CITY OF LEE S SUMMIT, MISSOURI OMB CIRCULAR A-133 SINGLE AUDIT REPORT JUNE 30, 2012
Contents Page Independent Auditors 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... 1-2 Independent Auditors Report On Compliance With Requirements That Could Have A Direct And Material Effect On Each Major Program And On Internal Control Over Compliance In Accordance With OMB Circular A-133 And On The Schedule Of Expenditures Of Federal Awards... 3-5 Schedule Of Expenditures Of Federal Awards... 6-7 Notes To Schedule Of Expenditures Of Federal Awards... 8 Schedule Of Findings And Questioned Costs... 9-14 Summary Schedule Of Prior Audit Findings... 15
RubinBrown LLP Certified Public Accountants & Business Consultants 10975 Grandview Drive Suite 600 Overland Park, KS 66210 T 913.491.4144 F 913.491.6821 Independent Auditors 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 W rubinbrown.com E info@rubinbrown.com The City Council City of Lee s Summit, Missouri We have audited the financial statements of City of Lee s Summit, Missouri (the City) as of and for the year ended June 30, 2012 and have issued our report thereon dated December 21, 2012. 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. Internal Control Over Financial Reporting Management of the City is responsible for establishing and maintaining effective internal controls over financial reporting. In planning and performing our audit, we considered the City s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City s internal control over financial reporting. 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 combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected on a timely basis. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, we did identify certain deficiencies in internal control over financial reporting that we consider to be a significant deficiency.
The City Council City of Lee s Summit, Missouri A significant deficiency is a deficiency, or combination of deficiencies, in internal control that are less severe than a material weakness, yet important enough to merit the attention of those charged with governance. We consider the deficiency described in the accompanying Schedule of Findings and Questioned Costs as item 2012-1 to be a significant deficiency. The City s responses to the findings identified in our audit are described in the accompanying Schedule of Findings and Questioned Costs. We did not audit the City s responses and, accordingly, we express no opinion on the responses. Our consideration of internal control over financial reporting 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 financial reporting that might be deficiencies, significant deficiencies or material weaknesses. Compliance And Other Matters As part of obtaining reasonable assurance about whether the City s 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. This report is intended solely for the information and use of management, the City Council and federal awarding agencies and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. December 21, 2012 Page 2
RubinBrown LLP Certified Public Accountants & Business Consultants 10975 Grandview Drive Suite 600 Overland Park, KS 66210 Independent Auditors Report On Compliance With Requirements That Could Have A Direct And Material Effect On Each Major Program And On On Internal Control Over Compliance In Accordance With OMB Circular A-133 And On The Schedule Of Expenditures Of Federal Awards T 913.491.4144 F 913.491.6821 W rubinbrown.com E info@rubinbrown.com The City Council City of Lee s Summit, Missouri Compliance We have audited the compliance of the City of Lee s Summit, Missouri (the City) with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2012. The City s major federal programs are identified in the summary of auditors results section of the accompanying Schedule of Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the City s management. Our responsibility is to express an opinion on the City s compliance based on our audit. 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 OMB Circular A-133, Audits of States, Local Governments, and Non- Profit Organizations. Those standards and OMB Circular A-133 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 the City s 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. Our audit does not provide a legal determination on the City s compliance with those requirements. Page 3
The City Council City of Lee s Summit, Missouri In our opinion, the City complied, in all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2012. However, the results of our auditing procedures disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying schedule of findings and questioned costs as items 2012-2 through 2012-4. Internal Control Over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City s internal control over compliance with 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 Circular A-133, 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 the City s internal control over compliance. A deficiency in internal control over compliance exits 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. 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 deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above. However, we identified certain deficiencies in internal controls over compliance that we consider to be significant deficiencies as described in the accompanying Schedule of Findings and Questioned Costs as items 2012-2, 2012-3, and 2012-4. A significant deficiency in internal controls 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. Page 4
