City of Ostego Report of IC and LCCity of Otsego
Wright County, Minnesota
Reports on Compliance with
Government Auditing Standards,
the Uniform Guidance
and Legal Compliance
December 31, 2015
berganKDV
CPAS ADVISORS
City of Otsego
Table of Contents
Schedule of Expenditures of Federal Awards
Notes to the Schedule of Expenditures of Federal Awards
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
Report on Compliance for each Major Program and on
Internal Control over Compliance Required by the
Uniform Guidance — Independent Auditor's Report
Schedule of Findings and Questioned Costs
2
Report on Legal Compliance — Independent Auditor's Report 10
City of Otsego
Schedule of Expenditures of Federal Awards
Year Ended December 31, 2015
Federal Agency/Pass Through Agency/Program Title
U.S. Department of Transportation
Passed through State of Minnesota, Minnesota Department
of Transportation Highway Planning and Construction
Total federal expenditures
CFDA
Number
20.205
Expenditures
$ 901,682
$ 901,682
See note to schedule of expenditures of federal awards.
City of Otsego
Note to the Schedule of Expenditures of Federal Awards
NOTE 1— BASIS OF PRESENTATION
The accompanying schedule of expenditures of federal awards includes the federal grant activity of the
City of Otsego, Minnesota, and is presented on the modified accrual basis of accounting. The
information in this Schedule is presented in accordance with the requirements of the Uniform Guidance.
Therefore, some amounts presented in this Schedule may differ from amounts presented in, or used in,
the preparation of the basic financial statements.
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BerganKDV, Ltd.
Report on Internal Control Over Financial Reporting
and on Compliance and Other Matters Based on an Audit of
Financial Statements Performed in Accordance with
Cedar Falls
602 Main Street
Government Auditing Standards
suite 100
P.O. Box 489
Cedar Falls. IA
5D613-0026
T 319.268.1715
F 319 268 1720
Honorable Mayor and Members
Cedar Rapids
of the City Council
2721st
Su to 300Avenue NE
City of Otsego
o
P.O. Box 10200
Y g
Cedar Rapids, IA
Otsego, Minnesota
52402-0200
T 319.294.8000
F 319,294.9003
Coralville
We have audited, in accordance with auditing standards generally accepted in the United
Corridor Way
Su to 301
States of America and the standards applicable to financial audits contained in Government
P.O. Box 5267
Auditing Standards issued by the Comptroller General of the United States, the financial
Coralville, IA
52241-0267
statements of the governmental activities, the business -type activities, each major fund and
T 119,141,1117
F 319 248 0582
the aggregate remaining fund information of the City of Otsego, Minnesota as of and for the
Des Moines
year ended December 31, 2015, and the related notes to financial statements, which
9207 NDrthpark Drive
collectively comprise the City's basic financial statements and have issued our report thereon
lohnston,IA
50131-2933
dated June 1 2016.
T 515.727.570
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F 515.727.580C
Minneapolis
Internal Control over Financial Reporting
3800 American Blvd W
In planning and performing our audit of the financial statements, we considered the City's
Suite00
Bl omngton, MN
internal control over financial reporting (internal control) to determine the audit procedures
55952.563.6800
that are appropriate in the circumstances for the purpose of expressing our opinions on the
F 952.563.6801
financial statements, but not for the purpose of expressing an opinion on the effectiveness of
st. ClDud
the City's internal control. Accordingly, we do not express an opinion on the effectiveness of
'P.o so Avenue S
the City's internal control.
5630zud, MN
13
T 320.251.7010
A deficiency in internal control exists when the design or operation of a control does not
F 320.251.1784
allow management or employees, in the normal course of performing their assigned waterloo
g p g � lOD East Park Avenue
functions, to prevent, or detect and correct, misstatements on a timely basis. A material Suite 300
P.O. Box 2100
weakness is a deficiency, or a combination of deficiencies, in internal control such that there Waterloo. IA
50704-2100
is a reasonable possibility that a material misstatement of the City's financial statements will T 319.234.6885
not be prevented, or detected and corrected on a timely basis. A significant deficiency is a F 119.111.1117
deficiency, or a combination of deficiencies, in internal control that is less severe than a
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material weakness, yet important enough to merit attention by those charged with
governance.
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Internal Control over Financial Reporting (Continued)
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, consider
to be material weaknesses. We did identify a certain deficiency in internal control, described
in the accompanying Schedule of Findings and Questioned Costs as audit finding 2014-001
that we consider to be a significant deficiency.
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 Questioned Costs. 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
June 1, 2016
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Report on Compliance for each Major Program
and on Internal Control over Compliance Required
by the Uniform Guidance
Independent Auditor's Report
Honorable Mayor and Members
of the City Council
City of Otsego
Otsego, Minnesota
Report on Compliance for Each Major Federal Program
We have audited the compliance of the City of Otsego, Minnesota, with the types of
compliance requirements described in the OMB Compliance Supplement that could have a
direct and material effect on each of the City's major federal programs for the year ended
December 31, 2015. The City's major federal program is identified in the summary of
auditor's results section of the accompanying Schedule of Findings and Questioned Costs.
