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1999 Financial and Audit Report CITY OF DUBUQUE, IOWA MEMORANDUM February 2, 2000 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Submission of FY 1999 Comprehensive Annual Financial Report (CAFR) and Audit Reports Finance Director Duane Pitcher has submitted the Fiscal Year 1999 Comprehensive Annual Financial and Audit Reports. /s/ Michael C. Van Milligen Michael C. Van Milligen MCVM/dd Attachment cc: Barry Lindahl, Corporation Counsel Tim Moerman, Assistant City Manager Duane Pitcher, Finance Director CITY OF DUBUQUE, IOWA MEMORANDUM January 14, 2000 TO: Michael Van Milligen, City Manager Diane FROM: Duane Pitcher, Finance Director SUBJECT: Submission of Fiscal Year 1999 Comprehensive Annual Financial Report (CAFR) and Audit Reports INTRODUCTION The purpose of this memorandum is to transmit the Fiscal Year 1999 Annual Financial Reports prepared and audited by EideBailly, LLP, CPA's, and to enclose the Auditor's comments and recommendations along with the City staff's response thereto. The City's independent auditor found no instances of non-compliance with all applicable laws, regulations, contracts, and grants; and found the general-purpose financial statements free of material misstatement. The auditor's report also notes that there are no material weaknesses in the City's internal control structure. BACKGROUND The City of Dubuque is required to have an annual audit in accordance with generally accepted auditing standards, Chapter 11 of the Code QfIow!!, Government Auditinl! Standards and Office Management and Budget (OMB) Circular A-133. This Comprehensive Annual Financial Report is in conformance with the standards set by OMB Circular A-133. This federal regulation mandated audit standards for federal programs. The OMB Circular A-133 was newly implemented in FY 97. The financial reports for governmental funds were prepared on the modified accrual basis of accounting, under which revenues are recorded when they are measurable and available and expenditures (other than interest on long-term debt) are recorded when the liability is incurred. Financial reports for enterprise activities (Water, Wastewater, and Parking) were prepared on a full accrual basis. The audit reports also conform to generally accepted accounting principles since they provide a truer statement ofthe City's financial position by providing financial statements showing the assets, liabilities and equity for all funds. Separate audit reports are required for the Parking Facilities and the Metropolitan Area Solid Waste Agency and have also been submitted. The financial information for these entities is also included in the Comprehensive Annual Financial Report. AUDITOR'S RECOMMENDATIONS As part ofthe annual audit, the Auditor includes recommendations for improving the financial management system ofthe City. Attached is a copy of the Auditor's comments and recommendations and City staff's response thereto. ACTION STEP It is recommended that the City Council receives and files the Fiscal Year 1999 audit reports identified above and receives and files this communication and related enclosures. Should any Council Member desire individual copies of the separate audits for Parking Facilities, or the Solid Waste Agency, they are available from the Finance Department. Enclosures City of Dubuque FY 99 Audit Reports Auditors Management Letter City Responses to Recommendations in Management Letter 2 /"-~»",,, EideBaillYLLP ~ Consultants' Certified Public Accountants To the Honorable Mayor and Members of the City Council City of Dubuque, Iowa We have audited the financial statements of the City of Dubuque, Iowa, as of June 30,1999, and have issued our report thereon dated November 30, 1999. Our professional standards require that we communicate with you concerning matters that may be of interest to you in fulfilling your obligation to oversee the financial reporting and disclosure process for which the management of the City is responsible. We have prepared the following comments to assist the Mayor, City Council, and management in fulfilling that obligation. Our Resnonsibilitv Under Generallv Accented Anditim! Standards and OMB Circular A-133 We conducted our audit of the City's 1999 financial statements in accordance with generally accepted auditing standards; Chapter 11 of the Code of Iowa; and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards and provisions require that we plan and perform the audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are tree of material misstatement. Those standards and provisions also require that we obtain an understanding of the City's internal control sufficient to enable us to properly plan our audit. