HomeMy WebLinkAboutPACKET Audit Committee 2019-07-23A .Ad'I't COI
Tuesday July 23, 2019
8:00 a.m. — 9:30 a.m.
i ee Administration Conference Room
AGENDA
1. CALL TO ORDER
2. NEW BUSINESS
a) 2018 CAFR and Single Audit Review
i. Review 2018 Audit Report and Single Audit Findings with Auditors.
ii. Confirm readiness for Aug 13, 2019 Town Board presentation.
b) Consider appointment of auditors for 2019 audit.
3. ADJOURN
Attachments:
CAFR for year ended 12-31-2018 provided separately
Tuesday July 23, 2019
8:00 a.m. — 9:30 a.m.
Au : ee Administration Conference Room
AGENDA
1. CALL TO ORDER
2. NEW BUSINESS
a) 2018 CAFR and Single Audit Review
i. Review 2018 Audit Report and Single Audit Findings with Auditors.
ii. Confirm readiness for Aug 13, 2019 Town Board presentation.
b) Consider appointment of auditors for 2019 audit.
3. ADJOURN
Attachments:
CAFR for year ended 12-31-2018 provided separately
Town of Estes Park, Colorado
Audit Wrap Up
July 23, 2019
This presentation was prepared as part of our audit, has consequential
limitations, is restricted to those charged with governance and, if
appropriate, management, and is not intended and should not
be used by anyone other than those specified parties.
July 23, 2019
Mr. Duane Hudson, Finance Director
Members of Town Board
Town of Estes Park, Colorado
170 MacGregor Avenue
Estes Park, CO 80517
Professional standards require us to communicate with you regarding matters related to the audit,
that are, in our professional judgment, significant and relevant to your responsibilities in
overseeing the financial reporting process. We presented an overview of our plan for the audit of
the financial statements and schedule of expenditures of federal awards of the Town of Estes
Park, Colorado (the "Town") as of and for the year ended December 31, 2018, including a
summary of our overall objectives for the audit, and the nature, scope, and timing of the planned
audit work.
This communication is intended to elaborate on the significant findings from our audit, including
our views on the qualitative aspects of the Town's accounting practices and policies,
management's judgments and estimates, financial statement disclosures, and other required
matters.
We are pleased to be of service to the Town and look forward to meeting with you to discuss our
audit findings, as well as other matters that may be of interest to you, and to answer any questions
you might have.
Respectfully,
447)
Page
Discussion Outline 1
Status of Our Audit 3
Results of Our Audit 4
Internal Control Over Financial Reporting 6
Other Required Communications 7
Independence Communication 8
GASB Standards Effective in 2018 9
GASB Standards Effective in 2019 -2020 10
We have completed our audit ofthe financial statements and federal awards as of and for the year ended
December31' 2018. Our audit was conducted in accordance with auditing standards generally accepted in
the United States of America and Government Auditing Standards. This audit of the financial statements
does not relieve management or those charged with governance oftheir responsibilities.
~ The objective of our audit was to obtainmasonaNe-notabsolute'assuranceabouLwhetherthe
financial statements are free from material misstatements.
° The scope ofthe work performed was substantially the same as that described to you in our earlier
Audit Planning communications.
° We issued an unmodified opinion on the financial statements and released our report on Juiy27.
2019.
° We issued an unmodified opinion on compliance requirements that could have adirect and material
effect oneach major program.
° Our responsibility for other information in documents containing the Tnwn's audited financial
statements does not extend beyond the financial information identified in the audit report, and we
are not required to perform procedures to corroborate such other information. However' in
accordance with professional standards' we have read the information included by the Town and
considered whether such information, or the manner ofits presentation, was materially inconsistent
with its presentation in the financial statements. Our responsibility also includes calling to
management's attention any information that we believe is a material misstatement of fact. We have
not identified any material inconsistencies or concluded there are any material misstatements of
facts in the other information that management has chosen not tocorrect.