Management's Responsibility
Management is responsible for compliance with federal statutes, regulations, and the terms
and conditions of its federal awards applicable to its federal programs.
Auditor's Responsibility
Our responsibility is to express an opinion on compliance for the City's major federal
program based on our audit of the types of compliance requirements referred to above. We
conducted our audit of compliance in accordance with auditing standards generally accepted
in the United States of America, the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States;
and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform
Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards
(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
types of compliance requirements referred to above that could have a direct and material
effect on a major federal 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.
We believe that our audit provides a reasonable basis for our opinion on compliance for each
major federal program. However, our audit does not provide a legal determination of the
City's compliance.
BerganKDV, Ltd.
Cedar Falls
602 Main Street
Suite 100
P.O. Box 489
Cedar Falls, IA
50613-0026
T 319.26B.1715
F 319.268.1720
Cedar Rapids
27201st Avenue NE
Suite 300
P.O. Box 10200
Cedar Rapids, IA
52402-0200
T 319,294.8000
F 319,294.9003
Coralvllle
2530 Corridor Way
Suite 301
P.O. Box 5267
Coralville, IA
52241-0267
T 319.248.0367
F 319.248.0582
Des Moines
9207 Northpark Drive
Johnston, IA
50131-2933
T SJS.727.5700
F 515.727,5800
Minneapolls
3800 American Blvd W
Suite 1000
Bloomington, MN
SS431-4420
T 952.563.6800
F 952.563.6801
St. Cloud
220 Park Avenue S
P.O. Box 1304
St. Cloud, MN
56302-3713
T 320.251.7010
F 320.251.1784
Waterloo
100 East Park Avenue
Suite 300
P.O. Box 2100
Waterloo, IA
50704-2100
T 319,234.6885
F 319.234.6287
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Opinion on Each Major Federal Program
In our opinion, the City complied, in all material respects, with the types of compliance
requirements referred to above that could have a direct and material effect on its major
federal program for the year ended December 31, 2015.
Report on Internal Control over Compliance
Management of the City is responsible for establishing and maintaining effective internal
control over compliance with the types of compliance requirements referred to above. In
planning and performing our audit of compliance, we considered the City's internal control
over compliance with the types of requirements that could have a direct and material effect
on each major federal program to determine the auditing procedures that are appropriate in
the circumstances for the purpose of expressing an opinion on compliance for each major
federal program and to test and report on internal control over compliance in accordance
with the Uniform Guidance, but not for the purpose of expressing an opinion on the
effectiveness of internal control over compliance. Accordingly, we do not express an
opinion on the effectiveness of the City's internal control over compliance.
A deficiency in internal control over compliance exists when the design or operation of a
control over compliance does not allow management or employees, in the normal course of
performing their assigned functions, to prevent, or detect and correct, noncompliance with a
type of compliance requirement of a federal program on a timely basis. A material weakness
in internal control over compliance is a deficiency, or combination of deficiencies, in
internal control over compliance, such that there is a reasonable possibility that material
noncompliance with a type of compliance requirement of a federal program will not be
prevented, or detected and corrected on a timely basis. A significant deficiency in internal
control over compliance is a deficiency, or a combination of deficiencies, in internal control
over compliance with a type of compliance requirement of a federal program that is less
severe than a material weakness in internal control over compliance, yet important enough
to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described
in the first paragraph of this section and was not designed to identify all deficiencies in
internal control over compliance that might be material weaknesses or significant
deficiencies. We did not identify any deficiencies in internal control over compliance that
we consider to be material weaknesses. However, material weaknesses may exist that have
not been identified.
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Report on Internal Control over Compliance (Continued)
We have audited 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, 2015, and the related notes to
financial statements, which collectively comprise the City's basic financial statements. We
issued our report thereon dated June 1, 2016, which contained unmodified opinions on the
financial statements. Our audit was conducted for the purpose of forming opinions on the
financial statements that collectively comprise the basic financial statements. The
accompanying Schedule of Expenditures of Federal Awards is presented for the purpose of
additional analysis as required by the Uniform Guidance and is not a required part of the
basic financial statements. Such information is the responsibility of management and was
derived from and relates directly to the underlying accounting and other records used to
prepare the basic financial statements. The information has been subjected to the auditing
procedures applied in the audit of the financial statements and certain additional procedures,
including comparing and reconciling such information directly to the underlying accounting
and other records used to prepare the basic financial statements or to the basic financial
statemehts themselves, and other additional procedures in accordance with auditing
standards generally accepted in the United States of America. In our opinion, the Schedule
of Expenditures of Federal Awards is fairly stated in all material respects in relation to the
basic financial statements as a whole.
The purpose of this report on internal control over compliance is solely to describe the scope
of our testing of internal control over compliance and the results of that testing based on the
requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other
purpose.
