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HomeMy WebLinkAboutWashington State AuditorOflice of the Washington State Auditor Pat McCarthy April 30,2018 City Council City of Port Angeles 321 East sth Street Pon Angeles, WA 98362 We are pleased to confirm the audits to be performed by the Washington State Auditor's Office for the City of Port Angeles. This letter confirms the nature and limitations of the audits, as well as responsibilities of the parties and other engagement terms. Stete Auditor's Oflicc Responsibilitics Fimrcial Stotement Audit The State Auditor's Office agrees to perform an audit of the comprehensive financial report and basic financial statements of the City of Port Angeles as of and for the fiscal year ended December 31,2017, prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Our audit will be conducted with the objective of our expressing an opinion on these financial statements. We will perform our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Govemment Auditing Stanfur*, issued by the Comptroller General ofthe United States. Those sandards require that we plan and perform the audit to obtain reasonable, rather tlan absolute, assurance about whether the financial statements are free from material misstatement. Since we do not review every transaction, our audit cannot be relied upon to identi$ all misstatements. Although our audit is not designed to provide an opinion on the effectiveness of intemal control over financial reporting, we are required to report any identified significant deficiencies and material weaknesses in controls. We are also required to report instances of fraud and noncompliance with provisions of laws, regulations, contracts, and grant agreements that muld have a direct and material efrect on the accuracy of financial statements, or any instances of material abuse that come to our attention. Abuse is defined by An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment ofthe risks of material misstalement of the financial statements, whether due to fraud or eror. In making those risk assessments, the auditor considers intemal mntrol relevant to the City's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe City's internal control- Accordingly, we will express no such opinion. Government Audinng Stanfuds as involving behavior that is deficient or improper, or misuse of authority or position for personal financial interests. As the determination ofabuse is zubjective, Govemment Auditing Stardards do rlrot require auditors to d€tect instances of abuse. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation ofthe financial statements. Because of the inherent limitations of an audit, together with the inherent limitations of intemal control, an unavoidable risk exists that some material misstatements may not be detecte{ even though the audit is properly planned and performed in accordance with the standards identified above. Our responsibility is to express in a written report an opinion on the financial statements based on the results of our audit. We cannot provide assurance that an unmodified opinion will be expressed. We may modify or disclaim an opinion on your financial statements ifwe are unable to complete the audit or obtain suffrcient and appropriate audit evidence supporting the financial statements. Ifour opinion is other than unmodified, we will fully discuss the reason with you prior to issuing our report. Further, in accordance with professional standards, we may add emphasis-of-matter or other-matter paragraphs to the report for matters that, in our judgment, are relevant to understanding the financial statements or our audit. We will also issue a written report (that does not include an opinion) on issues identified during the audit related to the City's intemal control over financial reporting and on compliance with the provisions of laws, regulations, conEacts, and grant agreements, noncompliance with which could have a material effect on the financial statements as required by Gowmment Auditing Stofuds. The City prepares supplementary information that accompanies the financial statements, which is required by Generally Accepted Accounting Principles (for combining slotements). We agree to perform auditing procedures on this informatioq with the objective of expressing an opinion as to whether it is fairly stated, in all material respects, in relation to the financial statements taken as a whole. The City also prepares other information to accompany the financial statements, which is required by accounting standards or is done at its discretion. We will perform limited procedures on this information for the purpose of identifuing inconsistencies with the financial statements. However, we will not o<press an opinion on its fair presentation. Federal Sinsle Audit We will also perform a fbderal single audit on compliance witll and report on intemal control over compliance for, each major program for the fiscal year ended December 31,2017, in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Sandards, issued by the Comptroller General ofthe United States; and Title 2 U.S. Cde of Federal Regulatiotts Part 200, UniJorm Adrrinistrative Requirements, Cost Principles, and Audit Requirements for Federal lwards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the tlpes of compliance requirements that muld have a direct and material efect on a major fueral program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. Because of the inherent limitations of an audit, tog€ther with the inherent limitations of internal control, an unavoidable risk exists that some material noncompliance may not be detected even though the audit is properly planned and performed in accordance with these standards and the Uniform Guidance. In planning and performing the compliance audit, we will consider the City's intemal control over compliance in order to determine the appropriate auditing procedures necessary for opining