City of Fort Worth City Council Work Session March 28, 2017
Overview Introductions Audit Results Audit Process Required Communications New Standards Discussion 2
Introductions
Engagement Leadership Kevin A. Sanford Engagement Partner Jackie Gonzalez Field Supervising Partner Philip R. Winfield Engagement Lead Auditor 4
Audit Results
Audit Results We will issue the Independent Auditor s Report on the financial statements Unmodified Opinion on the financial statements We will issue the 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 3 findings noted 6
Audit Results We will issue the Report on Compliance for Each Major Program, On Internal Control Over Compliance and on the Schedule of Expenditures of Federal and State Awards 1 finding noted We will issue 3 separate agreed-upon procedures reports: Budget Compliance no findings noted Investment Compliance (new) 2 findings noted Water and Sewer System Insurance (new) no findings noted 7
Findings Noted Capital Assets/Capital Projects Material Weakness in Internal Controls over the F/S The City did not have a consistent and effective method to track and reconcile capital asset projects in process. Corrective action plan has been developed Journal Entries and Financial Reporting Significant Deficiency in Internal Controls over the F/S As a result of inadequate or untimely review of journal entries posted to the general ledger, significant review time by City management was needed to research and correctly report balance on the City s financial statements Corrective action plan has been developed 8
Findings Noted Operations Security IT Access Controls Significant Deficiency in Internal Controls over the F/S The City s ERP systems have generic user accounts with privileged access, which makes tracking changes difficult Corrective action plan has been developed Reporting Requirement Related to Grant Compliance Significant Deficiency in Internal Controls over grant compliance City staff were unaware of a reporting requirement related to the state major program Corrective action plan has been developed 9
Findings Noted Investment Compliance: A list of qualified broker-dealers to engage in investment activity with the City was not approved by Council or Council s designee during the period Quarterly investment reports were not signed by all investment officers for all quarters 10
Audit Process Audit Process
Engagement Timeline Initial Audit Planning Plan for Next Year Interim Fieldwork Sept Nov 2016 Continuous Communication Council Meeting March 28, 2017 Final Fieldwork Dec 2016 Mar 2017 City Council Work Session March 28, 2017 12
Audit Process The audit was performed in accordance with General Accepted Auditing Standards (GAAS), Generally Accepted Government Auditing Standards (GAGAS), Title 2 U.S. CFR Part 200, Uniform Administrative Requirements, Cost Principles, Audit Requirements for Federal Awards (Uniform Guidance) and State of Texas Uniform Grant Management Standards (UGMS) The audit process was a risk-based approach in which we identified potential areas of risk that could lead to material misstatement of the financial statements. We tailored our audit programs and resources to specifically address areas of risk, such as: Capital projects, purchasing and compliance with bidding procedures Long-term debt Revenue recognition and related receivables Payables, accrued liabilities (Pension, OPEB, IBNR) and expenditures Federal and state grant revenues and expenditures 13
Audit Process Certain Computer Assisted Audit Techniques (CAATs) were performed, including: Operating Disbursements Review for duplicate payments Identification of payments to vendors not on approved master vendor list Identification and analysis of the City s top vendors Identification of operating disbursements address matching payroll address Payroll Review of number of payroll disbursements received Review of pay rates compared to job descriptions Review of number of overtime hours Results: no unsupported transactions were noted 14
Required Communications for the year ended September 30, 2016 15
Required Communications to Those in Charge of Governance Communication Generally accepted auditing standards Results The financial statements are the responsibility of the City. Our audit was designed to provide for reasonable rather than absolute assurance that the financial statements are free of material misstatement. Our responsibility is to express an opinion about whether the financial statements are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. We will issue unmodified opinions. 16
Required Communications to Those in Charge of Governance Communication Generally accepted government auditing standards Results We are required to issue a written report on our consideration of internal controls and identify significant deficiencies, including material weaknesses, if any. Our reports do not provide assurance on internal controls. We design our audit to provide reasonable assurance of detecting material misstatements resulting from noncompliance with provisions of contracts or grant agreements that have a direct or material effect on the financial statements. We will issue a written report on the results of these procedures; however, our report does not express an opinion on compliance. Findings noted previously discussed. 17
Required Communications to Those in Charge of Governance Communication Unusual transactions and the adoption of new accounting principles Results The significant accounting policies used by the City are described in Note A to the financial statements. New GASB pronouncements implemented in 2016 included: GASB Statement No. 72, Fair Value Measurement and Application which expands disclosure requirements related to fair value measurements of the City s investments. GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. 18
Required Communications to Those in Charge of Governance Communication Fraud and illegal acts Material weakness in internal control Other information contained in documents containing audited financial statements Management judgments and accounting estimates Results No material errors, irregularities, or illegal acts were noted. One Material Weakness noted as previously discussed. We provided an in relation to opinion on supplementary information accompanying the financial statements. We performed limited procedures on the required supplementary information. We did not provide any assurance on this information. The Introductory and Statistical sections were both unaudited. Management s estimates of allowance for uncollectible receivables, IBNR liabilities, net pension liability, OPEB liability, and estimated useful lives for capital assets were evaluated and determined to be reasonable in relation to the financial statements as a whole. 19
Required Communications to Those in Charge of Governance Communication Difficulties encountered Management representations Management consultations Auditor independence Audit adjustments Results No difficulties or disagreements arose during the course of our audit. We requested certain representations from management that were included in the management representation letter. We are not aware of management consulting with other accountants for a second opinion. No independence issues noted. Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. A list of all adjustments, both corrected and uncorrected, will be made available with our final reports 20
New Standards Effective for the year ended September 30, 2017 GASB 77 Tax Abatement Disclosures Objective: to improve financial reporting by giving users of financial statements essential information that is not consistently or comprehensively reported to the public at present. Disclosure of information about the nature and magnitude of tax abatements will make these transactions more transparent to financial statement users. Effective for the year ended September 30, 2018 GASB 75 Accounting and Financial Reporting for Postemployment Benefits Other than Pensions (OPEB) Objective: to improve accounting and financial reporting by state and local governments for OPEB. It also improves information provided by state and local governmental employers about financial support for OPEB that is provided by other entities. 21
We appreciate the opportunity to work with City of Fort Worth and look forward to our continued relationship. 22
Discussion