Minneapolis, Minnesota
June 1, 2016
7
City of Otsego
Schedule of Findings and Questioned Costs
SECTION I — SUMMARY OF AUDITOR'S RESULTS
Financial Statements
Type of auditor's report issued
Internal control over financial reporting
• Material weakness(es) identified?
• Significant deficiency(ies) identified that are not
considered to be material weakness(es)?
Noncompliance material to financial statements noted?
Federal Awards
Type of auditor's report issued on compliance for major
programs
Internal control over major programs
• Material weakness(es) identified?
• Significant deficiency(ies) identified that are not
considered to be material weakness(es)?
Any audit findings disclosed that are required to
be reported in accordance with 2 CFR 200.516(a)
Identification of Major Programs
CFDA No.
Name of Federal Program or Cluster
Dollar threshold used to distinguish
between type A and type B programs
Auditee qualified as low risk auditee?
Unmodified
Yes, Audit Finding 2014-001
Unmodified
No
No
No
20.205
Highway Planning and Construction
$750,000
No
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City of Otsego
Schedule of Findings and Questioned Costs
SECTION II — FINANCIAL STATEMENT FINDINGS
Audit Finding 2014-001
Criteria or Specific Requirement:
Internal control that supports the City's ability to initiate, record, process, and report financial data
consistent with the assertions of management in the financial statements requires adequate segregation
of accounting duties.
Condition:
During the year ended December 31, 2015, the City had a lack of segregation of accounting duties due
to a limited number of office employees.
Questioned Costs:
None.
Context:
This finding impacts the internal control for all significant accounting functions.
Effect:
The lack of adequate segregation of accounting duties could adversely affect the City's ability to initiate,
record, process, and report financial data consistent with the assertions of management in the financial
statements.
Cause:
There are a limited number of office employees.
Recommendation:
Continue to review the accounting system, including changes that may occur. Implement segregation
whenever practical.
Management's Response:
Management agrees with the finding and will look for opportunities to further segregate accounting
duties.
SECTION III — FEDERAL AWARD FINDINGS AND QUESTIONED COSTS
There were no federal award findings or questioned costs.
E
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Report on Legal Compliance
BerganKDV, Ltd.
Independent Auditor's Report
Cedar aalls
602 Main Street
Suite 100
P.O. Box 489
Cedar Falls. IA
50613-0026
T 319.268.1715
Honorable Mayor and Members
F 319,268.1720
of the City Council
Cedar Rapids
City of Otsego
Su to 300Avenue NE
Otse o Minnesota
P.O. Box 10200
g ,
Cedar Rapids, IA
5240Z-0200
T 319.294.8000
P 319.294.9003
We have audited, in accordance with auditing standards generally accepted in the United
Coralvllle
States of America, and the standards applicable to financial audits contained in Government
2530 Corridor Way
Auditing Standards, issued by the Comptroller General of the United States, the financial
Suite 301
P.O. Box 5267
statements of the governmental activities the business -type activities each major fund and
Yp
Coralville, IA
52241-0267
the aggregate remaining fund information of the City of Otsego, Minnesota as of and for the
F 3i9'zaa'osaz
year ended December 31, 2015, and the related notes to financial statements, and have
issued our report thereon dated June 1, 2016.
Des Moines
9207 Northpark Drive
Johnston, IA
11131-2933
The Minnesota Legal Compliance Audit Guide for Cities, promulgated by the State Auditor
T 515,727.5700
pursuant to Minnesota Statutes § 6.65, contains seven categories of compliance to be tested,
F 515,727.5600
contracting and bidding deposits and investments conflicts of interest indebtedness
Minneapolis
public
, a > >
3800 American Blvd W
claims and disbursements, miscellaneous provisions, and tax increment financing. Our audit
Suite loco
Bloomington, MN
considered all of the listed categories, except we did not test for compliance with the
55431-4420
provisions for tax increment financing because the City does not have any current tax
T 9S2.563.6800
F 952.563.6801
increment activity.
st. Cloud
220 Park Avenue S
In connection with our audit, nothing came to our attention that caused us to believe that the
P.O. Box 1304
st. Cloud, MN
Cityof Otsego failed to comply with the of the Minnesota Legal Compliance
56320-3713
provisions
g p Y p g p
T 32D.251.7010
Audit Guide for Cities. However, our audit was not directed primarily toward obtaining
F 320.251.1784
knowledge of such noncompliance. Accordingly, had we performed additional procedures,
Waterloo
other matters may have come to our attention regarding the City's noncompliance with the
100 East Park Avenue
Suite 300
above referenced provisions.
p
P.O. Box 2100
Waterloo, IA
50704-2100
This report is intended solely for the information and use of those charged with governance
F 319.234.6287
and management of City and the State Auditor and is not intended to be and should not be
used by anyone other than these specified parties.
bergankdv.com
St. Cloud, Minnesota
June 1, 2016
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