° We expect to issue a report on our consideration of the Town's internal control over financial
reporting and compliance with certain provisions of iavvs' regulations, contracts, and grant
agreements in accordance with Government Auditing Standards and a report on the compliance with
requirements that could have adirect and material effect on each major program and on internal
control in accordance the audit requirements of Title Z U.S. Code of Federal Regulations Part 200'
Uniform Administrative Requirements' Cost Principles, and Audit Requirements for Federal Awards
(Uniform Guidance). We did not identify any deficiencies that we consider to be material weaknesses
that could have a direct and material effect on major federal programs for the year ended December
]1, 2018.
° AU records and information requested by ACM LLP ("AC/N")were freely available for our inspection.
° Management's cooperation was excellent. We received full access to aU information that we
requested while performing our audit, and vveacknowledge the full cooperation extended to us by
all levels of Town personnel throughout the course nfour work.
l
AUDIT WRAP-UP DEIEMBER]1' 2018
AUXYLP114]FING P[�ACIIG�'S' P)0[.]G1["_`S' klfl') ES"I]MA"FIS
The following summarizes the more significant required communications related to our audit concerning
the Town's accounting practices, policies, and estimates:
The To*n's significant accounting practices and uoUdeu are those included in Note 1 to the financial
statements. These accounting practices and policies are appropriate, comply with generally accepted
accounting principles and industry practice' were consistently applied, and are adequately described within
Note 1 tothe financial statements.
� The Town adopted 646B statement No. 75 "Accounting and Financial Reporting for
Postemployment Benefits Other Than Pensions". Thera were no other changes in significant
accounting policies and practices during 201D.
Significant estimates are those that require management's most difficult, subjective, or complex
judgments' often as a result ofthe need to make estimates about the effects of matters that are inherently
uncertain. The Town'ssignificant accounting estimates, including a description nfmanagement's processes
and significant assumptions used in development ofthe estimates, are disclosed in Note 1 of the financial
statements.
Management did not make any significant changes to the processes nrsignificant assumptions used
todevelop the significant accounting estimates in2018.
R11 IN
/� AM/� N
Revenue Recognition: The I-own's majormunce of revenue consists of sales taxes' property taxes'
charges for services, and intergovernmental revenues. The Town records revenue when earned.
Property taxes are recognized as revenues in year for which they are levied. Grants and oinni(or
items are recognized as soon asaKeligibility requirements imposed by the provider have been met.
Accounts Receivable and Allowances: Accounts receivable represents amounts due from citizens
and businesses for property and sates taxes, customers for utilities, and other governmental entities.
Capital Assets and Depreciation: Capital assets ofthe Town are n significant area of the Tnwn's
Moonciui statements, Accordingly, as part of the audit, we paid particular attention to the costs of
newly acquired assets, repairs and maintenance expenditures on existing capital assets, and the
depreciation expense of these assets.
Long -Term Debt: The Town's governmental activities currently have capital lease totaling $61'541'
Certificates ofparticipation totaling $4'135,00'Environmental remediabnntotaling $75'00and Lease
purchase agreement including premium of $4'203'062. Additionally, thcTown's businens'typeacdvides
currently have the Light and Power Bonds outstanding for $3'350'000and the Water Loan outstanding
hor$]'218,315. Accordingly, we have applied certain procedures over balances, future maturities, and
accrued interest associated with the applicable tong -term debt, along with compliance with the
agreements. It appears that the Town is property accounting for these obligations,
4
AUD[TY/RAP'UP DECEMBER]1'2O18
Pension and CDPEB Reporting: TheTown has one separate defined benefit plans administered by
the Colorado Public Employees' Retirement Association of Colorado ("PER4"). Additionally the Town
has a single employer Retiree Medical Insurance Plan. The PEKA plans are ccot'sharing' multiple -
employer defined benefit and OPEB plans. As Such, the City has reported net pension and OPEB liabilities
and related deferred outfiows/inflowsfor these plans intheir financial statements. In addition, changes
in net pension and OPEB liabilities were recognized as pension nrOPE8expense orreported as deferred
outf lows/i nf lows of resources depending on the nature of change.
Evaluation of Going Concern: No going concern issues were noted during, our audit.
Evaluation of Estimates: Estimates were determined to be reasonable and free of bias.
