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CITY OF KALISPELL
NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
- Fiscal Year Ended June 30, 2010
Basis of Presentation
The accompanying Schedule of Expenditures of Federal Awards includes the federal grant activity of City
of Kalispell, Flathead County, Montana, and is presented on the modified accrual basis of accounting. The
information in this schedule is presented in accordance with the requirements of OMB Circular A-133,
Audits of States, Local governments, and Non -Profit Organizations. Therefore, some amounts presented in
this schedule may differ from amounts presented in, or used in preparation of, the basic financial
statements.
121
MMi#iiari if.
1740 U.S. Hwy 93 South, P.O. Box 1957, Kalispell, MT 59903-1957
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STANDARDS
Mayor and City Council
City of Kalispell
Flathead County
Kalispell, Montana
We have audited the financial statements of the governmental activities, business -type activities,
each major fund, the aggregate discretely presented component units and the remaining fund
information of the City of Kalispell, Flathead County, Montana, as of and for the year ended
June 30, 2010, which collectively comprise the City of Kalispell's basic financial statements and
have issued our report thereon dated December 30, 2010. We conducted our audit 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.
Internal Control Over Financial Reporting
In planning and performing our audit, we considered the City of Kalispell's internal control over
financial reporting as a basis for designing our auditing procedures 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 of Kalispell's internal control over financial reporting. Accordingly, we
do not express an opinion on the effectiveness of the City of Kalispell's internal control over
financial reporting.
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 entity's financial statement will not be prevented,
or detected and corrected on a timely basis.
Our consideration of internal control over financial reporting 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 financial reporting that might be deficiencies, significant deficiencies, or
material weaknesses. We did not identify any deficiencies in internal control over financial
reporting that we consider to be material weaknesses, as defined above. However, we identified
certain deficiencies in internal control over financial reporting, described in the accompanying
schedule of findings and questioned costs that we consider to be significant deficiencies in
internal control over financial reporting as items 10-1, 10-2 and 10-3.
-122-
Robert K Denning, CPA • Kim M. Downey, CPA
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the City of Kalispell's financial
statements are free of 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.
We did not audit City of Kalispell's response, and accordingly, we express no opinion on it.
This report is intended solely for the information and use of the audit committee, management,
the Mayor and City Council, the Montana Department of Administration, federal awarding
agencies and pass -through entities and is not intended to be and should not be used by anyone
other than these specified parties.
December 30, 2010
CPp5 12
-123-
Mwevlf 7717,371
1740 U.S. Hwy 93 South, P.O. Box 1957, Kalispell, MT59903-1957
XT,
Mayor and City Council
City of Kalispell
Flathead County
Kalispell, Montana
Compliance
We have audited the City of Kalispell's compliance with the types of compliance requirements
described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance
Supplement that could have a direct and material effect on each of City of Kalispell's major
federal programs for the year ended June 30, 2010. The City of Kalispell's major federal
programs are identified in the summary of auditor's results section of the accompanying
schedule of findings and questioned costs. Compliance with the requirements of laws,
regulations, contracts, and grants applicable to each of its major federal programs is the
responsibility of the City of Kalispell's management. Our responsibility is to express an opinion
of the City of Kalispell's compliance based on our audit.
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
OMB Circular A-133, Audits of States, Local Governments and Non -Profit Organizations.
Those standards and OMB Circular A-133 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 of Kalispell'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. Our audit does not provide a legal determination on the City of Kalispell's compliance
with those requirements.
In our opinion, the City of Kalispell complied, in all material respects, with the compliance
requirements referred to above that could have a direct and material effect on each of its major
federal programs for the year ended June 30, 2010. However, the results of our auditing
procedures disclosed an instance of noncompliance with those requirements, which is required to
be reporting in accordance with OMB Circular A-133 and which is described in the
accompanying schedule of findings and questioned costs as item 10-4.
-124-
Robert K. Denning, CPA - Kim M. Downey, CPA
Internal Control Over Coglpliance
The management of the City of Kalispell is responsible for establishing and maintaining
effective internal control over compliance with requirements of laws, regulations, contracts and
grants applicable to federal programs. In planning and performing our audit, we considered the
City of Kalispell's internal control over compliance with requirements that could have a direct
and material effect on a major federal program in order to determine our auditing procedures for
the purpose of expressing an opinion on compliance and report on internal control over
compliance in accordance with OMB Circular A-133, 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 of Kalispell'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.
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 deficiencies, significant deficiencies, or material
weaknesses. We did not identify any deficiencies in internal control over compliance that we
consider to be material weaknesses, as defined above. However, we identified a certain
deficiency in internal control over compliance that we consider to be a significant deficiency as
described in the accompanying schedule of findings and questioned costs as item 10-4. 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.
We did not audit City of Kalispell's response and, accordingly, we express no opinion on it.
This report is intended for the information of the audit committee, management, the Mayor and
City Council, the Montana Department of Administration, federal awarding agencies and pass -
through entities and is not intended to be and should not be used by anyone other than these
specified parties.
CPS , t0e.
