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HomeMy WebLinkAbout2015 Audit Wrap UpCity of Seward, Alaska AUDIT WRAP-UP YearEndedDecember 31, 2015 The following communication was prepared as part of our audit, has consequential limitations, and is intended solely for the information and use ofthose charged with governance (e.g., City Council) and, if appropriate, management of the City and is not intended and should not beused by anyone other than these specified parties. BDO USA, LLP, aDelaware limited liability partnership, is the U.S. member of BDO International Limited, aUK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. Tel: 907-278-88273601CStreet, Suite600 Fax: 907-278-5779 Anchorage, AK99503 www.bdo.com November 11, 2016 Honorable Mayor andMembersoftheCityCouncil CityofSeward, Alaska Professional standards requireustocommunicate withyouregarding matters related totheaudit, thatare, inourprofessional judgment, significant andrelevanttoyourresponsibilities in overseeing thefinancial reporting process. Onengagement letter datedFebruary 17, 2016 outlined ourplanfortheauditofthefinancial statements oftheCityofSeward (theCity) asof and fortheyearended December 31, 2015. Thatdocument included asummary ofouroverall objectives fortheaudit, andthenature, scope, andtimingoftheplanned audit work. Thiscommunication isintended toelaborate onthesignificant findings fromouraudit, including ourviewsonthequalitative aspects oftheCity’saccounting practices andpolicies, management’s judgments andestimates, financialstatement disclosures, andotherrequired matters. Wearepleased tobeofservice totheCity. Feelfreetocontactustodiscussouraudit findings, aswellasothermatters thatmaybeofinterest toyou, andtoanswer anyquestions youmight have. Respectfully, Anchorage, AK BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, aUK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO MemberFirms. DiscussionOutline Page Status of Our Audit .................................................................................................... 3 Results of Our Audit ................................................................................................... 4 Internal Control Over Financial Reporting ........................................................................ 7 Other Required Communications ................................................................................... 8 Independence Communication ...................................................................................... 9 Significant Accounting and Reporting Matters .................................................................. 10 Get to Know BDO .................................................................................................... 11 BDO Center for Corporate Governance and Financial Reporting ............................................ 15 Attachment ........................................................................................................... 16 StatusofOurAudit Wehavecompleted ourauditofthefinancial statements asofand fortheyearended December 31, 2015. Ourauditwasconducted inaccordance withauditing standards generally accepted intheUnited Statesof America. Thisaudit ofthefinancial statements doesnotrelieve management orthosecharged with governance oftheirresponsibilities. Theobjective ofourauditwastoobtain reasonable - notabsolute - assurance about whether the financial statements arefreefrommaterial misstatements. Thescopeofthework performed wassubstantially the sameasthat described toyouinourearlier AuditPlanning communications. Wehaveissued anunmodified opinion onthefinancial statements andrelease ourreport on November 11, 2016. Allrecords andinformation requested byBDOwere freelyavailable forourinspection. Management’scooperation wasexcellent. Wereceivedfull access toallinformation thatwerequested whileperforming ouraudit, andweacknowledge thefullcooperation extended tousbyalllevels of Citypersonnel throughout thecourse ofourwork. 3 AUDIT WRAP-UP – DECEMBER 31, 2015 ResultsofOurAudit ACCOUNTING PRACTICES, POLICIES, ESTIMATES ANDSIGNIFICANT UNUSUAL TRANSACTIONS Thefollowing summarizes the moresignificant required communications related toourauditconcerning theCity’saccounting practices, policies, estimates andsignificant unusual transactions: TheCompany’ssignificant accounting practices andpolicies arethoseincluded inNote1tothefinancial statements. These accounting practices andpolicies areappropriate, comply withgenerally accepted accounting principles andindustry practice, wereconsistently applied, andareadequately described within Note1tothefinancialstatements. Asummary ofrecently issued accounting pronouncements isincluded inNote1totheCity’sfinancial statements. TheCityadopted theprovisions ofGASB68, Accounting andFinancial Reporting