Single Audit Procedures: Because the Town expended inexcess of$75O,UOOoffederal grant funds,
the Town was subject to a single audit pursuant to the audit requirements o/ Tide 2 U.S. [ode of
Federal Regulations Port 200' Uniform Administrative Requirements, Cost Principles, and Audit
Requirements for Federal Awards (Uniform Guidance). Accordingly, ACM performed procedures on
internoi controls, and certain compliance requirements associated with the Tm*n's major federal
awards.
AkW UNCORRECIT'[)���������/�����
Please refer tVthe schedule of corrected misstatements attached to this report.
There were no uncorrected misstatements, other than those that were clearly trivial, related to accounts
and/ or disclosures that were presented to management.
Ql I AL ��I I-Y OF]'] I "T `( F:]NA1,10AL WE[10R`1-1W',,,;
A discussion was held regarding the quality of the Town's financial reporting, which included the following:
° Qualitative aspects ofsignificant accounting policies and practices
° Our assessment ofcritical accounting policies and practices
° Our conclusions regarding significant accounting estimates
° Significant unusual transactions
° Financial statement presentation
° New accounting pronouncements
° Alternative accounting treatments
5
In planning and performing our audit of the financial statements, we considered the Tov/n'sinternal control
over financial reporting (internal control) as basis for designing our auditing procedures for the purpose
ofexpressing our opinion on the financial statements, but not for the purpose ofexpressing an opinion on
the effectiveness of the Tmvn's internal control. Accordingly, we do not express an opinion on the
effectiveness ofthe Town'ainternal control.
Our consideration of internal control was for the limited purpose described above and was not designed to
identify all deficiencies in internal control that might besignificant deficiencies nr material weaknesses.
We are required to communicate, in writing, tothose charged with governance all material weaknesses and
significant deficiencies that have been identified in the Town'sinternal controls over financial reporting.
The definitions of control deficiency, significant deficiency and material weakness follow:
01
Deficiency in Internal
Control
I�
0)
Adeficiency in internal control exists when the design or operation of
control does not allow management oremployees, in the normal course of
performing their assigned functions, to prevent' or detect and correct
misstatements onatimely basis.
Significant Deficiency
Adeficiency nrcombination ofdeficiencies in internal control that is less
severe than a material weakness, yet important enough tomerit attention
bythose charged with governance.
Material Weakness
A deficiency or combination of deficiencies in internal control, such that
there is a reasonable possibility that a material misstatement ofthe Town's
financial statements will not be prevented' or detected and corrected on
timely basis.
In conjunction with our audit of the financial statements, we noted no material weaknesses. However,
material weaknesses may exist that have not been identified.
AUDIT WRAP-UP DECEM8ER}1'2O18
Following isasummary ofthose required items, along with specific discussion pointsasthey pertain tothe
Significant changes toplanned
audit strategy orsignificant risks
initially identified
1111311
I
There were no significant changes to the planned audit strategy or
significant risks initially identified and previously communicated to
those charged with governance as part of our Audit Planning
communications.
Obtain information from those
charged with governance
relevant tothe audit
There were no matters noted relevant tothe audit, including, but not
limited to: violations orpossible violations nflaws orregulations; risk
of material misstatements, including fraud risks; or tips or complaints
regarding the Tnwn'sfinancial reporting that wewere made aware
ofasa result ofour inquiry ofthose charged with governance.
If applicable, nature and extent
ofspecialized skills orknowledge
needed related tosignificant
risks
There were no specialized sNib or knowledge needed' outside of the
core engagement team, to perform the planned audit procedures or
evaluate audit results related to significant risks.
Consultations with other
accountants
We are not aware nfany consultations about significant accounting
or auditing matters between management and other accountants
where we have identified a concern regarding such matters.
Our evaluation ofthe Tov*n's
relationships and transactions
with related parties and their
impact onthe financial
statements
We have evaluated the Tov/n's process to identify, authorize and
approve, account for, and disclose its relationships and transactions
with related parties and noted no significant issues.
Disagreements with management
There were no disagreements with management about matters,
whether or not satisfactorily resolved' that individually or in
aggregate could besignificant tothe Tnwn'sfinancial statements or
toour auditor's report.
