Consideration of Audited Financial Reports: Year ending June 30, 2015.

The City is required to perform an annual audit each year, pursuant to ARS 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 $300,000. An independent auditor performs the Single Audit.

There is no financial impact to approving the City's Fiscal Year 2015 Comprehensive Annual Financial Report (CAFR) or the FY 2015 Single Audit.

Financial Reporting does not fit in a specific Council or Regional Plan goal, but allows for overall support of the organization.  This item is required by City Code.

No.

 

• Approve the City's FY 2015 CAFR and FY 2015 Single Audit Report.
• Do not approve the City's FY 2015 CAFR and FY 2015 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 financial audit, the City is required to complete a Single Audit because it receives more than $300,000 in federal assistance. For Fiscal Year 2016, the City received $750,000 in federal assistance.

The City has hired Eide Bailly, LLC (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 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, three citizens (one vacant), the City Manager, and the Management Services Director:

• Eva Putzova, Council Member
• David Cosper, CPA
• Sharman Cawood, CPA
• Josh Copley, 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 February 10, 2016 and was facilitated by Brandi Suda, Finance Director; Sarah Wyant, Audit Manager with Eide Bailly; and Challis Bugbee, Senior Associate with Eide Bailly. At this time it was noted that a potential issue had been discussed about the classification of net position.

After this presentation City staff discussed the potential error on classification of net position with the Auditors. The Auditors recommended that we make the corrections and reissue the CAFR.  Staff made the decision to reissue the CAFR. The discovery relates to the classification of restricted and unrestricted net assets on the governmental wide statement of net position. (Statement of Net Position is page 21 of the CAFR). With the implementation of GASB 68 (Pension Liability), for the first time the City had a negative unrestricted net position. It was unclear how to report this in relation to the restricted net position. Effects of this reclassified unrestricted net position deficit of $12,596,148 to an unrestricted net position deficit of $65,530,075 and resulting increase in restricted net position to $52,933,927. This change has no change or negative impact on the balance sheet of governmental fund statements or the proprietary fund statements.  A second Audit Committee meeting occurred on April 5, 2016 and the following members were in attendance: David Cosper, Sharman Cawood, Josh Copley, and Rick Tadder.

The City has received an "unqualified 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 difficulties encountered in performing the audit and; there were no disagreements with management.  The letter states there were two corrected misstatements and one uncorrected misstatement.  Misstatements are noted when the Auditors have found items that may be incorrectly presented during the audit engagement.  

The first corrected misstatement related to accuracy of aggregation of financial data related to impaired capital assets and insurance proceeds for the Housing Authority.  The second item is related to timely and accurately reporting of miscellaneous receivables.  The uncorrected misstatement is related to the accruing of accounts payable in the incorrect reporting period. The uncorrected item is not deemed material to the City CAFR. 

In the Single Audit Report, three financial statement findings were noted. The first two relate to the corrected misstatements noted above. The third finding related to the discovery by City staff mentioned above.

Due to findings on the FY 2013 reports, the City's Single Audit status does not qualify as a low risk auditee.  As a result, this year's single audit covered a minimum of fifty percent of the federal expenditures.  Since no material weaknesses were noted in the FY 2015 Single Audit, the City will qualify as a low risk auditee for the FY 2016 audit. We do not expect to have any negative impacts to our ability to submit for federal grants based on these findings. 

The Audit Committee unanimously approved the acceptance of the CAFR and Single Audit at the April 5, 2016 meeting.

An annual audit is statutorily required by ARS 9-481.  In addition, should the City not perform an annual audit of it 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 2015 was $11.4 million.  State and local grant funding was $1.9 million in Fiscal Year 2015.

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 web site, 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 are on file and available in the Council office.