forPensions. This statement requires theCitytorecognize itsproportional shareofthenet pension liabilityrelated to PERSparticipation ineachofitsfullaccrual financial statements (government-widestatements, enterprise fundstatements, etc.). Additionally, thestatement requires thatopening netposition be restated toreflect theadoption ofthis newstatement. Therewerenochanges insignificant accounting policies andpractices during2015. Significant estimates arethosethatrequire management’smostdifficult, subjective, orcomplex judgments, oftenasaresultoftheneedtomakeestimates abouttheeffects ofmatters thatareinherently uncertain. Overall, theCity’shasfewsignificant accounting estimates. Themost significant estimates are disclosed below: Significant accounting estimates include: Collectability ofOutstanding Accounts Receivable – ManyoftheCity’saccounts receivables arefrom granting agencies; thesearegenerally considered bymanagement tobe100% collectible. Customer accounts receivables (Water, Wastewater, Electric, Harbor, etc.) arereviewed bymanagement periodically todetermine areasonable amount ofallowance, basedonknown factors, pasthistory, andageofthe outstanding amount. Net Pension Liabilities – TheNetPension Liabilityisestimated basedonactuarial information and actual contribution dataprovided totheCitybythePERSPlanAdministrator. Except fortheadoption ofGASB68, management didnotmakeanysignificant changes totheprocesses orsignificant assumptions used todevelopthesignificant accounting estimates in2015. Wedid notidentify anysignificant orunusual transactions, oranytransactions for whichtherewasa lackofauthoritative guidance. 4 AUDIT WRAP-UP – DECEMBER 31, 2015 ResultsofOurAudit CORRECTED ANDUNCORRECTED MISSTATEMENTS Thereweretenauditadjusting entriesand fiveclientjournal entries recordedtothetrialbalance givento ustoperform theaudit. Ofthese, thefollowing wereconsidered significant: Close PYTransfer Ins toFundBalance tocorrect beginning fundbalance. Record restatement associated withGASB68Implementation. Record CYGASB 68activity. Record release ofElectric BondReserve duetoBondMatured intheCY Therewerenouncorrected misstatements, otherthanthosethatwereclearly trivial, related toaccounts and/ordisclosures thatwe presented tomanagement. Toourknowledge, therearenootheruncorrected misstatements. All journalentries recorded wereprovided tomanagement intherepresentation letter. Asthecomponent unitisincluded inthe City’sfinancial statements wenotedthe following: Seward Providence Medical Center – There weretwosignificant corrected misstatements andtwo uncorrected misstatements – onefromthePYforbenefit expense notrecorded, overstating expense inthe CY, andoneforanexpense not properlyaccrued atYE. Neither management, nor BDO, believes thatthe uncorrected itemsmaterially misstates the financialstatements. 5 AUDIT WRAP-UP - DECEMBER 31, 2015 ResultsofOurAudit QUALITY OFTHECITY’SFINANCIAL REPORTING Qualitative aspects ofsignificant accounting policies andpractices WeconcurwiththeCity’sinterpretation andapplication ofgenerally accepted accountingo principles andpractices derived fromthestandards setbytheGovernmental Accounting Standards Board (GASB). Ourconclusions regarding significant accounting estimates The nature oftheCity’sOperations reduces theneedfornumerous significant estimates withino theaccounting records. Seecomment about estimates above. Webelieve theCity’sestimates arereasonable inthecircumstances. Significant unusual transactions Wedidnotidentify anysignificant unusual items. o Financial statement presentation Toour knowledge allnecessary disclosures havebeenincluded inthefootnotes tothefinancialo statements. Newaccounting pronouncements Asnotedontheprevious page, in2015theCityadopted GASBStatement 68. Weconcur witho theCity’sdecision toadoptthisstatement. Alternative accounting treatments Wedidnotidentify anyaccounting treatments thatdidnotcomplywithgenerally acceptedo accounting principles andstandards setbyGASB. GroupAudit Asyouare aware, theaudit oftheCityrequires theinclusion offinancial information forallcomponents of the reporting entity. Thereporting entityiscomprised oftheCity andits “component units” asdefined by GAAP. Thiscollection ofindividual reporting entities comprises the “Group.” Ourauditisconsidered the Group” Audit. Included intheCity’sauditistheProvidence Seward Medical andCareCenter Operations. Theauditof thePSMCC was conducted byanotherauditing firm. Where relevant, wehaveincluded information inthis report asitrelates tothePSMCC. Ourauditreportincludes areference tothereport oftheotherauditor. 