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 fiscal year 2014-2015.  The City exercised the second of three optional contract extensions for the financial audit of fiscal year 2018-2019.

Two plans of corrective action are needed based on the results from the external audit.  First, 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).  Second, 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.

The major sections of the CAFR are as follows:

• The Introductory Section which includes the Chief Financial Officer’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 independent auditor comments concerning state statute compliance and certain recommendations, 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 2019 audit findings are described in detail on pages 176-187.  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;

As can be seen in Independent Auditors Report found on pages 10-13, and in the Summary of Auditor’s Results report on page 183, the independent auditors have given an unmodified opinion stating that the City’s fiscal year 2018-2019 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 2018-2019 financial statements, the previous fiscal year 2017-2018 was the thirty eighth consecutive year 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 2018-2019 report for consideration of the award.

Plans of Corrective Action and Distribution 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 recommendations, 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 recommendations, 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:

2019-001 – The Activity Summary Report (C04PR03) did not reflect an accurate number of individuals assisted by the grant program as determined by supporting documentation.  Staff is working with report preparers to assure the reports reflects the underlying documentation.

2019-002 – Prevailing wage reports, which are required to be obtained from contractors performing work that is federally funded, were not obtained timely and the City did not follow up to request the reports be submitted timely.  Staff is researching the feasibility of using software to monitor reporting compliance.

2019-003 – Although the city was exempt from the requirement to submit environmental reports for our federal grant activities, we were required to document the reasons for that exemption.  Staff is working to assure that documentation is prepared in the future.

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 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 $1,848 more in expenditures than was planned for in the budget of the Community Support Function of the General Fund.  The overspend occurred primarily due to an unbudgeted agreement to support a Community Triage Center.  Our budget team intends to work with managers to improve communication regarding late, unplanned expenditures to ensure that a budget transfer from another function can be approved by Council before June 30.  The letter detailing the findings and the plan to correct is attached for your consideration.

Overspending in the General Fund related to employee contract changes ($362,801) and in the insurance funds ($1,546,258) related to insurance coverage and professional services are exempt per NRS and as such do not require a corrective action plan be submitted

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

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 176-187) within 3 months of today’s meeting.

Council may choose to accept the Comprehensive Annual Financial Report and approve the Plans of Corrective Action for fiscal year 2018-2019 as presented and authorize the Chief Financial Officer to distribute the CAFR to interested parties and to the GFOA for award consideration.

I move to accept the Comprehensive Annual Financial Report and approve the Plans of Corrective Action for fiscal year 2018-2019 as presented and authorize the Chief Financial Officer to distribute the CAFR to interested parties and to the GFOA for award consideration.