Loading...
HomeMy WebLinkAboutReport on Internal Control, Compliance & Other Matters 1 Tautges Redpath, Ltd. Certified Public Accountants and Consultants 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 A UDITING STANDARDS To the Honorable Mayor and Members of the City Council City of Oak Park Heights, Minnesota We have audited the financial statements of the governmental activities, the business -type activities, each major fund, and the aggregate remaining fund information of the City of Oak Park Heights, Minnesota as of and for the year ended December 31, 2008, which collectively comprise the City of Oak Park Heights, Minnesota's basic financial statements and have issued our report thereon dated April 14, 2009. 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 In planning and performing our audit, we considered the City of Oak Park Heights, Minnesota'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 of Oak Park Heights, Minnesota's internal control over financial reporting. Accordingly, we do not express an opinion of the effectiveness of the City of Oak Park Heights, Minnesota's internal control over financial reporting. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in internal control over financial reporting that might be significant deficiencies or material weaknesses. However, as discussed below, we identified certain deficiencies in internal control over financial reporting that we consider to be significant deficiencies. A control deficiency 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 misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with 4810 White Bear Parkway White Bear Lake, Minnesota 55110 I 651 426 7000 651 426 5004 Fax I www.hlbtr.com HLB Tautges Redpath, Ltd is a member of M International, a world -wide organization of accounting firms and business advisors I Equal Opportunity Employer Report on Internal Control over Financial Reporting and on Compliance and Other Matters Page 2 a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected by the entity's internal control over financial reporting. We consider the deficiencies described in the accompanying schedule of findings and responses as items 2008 -1 through 2008 -2 to be significant deficiencies in internal control over financial reporting. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity's internal control. Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in the internal control that might be significant deficiencies and, accordingly, would not necessarily disclose all significant deficiencies that are also considered to be material weaknesses. However, we believe that none of the significant deficiencies described above is a material weakness. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Oak Park Heights, Minnesota'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 that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of the City of Oak Park Heights, Minnesota in a separate letter dated April 14, 2009. The City of Oak Park Heights, Minnesota's response to the findings identified in our audit are described in the accompanying schedule of findings and responses. We did not audit the City of Oak Park Heights, Minnesota's responses and, accordingly, we express no opinion on them. Report on Internal Control over Financial Reporting and on Compliance and Other Matters Page 3 This report is intended solely for the information and use of the City of Oak Park Heights, Minnesota's City council and management and is not intended to be, and should not be, used by anyone other than these specified parties. A4 AVM, HLB TAUTGES REDPATH, LTD. White Bear Lake, Minnesota April 14, 2009 CITY OF OAK PARK HEIGHTS, MINNESOTA Schedule of Findings and Responses For The Year Ended December 31, 2008 2008 -1 Financial Statement Preparation Criteria: Management is responsible for establishing and maintaining effective internal controls. These controls include the responsibility for preparation, or oversight of the preparation of the financial statements in accordance with generally accepted accounting principles. Condition: SAS 112 specifies that an organization may not rely exclusively on its auditors to perform the financial statement process. In our viewpoint, SAS 112 will result in many, if not most, small to mid -size organizations receiving a finding regarding financial statement preparation. Like many similarly sized organizations, the City has requested assistance from us, the auditors, with drafting financial statements and related notes. This is a common practice and an allowable nonaudit service under the AICPA Ethics Interpretation 101 -3. However, other than relying on the auditors, City staff does not perform sufficient procedures to detect if there were misstatements or omission of disclosures to the financial statements. Cause: The City has not established procedures to detect misstatements or omissions of disclosures in the draft financial statements prepared by the auditors. Effect: By not having such controls, there is an increased risk that errors or omissions in draft financial statements prepared by the auditors would not be detected by City management. Recommendation: We recommend the City review this matter and determine a course of action. Any change would need to be viewed from a cost/benefit perspective. Options for the City include: 1. Remain aware of the situation, however due to the increased cost, make the choice to make no changes to current procedures. 2. Implement internal procedures as determined practical. Such procedures could include: a. Complete a disclosure checklist to ensure propriety and completeness of disclosures. b. Trace various trial balance accounts to the draft financial statements to ensure all accounts are included in the financial statements. c. Review GASB 34 conversion entries to ensure that the draft government -wide financial statements are free of misstatement. CITY OF OAK PARK HEIGHTS, MINNESOTA Schedule of Findings and Responses For The Year Ended December 31, 2008 3. Hiring additional internal or 3rd party resources to assist with the financial statement process. Management Response: The City is aware of SAS 112, but a cost/benefit analysis of the issue does not support the allocation of additional employees or resources at this time. Certain other safeguards are successfully maintained (Council oversight, Finance Director review of the draft financial statements) which provide satisfactory mitigation of the issue. 2008 -2 Audit Adjustments Criteria: SAS 112 specifies that a misstatement of any magnitude that could occur and not be detected by the City's controls be considered a significant deficiency in internal control. Condition: During the course of our audit, we identified adjustments regarding the reporting of bond proceeds. Cause: The City has not issued bonds since 2002. Since that time, accounting standards regarding the presentation of bond proceeds has changed. Effect: The presentation of bond proceeds is not in accordance with generally accepted accounting principles. Recommendation: In our viewpoint, the guidance provided by SAS 112 regarding financial statement adjustments combined with the complexity of governmental accounting will result in most local governments receiving a finding in this regard. Management response: City staff rely on the expertise of the audit firm to ensure that infrequent transactions are presented in accordance with generally accepted accounting principles.