on compliance with each major prograrq and for testing and reporting on intemal control over mmpliance in accordance with Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of intemal control over compliance. Accordingly, we will express no such opinion. Although our audit is not designed to provide an opinion on the effectiveness of internal control over compliance, we are required to report any identified significant deficiencies and material weaknesses in controls. We will express an opinion as to whether the Schedule of Expenditures of Federal Awards is fairly stated, in all material respects, in relation to the financial statements taken as a whole for the fiscal year ended December 31, 2017 . We estimate the federal single audit will cover two {deral grant programs, which will be identified at the audit entrance conference. If additional grant programs are audited to satisfu the requirements of the Uniform Guidance, the audit budga discussed below will increase by approximately $5,5@ per additional major program. Upon completion of our audit we will issue a wrinen report containing our opinion on the City's compliance for each major program and a written repon on internal control over compliance. We cannot provide assurance that an unmodified opinion will be expressed. Circumstances may arise in which it is necessary for us to modifu our opinio4 iszue a disclaimer of opinion, or add an emphasis-of-matter or other-matter paragraph(s) to the report. Accountabi litv Audit In accordance with RCW 43.09.260, we will perfiorm an accountability audit for the fiscal year ended December 31,2017, of the City's compliance with applicable state laws, regulations, policies and procedures, and safeguarding ofpublic resources in areas representing the highest risk offraud, loss, abuse, or noncompliance. Areas will be selected for audit using a risk-based approach and u.ill be identified in the audit entrance conference. Upon completion of our audit we will issue a wrinen report describing the overall resrlts and conclusions for the areas we examined. Rewrtins Levels for Audit Isves Issues identified through the auditing process will be communicated as follows. Failure to appropriately address audit issues may result in escalated reporting levels.. Findings formally address issues in an audit report. Findings report significant deficiencies and material weaknesses in intemal controls; misappropriation; and material abuse or non-compliance with laws, regulations, contracls or grant agreements. You will be given the opportunity to respond to a finding and this response, or a synopsis of it, will be published in the audit report. Professional auditing standards define the issues we must report as findings with regard to non-compliance with a financial statement effect and internal controls over financial reporting. The Uniform Guidance defines the issues we must report as findings with regards to non-compliance and internal controls over compliance with federal grants.. Menrgemcnt lctters communicate control deficiencies, non-compliance or abuse with a less-than- material effect on the financial statements or other issues with significance to the audit objectives. Management letters are referenced, but not included, in the audit report. Erit items address control deficiencies or non-compliance with laws or regulations that have an insignificant or immaterial effect on the audit objectives, or erors with an immaterial eflect on the financial statements. These issues are informally communicated to management, but do not warrant the attention ofthose charged with govemance and are not referenced in the audit report. Clicnt's Resoonsibilities Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principtes generally acceptd in the United States of America (GAAP); this includes the desigr\ implementatiorl and maintenance of internal control relevant to the preparation and fair presentation offinancial statements that are free from material misstatement, whether due to fraud or error. Our audit does not relieve management or the goveming body oftheir responsibilities. Management is also responsible for:. Selecting and applying appropriate administrative and accounting policies.. Establishing and maintaining effective internal controls over financial reporting, compliance, and safeguarding of public resources.. Designing and following effective controls to prevent and detect fraud, theft, and loss.. Ensuring compliance with laws, regulations and provisions of contracts and grant agreements.. Making atl financial records and related information available to us.. Correcting the financial statements based on the results of our audit.. Identi$ing and providing copies of previous audits, attestirtion engagements, or other studies that directly relate to the objectives of the audit, including whether related recommendations have been implemented.. Promptly reponing to us knowledge ofany fraud, allegations of fraud or suspected fraud involving management, employees or others, in accordance with RCW 43.09.185.. Providing us with a management representation letter, on the City's own letterhead, that confirms certain representations, both express and implied, which we will request at the conclusion of our audit. This letter includes representations regarding legal matters. A separate letter may be needed from the City's legal counsel.. Following up and taking corrective action on all audit findings, including, when applicable, preparing a summary schedule ofprior audit findings and a corrective action plan on the City's own letterhead.. Preparing the following supplementary information and providing us with certain wrinen representation concerning the supplementary information. o Schedule of Expenditures of Federal Awards (including notes and noncash assistance received) thu includes all expenditures from federal agencies and pass-through agencies in the form of grants, contracts, loans, loan guarantees, property, cooperative agreements, interest subsidies, insrance, food commodities, direct appropriations, and other assistance in accordance with Uniform Guidance 2 CFR $ 200. 