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. Our audit does not provide absolute assurance or guarantee the accuracy of the financial statements and is subject to the inherent risk that errors, traud or illegal acts, if they exist, have not been detected. In planning and performing our audit, we considered the City's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. We also considered internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-B3. As part of obtaining reasonable assurance about whether the City's financial statements are tree of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit. Also, in accordance with OMB Circular A-B3, we examined, on a test basis, evidence about the City's compliance with the types of compliance requirements described in the us. Office of Management and Budget (OMB) Circular A-i33 Compliance Supplement applicable to each of its major federal programs for the purpose of expressing an opinion on the City's compliance with those requirements. While our audit provides a reasonable basis for our opinion, it does not provide a legal determination on the City's compliance with those requirements. 3341 Hilbest Rood' Dubuque. Iowa 52002.3809 . 319.556.1790 . Fox 319.557.7842 Offices In An"ma, Iowa. Minnesota, Montana. Nonh Dakota and South Dakota - Equal Opponunity Employe, To the Honorable Mayor and Members of the City Council Page 2 Sil!nificaut Accountinl! Policies The City's significant accounting policies are disclosed in the notes to the financial statements. There were no changes to the significant accounting policies during the year. Sil!nificant Audit Adiustments We discussed all adjustments to the financial statements with the City's staff during the audit. There were no significant audit adjustments made to the financial statements. Disal!reements with Mana!!ement We have no disagreements with management regarding the application of accounting principles, the basis for management's judgments about accounting estimates, the scope of the audit, the disclosures to be included in the financial statements or the wording of our report in the 1999 financial statements. Difficulties Enconntered in Performinl! the Audit We experienced no difficulties in dealing with management relating to the performance of our audit. We received excellent cooperation of management and staff. We believe that we had direct and unrestricted access to the City's management. Other Comments We have included additional comments regarding the financial statements and operations. These comments are not a result of in-depth study of any specific areas, but are based on observations made during the course of our audit. We would like to take this opportunity to express our appreciation to your staff for the cooperation that we received during the course of our audit. If you have any questions concerning the matters presented herein, or wish to discuss any other aspect of the audit, we will be pleased to meet with you at your convenience. This report, a public record by law, is intended solely for the information and use of the officials, employees, and citizens of the City of Dubuque, Iowa, and other parties to whom the City of Dubuque, Iowa, may report. This report is not intended to be and should not be used by anyone other than these specified parties. Eide Bailly LLP November 30,1999 Dubuque, Iowa CITY OF DUBUQUE, IOWA YEAR ENDED JUNE 30, 1999 OTHER COMMENTS Conversion of AccountiD!! Records The City maintains its accounting records using the cash basis of accounting. However, in order to comply with generally accepted accounting principles, the comprehensive annual financial report (CAFR) must be prepared using the modified accrual/accrual basis of accounting. Eide Bailly LLP currently makes all adjustments at year-end which are necessary to convert the City's cash-basis amounts to the amounts used in the CAFR. The City's Finance Department has added personnel to their staff in order to convert the accounting records to the modified accrual/accrual basis at year end and prepare the financial statements requirec! in the CAFR. However, at this time, this person is only doing the workpapers needed to convert the accounting records to the modified accrual/accrual basis at year end. Eide Bailly LLP must still make the journal entries and prepare the financial statements. We encourage the Finance Department to continue in their advancement of converting to the modified accrual/accrual basis and preparation of the financial statements required in the CAFR. Policies and Procedures We noted that the City has begun to develop a written manual of accounting policies and procedures but that the manual is not complete at this time. Such a manual helps to define the roles and duties of employees and ensures that policies and procedures are consistently applied. The City should continue to develop the manual of accounting polices and procedures and complete it as soon as possible. Five Flal!s Cash Account The City has two checking accounts for the Five Flags Civic Center; one for the box office and one for concessions. Five Flags personnel prepare a monthly financial statement for the Civic Center and in the following month remit a check to the City for the City's share of the previous month's revenue generated by the Civic Center. The City should record the revenue trom Five Flags in the same period as it is received at the Civic Center since this money is both measurable and available rather than in the following month as is currently done. This will ensure that this revenue is recorded in the proper