City of Otsego LC
City of Otsego
Wright County, Minnesota
Reports on Internal Control and Compliance with
Government Auditing Standards
and Legal Compliance
December 31, 2019
City of Otsego
Table of Contents
Report on Internal Control Over Financial Reporting and on Compliance
and Other Matters Based on an Audit of Financial Statements Performed in
Accordance with Government Auditing Standards 1
Minnesota Legal Compliance 3
Schedule of Findings and Responses on Internal Control 4
1
Report on Internal Control Over Financial Reporting
and on Compliance and Other Matters Based on an Audit of
Financial Statements Performed in Accordance with
Government Auditing Standards
Honorable Mayor and Members
of the City Council
City of Otsego
Otsego, Minnesota
We have audited, in accordance with auditing standards generally accepted in the United States of
America and the standards applicable to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States, the financial statements of the governmental
activities, the business-type activities, each major fund, and the aggregate remaining fund information of
the City of Otsego, Minnesota as of and for the year ended December 31, 2019, and the related notes to
financial statements, which collectively comprise the City's basic financial statements and have issued
our report thereon dated May 20, 2020.
Internal Control over Financial Reporting
In planning and performing our audit of the financial statements, we considered the City's internal
control over financial reporting (internal control) to determine the audit procedures that are appropriate
in the circumstances for the purpose of expressing our opinions on the financial statements, but not for
the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly, we
do not express an opinion on the effectiveness of the City's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to prevent, or
detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a
combination of deficiencies, in internal control such that there is a reasonable possibility that a material
misstatement of the City's financial statements will not be prevented, or detected and corrected, on a
timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control
that is less severe than a material weakness, yet important enough to merit attention by those charged
with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this
section and was not designed to identify all deficiencies in internal control that might be material
weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies
may exist that were not identified. Given these limitations, during our audit we did not identify any
deficiencies in internal control that we consider to be material weaknesses. We did identify a certain
deficiency in internal control, described in the accompanying Schedule of Findings and Responses on
Internal Control that we consider to be a significant deficiency as audit finding 2019-001.
2
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City's financial statements are free from
material misstatement, we performed tests of its compliance with certain provisions of laws, regulations,
contracts, and grant agreements, 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, and accordingly, we do not express such an opinion.
The results of our tests disclosed no instances of noncompliance or other matters that are required to be
reported under Government Auditing Standards.
City's Response to Findings
The City's response to the findings identified in our audit are described in the accompanying Schedule of
Findings and Responses on Internal Control. The City's responses were not subjected to the auditing
procedures applied in the audit of the financial statements and, accordingly, we express no opinion on
them.
Purpose of this Report
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City's
internal control or on compliance. This report is an integral part of an audit performed in accordance
with Government Auditing Standards in considering the City's internal control and compliance.
Accordingly, this communication is not suitable for any other purpose.
St. Cloud, Minnesota
May 20, 2020
3
Minnesota Legal Compliance
Independent Auditor's Report
Honorable Mayor and Members
of the City Council
City of Otsego
Otsego, Minnesota
We have audited, in accordance with auditing standards generally accepted in the United States of
America, and the standards applicable to financial audits contained in Government Auditing Standards,
issued by the Comptroller General of the United States, the financial statements of the governmental
activities, the business-type activities, each major fund, and the aggregate remaining fund information of
the City of Otsego, Minnesota as of and for the year ended December 31, 2019, and the related notes to
financial statements, and have issued our report thereon dated May 20, 2020.
In connection with our audit, nothing came to our attention that caused us to believe that the City of
Otsego failed to comply with the provisions of the contracting and bidding, deposits and investments,
conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax
increment financing sections of the Minnesota Legal Compliance Audit Guide for Cities, promulgated
by the State Auditor pursuant to Minnesota Statutes § 6.65. However, our audit was not directed
primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed
additional procedures, other matters may have come to our attention regarding the City's noncompliance
with the above referenced provisions.
The purpose of this report is solely to describe the scope of our testing of compliance and the results of
that testing, and not to provide an opinion on compliance. Accordingly, this communication is not
suitable for any other purpose.
St. Cloud, Minnesota
May 20, 2020
City of Otsego
Schedule of Findings and
Responses on Internal Control
4
CURRENT AND PRIOR YEAR INTERNAL CONTROL FINDING:
Significant Deficiency:
Audit Finding 2019-001 – Lack of Segregation of Accounting Duties
The City had a lack of segregation of accounting duties due to a limited number of office employees.
Adequate segregation of accounting duties is in place when the following four areas of a transaction
have been separated: authorization, custody, recording, and reconciliation. Examples of functions
within the City that demonstrate this lack of segregation of accounting duties include, but are not
limited to, the following:
Cash Receipts – The Utility Billing Clerk and Accountant have access to initiate and record
receipts. The Utility Billing Clerk is also responsible for depositing cash receipts. The
Accountant is also involved in the reconciliation process and has full access to the general
ledger.
Utility Billing Process – The Utility Billing Clerk is responsible for handling customer payments,
depositing payments received.
Disbursements – Due to small staff the City allows access to other employees to perform
disbursement related activities in order to fill in for normal roles and responsibilities in the
absences of other staff. In the absence of the Accountant, the Utility Billing Clerk has access to
record and cut checks and has access to blank checks.
Financial Reporting and Journal Entry Process – The Finance Director and Accountant have full
access to the general ledger and can make adjustments without review during the monthly and
year-end financial closing process.
City's Response:
The City is aware of the limited segregation of duties as a result of our limited number of staffing.
The City is committed to an environment with strong internal controls and is constantly evaluating
the system and implementation of compensating controls when available.