5 I 0 requirements o Combining Statements in accordance with Generally Accepted Accounting Principles. lncluding the auditofs report on the zupplementary information in any document thst both contains the zupplementary information and indicates that the auditor reported on the supplementary information.. Either presenting the supplementary information with the audited financial staternents or, ifthe supplementary information will not b€ presented, making the audited financial statements readily available to users ofthe supplementary information no later than the date the supplementary information and auditor's report thereon are issued.. Identifying all federal awards received and government programs.. Understanding and complying with the provisions of lawg regulations, contracts, and grant agreements, including applicable program compliance requirements. Internal control over compliance, including establishing and maintaining effective controls that provide reasonable ass.rance that the City administers govemment programs in compliance with the compliance requirements. Evaluating and monitoring the City's compliance with the compliance requirements. Informing us of the City's relationships with significant vendors who are responsible for program compliance Submitting the reporting package and data collection form through the Federal Audit Clearinghouse. Management will provide the State Auditor's Office with the information required for performing the audit and is responsible for the accuracy and completeness ofthat information. Management will noti$ the State Auditor's Office when any documents, records, files, or data contain information that is covered by confidentiality or privacy laws, such as HIPAA All misstatements identified by the audit will be discussed with management Material misstaternents corrected by management and all uncorrected misstatements will be communicated at the exit conference, as required by professional auditing standards. Manasemenl's Wri tten ReDresenlations At the conclusion ofour audit, we will also request certain written representations from you about the audit, including items discussed above. Estimeted Audit Costs end Timcline We estimate the cost ofthe audit work to be $65,0@, plus travel costs, and other expenses, if any, with work exp€cted to commence by April 5,2018. Invoices for these services will be prepared and presented each month as our audit work progresses. We anticipate our reports, which will be addressed to the City's governing body and published on our website www.sao.wa.gov to be available to you and the public as outlined below. These estimates are based on timely access to financial infiormation and no sigrrificant audit repofting issues. The estimated cost and completion date may change if unforeseen issues arise or if significant audit issues are identified necessitating additional audit work. We will promptly noti$ you if this is the case. Report I)ater Independent Auditor's Report on Financial Statements June 2018 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Governmenl Audifing Slafuds June 2018 Independent Auditor's Report on Compliance for Each Major Program and on Intemal Control over Compliance in Accordance with Uniform Guidance June 2018 lndependent Auditor's Report on Accounrability June 2018 tReport Isuance Dales Are Estimates Only The audit documentation for this engagement, which may contain confidential or sensitive informatiorl is the property of SAO and consitutes a public record under Chapter 42.56 RCW. Subject to applicable laws and regulations, appropriate individuals, as well as audit documentatioq will be made available upon request and in a timely manner to appropriate auditors and reviewers, City's management and governing body, and federal agencies, for purposes of a public records requ6t, a quality review of the audit, to resolve audit findings, or to carry out oversight responsibilities. The audit documentation for this engagement will be retained for a minimum offive years after the report release (publish) date in accordance with the public records retention schedule established by the Washinglon Secretary of State. Ernectcd Communicetions During the course of the audit, we will communicate with the City's selected audit liaisorl Trina McKee, Senior Accountant/Treasurer, on the audit status, any significant changes in our planned audit scope or schedule and preliminary re*rlts or recommendations as they are developed. The audit liaison is responsible for regularly updating the City's management and the goveming body on these matters. We may also provide direct communication ofthese marters to management and the goveming body as needed or at the City's request. Please contact us ie during the audit, any events or conoerns come to your attention of which we should be aware. We will expect the audit liaison to keep us informed of any such matters. Audit Disvute Process Please contact the Audit Manager or Assistant Director to discuss any unresolved disagreements or concerns you have during the performance of our audit. fu the conclusion of the audit, we will summarize the results at the exit conference. We will also discuss any significant diffrculties or disagreements encountered during the audit and their resolution. By signing and returning this letter you acknowledge that the foregoing is in accordance with your understanding. Please contact us with any questions. We appreciate the opportunity to be of service to you and look forward to working with you and your staff Sincerely, Carol Ehlinger, Audit Manager Washington State Auditor's Office 5lrl20r8 Date Citv Resoonsc: This lettcr corrcctly scts forth 6ur'1a{66trn{iag. elaltz Dan McKeen, City Manager Dale Trina McKee, City Treasurer Date e--frd-?- ,1*; , fr'.,?r,s/t /.,*