SUBJECT: GENERAL BUSINESS
Title
Presentation of the 2020 Audit Report and Comprehensive Annual Financial Report
Body
DEPARTMENT: Finance
PRESENTER: Stefanie Furman, Interim Finance Director & Accounting Manager
Allison Slife, Partner, CliftonLarsonAllen LLP
TIME ESTIMATE: 20 minutes
only required for non-consent items
STAFF RECOMMENDATION:
Recommendation
No action required - information purposes only.
End
SUMMARY AND BACKGROUND OF SUBJECT MATTER:
The Comprehensive Annual Financial Report (Annual Report) is the Town’s official annual financial report. The audit of the financial statements for the year ended December 31, 2020, was performed by CliftonLarsonAllen LLP (CLA). The Town received a favorable report (i.e., an unmodified opinion). A copy of the Town’s Annual Report is attached. Also attached is the GFOA Policy Statement issued in March 2021 regarding the use of the popular four-letter acronym often associated with the Comprehensive Annual Financial Report.
Following is a brief commentary on the annual audit report. Representatives from CLA will also provide comments on the audit and internal control findings at the Board meeting and will be available for questions.
Comprehensive Annual Financial Report Summary:
The Annual Report consists of four sections, as follows:
• The introductory section includes a table of contents, a letter of transmittal, the GFOA Certificate of Achievement, and a list of Town officials.
• The financial section includes the auditors’ opinion, management’s discussion and analysis (MD&A), financial statements, and notes to the financial statements. Also included in this section are schedules for those funds considered nonmajor (as defined by accounting standards), combining schedules, and budget variance schedules for the various funds.
• The statistical section includes required and optional statistical tables containing various types of information related to the Town’s financial trends, revenue and debt capacity, demographic and economic data, and operating information.
• The compliance section consists of required disclosures related to certain outstanding bonds and the Local Highway Finance Report.
• The single audit section contains the auditors’ report on compliance and other required schedules related to federal funding received by the Town.
The Annual Report is prepared in accordance with generally accepted accounting principles (GAAP) as issued by the Governmental Accounting Standards Board (GASB). The objective of the audit performed by CLA was to provide assurance that the Annual Report is in conformity with those standards in all material respects. CLA issued an unmodified opinion on the Town’s financials for 2020, a so-called “clean” opinion.
The Town also strives to prepare the Annual Report to meet the standards of the Government Finance Officers Association’s (GFOA) Certificate of Achievement for Excellence in Financial Reporting award program. This program encourages preparers of Annual Reports to go beyond the minimum requirements of GAAP and strive for transparency and full disclosure in their Annual Report. The Town has received this award for the years 2004-2019 and will submit the 2020 Annual Report to GFOA for consideration for the award.
For readers new to Annual Reports, reading MD&A provides a good starting point. MD&A provides an analysis and overview of the financial statements and results of operations. It also provides explanations of the various sections of the Financial Report. In addition to the financial statements themselves, the footnotes are also a critical part of the Annual Report. The footnotes provide information on accounting policies followed by the Town in preparation of the Annual Report, details on specific financial statement items (e.g., deposits and investments), along with other important disclosures.
Internal Control Comments:
As part of the audit of the financial statements, CLA reviews the Town’s internal controls. In 2019, the auditors identified a significant deficiency related to a lack of segregation of duties in the payroll area. Staff corrected that deficiency by reorganizing the Finance Department in a manner that enabled Finance staff to segregate the duties of the payroll process and ensure no single person has control of the entire process. That reorganization was approved by the Board in October 2019 as part of the 2020 budget.
For 2020, the auditors did not identify any significant deficiencies or material weaknesses in internal controls. However, the auditors made two recommendations to management to strengthen controls and/or documentation in specific areas. The first related to the audit evidence that is used to support rented hydrant meter billings. The auditors noted that there was a lack of sufficient audit evidence to support these billings, and recommended that the Town create a form for recording hydrant rental readings when reported by the customers that can be used and stored for future periods. The Town has already corrected this issue, and customer reported readings are now being retained by Public Works staff to support the amounts used on the hydrant meter rental billing spreadsheet.
The second management recommendation from the auditors was related to the budget violation in the Town of Erie Urban Renewal fund of $43,000. The auditors recommend that the budget be more closely observed or amended as needed. This issue arose due to the receipt of late and unexpected invoices from Merrick & Company related to the Nine Mile ditch relocation project. These invoices were related to work done in 2020 but were received in January 2021, after the 2nd supplemental had been finalized. The Finance department is working closely with all Town departments to ensure we are aware of upcoming expenses and ensure supplemental budget amendments are accurate and complete.
Audit Adjustments:
Through the audit, the auditors identified three required adjustments to the financial statements which were corrected by management. These included one related to the cash and accounts receivable balances, and two related to tax revenue and related receivables. These adjustments were made prior the finalization of the financial statements and procedures are in place to ensure these balances are correct in the future prior to providing the auditors with draft balances.
The auditors also identified two uncorrected misstatements that are considered immaterial to the financial statements. The first is related to an allowance for uncollectible receivables for the water, wastewater, and storm drainage funds, and the second related to a construction invoice that was not accrued as a 2020 expense.
Action Required:
Presentation of the Comprehensive Annual Financial Report to the Board, which also serves as the Town’s Audit Committee, is strictly for information purposes. No formal action or acceptance is required.
ATTACHMENTS:
1. Comprehensive Annual Financial Report for the year ended December 31, 2020
2. Auditor Communications (2)
3. GFOA End the Acronym Policy Statement