Nevada Revised Statute (NRS) 354.624 requires all Nevada local governments to 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.  Eide Bailly, LLP, has performed the City's annual audits since fiscal year 2014-2015.  

Two plans of corrective action are needed based on the results from the external audit.  First, 2 C.F.R. § 200.511(c) requires 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 federal government awards (grants).  Second, NRS 354.6245 and Nevada Administrative Code (NAC) 354.721 require that Council advise the Nevada Department of Taxation what action has been, or will be, taken to prevent recurrence of violations of state law discovered during the audit.

The major sections of the CAFR are as follows:

• The Introductory Section 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.  2 C.F.R. § 200.511(c) requires that for each year the City receives a grant subject to a GAGAS audit, the City must follow-up on all audit findings with a plan of corrective action.  The fiscal year 2020 audit findings are described in detail on pages 175-185 of the CAFR.  The plan of corrective action for these findings, which will be submitted electronically to a federal reporting website, is attached.  Pursuant to 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.

City staff is responsible for the preparation and fair presentation of our financial statements.  As part of the audit engagement, management signs a representation letter, which in essence states that all of the information submitted is accurate, and that all material information has been disclosed to the auditors.  The management representation letter for this year’s audit is attached to this staff report for reference purposes only and will be retained by the City Clerk to ensure it is available for any public records requests.

As can be seen in Independent Auditors Report found on pages 10-12, and in the Summary of Auditor’s Results report on page 181, the independent auditors have given an unmodified opinion stating that the City’s fiscal year 2019-2020 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 2019-2020 financial statements, the previous fiscal year 2018-2019 was the thirty ninth 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 2019-2020 report for consideration of the award.

Plans of Corrective Action and Distribution to Interested Parties:

Federal Corrective Action Plan:

In accordance with 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.  Upon Council approval, the attached Corrective Action Plan for Audit Findings will be submitted electronically to a federal reporting website. The Corrective Action Plan for Audit Findings is summarized below:

Findings from audit of financial statements:

2020-001 - The City of Sparks did not have adequate internal controls to ensure certain taxes receivable were recorded in the appropriate fund.  This one-time occurrence caused a misstatement in both the General Fund and the General Obligation Debt Service Fund.  Financial Services staff are working to improve internal controls to ensure entries of taxes receivable are recorded in the appropriate fund. 

Finding from audit of grant programs:

2020-002 – The City did not have adequate internal controls for the Community Development Block Grant (CDBG) to ensure the Activity Summary Report (C04PR03) demographic information properly reflects supporting documentation.  This could generally result in reporting inaccurate information to the federal awarding agency. Financial Services staff are working with various grant report preparers within the City to improve internal controls and assure the reports provided to the federal awarding agency tie to the supporting information.

2020-003 – The City did not have adequate controls in place to assure certified prevailing wage payroll reports are obtained as required by the Department of Labor regulations (29 C.F.R. Part 5) and to follow up with contractors to request those reports.  Staff is researching the feasibility of using software to monitor reporting compliance, and otherwise improve communication with contractors. 

2020-004 – The City had Community Development Block Grant (CDBG) expenditures for projects that were not included in the analysis of whether an environmental review was needed.  Financial Services staff are working with the Community Services department to assure the required documentation is prepared and internal controls are in place to ensure the proper environmental reviews are performed even if the project is expanded beyond the initial scope of work.

State Department of Taxation Corrective Action Plan:

Our external auditor's conclusions regarding the City of Sparks's compliance with Nevada law are listed and described in detail in Note 2 to the Financial Statements, which can be found on pages 49-50 of the attached CAFR.  Nevada Revised Statutes require the City to 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  violation of NRS 354.626, which reflects that the City recorded $56,584 more in expenditures than was planned for in the budget of the Community Support Function of the General Fund.  The over-budget occurred due to excess spending in three areas: 1) Community Assistance Center (CAC), 2) homeless shelter, and 3) a grant refund.  Nevada law requires Council authorization by June 30^th in order to move budgeted amounts between functions and thus prevent this violation.  However, expenditures can be posted back to June 30^th as late as August 31^st.  Posting expenditures after June 30^th is a normal accounting practice; however, the requirement to obtain Council approval prior to June 30^th becomes problematic.  This particular type of violation happens occasionally, and strict compliance is difficult for all Nevada local governments.  However, the City’s budget team continually works with all City departments to increase their efforts to manage this structurally difficult timing issue.  The City’s letter to the Nevada Department of Taxation detailing the findings and corrective action plan is attached for consideration and approval.

Upon Council approval, the CAFR will be submitted to the Department of Taxation, in accordance with NAC 354.725, 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 175-185) within three months of today’s meeting (as required by NRS 354.624).

Council may choose to accept the CAFR and approve the Plans of Corrective Action for fiscal year 2019-2020 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, approve the Plans of Corrective Action for fiscal year 2019-2020 as presented, and authorize the Chief Financial Officer to distribute the CAFR to interested parties and to the GFOA for award consideration.