The City Council City of Lee s Summit, Missouri The City s responses to the findings identified in our audit are described in the accompanying Schedule of Findings and Questioned Costs. We did not audit the City s responses and, accordingly, we express no opinion on the responses. Schedule Of Expenditures Of Federal Awards We have audited the basic financial statements of the City as of and for the year ended June 30, 2012, and have issued our report thereon dated December 21, 2012, which contained an unqualified opinion on those financial statements. Our audit was conducted for the purpose of forming our opinion on the financial statements that collectively comprise the City s financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates 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. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the financial statements as a whole. The purpose of this report is solely to describe the scope of our testing of compliance with the types of compliance requirements applicable to each of the City s major programs and our testing of internal control over compliance and the results of our testing, and to provide an opinion on the City s compliance but not to provide an opinion on the effectiveness of the City s internal control over compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City s compliance with requirements applicable to each major program and its internal control over compliance. Accordingly, this report is not suitable for any other purpose. January 24, 2013 (except for paragraph 8, which is dated December 21, 2012) Page 5
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Page 1 of 2 Federal Pass-Through CFDA Identifying Federal Program Number Number Expenditures U.S. Department of Housing And Urban Development Direct: Community Development Block Grant - entitlement program 14.218 B-09-MC-29-0010 $ 1,587 Community Development Block Grant - entitlement program 14.218 B-10-MC-29-0010 276,247 Community Development Block Grant - entitlement program 14.218 B-11-MC-29-0010 106,563 384,397 Passed through Missouri Department of Social Services Emergency Shelter Grant 14.231 ERO 16412009 39,654 Total US Department Of Housing And Urban Development 424,051 U.S. Department Of Justice Direct: Violence Against Women Grant 16.590 2010-WE-AX-0063 180,201 U.S. Department Of Transportation Passed through Missouri Department of Transportation Airport improvement program 20.106 AIR 10-109A-1 3,199 Airport improvement program 20.106 AIR 10-109A-2 99,997 Airport improvement program 20.106 AIR 11-109A-1 272,234 Airport improvement program 20.106 AIR 11-109A-2 16,055 Airport improvement program 20.106 AIR 07-109A 1 & 2 4,788 396,273 Signal Ward Road and Longview Road 20.205 STP No. 3443(401) 16,625 ARRA - Todd George Parkway Road Project 20.205 5,250 21,875 Passed through Missouri Department of Public Safety Federal 402 project 20.600 11-PT-02-30 14,590 Federal 402 project 20.600 11-154-AL-23 10,771 Federal 402 project 20.600 12-PT-02-13 20,963 Federal 402 project 20.600 12-154'AL-013 22,887 69,211 Total U.S. Department Of Transportation 487,359 See the accompanying notes to schedule of expenditures of federal awards. Page 6
SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS (CONTINUED) Page 2 of 2 Federal Pass-Through CFDA Identifying Federal Program Number Number Expenditures U.S. Department Of Natural Resources Passed through Division of State Parks Historic preservation 15.904 29-11-31932-010 $ 8,400 U.S. Department Of Homeland Security Passed through Mid-America Regional Council - transferred equipment Transferred equipment -- Laser Lighting System 97.067 MARC PO-001873 3,200 U.S. Department Of Energy Direct: ARRA - Energy Efficiency Grants 81.128 125,653 Total Federal Financial Assistance $ 1,228,864 See the accompanying notes to schedule of expenditures of federal awards. Page 7
NOTES TO SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS June 30, 2012 1. Organization The accompanying schedule of expenditures of federal awards (Schedule) presents the activity of all federal award programs of the City of Lee s Summit, Missouri (the City) for the year ended June 30, 2012. All federal awards received directly from federal agencies, as well as federal awards passed through other governmental agencies, are included on the schedule. 2. Basis Of Presentation The accompanying schedule of expenditures of federal awards includes the federal grant activity of the City under programs of the federal government for the year ended June 30, 2012. The information in this schedule is presented in accordance with the requirements of the Office of Management and Budget (OMB) Circular A- 133, Audits of State, Local Government, and Non-Profit Organizations. Because the schedule presents only a selected portion of the operations of the City, it is not intended to and does not present the financial position, changes in net assets, or cash flows of the City. 3. Basis Of Accounting The expenditures for each of the federal financial assistance programs are presented in the Schedule on the accounting basis as presented on the fund financial statements. For governmental funds, expenditures are presented on a modified accrual basis. For proprietary or fiduciary funds, expenditures are presented on the accrual basis. Both the modified accrual and accrual basis of accounting incorporate an estimation approach to determine the amount of expenditures incurred if not yet billed by a vendor. Thus, federal programs may present negative amounts on the Schedule as a result of prior year estimates being overstated and/or reimbursements due back to the grantor. 4. Subrecipients Of the federal expenditures presented in this schedule, the City provided $165,592 to subrecipients related to the Community Development Block Grant, Emergency Shelter Grant and Violence Against Women Grant. Page 8
SCHEDULE OF FINDINGS AND QUESTIONED COSTS Financial Statements Section I - Summary Of Auditors Results Type of auditors report issued: Unqualified Internal control over financial reporting: Material weakness(es) identified? yes x no Significant deficiency(ies) identified that are not considered to be material weakness(es)? x yes none reported Noncompliance material to financial statements noted? yes x no Federal Awards Internal control over major programs: Material weakness(es) identified? yes x no Significant deficiency(ies) identified that are not considered to be material weakness(es)? x yes none reported Type of auditors report issued on compliance for major programs: Unqualified Any audit findings disclosed that are required to be reported in accordance with section 510(a) of Circular A-133? x Yes no Identification of major programs: Name Of Federal Program Or Cluster CFDA Number U.S. Department of Housing And Urban Development Community Development Block Grants: Entitlement program 14.218 U.S. Department Of Energy ARRA - Energy Efficiency Grants 81.128 Dollar threshold used to distinguish between type A and type B programs: $300,000 Auditee qualified as low-risk auditee? x yes no Page 9
