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9. Reports of Independent Public Accountants & Schedule of Expenditures of Federal AwardsREPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS AND SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS AS REQUIRED BY U.S. OFFICE OF MANAGEMENT AND BUDGET CIRCULAR A-133, AUDITS OF STATE AND LOCAL GOVERNMENTS AND NON-PROFIT ORGANIZATIONS City of Kalispell, Flathead County, Montana SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS For Fiscal Year Ended June 30, 2013 Ending Federal Grantor/Pass-Through Federal Pass -Through Award Beginning Bal Federal Match/Other Federal Match/Other Balance Grantor/Program Title CFDA # Grantees # Amount July 1, 2012 Revenue Revenue Expenditures Expenditures June 30, 2013 U.S. Department of Housing and Urban Development Passed thru the State Dept. of Commerce COB G/State's Program- Neighborhood Stabilization Program 14228 MT-NSP-007-01-001 $4,000,000 $ 22,235 $ 22,235 COB G/State's Program- Neighborhood Stabilization Program 14228 MT-NSP-007-01-001 $1,500,000 $ 799,982 $ 799,982 CDBG- FVCC Training Program 14.228 MT-CDBG-ED09-04 $ 273,945 $ 66,119 $ 66,119 Total U. S. Department of Housing and Urban Development $ - $ 888,336 $ - $ 888,336 $ U. S. Department of Transportation Direct. FAA - Airport Planning Grant 20.106 DOT-FAIONM-2032 $ 92,910 $ 4,917 $ 258 $ 4,917 $ 258 Passed thru the State Department of Transportation Highway Planning and Construction 20.205 6770-110 $ 174,350 $ 174,350 $ 31,264 $ 174,350 $ 31,264 Highway Planning and Construction-CTEP 20.205 STPE6799(32,33) $ 121,882 $ 27,134 $ 4,206 $ 27,134 $ 4,206 Safety Incentives to Prevent Operation of Motor Vehicles by Intoxicated Pem 20.601 106127 $ 20,000 $ 10,146 $ 10,146 Safety Incentives to Prevent Operation of Motor Vehicles by Intoxicated Pem 20.601 106727 $ 20,000 $ 12,335 $ 12,335 Alcohol Traffic Safety and Drunk Driving Prevention Incentive/DUI Court In 20.601 CTS 106006 $ 97,000 $ 20,940 $ 9,452 $ 20,940 $ 9,452 State and Community Highway Safety/DUI Court Implementation 20.601 CTS 106687 $ 130,462 $ 66,466 $ 216 $ 66,466 $ 216 Total U. S. Department of Transportation $ - $ 316,288 $ 45,396 $ 316,288 $ 45,396 $ - U. S. Department of Justice Direct. COPS Law Enforcement Technology -Shooting Facility 16.710 2009CKWX0478 $ 750,000 $ 750,000 $ 750,000 Drug Court Discretionary Grant Program 16.585 2009-DC-BX-0070 $ 348,473 $ 14,440 $ 14,440 Recovery Act - Community Policing Grants/COPS Hiring Recovery Program 16.710 2009RKWX0524 $ 214,229 $ 52,470 $ 21,980 $ 52,470 $ 21,980 Bullet Proof Vest 16.607 n/a $ 8,789 $ 3,662 $ 30 $ 3,662 $ 30 Passed through Flathead County: JAG Edward Byrne Memorial Justice Asst. -NW Drug Taskforce 16.738 11-GO1-91260 $ 25,191 $ 25,191 $ 25,191 Total U. S. Department of Justice $ - $ 845,763 $ 22,010 $ 845,763 $ 22,010 $ - U. S. Department of the Interior/National Park Service Direct. Preserve America -Kalispell Gets You Glacier 15.929 PIOAP00105 $ 75,000 $ 9,696 $ 9,696 $ 9,696 $ 9,696 Total U. S. Department of the Interior/National Park Service $ - $ 9,696 $ 9,696 $ 9,696 $ 9,696 $ - U.S. Department of Homeland Security Passed thru: Department of MilitaryAffarrs Assistance for Firefighters Grants - Hurnat Tow Vehicle 97.044 EMW-2011-ss-00052, 2010-ss-TO-0089 $ 198,500 $ 86,097 $ 86,097 Narrowband Grant 97.044 2010-SS-TO-0089 $ 16,360 $ 15,945 $ 493 $ 15,945 $ 493 Direct. Recovery Act- Station Construction Grant 97.115 EMW-2009-FC-01097R $1,348,039 $ 7,124 $ 7,124 Recovery Act -SAFER Grant 97.083 EMW-2009-FH-00340 $ 457,887 $ 127,204 $ 127,204 Total U. S. Department of Homeland Security $ - $ 236,370 $ 493 $ 236,370 $ 493 $ - Environmental Protection Agency Direct. Recovery Act - Brownfields Revolving Loan Program 66.818 BF-96807701-0 $ 1,000,000 $ 3,167 $ 3,167 Recovery Act - Brownfields Area -Wide Planning Pilot Program 66.814 TR96808401 $ 175,000 $ 89,685 $ 30,000 $ 89,685 30000 Recovery Act - Brownfields Assessment and Cleanup Cooperative Agreemen 66.818 BF-97863001 $ 400,000 $ 25,453 $ 25,453 Total Environmental Protection Agency $ - $ 118,305 $ 30,000 $ 118,305 $ 30,000 $ - Executive Office of the President Passed through State of Montana -Board of Crime Control. High Intensity Drug Trafficing Area 95.001 GI 1RM0035A, G1211, G13R $ 4,367 $ 4,367 $ 4,367 Total Executive Office of the President $ - $ 4,367 $ - $ 4,367 $ - $ - Total Federal Assistance $ - $2,419,125 $ 107,595 $ 2,419,125 $ 107,595 $ - CITY OF KALISPELL NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AWARDS Fiscal Year Ended June 30, 2013 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. 