2002-08-12 CC Worksession - Laserfiche WebLink

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. City of Centerville March 29, 2002 Page Two As part of obtaining reasonable assurance about whether the general purpose financial statements are free of material misstatement, we performed tests of compliance with certain provisions of laws, regulations, contracts and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. We noted one instance of non- compliance with Minnesota Statutes and it is described below. Collateral Coverage In accordance with Minnesota Statutes, section lJ SA.03, the City is required to pledge collateral equal to 110 percent of the deposits not covered with insurance. At December 31, 200 1, the City did not have the full I 10 percent of collateral pledged. We recommend that the City consider collateral coverage as part of the monthly bank reconciliation and cash flow planning process. Significant Accounting Policies Management has the responsibility for 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 are described in Note 1 to the general purpose financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2001. 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 general purpose 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 general purpose financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most significant estimate affecting the financial statements was depreciation on enterprise fund fixed assets. Management's estimate of depreciation is based on estimated useful lives of the assets. We evaluated the key factors and assumptions used to develop this estimate in determining that it is reasonable in relation to the financial statements taken as a whole. 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 mayor 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 total we recorded 42 journal entries. Our journal eutries are attached. Entries number 1,2,3, 10, 11, 12,26,34,40 and 42 would be considered audit adjustments. The remaining are a combination of correcting, reclassifying and year end balance adjusting entries. The year end balance adjusting entries are typically the responsibility of a City. When we prepare the schedules and make the entries it results in additional time and expense for the City. We will continue to try to provide you with the information to do these entries internally. This will result in more relevant, timely information on an on going basis. We have reported in the past that the correcting and reclassifying entries appear to result from insufficient knowledge on the purpose of each fund and the lack of complete month end reconciliation. These two factors again appear to be the main cause of the majority of the entries. This resulted in internal information that was not reliable for Councilor Administration. Another factor that also reduced the reliability and accuracy of internal information was a haphazard method of processing data. There was no systematic way of initiating or approving transactions or coding recurring transactions. This resulted in several duplicate payments and coding errors, Documented, well-thought out procedures would help the City to consistently code transactions and report information. We provided staff with a list of specific processing situations that resulted in errors and a recommendation to fix the error.