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) Section II - Financial Statement Findings Finding 2012-1 Significant Deficiency Criteria/Condition: Internal control over the review of accounting data and financial information gathered to prepare the City s financial statements in accordance with generally accepted accounting principles (GAAP) is not sufficient to identify and correct potential misstatements prior to audit fieldwork. Cause: The City was in the process of implementing a new general ledger system along with closing their ledgers and preparing for the audit at fiscal year end. The City made the decision to focus resources toward making sure the conversion went smoothly so the City s day to day activities would not have significant interruptions in processing transactions. Therefore, the City was not able to allocate sufficient resources to allow for timely review of accounting data and financial information gathered to prepare financial statements that are in accordance with GAAP. Accounting data and other financial information includes journal entries made within the finance department, cash reconciliations and related entries prepared by accounting staff within the finance department. Effect: Misstatements were identified by the auditor and provided to management for correction. Recommendation: The City should take this opportunity to evaluate the resources currently available in the finance department to determine whether or not those resources can provide the level of review needed to facilitate sufficient review of accounting data and financial information and prepare financial statements that are materially accurate and in accordance with GAAP. Corrective Action Plan (Unaudited): The new general ledger system has been fully implemented and in use since July 1, 2012 with relatively few issues. Staff was simultaneously closing the fiscal year out on the old general ledger system while getting the new system up and running effectively in order to continue to pay bills, accept receipts, record adjustments, etc. The close out and start up the two systems created a large volume of manual tracking of accruals and system conversion data between the two systems. The normal staff resources that concentrated on closing and making sure everything was completed at year end was also focused on training and implementation of the new system. It is not anticipated that this will be an issue in fiscal year 2013. Completion Date: January 1, 2013 Contact Person and Title: Darlene Pickett, Assistant Finance Director, City of Lee s Summit. Page 10
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) Section III - Federal Award Findings And Questioned Costs Finding: 2012-2 Significant Deficiency Federal Award No. 14.218 Community Development Block Grant (CDBG) Criteria: According to the OMB Circular A-133 CDBG Entitlement Grant Cluster Compliance Supplement, it was determined that the City is responsible for complying with the following regulations. For each grant over $200,000 that involves housing rehabilitation, housing construction, or other public construction, the prime recipient must submit Form HUD 60002. (24 CFR sections 135.3(a), 135.90 and 570.607). Condition: Per inquiry with management, it was indicated that they were not aware of the requirements surrounding the HUD 60002, Section 3 Summary Report, and Economic Opportunities for Low and Very Low-Income Persons. Effect: The City is not in compliance with reporting requirements for the grant. Questioned Costs: None Cause: The City s Planning and Development Department was unaware of their responsibility to complete and submit this report. Therefore no such actions were completed. Recommendation: RubinBrown recommends for the City s Planning and Development Department to begin completing this report and ensure that the control s surrounding the financial reports currently being completed, are also put into place for the HUD 60002 report. Further, RubinBrown recommends an annual review of the HUD website as well as the A-133 compliance supplement, to ensure they are not omitting any of the reporting requirements. Corrective Action Plan: During the audit, staff learned that for Section 3 compliance, the City, as a CDBG grantee, was required by HUD to file the HUD 60002 Form annually. Staff immediately confirmed that requirement with HUD representative and filed the HUD 60002 Form for Program Year 2011-12. To insure future compliance with this reporting requirement, staff has taken the following corrective actions: A. A new module has been added to our computerized CDBG Management System to ensure a standard process of filing the required form at the time when the City files its annual CAPER report or file it when a qualified project is complete. B. Within the module, clickable links are also incorporated to allow staff to check regulation updates on HUD s website. Page 11