142 T T"I : 21 !O/�tt O /C !27::l 41 f ftbJ.N U 16: 712! GALUSHA QP/!CW�27:: al frf�baN U!6: 735! HIGGINS &GALUSHAn i Q pof!)517*553.6631! EST . x g x 9 %D51T.554.2128 A PROFESSIONAL CORPORATION OF CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS x x x/H h. c�Udpn INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH REQUIREMENTS THAT COULD HAVE A DIRECT AND MATERIAL EFFECT ON EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133 City Council Members City of Kalispell, Montana Compliance We have audited the compliance of City of Kalispell, Montana with the types of compliance requirements described in the U.S. Office of Management and Budget Circular A-133 Compliance Supplement that could have a direct and material effect on each of its major federal programs for the year ended June 30, 2013. The City's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Compliance with the requirements of laws, regulations, contracts, and grants applicable to each of its major federal programs is the responsibility of the entity's management. Auditor's Responsibility Our responsibility is to express an opinion on the City's compliance with the applicable compliance requirements 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 U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non -Profit Organizations. Those standards and 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'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's compliance with those requirements. gnjoltHKp(fnbc)H!!1 b✓dhl.!I frubH!!NjttpvW.!Uebip!Ci* 143 Opinion 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, 2013. Internal Control over Compliance The management of the City of Kalispell is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws, regulations, contracts, and grants applicable to federal programs. In planning and performing our audit, we considered the City's internal control over compliance with requirements that could have a direct and material effect on a major federal program as a basis for designing our auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with 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'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. Restricted Use The purpose of this report is solely to describe the scope of our testing of internal control over financial reporting and compliance, and the result of that testing, and not to provide an opinion on the effectiveness of the entity's internal control over financial reporting or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control over financial reporting and compliance. Accordingly, this report is not suitable for any other purpose GALUSHA, HIGGINS & GALUSHA, PC Certified Public Accountants and Advisors Helena, Montana February 28, 2014 144 CITY OF KALISPELL SCHEDULE OF FINDINGS AND QUESTIONED COSTS For the year ended June 30, 2013 SECTION I - SUMMARY OF AUDITOR'S RESULTS Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: Material weakness(es) identified? x yes no Significant deficiency(ies) identified not considered to be material weaknesses? yes x none reported Noncompliance material to financial statements noted? yes x no Federal Awards Internal Control over major programs: Material weakness(es) identified? yes x no Reportable condition(s) identified not considered to be material weaknesses? yes x none reported Type of auditor's report issued on compliance for major programs: Unmodified Any audit findings disclosed that are required to be reported in accordance with Circular A-133, Section .510(a)? yes x no Identification of major programs: CFDA Numbers(s) Name of Federal Program or Cluster U.S. Department of Housing and Urban Development 14.228 Community Development Block Grant Program U.S. Department of Justice Public Safety Partnership and Community 16.710 Policing Grants U.S. Department of Homeland Security ARRA Staffing for Adequate Fire and Emergency 97.083 Response (SAFER) Dollar threshold used to distinguish between Type A and Type B programs: $300,000 Auditee qualified as low -risk auditee? x yes no SECTION II - FINANCIAL STATEMENTS Yes SECTION III - FEDERAL AWARD FINDINGS AND