Significant difficulties
encountered during the audit
There were no significant difficulties encountered during the audit.
If applicable, other matters
significant to the oversight of the
Tnvvn'ufinancial reporting
process, including complaints or
concerns regarding accounting ur
auditing matters
There are no other matters that we consider significant to the
oversight ofthe Town'sfinancial reporting process that have not been
previously communicated.
Representations requested from Please refer tothe management representation letter.
management
7
Our engagement letter to you dated January 23, 2019 describes our responsibilities in accordance with
professional standards and certain regulatory authorities and Government Auditing Standards with regard
to independence and the performance nfour services. This letter also stipulates the responsibilities ofthe
Town with respect to independence as agreed to by the Town. Please refer to that letter for further
information.
8
�ASB S"FA TEMH1 l t,10, 75, A(I"COUN"I IN6 ANI) FDV�N("/M R1,,,,"P0f'(Y1N6 rotz
w Establishes measurement criteria for the Other Postempkovmpnt Benefits (OPEB) liability of state
and local governments and mirrors the requirements of6ASB6O.
* For plans administered through trust governments must recognize the net OPEB liability,
° For plans not administered through trust the government must recognize the total OPEBliability.
° The pronouncement will beeffective starting with years ending June 3O' 2018.
� Addresses several practice issues that have been identified during implementation of certain GASB
Statements:
1. Blending acomponent unit when the primary government isabusiness-type activitythatnepoUs
in asingle column.
2. Reporting amounts previously reported asgoodwill and negative goodwill.
J. Classifying real estate held byinsurance entities.
4. Measuring certain money market instruments atamortized cost.
5. Timing of the measurement of pension or OPEB liabilities and expenditures in governmental fund
financial statements.
6. Recognizing on-behatf payments for pensions or OPEB in employer financial statements.
7. Presenting paynoK're<ated measures in R5| for OPEB plans and employers that provide OPEB.
8. [iaoifyingemp<oyer'peid member contributions for 0PEB.
9. Simplifying certain aspects ofthe alternative measurement method forOPE8.
10. Accounting and reporting for OPEB provided through certain muidp[e'empioyerdefined benefit
OPE8pians.
0 The pronouncement wilt be effective starting with years ending June 30' 2018.
86,ER" IN DEBT IES
w Resolves issue of how to record in -substance defeaxanceofdebt when solely existing resources are
used.
m Current standards only address reporting requirements when debt is extinguished using bond
proceeds.
� When cash o/ other existing resources are placed in an irrevocable trust to extinguish debt it is
considered tnbein-substance defeasance` assuming all, criteria are met.
m The difference between the reacquisition price and the net carrying amount o(the debt wilt be
recognized as separately identified gain or loss in the period ofdofeasancr. This differs from
current practice when debt is extinguished using bond proceeds, whereby the difference is deferred.
w Payments to the escrow agent from existing resources should be reported as debt service
0 The pronouncement wilt be effective starting with years ending June 30, 2018.
GAS13, STA'"n ME['41Tt,10.83/ASSET' RE TIREMEN 7 ()BLIGATIONS
° Establishes measurement criteria for recording a liability for the retirement or removal of certain
assets such as:
/ Nuclear power plants
/ Sewage treatment facilities
/ Coal-fired power plant
/ Wind turbines
/ X-ray machines
m Governments with legal obligations to perform future asset retirement activities related to its
tangible capital assets would be required to recognize liability.
° Aliability and corresponding deferred outflow is recorded when the liability is both incurred and
reasonable estimable.
• The liability is based on best estimate of current value of outlays expected to be incurred.
• Must be both an external obligating event, such as a court judgment orfederal, state or local taw;
and mninternal obligating event, such aacontamination orretirement.
* The pronouncement will be effective starting with years ending June 30' 2019.
• Establishes criteria for reporting fiduciary activities that focuses on whether the government
controls the assets and the fiduciary relationship with the beneficiaries.
