CAFR Financial ReportTHE CRY OF
DuB E MEMORANDUM
~.~.`'~-
January 9, 2007
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Submission of Fiscal Year Ended June 30, 2006 Comprehensive Annual
Financial Report (CAFR), Parking Facilities Financial Statements,
Management Letter and Responses to Management Letter
Finance Director Ken TeKippe is transmitting the Fiscal Year 2006 Comprehensive
Financial Report (CAFR), Parking Facilities Financial Statements, Management Letter
and City Responses to the Management Letter. The City's independent auditor found no
instances of material non-compliance with all applicable laws, regulations, contracts,
and grants; and issued an unqualified opinion on the financial statements. The auditor's
report also notes that there are no material weaknesses in the City's internal control
structure. As part of the annual audit, the Auditor provides comments in a management
letter for improving the financial management system of the City. The Auditor's
comments are attached, as well as Finance Department responses.
Michael C. Van Milligen
MCVM/jh
Attachment
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
Kenneth J. TeKippe, Finance Director
THE CITY OF
DUB E
~-~~
Memorandum
TO: Michael C. Van Milligen, City Manager
FROM: Kenneth J. TeKippe, Finance Director ~~ (~
SUBJECT: Submission of Fiscal Year Ended June 30, 2006 Comprehensive Annual
Financial Report (CAFR), Parking Facilities Financial Statements,
Management Letter and Responses to Management Letter
DATE: January 5, 2007
INTRODUCTION
The purpose of this memorandum is to submit the Fiscal Year 2006 CAFR and Parking
Facilities Financial Statements audited by Eide Bailly, LLP, and to enclose the Auditor's
Management Letter along with the City Finance staffs response. The City's
independent auditor found no instances of material non-compliance with all applicable
laws, regulations, contracts, and grants; and issued an unqualified opinion on the
financial statements. 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 of Iowa, Government Auditing
Standards and U.S. Office of Management and Budget (OMB) Circular A-133, Audifs of
States, Local Governments, and Non-Profit Organizations.
This Comprehensive Annual Financial Report is in conformance with the standards set
by OMB Circular A-133. This federal regulation mandates audit standards for federal
programs.
The government-wide financial statements are reported using the economic resources
measurement focus and the accrual basis of accounting, as are the proprietary fund
and fiduciary fund financial statements. Governmental fund financial statements are
reported using the current financial resources measurement focus and the modified
accrual basis of accounting.
Separate financial statements are required for Parking Facilities and Dubuque
Metropolitan Area Solid Waste Agency and have been received. The financial
information for these entities is included in the City of Dubuque CAFR.
AUDITOR'S MANAGEMENT LETTER
As part of the annual audit, the Auditor provides comments in a management letter for
improving the financial management system of the City. The Auditor's comments are
enclosed as well as Finance Department responses.
ACTION STEP
It is recommended that the City Council receives and files the Fiscal Year 2006 reports
identified above and receives and files this communication and related enclosures.
Copies of the financial statements for the Dubuque Metropolitan Area Solid Waste
Agency are available in the Finance Department if desired by Council members.
KJT/jmg
Enclosures: Fiscal Year 2006 CAFR
Parking Facilities Financial Statements
Auditor Management Letter
Responses to Comments in Auditor Management Letter
THE CITY OF
DUB E
~~
Memorandum
TO: Michael C. Van Milligen, City Manager ~ ,
FROM: Kenneth J. TeKippe, Finance Director ~~ ~~`~
SUBJECT: Responses to Audit Management Letter-Fiscal Year Ended June 30, 2006
DATE: January 5, 2007
INTRODUCTION
Responses to the "other comments" section of the October 25, 2006 management letter
issued by Eide Bailly LLP subsequent to completion of the Fiscal Year 2006 audit of the
City are hereby submitted.
BACKGROUND
A separate section in the Comprehensive Annual Financial Report (CAFR) for Fiscal
Year 2006 details specific findings. Pages 104-105 of the report provide this
information. In addition to the comments in the report, a management letter dated
October 25, 2006 was issued which includes more general comments relative to
improving the City's overall accounting and control systems.
DISCUSSION
Finance Department responses to the Auditor's other comments (listed in italics) follow:
Conversion of Accounting Records
Auditor comment
The City maintains its records using the cash basis of accounting. However, in order to
comply with accounting principles generally accepted in the United States of America,
the comprehensive annual financial report (CAFR) must be prepared using the modified
accrual/accrual basis of accounting. Eide Bailly LLP currently posts all adjustments at
year-end which are necessary to convert the City's cash-basis amounts to the amounts
used in the CAFR.
