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HomeMy WebLinkAboutCAG2024-358 - Original - 2023 Audit Management - Washington State Auditor's Office - 7/30/24 FOR CITY OF KENT OFFICIAL USE ONLY Sup/Mgr: Agreement Routing Form DirAsst: • For Approvals,Signatures and Records Management Dir/Dep: KENT This form combines&replaces the Request for Mayor's Signature and Contract Cover (optional) WASHINGTON Sheet forms. (Print on pink or cherry colored paper) Originator: Department: Megan Marks I Paula Painter Finance Date Sent: Date Required: c 07/29/2024 07/30/2024 Q Mayor or Designee to Sign. Date of Council Approval: Q Interlocal Agreement Uploaded to Website Budget Account Number: Grant? Yes NoF-1 N/A Budget? Yes Type: N/A Vendor Name: Category: Washington State Auditor's Office Contract Vendor Number: Sub-Category: Original 0 Project Name: 2023 Audit Management Rep Letter 3- Project Details: 0 Management provides certain assurances for the annual ACFR c audit. 40 c (11.111 Agreement Amount: Basis for Selection of Contractor: E *Memo to Mayor must be attached i Start Date: Termination Date: a Local Business? Yes F]No*If meets requirements per KCC 3.70.100,please complete"Vendor Purchase-Local Exceptions"form on Cityspace. Business License Verification: ❑Yes In-Process F1 Exempt(KCC 5.01.045) FlAuthorized Signer Verified Notice required prior to disclosure? Contract Number: Yes❑No CAG2024-358 Comments: N IM N 0 J w, li •W MM� 11� Date Received:City Attorney: 7/29/24 Date Routed:Mayor's Office 7/30/24 City Clerk's Office 7/30/24 adccW22373_7_20 Visit Documents.KentWA.gov to obtain copies of all agreements rev.20221201 FINANCE DEPARTMENT Paula Painter, CPA, Finance Director • 220 4th Avenue South KENT Kent, WA 98032 W AS HI NGTON Fax: 253-856-6255 Phone: 253-856-5264 July 30, 2024 Office of the Washington State Auditor 3200 Capitol Blvd P.O. Box 40031 Olympia, WA 98504-0031 To the Office of the Washington State Auditor: We are providing this letter in connection with your audit of the City of Kent for the period from January 1, 2023 through December 31, 2023. Representations are in relation to matters existing during or subsequent to the audit period up to the date of this letter. Certain representations in this letter are described as being limited to matters that are significant or material. Information is considered significant or material if it is probable that it would change or influence the judgment of a reasonable person. We confirm, to the best of our knowledge and belief, having made appropriate inquires to be able to provide our representations, the following representations made to you during your audit. If we subsequently discover information that would change our representations related to this period, we will notify you in a timely manner. General Representations: 1. We have provided you with unrestricted access to people you wished to speak with and made available all requested and relevant information of which we are aware, including: a) Financial records and related data. b) Minutes of the meetings of the governing body or summaries of actions of recent meetings for which minutes have not yet been prepared. c) Other internal or external audits, examinations, investigations or studies that might concern the objectives of the audit and the corrective action taken to address significant findings and recommendations. d) Communications from regulatory agencies, government representatives or others concerning possible noncompliance, deficiencies in internal control or other matters that might concern the objectives of the audit. e) Related party relationships and transactions. f) Results of our internal assessment of business risks and risks related to financial reporting, compliance and fraud. 2. We acknowledge our responsibility for compliance with requirements related to confidentiality of certain information, and have notified you whenever records or data containing information subject to any confidentiality requirements were made available. 3. We acknowledge our responsibility for compliance with applicable laws, regulations, contracts and grant agreements. 4. We have identified and disclosed all laws, regulations, contracts and grant agreements that could have a direct and material effect on the determination of financial statement amounts, including legal and contractual provisions for reporting specific activities in separate funds. City of Kent Finance Department Paula Painter, CPA, Director 5. We have complied with all material aspects of laws, regulations, contracts and grant agreements. 6. We acknowledge our responsibility for establishing and maintaining effective internal controls over compliance with applicable laws and regulations and safeguarding of public resources, including controls to prevent and detect fraud. 7. We have established adequate procedures and controls to provide reasonable assurance of safeguarding public resources and compliance with applicable laws and regulations. 8. We have no knowledge of any loss of public funds or assets or other illegal activity, or any allegations of fraud or suspected fraud involving management or employees. 