans Outstanding The City had the following loan balance outstanding at December 31, 2016. The loan balance outstanding is also included in the calculation of federal expenditures presented in the schedule. Loans Outstanding Ending for Year Federal Balance of Ended CFDA Previous December 31, Cluster/Program Title Number Year Loans 2016 Water and Waste Water Disposal Systems for Rural Communities 10.760 $ 1,849,826 $ 2,125,909 Note 6 Contingencies In connection with various federal grant programs, the City is obligated to administer related programs and spend the funds in accordance with regulatory restrictions, and is subject to audit by grantor agencies and other auditors. In cases of noncompliance, the agencies involved may require the City to refund program funds. -14-
INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Mayor and City Council City of McCrory, Arkansas McCrory, Arkansas We have audited 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, the financial statements of Federal Award Programs of City of McCrory, Arkansas, as of and for the year ended December 31, 2016, and the related notes to financial statements, and have issued our report thereon dated September 7, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered City of McCrory, Arkansas internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing an 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. 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 on a timely basis. 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. A significant deficiency is a deficiency, or a 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. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies, and therefore, material weaknesses or significant deficiencies may exist that were not identified. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. -15-
Compliance and Other Matters As part of obtaining reasonable assurance about whether of City of McCrory, Arkansas financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, 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 was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the result of that testing, and not to provide an opinion on the effectiveness of the City s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Batesville, Arkansas September 7, 2017 Welch, Couch & Company, PA Certified Public Accountants -16-
INDEPENDENT AUDITOR S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Mayor and City Council of City of McCrory, Arkansas McCrory, Arkansas Report on Compliance for Each Major Federal Program We have audited of City of McCrory, Arkansas compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of City of McCrory, Arkansas major federal programs for the year ended December 31, 2016. City of McCrory, Arkansas major federal programs are identified in the summary of auditor s results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor s Responsibility Our responsibility is to express an opinion on compliance for each of City of McCrory, Arkansas major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about City of McCrory, Arkansas compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of City of McCrory, Arkansas compliance. Opinion on Each Major Federal Program In our opinion, City of McCrory, Arkansas, complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2016. -17-
Report on Internal Control Over Compliance Management of City of McCrory, Arkansas is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City of McCrory, Arkansas internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of City of McCrory, Arkansas internal control over compliance. 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. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Batesville, Arkansas September 7, 2017 Welch, Couch & Company, PA Certified Public Accountants -18-
Schedule of Findings and Questioned Costs December 31, 2016 Section I Summary of Auditor s Results Financial Statements Type of auditor s report: Unmodified Internal control over financial reporting: Material weakness identified Significant deficiencies identified that are not considered to be material weaknesses Non-compliance material to financial statements noted: None reported None reported None reported Federal Awards Internal control over major programs: Material weakness identified Significant deficiencies identified that are not considered to be material weaknesses Type of auditor s report issued on compliance for major programs: Findings required to be reported in accordance with 2 CFR Section 200.516(a): None reported None reported Unmodified None reported Identification of major programs: CFDA Number: 10.760 Water and Waste Disposal Systems for Rural Communities Dollar threshold for Type A programs: $ 750,000 Auditee qualified as low risk auditee: No -19-
Schedule of Findings and Questioned Costs (Cont.) Summary Schedule of Current Year Audit Findings December 31, 2016 Section II Findings Financial Statements Audit Significant Deficiencies: No matters reported Material Weaknesses: No matters reported Section III Findings and Questioned Costs Major Audit Significant Deficiencies: No matters reported Material Weaknesses: No matters reported -20-
Schedule of Prior Year Findings and Questioned Costs December 31, 2016 Section I Summary of Auditor s Results Financial Statements Type of auditor s report: Unmodified Internal control over financial reporting: Material weakness identified Significant deficiencies identified that are not considered to be material weaknesses Non-compliance material to financial statements noted: None reported None reported None reported Federal Awards Internal control over major programs: Material weakness identified Significant deficiencies identified that are not considered to be material weaknesses Type of auditor s report issued on compliance for major programs: Findings required to be reported in accordance with 2 CFR Section 200.516(a): None reported None reported Unmodified None reported Identification of major programs: CFDA Number: 10.760 Water and Waste Disposal Systems for Rural Communities Dollar threshold for Type A programs: $ 750,000 Auditee qualified as low risk auditee: No -21-
Schedule of Prior Year Findings and Questioned Costs (Cont.) Summary Schedule of Prior Year Audit Findings December 31, 2016 Section II Findings Financial Statements Audit Significant Deficiencies: No matters reported Material Weaknesses: No matters reported Section III Findings and Questioned Costs Major Audit Significant Deficiencies: No matters reported Material Weaknesses: No matters reported -22-