At this time, the City is preparing the workpapers needed to convert the accounting
records to the modified accrual/accrual basis at year-end. Eide Bailly LLP posts the
journal entries and prepares the financial statements. Although it may require
increased staffing levels, 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.
City of Dubuque response
As noted in the management letter, City staff prepared all workpapers to convert
records to the modified accrual/accrual basis. City staff will continue to work towards
converting records from cash to GAAP at year end and preparation of the financial
statements. In order for the City to prepare its own CAFR, we would need to hire
additional professional staff and provide required annual training. The cost of this
would exceed the anticipated reduction in audit fees. The current audit engagement
arrangement (covers FY'06-FY'10) provides for the auditing firm to convert the records
and prepare the financial statements.
Capital Assets
Auditor comment
The City has a centralized custodian in the Finance Department who maintains a record
of the City's capital assets, including additions and deletions made during the year.
During the 2003 fiscal year, the City adopted Govenmental Accounting Standards
Board Statement No. 34. This statement increased the complexity of the capital assets
by requiring governmental infrastructure and depreciation on governmental capital
assets be reported. Due to this increased complexity, the City's capital assets records
should be closely reviewed for errors by management with knowledge of capital asset
policies. The compilation and review of all of the City's capital asset records, including
department summaries, should be completed prior to the beginning of the October audit
fieldwork.
City of Dubuque response
The Assistant Finance Director and I will continue to work closely with the individual
primarily assigned to maintain capital asset records for the City to continue completing
records by October audit fieldwork. Additional clarification was provided by audit firm to
assist in generating capital asset/depreciation schedules. The City will prepare a
comprehensive summary by department.
2
SMG as an Apent
Auditor comment
During the fiscal year 2005, SMG was hired as an agent to manage the Five Flags
Center. Since SMG acts strictly as an agent for the City, SMG should follow all City
policies. During our review of SMG expenditures, several invoices did not contain
information required by City policy. It is recommended that the City Finance
Department increase its review of SMG policies and transactions to ensure compliance
with City policies.
City of Dubuque response
The Assistant Finance Director and I will work with Gil Spence, Leisure Services
Director, and SMG employees to review policies relative to invoices supporting
expendistures.
Notes Receivable
Auditor comment
The notes receivable were not reconciled to the City's general ledger at the time of
October audit fieldwork. The majority of the problems were related to unfunded loans
being placed on the Housing Loan System before the expenditures have been made.
Identification and communication of these unfunded loans must be improved for the
reconciliations to be completed properly and for the correct note receivable balances.
City of Dubuque response
The Assistant Finance Director and I will meet with David Harris, Housing & Community
Development Director, and affected department employees to develop alternate
procedures relative to unfunded loans.
New Governmental Accounting Standards Board (GASB) Statements
Auditor comment
The Governmental Accounting Standards Board (GASB) has issued four statements
not yet implemented by the City of Dubuque. The statements, which might impact the
City, are as follows:
3
GASB Statement No. 43
Auditor comment
Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans
issued Apri12004, will be effective for the City for the fiscal year ending June 30, 2008.
This statement establishes uniform financial reporting standards for other
postemployment benefit (OPEB) plans and supersedes the interim guidance included in
Statement No. 26. This statement affects reporting by administrators or trustees of
OPEB plan assets or by employers or sponsors that include OPEB plan assets as trust
or agency funds in their financial reports.
City of Dubuque response
The City Finance Department will coordinate with the CPA audit firm and Personnel
Manager information required by GASB 43. Implementation is two fiscal years away
with consultant dollars budgeted in FY'08 to assist in gathering required information.
GASB Statement No. 45
Auditor comment
Accounting and Financial Reporting by Employers for Postemployment Benefits Other
Than Pensions issued June 2004, will be effective for the City for the fiscal year ending
June 30, 2009. This statement establishes standards for the measurement,
recognition, and display of OPEB expense%xpenditures and related liabilities (assets),
note disclosures, and, if applicable, required supplementary information (RSI) in the
financial reports of state and local governmental employers.
City of Dubuque response
The City Finance Department will coordinate with the CPA audit firm any information
required by GASB 45. Since the implementation is three fiscal years away, time is
available to research any requirements applicable to the City of Dubuque.
GASB Statement No. 47
Auditor comment
Accounting for Termination Benefits issued June 2005, establishes accounting
standards for termination benefits. For termination benefits provided through an
existing defined benefit OPEB plan, the provisions of this statement should be
implemented simultaneously with the requirements of Statement No. 45. For all other
termination benefits, this statement is effective for the fiscal year ending June 30, 2006.