* The statement describes four fiduciary funds:
1. Pension and OPE8funds
Z. Investment trust funds
3. Private -purpose trust funds
4. Custodial funds
* Custodial funds replace agency funds for activities that are not held in trust.
w For activities for which a trust agreement exists' an investment trust fund or private purpose trust
fund will bcused.
* Pension funds not held in trust would be classified as custodial funds.
* The pronouncement will beeffective starting with years ending December ]1' 2019.
w This standard will require recognition of certain lease assets and liabilities for teases that are
currently classified as operating teases.
° Eliminates the distinction between operating and capital ieases-aUieasesvviKberecordedonthe
statement ofnet position/ balance sheet.
° New definition of hsue ' a contract that conveys the right to use another entity's nonfinancial
asset for a period oftime in an exchange orexchange-like transaction.
� Excludes teases that transfer ownership under a bargain purchase option or service concession
arrangements that are covered by GASB Statement No. 60.
° Lessees would recognize a lease liability and an intangible right -to -use lease asset which would be
amortized in a systematic and reasonable manner over the shorter of the (ease term or the useful
life of the underlying asset. Short-term teases are excluded.
^ Lessor would recognize lease receivable and deferred inf tow of resources which would be recognized
as revenue in a systematic and rational manner over the term of the lease.
0 The pronouncement will be effective starting with years ending December 31, 2020.
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July 23, 2019
Audit Committee
Town of Estes Park
170 MacGregor Ave
Estes Park Co, 80517
RE: Auditor Reappointment
During the audit this year, I became concerned with the quality and timeliness of the audit.
After conclusion of the audit for 2018, I felt it was my duty to advise the audit committee
of my concerns and observations. Upon discussion with the Mayor, Town Administrator
and Assistant Town Administrator, it was decided to bring this up with the audit committee
prior to appointment of auditors for the 2019 financial statements.
The following summarizes some of the concerns identified during the 2018 financial
statement audit.
• Audit quality: The auditor works for the Audit Committee and Town Board to help
monitor financial management practices, assisting the governing board meet its
financial oversight responsibilities. However, the audit for the last couple of years
was not as detailed or in-depth as I would expect. It appeared to be focused on
simply gathering the info needed for the financial statements and was not as
focused on internal controls and processes.
• Audit comments and suggestions: Even though the Finance Department works
hard to properly account for all of the Town's activity, we can become so focused
on the day to day activities that we miss the big picture. Auditor comments and
suggestions can help call attention to opportunities to enhance controls from a
broader perspective. Staff as well as the Town Board can benefit from these
suggestions. However, ACM had three written comments in 2017 and didn't have
any written comments in 2018. There is always room for improvement so this
leads one to question the thoroughness of the audit.
170 MACGREGOR AVE
P.O.. BOX 1200,.,ESTES PARK CO„ 80517 WWW.ESTES.ORG
Finance Department 970-577-3560
1.3uariudson, Finance Director dhudson@estes.orp
• Auditor experience: The Town still had significant FEMA and CDBG grants in
2018, requiring a combined "Single Audit" of the Town's grant activity. However,
the in -charge auditor had very limited grant auditing understanding and
experience. This led to challenges in completing the grant audit. In spite of
wrapping up field work on the Town's audit on May 23rd, we continued to get
additional requests for audit documentation on these programs up to the final
request on July 1 at 10:29 am. This was the date the audit was due to be filed with
GFOA.
• Auditor quality control: For the second year in a row, ACM issued a "final" report
that had numerous problems and corrections needed. For 2017's audit, we
experienced multiple delays in receiving drafts and subsequent revisions. After
multiple rounds, I received a "final" report at 3:59 pm on July 31, 2018, the date of
the extended deadline. I got the report filed that afternoon and then the next day
after I had filed the report, I found errors in the report that had to be corrected. The
final corrected report for 2017 was finally received on August 6, 2018. Since this
was the first year of their engagement and the auditor appointment was later than
anticipated, I gave them the benefit of the doubt.
However, this pattern reoccurred again for 2018's audit. Despite completing the
audit fieldwork on May 23rd, I only received bits and pieces of the report to review
until the end. It was obvious that ACM didn't even review these pieces due to the
errors I found, such as doing a global replacement of "city" with "Town". Their
global change resulted in "capaTown" instead of capacity, etc. Everywhere the
letters "city" occurred, it was replaced with "Town". This would have been easily
caught by anyone reading through the document but I was the one to catch it.