9. In accordance with RCW 43.09.200, all transactions have been properly recorded in the financial records, notwithstanding immaterial uncorrected items referenced below. 10. We are responsible for, and have accurately prepared, the summary schedule of prior audit findings to include all findings, and we have provided you with all the information on the status of the follow-up on prior audit findings. Additional representations related to the financial statements: 11. We acknowledge our responsibility for fair presentation of financial statements and believe financial statements are fairly presented in conformity with generally accepted accounting principles in the United States of America. 12. We acknowledge our responsibility for establishing and maintaining effective internal control over financial reporting. 13. The financial statements include financial information of the primary government and all component units, fiduciary and other activity required by generally accepted accounting principles to be included in the financial reporting entity. 14. The financial statements properly classify all funds and activities. 15. All funds that meet the quantitative criteria in GASB requirements or are otherwise particularly important to financial statement users, are presented as major funds. 16. Capital assets, including infrastructure and intangible assets, are properly capitalized, reported and depreciated as applicable. 17. We have no plans or intentions that may materially affect the reported value or classification of assets, liabilities or net position. 18. Revenues are appropriately classified by fund and account. 19. Expenses have been appropriately classified by fund and account, and allocations have been made on a reasonable basis. 20. Net position components (net investment in capital assets, restricted and unrestricted) and fund balance components (nonspendable, restricted, committed, assigned and unassigned) are properly classified and, as applicable, approved. 21. The methods, data and significant assumptions we used in making accounting estimates and related disclosures are appropriate and free from intentional bias. 22. The following have been properly classified, reported and disclosed in the financial statements, as applicable: a) Interfund, internal, and intra-entity activity and balances. b) Related-party transactions, including sales, purchases, loans, transfers, leasing arrangements, and guarantees, and amounts receivable from or payable to related parties. c) Joint ventures and other related organizations. d) Guarantees under which the government is contingently liable. e) All events occurring subsequent to the fiscal year end through the date of this letter that would require adjustment to, or disclosure in, the financial statements. f) Effects of all known actual or possible litigation, claims, assessments, violations of laws, regulations, contracts or grant agreements, and other loss contingencies. 23. We have accurately disclosed to you all known actual or possible pending or threatened litigation, claims or assessments whose effects should be considered when preparing the financial statements. We have also accurately disclosed to you the nature and extent of our consultation with outside attorneys concerning litigation, claims and assessments. 24. We acknowledge our responsibility for reporting supplementary information (the Schedule of Expenditures of Federal Awards) in accordance with applicable requirements and believe supplementary information is fairly presented, in both form and content in accordance with those requirements. 25. We have disclosed to you all significant changes to the methods of measurement and presentation of supplementary information, reasons for any changes and all significant assumptions or interpretations underlying the measurement or presentation. 26. We acknowledge our responsibility for the supplementary information required by generally accepted accounting principles in the United States (RSI) and believe RSI is measured and presented within prescribed guidelines. 27. We have disclosed to you all significant changes in the methods of measurement and presentation of RSI, reasons for any changes and all significant assumptions or interpretations underlying the measurement or presentation of the RSI. 28. We believe the effects of uncorrected financial statement misstatements summarized below are not material, both individually and in the aggregate, to each applicable opinion unit. 29. We acknowledge our responsibility not to publish any document containing the audit report with any change in the financial statements, supplementary and other information referenced in the auditor's report. We will contact the auditor if we have any needs for publishing the audit report with different content included. 30. We acknowledge our responsibility for presenting Annual Comprehensive Financial Report combining statements and supplemental schedules in accordance with generally accepted accounting principles in the United States. We believe that combining statements and supplemental schedules are fairly presented, including both form and content, in accordance with those principles. 