accounting period. Federal Awards The City receives many federal awards each year. Some of these award programs are ongoing trom year to year, such as the CDBG Entitlement Program. There are other federal programs that last ITom one to three years. For all federal programs, there are federal requirements that must be adhered to in order to be in compliance with federal laws and regulations. Presently, the City of Dubuque has a part-time person in the Finance Department giving limited accounting assistance to some of the departments with federal programs. We recommend that the City expand this position to offer compliance assistance, in addition to accounting assistance, to all departments that receive federal grants. This position would assist the City in staying in compliance with federal laws and regulations and would eliminate much unnecessary time being spent in various City departments trying to determine which compliance elements apply to their particular grant. CITY OF DUBUQUE, IOWA YEAR ENDED JUNE 30, 1999 OTHER COMMENTS Year 2000 The year 2000 is fast approaching and bringing with it the potential for vast changes within our working environment. The rollover to the millennium may bring many problems for the City arising trom computer software and hardware. A number of computers and software packages can only store two digit dates. Some of these systems will see the year 2000 as 1900, others may consider "00" an invalid entry and not accept the date, or be confused by the "00" and not function correctly. You need to assess and validate your software and hardware to determine which systems are year 2000 compliant. The year 2000 problem is not strictly confined to computer software and hardware. It affects any applications which contain embedded chips (using date dependent logic). Embedded chips run many pieces of equipment, such as mechanical systems, telephone systems, and security systems. For example, if a particular piece of equipment is not year 2000 compliant, on January 1, 2000, that piece of equipment will be unable to perform. To ensure that this does not happen within the City, all systems should be tested for proper rollover to the millennium. Contacts should be made to vendors in determining if they have discovered a problem and whether or not there is a solution. Finally, all computer software, hardware, and any equipment containing embedded chips that are purchased now and between the year 2000 should have a year 2000 warranty. Many entities are receiving requests trom suppliers, business partners and banks about their Y2K compliance status. You should know that the recently enacted Year 2000 Information and Readiness Disclosure Act might provide your City limited legal liability protection for the disclosure and exchange of Y2K readiness information. To find out more about this act, link to www.v2k.com, an excellent reference on the Year 2000 topic. We recommend that you contact your legal counsel for more information about how you can take advantage of this new law. CITY OF DUBUQUE, IOWA MEMORANDUM January 14,2000 TO: Michael Van Milligen, City Manager Diane FROM: Duane Pitcher, Finance Director SUBJECT: FY 99 Audit Management Letter INTRODUCTION The following is submitted in the response to the attached recommendations on bookkeeping and/or accounting procedures made by Charles Bailly & Company after completion of the FY 99 Audit of the City. BACKGROUND A separate letter was issued covering specific findings and recommendations for the FY 99 audit and is included; along with City responses, as part of the annual audit report. The attached letter contains more general recommendations on improving the City's overall accounting and control system. DISCUSSION Responses to the attached recommendations are as follows: (1) Conversion of Accounting: Records - The conversion to the new system now allows for accrual entries on the accounting system, The prior accounting system allowed for entries to be made on a cash basis only and did produce closing trial balance reports. As noted in the management letter, City staff prepared all adjusting workpapers to convert records to the modified accrual/accrual basis and loaded data into the financial reporting system City staffwill continue to work towards making all adjusting entries. (2) Policies and Procedures - Certain policies and procedures, such as travel reimbursement, fixed asset accounting, and purchasing are presently documented by Citywide administrative policies. The City will continue to work to incrementally prepare a manual of accounting polices and procedures. " (3) Five Flags Cash Account - Adjustments will be made in revenue recording to assure that revenue is recorded in the accounting period in which it is earned. (4) Federal Awards - The City Finance Department has expanded consolidated record keeping for federal and state grants. The number of grants, and departments involved in grant projects has grown considerably over the past three years with the number of individual grants nearly doubling. The City will review the need to expand the grant accounting function to include compliance elements other than financial. 2