Sparks City Council Meeting 12/11/2017 2:00:00 PMMonday, December 11, 2017 2:00 PM
Council Chambers, Legislative Bldg, 745 4th St., Sparks, NV
General Business: 9.3
A Business Impact Statement is not required because this is not a rule.
Fiscal year 2016-2017 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. The federal plan of corrective action, which pertains to audit findings, is required to be submited 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.
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.
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).
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 2017 audit findings are described in detail on pages 163-165. 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 10-12, and in the Summary of Auditor’s Results report on page 162, the independent auditors have given an unmodified opinion stating that the City’s fiscal year 2016-2017 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 2016-2017 financial statements, the previous fiscal year 2015-2016 was the thirty sixth 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 2016-2017 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 50-51 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 entitled ‘Compliance with Nevada Revised Statutes and Administrative Code’ of Note 2 is a reference to a budget violation of NRS 354.626 which reflects that the City recorded $39,237 more in expenses than was planned for in the budget of the Motor Vehicle Maintenance Fund. The overspend occurred due to underestimating the amount of depreciation expense associated with our fleet assets. Our budget team intends to correct the violation going forward by attempting to ensure that sufficient budget authorization is obtained prior to the end of the fiscal year. Obtaining City Council authorization before the end of the year is required by Nevada law, but is difficult to do since expenses are often incurred after the end of the fiscal year. 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:
Finding 2017-A – Our auditors feel that the City does not have sufficient staff that can perform the unique and complex functions required to prepare the CAFR. Due to staff priorities and technology limitations, the City has asked the auditors to partially prepare some of the financial statements found in the CAFR and to compile the reports into a comprehensive format. This has been a cost saving measure utilized in the City for several years, yet auditing standards require such situations must be represented in the CAFR as a material weakness. However, we are evaluating CAFR preparation software and hope that we will bring this task in-house by 06/30/2019.
Finding 2017-B – Our auditors recommend that the City not allow senior finance personnel to enter journal entries without asking another senior staff member to review. The City does not intend to adopt the recommendations of our auditors to obtain secondary approval of journal entries posted by senior finance personnel. City staff believe another level of management that is not a ‘working’ level would be inefficient and that entries of senior finance personnel are reviewed indirectly via account reconciliations.
Finding from audit of grant programs:
2017-001 – Payroll reports from contractors on grant projects were received and reviewed by City staff, but not within the time requirements of Federal regulations. Finance staff has communicated with the departments that handle contracts requiring certified payroll review and been assured that they will obtain the necessary payroll reports within the time required to comply with Federal regulations.
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 163-165) within 3 months of today’s meeting.
I move to accept the Comprehensive Annual Financial Report and approve the Plans of Corrective Action for fiscal year 2016-2017 as presented, and authorize the Financial Services Director to distribute the CAFR to interested parties and to the GFOA for award consideration.
CAFR City of Sparks FINAL.pdf
State Corrective Plan of Action FY2017.pdf
Federal Corrective Action Plan - Audit Findings FY17.pdf