6 AUDIT WRAP-UP - DECEMBER 31, 2015 InternalControlOverFinancialReporting Inplanning and performing ourauditofthefinancial statements, weconsidered the City’sinternal control overfinancial reporting (internal control) asabasisfordesigning ourauditing procedures forthepurpose ofexpressing ouropinion onthe financialstatements, butnotforthepurpose ofexpressing anopinion on theeffectiveness oftheCity’sinternalcontrol. Accordingly, wedonot express anopinion onthe effectiveness oftheCity’sinternal control. Our consideration ofinternal controlwasfor thelimited purpose described aboveand wasnotdesignedto identify alldeficiencies ininternal control thatmightbesignificant deficiencies ormaterial weaknesses. We arerequired tocommunicate, inwriting, tothose chargedwithgovernance allmaterial weaknesses and significant deficiencies thathavebeen identified intheCity’sinternal controls overfinancial reporting. The definitions ofcontrol deficiency, significant deficiency andmaterial weakness follow: CategoryDefinition Adeficiency ininternal controlexists whenthe design oroperation ofa Deficiency inInternal control doesnotallowmanagement oremployees, inthe normal course of Controlperforming their assigned functions, toprevent, ordetect and correct misstatements onatimely basis. Adeficiency orcombination ofdeficiencies ininternal control that isless Significant Deficiency severe thanamaterialweakness, yetimportant enough tomeritattention bythosecharged withgovernance. Adeficiency orcombination ofdeficiencies ininternalcontrol, suchthat thereisareasonable possibility thatamaterial misstatement oftheCity’sMaterialWeaknessfinancialstatementswillnotbeprevented, ordetectedandcorrected on atimely basis. Inconjunction withouraudit ofthefinancialstatements, wenotednomaterial weaknesses andsignificant deficiencies. Wehavecommunicated tomanagement oftheCitycontrol deficiencies thatwereidentified asaresult ofourauditthatwedidnotconsider tobematerial weaknesses orsignificant deficiencies. Control Deficiency Comments Withthe newaccounting system, thereisnowaytosignoffon thereview ofthebank reconciliations electronically. WeBankReconciliationsrecommendedtheclienttoprintthebankreconciliationandsign offmanually todocument the review occurring. 7 AUDIT WRAP-UP – DECEMBER 31, 2015 OtherRequiredCommunications Following isasummary ofthose required items, alongwithspecific discussion points asthey pertaintothe City: RequirementDiscussion Points Significant changes toplanned There werenosignificant changes totheplanned auditstrategyor audit strategy orsignificant risks significant risks initially identified andpreviously communicated to initially identified thosecharged withgovernance aspartofour AuditPlanning communications. Obtain information from those There werenomatters notedrelevant totheaudit, including, but charged withgovernance notlimited to: violations orpossible violations oflaws or relevant totheauditregulations; riskofmaterial misstatements, including fraud risks; or tipsorcomplaints regarding theCity’sfinancialreporting thatwe weremadeaware ofasaresultofourinquiry ofthosechargedwith governance. Ifapplicable, nature andextent Therewerenospecialized skillsorknowledge needed, outside of ofspecialized skillsorknowledge thecoreengagement team, toperform theplanned audit needed related tosignificant procedures orevaluate auditresultsrelated tosignificant risks. risks Consultations withother We arenotaware ofanyconsultations aboutaccounting orauditing accountants matters between management andother independent public accountants. Norarewe aware ofopinions obtained bymanagement fromotherindependent public accountants ontheapplication of generally accepted accounting principles. Disagreements withmanagement Therewere nodisagreements withmanagement aboutmatters, whether ornotsatisfactorily resolved, thatindividually orin aggregate couldbesignificant totheCity’sfinancial statements or toourauditor’sreport. Significant difficulties Therewerenosignificant difficulties encountered during the audit. encountered during theaudit Theauditfinalization anddelivery wasdelayed duetothelate arrival ofinformation relating tothePERSliability. Thisdelayhas affected virtually everyparticipating employer inthe Plan. Representations requested from Please refertothe management representation letter. See management attached attheend. 8 AUDIT WRAP-UP – DECEMBER 31, 2015 IndependenceCommunication Our engagement lettertoyou datedFebruary 17, 2016describes ourresponsibilities inaccordance with professional standards andcertain regulatory authorities withregard toindependence and theperformance ofourservices. Thisletteralsostipulates theresponsibilities oftheCitywithrespect toindependence as agreed tobytheCity. Please refertothatletterforfurther information. 9 AUDIT WRAP-UP – DECEMBER 31, 2015 SignificantAccountingandReporting Matters UPCOMING CHANGES NewGASBStatements There areseveral newaccounting pronouncements witheffective datesoverthenexttwotothreeyears. These include FairValue Measurement rulesaswellasnew accounting rulesrelated toOther Post- Employment Benefits, among others, whichwillhaveaneffect onfinancial reporting overthe nextfew years. Westrongly encourage management tofamiliarize themselves withtheseupcoming changes inorder toproperly adoptthenew provisions ontheireffective dates. 