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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. 2 I berganKov 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 � 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 bergankdv.com material weakness, yet important enough to merit attention by those charged with governance. 3 C:berganKDV 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 n C:berganKDV 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 hergankdv.com 5 C: berganKDV 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. 0 C: berganKav 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 �3 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 C: berganKDV 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 10