31. We have disclosed to you all significant changes to the methods of measurement and presentation of combining statements and supplemental schedules, reasons for any changes and all significant assumptions or interpretations underlying the measurement or presentation of this information. Dana Ralph, Paula Painter, CPA Mayor Finance Director List of Uncorrected Misstatements Description Statement/Schedule Opinion Unit Notes to the Financial Statements Notes to the Financial Statements N/A -Note 1 -SSAP:The City should disclose the flow assumption used to determine the order in which restricted and unrestricted resources will be used in the government- wide and the proprietary fund statements(e.g., restricted resources will be depleted prior to use of unrestricted resources). -Note 1 -SSAP:The City should disclose the flow assumption used to determine the order in which restricted, committed, assigned, unassigned resources will be used in the governmental fund statements.While this is disclosed in Note 10, GFOA requires it be included in the SSAP. -Note 1 SSAP-The City's Notes indicate only one Custodial Fund (VNET)is maintained. However, based on review of GL data, it appears other custodial activities such as court collections, leasehold taxes, etc. are included. The City should ensure its description includes all funds and activities. -Note 3-Deposits and investments-The investment amount of$205,096,024 in this first table do not tie to the investment amount reported later in the note of $207,651,465. -Note 4-Receivables:Amounts reported in the table for the General Fund and Other Governmental Funds do not tie to the Governmental Funds Balance Sheet.The City should also ensure amounts for all funds are classified the same in the note as in the statement. -Note 7 Leases/Capital Finance Agreements: The Debt Schedule in Note 9.f reports financed purchased reductions of$34,457, but Note 7 says the City made payments of $172,808.Also, the first paragraph is for a financed asset that was paid off in a prior year, so this disclosure no longer needs to be included. -Note 7 Leases&Note 8 SBITAs—The principal payments of$1,726,543($1,534,032 +$192,511)should tie to the total reported lease/SBITA liability on the financial statements of$2,634,869 ($408,089+ $2,226,780). -Note 7 Leases—The City reports a lessor receivable of $4,619,287, but this does not appear to tie to financial statements or the receivable amounts reported in Note 4. The deferred inflows amount also does not tie to the financial statements. Notes to the Financial Statements Notes to the Financial Statements N/A -Note 9.f Debt Schedules:The business type activities table shows a lease liability. However, on the Government-wide Statement of Net Position, the lease liability appears to be included in the"contracts and notes"balances, instead of in the"leases and subscriptions"balance. -Note 9.f Debt Schedules:The amounts for the governmental activities trust fund loans and SMG capital loan do not tie to the Contracts and Notes reported on the financial statements. It appears the long term portion of the 2008 Streets Trust fund Loan of$1,072,369 is not included in the Governmental Activities-Contracts and Notes-long Term amount and was instead included in the Leases and Subscriptions amounts. -Note 9.f Debt Schedules:The annual debt service requirements to maturity for non-bonded debt for business type activities reports total debt service principal payments of$20,130,000, but another table reports the outstanding liability at$20,055,000. The difference seems to be the $75,000 of public works trust funds direct borrowings,which is included in the non-bonded direct borrowings table twice. -Note 12 Personnel Benefits:The table at the beginning reports pension expense of$(2,595,756)but the DRS plans reported pension expense of$(2,376,567)and Firemen's Pension reported expense of$(571,679)for a total of $(2,948,246). -Note 12 Personnel Benefits/Firemen's Pension—The table under Sensitivity Analysis should label the last line "Net Pension Liability(Asset)"so that it's clear a negative amount represents an asset. Notes to the Financial Statements Notes to the Financial Statements N/A Note 12(page 56): Personnel Benefits- Line item"Inactive employees or beneficiaries currently receiving benefit payments"does not tie to the Actuary Report provided by the City.Amount should be 49 per the actuary report, but was presented as 47. Note 12(page 57): -Changes in total OPEB Liability table"Net Changes" should foot to be$(1,137,877)but was presented as $(555,081) -"Balance as of 12/31/2023"should foot to be$14,209,189 but was presented as$14,791,985. Statement of Net Position Notes to the Financial Statements N/A -Note 12 Personnel Benefits/Firemen's Pension, indicates this plan is reporting an asset of$172,280, but instead of being reported as a net pension asset, it is reported as a reduction to the Net Pension Liability on the financial statements. It should be classified as a Net Pension Asset instead. -Note 12 Personnel Benefits/OPEB, includes a table at the beginning of the Note that reports a deferred outflow and deferred inflow, but the financial statements only report a deferred inflow. It