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Sparks City Council Meeting 12/10/2018

General Business: 9.5

Title: Consideration, discussion and possible acceptance of the City’s Comprehensive Annual Financial Report (CAFR) for fiscal year 2017-2018, and possible approval of the City's Plans of Corrective Actions relating to the City’s external auditors' conclusions and recommendations.
Petitioner/Presenter: Jeff Cronk, CPA, Financial Services Director/Debi Kinder, CPFO, Accounting Manager
Recommendation: That Council accept the Comprehensive Annual Financial Report (CAFR) as presented, including the Plans of Corrective Action for fiscal year 2017-2018, and authorize the CAFR to be distributed to interested parties as well as be submitted to the Government Finance Officers Association (GFOA) for consideration for its Certificate of Achievement for Excellence in Financial Reporting award.
Financial Impact: The fee associated with the GFOA award program is approximately $580.
Business Impact (Per NRS 237):
    
A Business Impact Statement is not required because this is not a rule.
Agenda Item Brief:

Fiscal year 2017-2018 financial audit has been completed and the Comprehensive Annual Financial Report (CAFR) is presented for your acceptance.  Approval of two audit related plans of corrective action, state and federal, are also required.  The state plan of corrective action is required to be submitted to the Nevada Department of Taxation to address violations of statute discovered during the audit and is presented as a separate document from the CAFR.  A federal plan of corrective action, which pertains to audit findings, is required to be submitted to a federal reporting website and is presented as a separate document from the CAFR.  Finally, Council authorization to distribute the CAFR to interested parties is required.



Background:

Per Nevada Revised Statute (NRS) 354.624, all Nevada local governments must provide for an annual audit by a professional accounting firm.  The Comprehensive Annual Financial Report (CAFR) is the report representing the City’s compliance with state law.  A request for proposal to perform the annual external audit for the City was put out to bid in December of 2014, and a three year contract with an option to extend for up to three additional years was awarded to Eide Bailly, LLP beginning with fiscal year 2014-2015.  The City exercised the first of three optional contract extensions for the financial audit of fiscal year 2017-2018

Two plans of corrective action are needed based on the results from the external audit.  First, NRS 354.6245 and Nevada Administrative Code (NAC) 354.721 require that Council advise the Department of Taxation what action has been, or will be, taken to prevent recurrence of NRS violations discovered during our audit.  Second, the Code of Federal Regulations 2 CFR §200.511(c) require the City to prepare a corrective action plan relating to audit findings of the financial statements.  The federal plan is required for all years that the City is subject to an audit in accordance with the generally accepted government auditing standards (GAGAS).  The City is subject to GAGAS audit standards due to receipt of government awards (grants).



Analysis:

The major sections of the CAFR are as follows:

  • The Introductory Section which includes the Financial Services Director’s letter of transmittal that discusses items such as how the CAFR is presented, the profile of the City’s government, general economic conditions, and significant financial policies;
  • The Financial Section includes the independent auditor’s report on the financial statement, management’s discussion and analysis (MD&A), and the government-wide and individual fund financial statements;
  • The Statistical Section includes schedules of statistics showing financial trends, revenue capacity, debt capacity, demographic and economic information, and relevant operating information;
  • The Compliance Section includes the independent auditor’s reports on internal control over financial reporting, and the City’s compliance with requirements applicable to each major federal grant program.  This section also includes the schedule of expenditures of all federal grant awards, and the schedule of the independent auditors’ findings and questioned costs.  Code of Federal Regulations 2 CFR 500.511(c) require that for each year the City has a grant subject to a GAGAS audit we must follow-up on all audit findings with a plan of corrective action.  The fiscal year 2018 audit findings are described in detail on pages 165-168.  The plan of corrective action for these findings, which will be submitted electronically to a federal reporting website, is attached.  Per NRS 354.624(9), the Council must either adopt the auditor recommendations as listed in the Compliance Section of the CAFR, or adopt them with modifications, or reject them with reasons as to why they are rejected;
  • The Auditor’s Comments Section is a brief section including reports from the independent auditors concerning state statute compliance and certain recommendations.