I did not receive a complete report until Friday June 28th with the report due
Monday July 1st. However, immediately upon review of the report, significant
errors were noted that had to be corrected before I could even begin to proof it. I
didn't receive a corrected copy that I could start proofing until July 1st, at 1:26 pm
and it was marked "final". Obviously, they had not even reviewed the report since
I immediately found errors in the report. Due to their lack of quality control and
proofing, I had to request an extension to file after I had specifically told the auditors
that I did not want to be forced to file an extension again this year. I then proceeded
to proof their "final" report and had corrections to 19 pages of the report. I finally
received a corrected copy on July 3rd at 7:17 am.
170 MACGREGOR AVE.
P.O. BOX 1200, ESTES PARK CO. 8051.7 WWW.ESTES.ORG
Finance Departryxmlt W0-577-3560
1--ludson, DireMr dhudson@estes.oro
If it had not been for my depth of understanding of government financial statements
and lack of trust in their proofing efforts, these errors probably would not have been
discovered until after the reports were delivered and filed with external agencies.
This lack of proofing their own reports and relying upon clients to catch everything
demonstrates poor quality control.
• Refusal to implement GFOA recommendations: As part of GFOA's Certificate of
Achievement for Excellence in Financial Reporting program, the Town receives
comments and suggestions on improving the financial statement presentation in
the future. In the comments accompanying the award for 2017's CAFR, a
suggestion was made to combine a couple of line items in the Government -wide
Statement of Net Position related to long term pension liabilities. When I inquired
why their financial statements did not reflect this, ACM's response was "We believe
our presentation is appropriate so we (the Town) should respond saying the Town
presents the Net Pension and OPEB liabilities separate from long term debt." ACM
then proceeded to present the new OPEB liability (retirement health insurance)
separate just like they did the retirement pension liability in 2017. In my submittal
to the GFOA program for 2018's CAFR, I indicated that the auditors believed the
presentation was acceptable. We'll see how GFOA responds to their lack of
compliance.
There are a couple of considerations that would make changing auditors at this time less
desirable.
• Finance Department staff already have several projects going this summer. These
include process improvements for accounts receivable, record retention and
destruction, police payroll processing improvements, converting utility billing
documents to electronic storage, bidding out mail courier services, testing and
rolling out a significant upgrade to the accounting system, not to mention issuance
of two debt obligations ( USDA water bonds for Park Entrance Mutual Water and
Pipeline Company and Power and Communication bonds), and of course
developing Broadband Business processes. Going out to bid for audit services
would just compound this already ambitious schedule.
• Financial and Managerial stability is preferable when entering the bond market. As
the Town continues to work towards issuing bonds this fall to fund the buildout of
the smart grid system and the fiber -to -premise Internet system, it is desirable to
present a stable managerial base for the Town, especially concerning the financial
environment. With key managerial changes already underway for the Town
Administrator and Town Attorney positions, to cancel and then bid out the audit
contract could just raise suspicions of investors about instability, potentially
increasing interest rates on the Power and Communication Bonds.
170 MACGREGOR AVE. P.O. BOX 1200, E 1 ES PARK CO . 80517
Finance Department
Duane Hudson, Finance Director
W W W .ESTES.ORG
970-577-3560
dl u.Jdson@)estes.arc
With all of this in mind, I would like to suggest the audit committee send a letter to the
auditors expressing our concerns to see how they respond. Given a satisfactory
response, I would recommend reappointment for the 2019 audit and then, if things do not
improve, go out to bid for auditors next year. However, this is the audit committee's
decision, not staff's. We will follow whatever direction the audit committee decides to do.
Sincerely,
Duane Hudson
Finance Director
170 MACGREGOR AVE.
P.O. BOX 1200, ESTES PARK CO. 80517 WWW.ESTES.ORG
Finance Department 970-577-3560
Duane Hudson, Finance Director dhudson Westes.oro