Consideration of Audited Financial Reports: Year ending June 30, 2017 and reissued single audit report for the year ending June 30, 2016

The City is required to perform an annual audit each year, pursuant to Arizona Revised Statutes (A.R.S.) Section 9-481 and the City Charter (Article VI, Section 5); this audit is commonly known as the Comprehensive Annual Financial Report (CAFR).  The CAFR is reviewed by an independent auditor to provide reasonable assurance that the financial statements are free of material misstatement.  In addition, the City also obtains an annual Single Audit as a condition of receiving federal assistance in excess of $750,000. An independent auditor performs the Single Audit.

There is no financial impact to approving the City's Fiscal Year 2017 Comprehensive Annual Financial Report (CAFR) or the FY 2017 Single Audit or FY2016 reissued Single Audit.

Financial Reporting does not fit in a specific Council or Regional Plan goal but it does provide overall support for the organization and is aligned with best practices.  This item is required by City Code.

No.

 

• Approve the City's FY 2017 CAFR, FY 2017 Single Audit Report and FY 2016 reissued Single Audit Report.
• Do not approve the City's FY 2017 CAFR, FY 2017 & FY2016 Single Audit report, and provide direction to the Audit Committee or independent auditor to address Council's questions/issues.

 The City is required to perform an independent  annual financial audit per City Charter Article VI, Section 5 which states: 

"Prior to the end of each fiscal year, the Council shall designate an independent Certified Public Accountant, who, as of the end of the fiscal year, shall make up an audit of accounts and other evidence of financial transactions of the City government, and shall submit a long-form report, including recommendations concerning policy and fiscal procedures, to the Council, and to the City Manager. Such accountant shall have no personal interest, direct or indirect, in the fiscal affairs of the City government or of any of its officers. The accountant shall, within specifications approved by the Council, post-audit the books and documents kept by the City, and any separate or subordinate accounts kept by any other office, department, or agency of the City government."

In addition to the financial audit, the City is required to complete a Single Audit because it receives more than $750,000 in federal assistance.

The City has hired CliftonLarsonAllen, LLP (the Auditors). The Auditors work directly with the Finance Staff to complete review of the City's financial data and internal controls.  The financial reports are the responsibility of the City and are based on the activity of the fiscal year. The CAFR is presented in accordance with all standards as defined by the Government Accounting Standards Board (GASB).  The Auditors are not responsible for reviewing every transaction for the fiscal year, however, based on the standards the Auditors plan and perform the audit to obtain reasonable assurance that the statements are free of material misstatements.  The Auditors prepare the Single Audit which is an independent assessment of City finances and includes a schedule of expenditures of federal fund awards.

The City has established an Audit Committee to review the financial reports and findings (CAFR and the Single Audit).  The committee discusses the information and makes a recommendation to Council to accept or reject the financial reports.  The Audit Committee is represented by a City Councilmember, the City Manager, and the Management Services Director:

• Charlie Odegaard, Council Member
• David Cosper, CPA
• Sharman Cawood, CPA
• Margaret Penado
• City Manager
• Rick Tadder, Management Services Director

The financial reports were reviewed by the Audit Committee through a presentation by the Auditors.  The presentation of the financial reports to the Audit Committee occurred on January 31, 2018, and was facilitated by Rick Tadder, Management Services Director and Dennis Osuch, Principal with CliftonLarsonAllen LLP.   The meeting was recorded and is available on the city website.
 

The City has received an "unmodified opinion" from the Auditors, meaning the audit firm believes the financial statements are fairly presented in accordance with generally accepted accounting principles.  In the Communication to Mayor and City Council (attached), the audit firm states: there were no significant difficulties encountered in performing the audit and; there were no disagreements with management.  The letter state uncorrected misstatements related to unbilled revenues.  Misstatements are noted when the Auditors have found items that may be incorrectly presented during the audit engagement.  

In the FY 2017 Single Audit Report, there were no findings, material weaknesses or significant deficiencies noted. Since the FY 2016 single audit was reissued, the City did not qualify as a low-risk auditee for the FY 2017 audit.

In the FY2016 reissued Single Audit Report, there was one finding related to material weaknesses over federal awards, and no significant deficiencies were noted.  The finding which required the FY 2016 Single Audit Report to be reissued was due to a misclassification of a federal award on the schedule of expenditures of federal awards.  The error was discovered by City staff and when discussing it with the City's auditors, the auditors determined the need to test this grant program and reissue the FY 2016 Single Audit Report.  The full details of the finding and material weakness can be found on page 7 of the FY 2016 reissued single audit report.

The Audit Committee unanimously approved the acceptance of the CAFR and Single Audits at their January 31, 2018, meeting.

An annual audit is statutorily required by A.R.S. Section 9-481.  In addition, should the City not perform an annual audit of its financial statements and complete a Single Audit, the City could lose valuable grant funding.  The amount of reimbursements of Federal Award reported for in Fiscal Year 2017 was $13.2 million.  State and local grant funding was $1.0 million in Fiscal Year 2017.

Independent review of the City’s financial statements elevates the level of confidence that the City is reporting fairly, accurately, and within prescribed guidelines.

 Involve:  The community is directly involved through the participation on the Audit Committee. 

Inform:  Any community member may review the most recent CAFR and Single Audit Report.  The current and historical CAFR and Single Audit and SEFA are on file and available for public inspection in the following locations:

• On the City website, www.flagstaff.az.gov under the Finance and Budget section (http://www.flagstaff.az.gov/index.aspx?nid=164)
• At the Flagstaff Public Library, 300 W Aspen Ave, Flagstaff, Arizona
• At the East Flagstaff Community Library, 3000 N 4^th Street, Suite 5, Flagstaff, Arizona
• Contact the Finance Director at (928) 213-2217

In addition, one copy of the CAFR and one copy of the Single Audit Reports are on file and available in the Council office.