As can be seen in Independent Auditors Report found on pages 10-13, and in the Summary of Auditor’s Results report on page 164, the independent auditors have given an unmodified opinion stating that the City’s fiscal year 2017-2018 financial statements as presented in the CAFR are materially correct and fairly present the financial results and position of the City.  An unmodified opinion represents a “clean” audit opinion and is the highest level that can be obtained.

The independent auditor’s findings are presented and discussed in detail within the Compliance Section of the CAFR for all interested parties to review.  In addition, representatives from Eide Bailly, LLP will be on-hand should members of the City Council have specific questions concerning their audit findings or procedures, or other information within the CAFR.

In addition to receiving an unmodified opinion for fiscal year 2017-2018 financial statements, the previous fiscal year 2016-2017 was the thirty seventh year in a row that the Government Finance Officers Association awarded a Certificate of Achievement for Excellence in Financial Reporting to the City of Sparks.  The Finance Department believes the current report continues to conform to the program’s requirements, and will submit the fiscal year 2017-2018 report for consideration of the award.

Plans of Corrective Action and Distribution to Interested Parties:

State Department of Taxation Corrective Action Plan:

Our auditors' conclusions regarding the City of Sparks' compliance with Nevada Revised Statues and Nevada Administrative Code (NRS/NAC) as identified in the annual audit process are listed and described in detail in Note 2 to the Financial Statements which can be found on pages 51-52 of the attached CAFR.  Nevada statutes require the City submit a Plan of Corrective Action to the Department of Taxation for each violation.  Plans of Corrective Action submitted to the Department of Taxation must be accompanied by minutes from a Council meeting as evidence that the plan was approved.

The section of Note 2 entitled ‘Compliance with Nevada Revised Statutes and Administrative Code’ is a reference to a budget violation of NRS 354.626 which reflects that the City recorded $72,377 more in expenditures than was planned for in the budget of the Parks and Recreation Program Fund.  The overspend occurred primarily due to unbudgeted increases in retirement costs for temporary employees that was not anticipated.  Our budget team intends to correct the violation going forward by employing a more conservative method of projecting the number of temporary personnel that will work more than the allowed hours.  The letter detailing the findings and the plan to correct is attached for your consideration.

The CAFR will be submitted to the Department of Taxation, in accordance with NAC 354.725, upon Council approval to distribute to interested parties.

Federal Corrective Action Plan:

In accordance with generally accepted government auditing standards (GAGAS), the City is required to indicate whether it agrees with the auditor’s recommendations to correct weaknesses in the financial statements.  If the City agrees with the recommendation, we must identify a plan to correct the weakness, the person(s) responsible, and the anticipated completion date.  If the City does not agree with the recommendation, we must indicate the specific reasons.  The attached Corrective Action Plan for Audit Findings will be submitted electronically to a federal reporting website and is summarized below:

Findings from audit of financial statements:

There were no findings related to our financial statements.

Finding from audit of grant programs:

2018-001 – Federal money passed from the City of Sparks grants to the City of Reno was not monitored to assure that the City of Reno spent the money in accordance with the grant award.  Subgrantee monitoring processes have been reviewed by staff to assure that appropriate monitoring occurs in the future.

 

2018-002 – The City did not obtain competitive price quotations for three purchases made with grant money that exceeded the Federal limit for purchasing without a competitive price quote.  Staff is working to implement internal controls to prevent this from occurring again.

 

2018-003 – Federal money was used to purchase food for a police department community event, which was not an allowed use of the grant award.  Food purchased in the amount of $1,913.02 was reclassified to a non-grant account in fiscal year 2018 and communication with the department regarding allowable spending has occurred to prevent this from happening in the future.



Alternatives:

The Council may choose not to accept the CAFR nor approve the Plans of Corrective Action as presented, but in so doing, must provide alternatives to address the audit findings as listed in the Compliance Section (pages 165-168) within 3 months of today’s meeting.



Recommended Motion:

I move to accept the Comprehensive Annual Financial Report and approve the Plans of Corrective Action for fiscal year 2017-2018 as presented, and authorize the Financial Services Director to distribute the CAFR to interested parties and to the GFOA for award consideration.



Attached Files:
     State Corrective Plan of Action FY2018.pdf
     Corrective Action Plan - Audit Findings FY18.pdf
     City of Sparks FINAL FS.pdf

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