10 AUDIT WRAP-UP – DECEMBER 31, 2015 GettoKnowBDO BDO provides assurance, tax, advisory, andconsulting services toawiderange ofpublicly traded and privately heldcompanies - clients ofallsizesacross industries, throughout the country, and around the globe. Ourclientsareserviced byexperienced, knowledgeable, industry-focused professionals whowork collaboratively andhavedirect accesstotoptechnical resources. BDO’sculture andvalues establish asetofstandards embodied byourwork, ourrelationships andour professionals. Weareguided byourcorevalues: putpeople first; beexceptional everyday, everyway; embrace change; empowerment through knowledge; andchoose accountability. 11 AUDIT WRAP-UP – DECEMBER 31, 2015 GettoKnowBDO Thefirm serves clients throughmore than60offices andover450independent alliance firmlocations nationwide. Asanindependent Member FirmofBDO International Limited, BDOserves multinational clients through aglobal network of1,400+ offices inover150 countries. 12 AUDIT WRAP-UP - DECEMBER 31, 2015 GettoKnowBDO BDO’sstrength isderived fromourstructure asacohesiveglobal network anddedication tointernal integration andseamlessclient service - when andwhere ourclients needus. Ineachcountry, BDOMember Firms arecomposed ofpeople whoareknowledgeable aboutnationallaws, business customs, andlocaland international business methods. Asourclients expand globally, accesstoourinternational network canhelpthemdobusiness withadepth ofexperience ininternational matters, significant resources andinternational clientservicecapabilities. BDO USA, LLP* BDO International** 60+1,408 Office Locations Offices Worldwide+ in the U.S. 64,3036,057 Total Personnel Dedicated Partners and Staff $7.3B Total Combined Fee Income+ 1.29B As of and for the year endedU.S. Revenues September 30, 2015 Including exclusive alliances ofAsofandforthe BDO Member FirmsyearendedJune30, 2016 13 AUDIT WRAP-UP - DECEMBER 31, 2015 GettoKnowBDO INDUSTRY EXPERIENCE Industry experience hasemerged atthetopofthelist ofwhatbusinesses needandexpect fromtheir accountants and advisors. Thepower ofindustryexperience isperspective - perspective webring tohelp youbest leverage yourowncapabilities andresources. BDO’sindustry focusispartofwho weareandhowweserveourclients, andhasbeenforover acentury. Wedemonstrate ourexperience through knowledgeable professionals, relevant client workand participation inthe industries we serve. Avariety ofpublications andinsights depicting specific industry issues, emerging trends and developments areavailable here. Forfurther information onthefollowing BDOindustries, please visithttps://www.bdo.com/industries. AssetManagement Manufacturing & Distribution BrokerDealers Natural Resources Consumer Business Nonprofit & Education Financial Institutions & Specialty Finance Private Equity Gaming, Hospitality & Leisure Public Sector Government Contracting RealEstate & Construction Healthcare Restaurants Insurance Technology & LifeSciences 14 AUDIT WRAP-UP - DECEMBER 31, 2015 BDOCenterforCorporateGovernanceand FinancialReporting The BDO Center for Corporate Governance and Financial Reporting A dynamic and searchable on-line resource for board of directors and financial executives ANINCREDIBLE RESOURCE ATYOUR FINGERTIPS TheBDOCenter forCorporate Governance andFinancial Reporting wasbornfromtheneedtohavea comprehensive, online, and easy-to-useresourcefortopics relevanttoboards ofdirectorsand financial executives. Weencourage youtovisittheCenter oftenfor up-to-dateinformation andinsights youcanrely on. What youwillfindincludes: Thought leadership, practice aids, tools, andnewsletters Technical updates and insights onemerging business issues Three-pronged evolving curriculum consisting ofupcoming webinars and archived self-studycontent Opportunities toengagewithBDO thought leaders External governance community resources Finally, a resource center with the continual education needs of those charged with governance and financial reporting in mind!” BDOSUBSCRIPTIONS TOPROGRAMMING ANDINSIGHTS Tobeginreceiving email notifications regarding BDOpublications andeventinvitations (live andweb- based), visithttps://www.bdo.com/member/registration andcreate auserprofile. Ifyoualreadyhavean accounton BDO’swebsite, visittheMyProfilepage tologinandmanage youraccountpreferences https://www.bdo.com/member/my-profile. Formoreinformation aboutBDO’sCenterforCorporate Governance, please goto: www.bdo.com/resource-centers/governance. 15 AUDIT WRAP-UP – DECEMBER 31, 2015 Attachment Representation Letter 16 AUDIT WRAP-UP – DECEMBER 31, 2015