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) Responsible Official: Heping Zhan, Manager of Long Range Planning and Development Expected Date Of Completion: November 5, 2012 Finding: 2012-3 - Significant Deficiency Federal Award No. 14.218 Community Development Block Grant (CDBG) Criteria: Per review of the A-133 General Requirements, a pass through entity is responsible for: (1) Ensuring that subrecipient s expending $500,000 or more in Federal awards during the subrecipient s fiscal year for fiscal years ending after December 31, 2003 as provided in OMB Circular A-133 have met the audit requirements of OMB Circular A-133 and that the required audits are completed within 9 months of the end of the subrecipient s audit period; (2) issuing a management decision on audit findings within 6 months after receipt of the subrecipient s audit reports; and (3) ensuring that the subrecipient takes timely and appropriate corrective action on all audit findings. In cases of continued inability or unwillingness of a subrecipient to have required audits, the pass through entity shall take appropriate action using sanctions. Condition: RubinBrown selected 4 of the CDBG Entitlement Program s subrecipients for testing of subrecipient monitoring requirements. When testing whether or not the subrecipient was required to submit an A-133 audit or not, it was determined that the City had no controls or procedures in place to identify if a subrecipient expended over $500,000 in Federal Awards during their federal year and thus required an A-133 audit. Further, the City was not aware of their responsibility to review the subrecipient s A-133 audit and follow-up with any findings relating to their programs funding to ensure corrective action is being taken. Effect: The City is not in compliance with the subrecipient monitoring requirements of OMB Circular A-133. Questioned Costs: None Cause: This audit finding is a result of the City not fully understanding their responsibility regarding the monitoring requirements of subrecipients. Recommendation: RubinBrown recommends the City implement a standard form that is sent to all subrecipients at the end of their fiscal year. The main purpose of this document would be to have the subrecipient certify the total amount of Federal awards expended during their fiscal year. Further, if they exceed the threshold, this document would remind them of their responsibility to submit an A-133 audit to the City within 9 months after their fiscal year end. Page 12
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) Corrective Action Plan: During the audit, staff learned that the City, as a CDBG grantee, was required to obtain Circular A-133 Audit Reports from CDBG subrecipients that expended $500,000 or more federal awards during the subrecipients fiscal year and the City has the responsibility to review those reports and follow up with the subrecipients on the findings, if any, specific to the CDBG funds provided by the City and require the subrecipients to implement corrective actions within a required period of time. The City s current CDBG Management process requires the applicants of CDBG funds to provide information at the time of application regarding the total amount of federal funding the agencies received during the previous year and the City normally uses that information to remind staff which agencies might be required to submit to the City an A-133 Audit Report. The Subrecipient Grant Agreement also includes the requirement for subrecipients to submit an A-133 Audit to the City, if they exceed the federal threshold. Staff did not realize that the A-133 Audit threshold is based on federal funds actually expended, nor did staff realize that we have the responsibility to review these reports and follow up on findings. To insure future compliance with this requirement, staff has taken the following corrective actions: A. A Subrecipient Self Certification Form has been created. This form will be distributed to all subrecipients at the beginning of our process to prepare our CAPER report. The form is designed such that a staff review of the audit report is mandatory and a review decision is required as well, followed by further actions to help subrecipients to correct deficiencies. B. A new module has been added to our computerized CDBG Management System to ensure this form is distributed to all subrecipients. Responsible Official: Heping Zhan, Manager of Long Range Planning and Development Expected Date Of Completion: November 5, 2012 Page 13
SCHEDULE OF FINDINGS AND QUESTIONED COSTS (CONTINUED) Finding 2012 4 Significant Deficiency Federal Award No. 81.128 ARRA Energy Efficiency Grants Criteria: According to OMB Circular A-110 for Equipment/Real Property, the City should have a fixed asset inventory completed at least once every two years and have a system in which assets purchased with federal funds are appropriately identified and tracked. Condition: Fixed asset and real property purchases for the energy efficiency and conservation block grant (street lights, signal re-lamping and ballpark/harris community center lighting) are not being properly tracked when these assets are purchased using federal awards. The City does not have a policy in place to track and inventory fixed assets purchased with federal awards. Effect: The City cannot accurately report to the federal granting agency its fixed asset purchases and disposals that relate to federal awards. Questioned Costs: Not determinable Cause: The City s fixed asset tracking system does not provide for a mechanism to identify fixed assets purchased with federal awards. Recommendation: We recommend that the City properly identify fixed assets purchased with federal awards in their fixed asset tracking system and develop a process to properly inventory those assets at least once every two years. The City should also consider investigating the capabilities of its current fixed asset tracking system to determine if it can be modified to accomplish these requirements. Corrective Action Plan: The City implemented an integrated asset management system as a part of its new financial, procurement and Human Resources ERP system that went live on July 1, 2012. This system allows for the tracking of assets purchased with federal funds through the use of user defined labels which tags assets for specific reporting and inventory needs. The City has identified assets acquired with federal awards along with the grant number. This information is now readily available for reporting and tracking needs. Completion Date: January 1, 2013 Contact Person: Darlene Pickett, Assistant Finance Director Page 14
THE CITY OF LEE S SUMMIT MISSOURI SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS Finding CFDA Current No. No. Program Condition Year Status 2011-1 81.128 ARRA- Energy Efficiency and Conservation Block Grant Fixed asset and real property purchases are not being properly tracked when purchased with Federal awards. Repeated in the current year as 2012-4 Page 15