4
City of Dubuque response
The City Finance Department will coordinate with the CPA audit firm any information
required by GASB 47 that will be implemented with GASB 45. Since the
implementation of GASB 45 is three fiscal years away, time is available to research any
requirements applicable to the City of Dubuque. A portion of GASB 47 was
implemented during FY'06.
GASB Statement No. 48
Auditor comment
Sales and Pledoes of Receivables and Future Revenues and Intra-Entity Transfers of
Assets and Future Revenues issued September 2006, will be effective for the fiscal
year ending June 30, 2008. This statement establishes standards for transactions in
which a government receives, or is entitled to, resources in exchange for future cash
flows generated by collecting specific receivables or specific future revenues. It also
establishes standards that apply to all intra-entity transfers of assets and future
revenues.
City of Dubuque response
The City Finance Department will coordinate with the CPA audit firm any information
required by GASB 48. Since the implementation is two fiscal years away, time is
available to research any requirements applicable to the City of Dubuque.
KJT/jmg
5
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EideBaillyM
~~
CPAs & BUSINESS ADVISORS
To the Honorable Mayor and Members of
the City CouncIl
City of Dubuque
Dubuque, Iowa
We have audited the financial statements of the City of Dubuque, Iowa, for the year ended June 30, 2006, and
have issued our report thereon dated October 25, 2006. Professional standards require that we provide you with
the following information related to our audit.
Our Responsibility under Auditine Standards Generally Accepted in the United
States of America and OMB Circular A-133
As stated in our engagement letter dated May 23, 2006, our responsibility, as described by professional standards,
is to plan and perform our audit to obtain reasonable, but not absolute, assurance about whether the financial
statements are free of material misstatement and are fairly presented in accordance with accounting principles
generally accepted in the United States of America. Because an audit is designed to provide reasonable, but not
absolute, assurance and because we did not perform a detailed examination of all transactions, there is a risk that
material misstatements may exist and not be detected by us.
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 opinions 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-133.
As part of obtaining reasonable assurance about whether the City's financial statements are free of material
misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and
grant agreements and other matters, 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-133, we examined, on a
test basis, evidence about the City's compliance with the types of compliance requirements described in the US.
Off ce of Management and Budget (OMB) Circular A-133 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 [he
City's compliance with those requirements.
PEOPLE. PRINCIPLES. POSSIBILITIES.
www.eidebailly.com
3999 Pennsylvania Ave., SIe. 1001 Dubuque, Iowa 52002-2273 1 Phone 563.556.17901 Fax 563.557.7842 1 EOE
To the Honorable Mayor and Members of
the City Council
City of Dubuque
Page 2
Significant Accounting Policies
Management is responsible for the selection and use of appropriate accounting policies. In accordance with the
terms of our engagement letter, we will advise management about the appropriateness of accounting policies and
their application. The significant accounting policies used by the City of Dubuque, Iowa, are described in Note 1
to the financial statements. No new accounting policies were adopted, and the application of existing policies was
not changed during the year ended June 30, 2006. We noted no transactions entered into by the City during the
year that were both significant and unusual, and of which, under professional standards, we are required to inform
you, or transactions for which there is a lack of authoritative guidance or consensus.
Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are based on
management's knowledge and experience about past and current events and assumptions about future events.
Certain accounting estimates are particularly sensitive because of their significance to the financial statements and
because of the possibility that future events affecting them may differ significantly from those expected.
Audit Adjustments
For purposes of this letter, professional standards define an audit adjustment as a proposed correction of the
financial statements that, in our judgment, may not have been detected except through our auditing procedures.
An audit adjustment may or may not indicate matters that could have a significant effect on the City's financial
reporting process (that is, cause future financial statements to be materially misstated). In our judgment, none of
the adjustments we proposed, whether recorded or unrecorded by the City, either individually or in the aggregate,
indicate matters that could have a significant effect on the City's financial reporting process.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a matter, whether or
not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter that could be
significant to the financial statements or the auditor's report. We are pleased to report that no such disagreements
arose during the course of our audit.
Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters,
similar to obtaining a "second opinion" on certain situations. If a consultation involves application of an
accounting principle to the City's financial statements or a determination of the type of auditor's opinion that may
be expressed on those statements, our professional standards require the consulting accountant to check with us to
determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with
other accountants.