looks like the DO and DI are netted on the financial statements, but they should not be. -The City incorrectly classified the current portion of the Component Unit's debt as Revenue"Bonds Payable- current"when the long-term portion is classified as "Contracts and Notes-long term" - It appears the City incorrectly classified its OPEB liability as a"Total OPEB Liability"for its VEBA plan. Plans administered through a qualifying trust should report a"Net OPEB Liability,"which is considered a non-current liability. Net Investment in Capital Assets Statement of Net Position Business-Type Activities The City misclassified $80,640 related to Business-type Activities-Leases and Subscriptions-Current to Business- type Activities-Contracts and Notes-Current. Net Investment in Capital Assets Statement of Net Position Business-Type Activities The City misclassified $83,401 related to Business-type Activities-Leases and Subscriptions-Long term to Business-type Activities-Contracts and Notes-Long term. Net Investment in Capital Assets Statement of Net Position- Aggregate Remaining Funds The City did not subtract lease/SBITA liabilities when Proprietary Funds calculating the Internal Service Funds-Net Investment in Capital Asset balance(NICA).We determined Internal Service Funds-NICA balance is overstated by$1,438,496 and ISF-Unrestricted fund balance is understated by $1,438,496. The General Fund-Taxes Receivable balance was Balance Sheet-Governmental General Fund understated b $87,043. Funds MD&A MD&A N/A In the City of Kent's General Fund Budget Activity by Function tables, intergovernmental revenue is shown as $7,045,284, but is reported on the financial statements as $6,348,192. Leisure services expenditures are shown as $18,106,779 but is reported on the financial statements as $17,409,687.The variance is$697,092 in both cases and the errors flow to the subtotals shown in the tables. Utility Taxes Statement of Activities Governmental Activities The City did not accrue utility tax revenues totaling $14,247. As a result, Governmental Activities-Utility Taxes balance is overstated by this amount. Since we performed statistical sampling, known misstatement is$14,247 and total misstatement known + likely)is$221,752. Balance Sheet-Governmental Funds Balance Sheet-Governmental General Fund Lessor accounting is the exact same between governmental Funds fund and government-wide statements, however,the City did not report any Deferred Inflows or Receivables for the Governmental Funds on the Balance Sheet.We determined Deferred Inflows and Receivables are understated an Balance Sheet-Governmental Aggregate Remaining Funds estimated $455,335 between the General Fund and Non- Funds major Parks Fund. Note: The Governmental Activities Leases deferred inflows is$1,180,627 and the Internal Service Funds(which is rolled into governmental activities) is only$725,292, so we would expect the remaining lease deferred inflow(and related lease receivable)to be reported in one of the governmental funds. Balance Sheet-Governmental Funds Balance Sheet-Governmental General Fund -The City included $37,100 in Incurred but Not Reported Funds (IBNR)liabilities in its General Fund,which the City obtained from its actuarial report. However, based on review of the Actuarial Report,the amount reported as IBNR Liabilities is actually just the reserve amount set aside for the liabilities, which does not represent a liability.We determined General Fund Liabilities are overstated$37,100. See GASB codification N50 part.124,which states IBNR should be excluded for governmental fund claim liabilities. See GASB codification N50 part.124 addressing governmental fund claim liabilities,which notes IBNR should be excluded. Utility Taxes Governmental Funds-Statement of General Fund The City did not accrue utility tax revenues totaling $14,247. Revenues, Expenditures and As a result, General Fund-Utility Taxes balance is Changes in Fund Balance overstated by this amount. Since we performed statistical sampling, known misstatement is$14,247 and total misstatement known + likely)is$221,752. Governmental Funds -Statement of Revenues, Governmental Funds-Statement of N/A Expenditures and Changes in Fund Balance&Fiduciary Revenues, Expenditures and Statement of Changes Changes in Fund Balance -Unrealized gains and losses should not be reported Fiduciary Statement of Changes separately from realized gains and losses. Internal Service Fund -Combining Statements Internal Service Fund-Combining N/A There is no combining statement of cash flows for the Statements Insurance Fund. Statement of Cash Flows Statement of Cash Flows N/A The City included capital contributions of$1,275,989 on its Statement of Cash Flows twice, once in Cash Flows from Capital and Related Financing Activities and again in the Schedule of Noncash Investing, Capital and Related Financing Activities.We confirmed with the City that these transactions are cash received from other departments as a result of purchases made. We determined the City incorrectly included (cash)Capital Contributions of $1,275,989 in the Schedule of Noncash Investing, Capital and Related Financing Activities on the Statement of Cash Flows.