December 30, 2010
-125-
Fiscal Year Ended June 30, 2010
Section I — Sum an of Auditor's Results
Type of auditor's report issued Unqualified
Internal control over financial reporting:
Material weakness(es) identified? No
Significant deficiency(s) identified
not considered to be material weaknesses Yes
Noncompliance material to financial statements
noted? No
Federal Awards
Internal control over major programs:
Material weakness(es) identified? No
Significant deficiency(s) identified
not considered to be material weaknesses Yes
Type of auditor's report issued on compliance
for major programs: Unqualified
Any audit findings disclosed that are required
to be reported in accordance with
Circular A- 13 3, Section .5 1 O(a)? Yes
Identification of major programs:
CFDA Number Name of Federal Program or Cluster
14.228 CDBG States Program
97.044 Assistance for Firefighters Grant
Dollar threshold used to distinguish
between Type A and Type B programs: $300,000
Auditee qualified as low -risk auditee? Yes
-126-
1 1 E III I III 11'1017,1����
,. 1, , I , 1 111 A T
Condition:
The City is required to maintain net revenues equal to the sum of 1.25 times the
maximum annual debt service of the sewer bonds.
Criteria:
The bond agreements define the requirements.
Effect:
The City is not in compliance with the 125% test. Total net revenues were $1,647,696
and 125% of the maximum debt payments is $1,695,780.
Cause:
The City's Sewer Fund revenues were not adequate to pass the bond test.
Recommendation:
We recommend the City review their revenues and expenses for the Sewer fund in order
to bring it into compliance.
Auditee Response:
The City Council is in the process of reviewing sewer rates. City staff is actively
reviewing all expenses of the sewer department to determine if there are ways to reduce
operating costs. At this time only expenses absolutely necessary to continue operations
are being approved.
FMR1 r 1 Rml
Condition:
The City Court has three clerks that receipt money. All three clerks have the ability to
Void or Adjust cash receipts. In addition all three clerks have the ability to Void or
Amend citations that have been entered into the system.
Criteria:
The City Court clerks have access to both cash and the ability to change accounting
entries. A good internal control system should minimize the risk that cash could be taken
and the original accounting entry (receipt or citation) voided or modified to cover the
theft.
Effect:
Controls over City Court cash receipts are weak.
Cause:
Prior to the City offices moving down the street from the City Court, the City Clerk
receipted all money of the Court. This provided an adequate segregation between cash
handling and Court accounting. After the move of the City offices the Court has began
collecting their own receipts.
-127-
Recommendation:
We recommend that the City Court take action to implement a review procedure for all
void or modifications of original accounting entries to both receipts and citations.
Auditee Response:
The City Court will review the voided receipts and citations in the future.
Condition:
The Parking Commission has one clerk that receipt money. The clerk has the ability to
void citations that have been entered into the system. Nobody reviews and verifies that
all receipts have been input into the system.
Criteria:
The Parking Commission clerk has access to both cash and the ability to change
accounting entries. A good internal control system should minimize the risk that cash
could be taken and the original accounting entry (citation) voided or modified to cover
the theft.
Effect:
Controls over Parking Commission cash receipts are weak.
Cause:
The Parking Commission has a new clerk who was unaware of the issue.
Recommendation:
We recommend that the Parking Commission take action to implement a review
procedure for all voided citations and verify that all tickets are input into the Parking
commissions system.
Auditee Response:
The Parking Commission will implement procedures to review all voided citations.
CFDA Title: CDBG/State's Program — Neighborhood Stabilizati
Pm rogra
CFDA Number: 14.228
Federal Award Number: MT-NSP-007-04-004
Federal Agency: U.S. Department of Housing and Urban Development
Pass -through Entity: Montana Department of Commerce I
-128-
11IIIIII, F I . ....... jo 11 111
Condition:
The City received a grant from the Montana Department of Commerce. The grant was
then sub awarded by the City to Northwest Montana Human Resources, Inc. The grant
included federal funds in excess of $500,000. The contract between the City and
Northwest Montana Human Resources, Inc. did not include language requiring a federal
audit be performed in accordance with OMB Circular A- 13 3.
Criteria:
OMB Circular A-133 requires all grants that include federal funds in excess of $300,000
include language requiring a federal audit.
Effect:
The City's contract with Northwest Montana Human Resources Inc. did not include
federal audit language.
Cause:
The City utilized sample contracts provided by the Montana Department of Commerce
that did not include the required language.
Recommendation:
We recommend that the City include all required federal language in all pass through
grants.
Auditee Response:
The City will review all pass through grants for compliance in the future.
-129-
110101 11,
1740 U.S. Hwy 93 South, P.O. Box 1957, Kalispell, MT59903-1957
KEPORT ON OTHER COMPLIANCE, FINANCIAL, AND INTERNAL ACCOUNTING
CONTROL MATTERS
Mayor and City Council
City of Kalispell
Flathead County
Kalispell, Montana
There were no other compliance, financial, or internal accounting matters.
aWlj, 66� S" toe.
December 30, 2010
-130-
Robert K. Denning, CPA - Kim M. Downey, CPA
1740 U.S. Hwy 93 South, P.O. Box 1957, Kalispell, AIT 59903-1957
Mayor and City Council
City of Kalispell
Flathead County
Kalispell, Montana
The prior audit report contained one recommendation. The action taken on the recommendation
is as follows:
Recommendation Action Taken
City Court Segregation of Duties Repeated
4".�, 166t,-� 19,q s 0e.
December 30, 2010
-131-
Robert K. Denning, CPA - Kim M. Downey, CPA