To the Honorable Mayor and Members of
the City Council
City of Dubuque
Page 3
Issues Discussed Prior to Retention of Independent Auditors
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards, with management each year prior to retention as the City's auditors. However, these discussions
occurred in the normal course of our professional relationship, and our responses were not a condition to our
retention.
Difficulties Encountered in Performing the Audit
We encountered no difficulties in dealing with management in performing and completing our audit.
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.
This information is intended solely for the 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, including federal awarding agencies and
pass-through entities, and is not intended to be and should not be used by anyone other than these specified
parties.
As always, we will be happy to discuss these or any other topics at your convenience. We would like to take this
opportunity to express our appreciation to you and your staff for the fine cooperation that we received during the
course of the audit. We look forward to many years of continued service to the City of Dubuque, Iowa.
~~~~
Dubuque, Iowa
October 25, 2006
CITY OF DUBUQUE, IOWA
YEAR ENDED JUNE 30, 2006
OTHER COMMENTS
Conversion of Accountine Records
The City maintains its records using the cash basis of accounting. However, in order to comply with accounting
principles generally accepted in the United States of America, the comprehensive annual financial report (CAFR)
must be prepared using the modified accruaUaccrual basis of accounting. Eide Bailly [.t.P currently posts all
adjustments at year-end which are necessary to convert the City's cash-basis amounts to the amounts used in the
CAFR.
At this time, the City is preparing the workpapers needed to convert the accounting records to the modified
accruaUaccrual basis at year-end. Eide Bailly t,~P posts the journal entries and prepares the financial statements.
Although it may require increased staffing levels, 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.
Capital Assets
The City has a centralized custodian in the Finance Department who maintains a record of the City's capital
assets, including additions and deletions made during the year. During the 2003 fiscal year, the Ci[y adopted
Governmental Accounting Standards Board Statement No. 34. This statement increased the complexity of the
capital assets by requiring governmental infrastructure and depreciation on governmental capital assets be
reported. Due to this increased complexity, the City's capital assets records should be closely reviewed for errors
by management with knowledge of capital asset policies. The compilation and review of all of the City's capital
asset records, including department summaries, should be completed prior to the beginning of the October audit
fieldwork.
SMG as an Agent
During fiscal year 2005, SMG was hired as an agent to manage the Five Flags Center. Since SMG acts strictly as
an agent for the City, SMG should follow all City policies. During our review of SMG expenditures, several
invoices did not contain information required by City policy. It is recommended that the City Finance Department
increase its review of SMG policies and transactions to ensure compliance with City policies.
Notes Receivable
The notes receivable were not reconciled to the City's general ledger at the time of October audit fieldwork. The
majority of the problems were related to unfunded loans being placed on the Housing Loan System before the
expenditures have been made. Identification and communication of these unfunded loans must be improved for
the reconciliations to be completed properly and for the correct note receivable balances.
New Governmental Acwuntine Standards Board (GASBI Statements
The Governmental Accounting Standards Board (GASB) has issued Four statements not yet implemented by the
City of Dubuque. The statements, which might impact the City, are as follows:
CITY OF DUBUQUE, IOWA
YEAR ENDED JiJNE 30, 2006
OTHER COMMENTS
Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, issued April
2004, will be effective for the City for the fiscal year ending June 30, 2008. This statement establishes uniform
financial reporting standards for other postemployment benefit (OPEB) plans and supersedes the interim guidance
included in Statement No. 26. This statement affects reporting by administrators or trustees of OPEB plan assets
or by employers or sponsors that include OPEB plan assets as trust or agency funds in their fmancial reports.
Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than
Pensions, issued June 2004, will be effective for the City for the fiscal year ending June 30, 2009. This statement
establishes standards for the measurement, recognition, and display of OPEB expense/expenditures and related
liabilities (assets), note disclosures, and, if applicable, required supplementary information (RSI) in the financial
reports of state and local governmental employers.
Statement No. 47, Accounting for Termination Benefits, issued June 2005, establishes accounting standazds for
temunation benefits. For termination benefits provided through an existing defined benefit OPEB plan, the
provisions of this statement should be implemented simultaneously with the requirements of Statement No. 45.
For all other termination benefits, this statement is effective for the fiscal yeaz ended June 30, 2006.
Statement No. 48, Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets
and Future Revenues, issued September 2006, will be effective for the fiscal year ending June 30, 2008. This
statement establishes standards for transactions in which a government receives, or is entitled to, resources in
exchange for future cash flows generated by collecting specific receivables or specific future revenues. It also
establishes standards that apply to all intra-entity transfers of assets and future revenues.
The City's management has not yet determined the effect these statements will have on the City's financial
statements.