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CITY OF KALISPELL
NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS
Fiscal Year Ended June 30, 2011
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.
141
Denning, Downey & Associates,
CERTIFIED PUBLIC ACCOUNTANTS
P.O. Box 1957, Kalispell, MT 59903-1957
(406) 756-6879 • FAX (406) 257-7879 • E-Mail dda@ddaudit.conr
Kim M. Downey, CPA, CGFM, CFF, CITP Robert K Denning, CPA, CGFM, CFF, CITP
REPORT ON INTERNALCONTROL OVER FINANCIAL REPORTING • 1 1
COMPLIANCE 1 OTHER MATTERS BASED ON AN AUDITOF FINANCIAL
STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING
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, 2011, which collectively comprise the City of Kalispell's basic financial statements and have
issued our report thereon dated December 22, 2011. 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
142
schedule of findings and questioned costs that we consider to be significant deficiencies in
internal control over financial reporting as items 11-1 and 11-2. 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.
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.
The City of Kalispell's response to the findings identified in our audit are described in the
"Auditee's Response to Findings". We did not audit the City of Kalispell's responses 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 22, 2011
143
Denning, ey & Associates,
CEIITIEIED PUBLIC ACCOUNTANTS
P.O. Box 1957, Kalispell, MT 59903-1957
(406) 756-6879 ^ FAX (406) 257-7879 e E-Mail dda@ddaudit.com
Kim M. Downey, CPA, CGFM, CFF, CITP Robert K. Denning, CPA, CGFM, CFF, CITP
14 1 .'Ae1 1. : . :
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, 2011. 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, 2011.
144
Internal Control Over Compliance
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.
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.
Pc.
December 22, 2011
145
CITY OF KALISPELL
FLATHEAD COUNTY, MONTANA
Fiscal Year Ended June 30, 2011
Section I — Summary of Auditor's Results
Financial Statements
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 No
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-133, Section .510(a)? No
Identification of major programs:
CFDA Number Name of Federal Program or Cluster
14.228 CDBG States Program
97.115 Assistance for Firefighters Grant - ARRA
Dollar threshold used to distinguish
between Type A and Type B programs: $ 300,000
Auditee qualified as low -risk auditee? Yes
146
Section II — Financial Statement Findings
11-1 Parking Commission Segregation of Duties
Condition:
The Parking Commission has one clerk that receipts money. There is no review process
verifying that all tickets issued and cash received have been input into the system.
Criteria:
A good internal control system should minimize the risk that cash could be taken and the
original accounting entry modified to cover the theft.
Effect:
The controls over Parking Commission cash receipts are weak.
Cause:
With only one clerk for the Parking Commission, segregation of duties for the cash
receipting process is limited.
Recommendation:
We recommend that the Parking Commission takes action to improve internal controls by
having a report from the accounting system detailing the tickets input reviewed by the
Enforcement Officer to ensure all tickets issued are input into the accounting system.
11-2 Ambulance Fund Accounts Receivable
Condition:
Based on the adopted budget, 46%% of revenues in the Ambulance Fund are deemed
uncollectible by the City. Therefore, the accounts receivable should also reflect an
uncollectible amount of 46%, or $184,988. However, the accounts receivable have not
been adjusted for the uncollectible amounts, effectively overstating accounts receivable
and the corresponding deferred revenue.
Criteria:
Accounts receivables should be reported at an amount that is reasonably collectible.
Effect:
The accounts receivable in the Ambulance Fund is overstated by $184,988. In addition,
the deferred revenue is overstated by $184,988.
Recommendation:
We recommend that City writes -down the accounts receivable in the Ambulance Fund to
an amount that is reasonably collectible.
147
Denning, Downey & Associates,
CERTIFIED PUBLIC" ACCOUNTANTS
P.O. Box 1957, Kalispell, MT 59903-1957
(406) 756-6879 ® FAX (406) 257-7879 e E-Mail dda@ddaudit.coin
Kim M. Downey, CPA, CGFM, CFF, CITP Robert K. Denning, CPA, CGFM, CFF, CITP
• ' 1 / �! is /�, <., �. /.
CONTROL '
Mayor and City Council
City of Kalispell
Flathead County
Kalispell, Montana
There were no other compliance, financial, or internal accounting matters.
2,4 Q4"vabj C 0fi 5 Pd .
December 22, 2011
148
Denning, Downey & Associates,
CERTIFIED PUBLIC ACCOUNTANTS
P.O. Box 1957 Kalispell, MT 59903-1957
(406) 756-6879 . FAX (406) 257-7879 0 E-Mail dda@ddaudit.com
Kira M. Downey, CPA, CGFM, CFF, CITP Robert K. Denning, CPA, CGFM, CFF, CITP
Mayor and City Council
City of Kalispell
Flathead County
Kalispell, Montana
The prior audit report contained two recommendations. The action taken on the recommendation
is as follows:
Recommendation Action Taken
City Court Segregation of Duties Not Repeated
Revenue Bond Requirements Not Repeated
December 22, 2011
WE
City of Kalispell, Montana
Response to Audit Findings
Fiscal Year 2011
11-1 Parking Commission Segregation of Duties
Condition:
The Parking Commission has one clerk that receipts money. There is no review process
verifying that all tickets issued and cash received have been input into the system.
Criteria:
A good internal control system should minimize the risk that cash could be taken and the
original accounting entry modified to cover the theft.
Effect:
The controls over Parking Commission cash receipts are weak.
Cause:
With only one clerk for the Parking Commission, segregation of duties for the cash
receipting process is limited.
Response:
As of January 1, 2012, the Parking Commission will cease to be a component unit of the
City of Kalispell and will be absorbed into the City's general fund. A new system will be
implemented for the ticket cash receipting process to minimize the risk of theft.
11-2 Ambulance Fund Accounts Receivable
Condition:
Based on the adopted budget, 46% of revenues in the Ambulance Fund are deemed
uncollectible by the City. Therefore, the accounts receivable should also reflect an
uncollectible amount of 46%, or $184,988. However, the accounts receivable have not
been adjusted for the uncollectible amounts, effectively overstating accounts receivable
and the corresponding deferred revenue.
Criteria:
Accounts receivables should be reported at an amount that is reasonably collectible.
Effect:
The accounts receivable in the Ambulance Fund is overstated by $184,988. In addition,
the deferred revenue is overstated by $184,988.
Response:
The City will write -down the accounts receivable in the Ambulance Fund to an amount
that is reasonably collectible beginning in fiscal year 2012.
150