QUESTIONED COSTS None 145 T T"I : 21 !O/�tt O /C !27:: 41 f ftbJ.N U 16: 712! GALUSHA QP/!CW�27:: al frf�bdN U!6: 735! HIGGINS &GALUSHAn i Q pof!)517*553.6631! EST . x g x 9 CbjD517*.554.2128 A PROFESSIONAL CORPORATION OF CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS x x x/h h. c�Uo REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENTAUDITING STANDARDS To the City Council Members City of Kalispell, Montana 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, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Kalispell as of and for the year ended June 30, 2013, and the related notes to the financial statements, which collectively comprise the City of Kalispell's basic financial statements, and have issued our report thereon dated February 28, 2014. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the City of Kalispell'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 of Kalispell's internal control. Accordingly, we do not express an opinion on the effectiveness of the City of Kalispell's internal control. Our consideration of internal control over financial reporting was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying schedule of findings and questioned costs, we identified certain deficiencies in internal control that we consider to be material weaknesses. 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 statements will not be prevented, or detected and corrected on a timely basis. We consider the deficiency described in the accompanying schedule of findings and responses as item 2013-001 to be a material weakness. gn#Df-t4!!Cp(fn bD4!!1 bidh1!!!I frf)bH!!Njttpvriohl!! bb p!Gi* 146 Compliance and Other Matters As part of obtaining reasonable assurance about whether City of Kalispell '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. City of Kalispell's Response to Findings The City of Kalispell's responses to the findings identified in our audit are described in the accompanying schedule of findings and responses. The City of Kalispell's response was not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on it. 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 entity'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 entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. GALUSHA, HIGGINS & GALUSHA, PC Certified Public Accountants and Advisors Helena, Montana February 28, 2014 147 City of Kalispell SCHEDULE OF FINDINGS AND RESPONSES For the Fiscal Year Ending June 30, 2013 2013-001 —Deferred Revenue, Loan Receivable Criteria: Deferred revenues represent revenues that have been collected but not yet earned. Principal repayments of loans are not considered to be income and would not be offset by a deferred revenue balance. Additionally, interest payments received from the principal balance are considered earned and would not require a deferral. Condition: The City of Kalispell included loan receivable principal amounts as deferred revenue in the government -wide financial statements. Cause: When the City of Kalispell converted from a modified accrual basis of accounting to full accrual in 2003, the previous finance director offset the loan principal and interest receivable with a deferred revenue balance. During the year-end closing process there does not appear to be a process for reviewing previously recorded transactions and balances for compliance with accounting principles. Effect: The City's liabilities were overstated by $1,185,128, which represents the balance of the deferred revenue — loan receivable account. Recommendation: We recommend that the City implement an annual review process for all significant transactions and balances to determine if proper accounting principles were applied. Management response: The City will implement an annual review process for all significant transactions and balances to insure that proper accounting principles have been applied. 148 City of Kalispell SCHEDULE OF PRIOR AUDIT RECOMMENDATIONS For the Fiscal Year Ending June 30, 2013 The following recommendations were made during the prior audit. The status of the City's corrective action was reviewed during the current audit and is reported as follows: Prior Audit Recommendation Finding 12-1 Credit Card Claims: The City provided guidance and reaffirmed policies to all departments, including component units, regarding the documentation requirements for credit card purchases. 149