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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 08/16/2016 - RESOLUTION 2016-064 ACKNOWLEDGING RECEIPT OF THE CAgenda Item 20 Item # 20 Page 1 AGENDA ITEM SUMMARY August 16, 2016 City Council STAFF Travis Storin, Accounting Director Mike Beckstead, Chief Financial Officer SUBJECT Resolution 2016-064 Acknowledging Receipt of the City's 2015 Audited Comprehensive Annual Financial Report and Federal Compliance Audit Report Prepared by RSM US LLP, an Independent Public Accounting Firm. EXECUTIVE SUMMARY The purpose of this item is to accept delivery of the City’s 2015 audited financial reports provided by the independent public accounting firm, RSM US LLP. STAFF RECOMMENDATION Staff recommends adoption of the Resolution. BACKGROUND / DISCUSSION An annual audit of the City’s financial records was completed within six months of the City's 2015 fiscal year-end of December 31, 2015. Audit opinions are issued for the basic financial statements of the City, compliance with major federal programs, and the schedule of expenditures of federal awards. The City received unqualified and unmodified, or "clean", audit opinions for each report issued. No material weaknesses or significant deficiencies in internal control were noted as part of the audit, and no noncompliance material to the financial statements was noted. In the auditor's opinion, the financial statements present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Fort Collins as of December 31, 2015 in accordance with accounting principles generally accepted in the United States of America. PUBLIC OUTREACH Staff has posted the documents on the City Finance website and copies of the reports are available upon request. Pursuant to the Charter, a legal notice was published in the Coloradoan summarizing for citizens the results of the audit. ATTACHMENTS 1. Report to City Council (PDF) 2. 2015 Fort Collins Single Audit Report - Federal Compliance (PDF) 3. 2015 Comprehensive Annual Financial Report (PDF) 4. Finance Committee minutes. July 18, 2016 (draft) (PDF)  City of Fort Collins, Colorado Report to the City Council June 14, 2016 ATTACHMENT 1 555 17th St Suite 1000 Denver, CO 80202 T +1 303 298 6400 F +1 303 298 6401 www.rsmus.com June 14, 2016 To the Honorable Mayor and Members of the City Council and City Manager City of Fort Collins, Colorado Fort Collins, Colorado We are pleased to present this report related to our audit of the basic financial statements of the City of Fort Collins, Colorado (the City) for the year ended December 31, 2015. This report summarizes certain matters required by professional standards to be communicated to you in your oversight responsibility for the City’s financial reporting process. This report is intended solely for the information and use of the City Council and management and is not intended to be, and should not be, used by anyone other than these specified parties. It will be our pleasure to respond to any questions you have about this report. We appreciate the opportunity to continue to be of service to the City of Fort Collins, Colorado. Contents Required communications 1-2 Summary of significant accounting estimates 3-5 Summary of uncorrected misstatements 6-7 Recently issued accounting standards 8-9 Exhibit A—Significant written communications between management and our firm Representation letter Control deficiency letter 1 Required Communications Generally accepted auditing standards (AU-C 260, The Auditor’s Communication with Those Charged with Governance) require the auditor to promote effective two-way communication between the auditor and those charged with governance. Consistent with this requirement, the following summarizes our responsibilities regarding the financial statement audit as well as observations arising from our audit that are significant and relevant to your responsibility to oversee the financial reporting process. Area Comments Our Responsibilities With Regard to the Financial Statement Audit Our responsibilities under auditing standards generally accepted in the United States of America, Government Auditing Standards issued by the Comptroller General of the United States, and provisions of the Uniform Guidance and OMB’s Compliance Supplement have been described to you in our arrangement letter dated March 10, 2016. Our audit of the financial statements does not relieve management or those charged with governance of their responsibilities which are also described in that letter. Overview of the Planned Scope and Timing of the Financial Statement Audit We have issued a separate communication regarding the planned scope and timing of our audit and have discussed with you our identification of and planned audit response to significant risks of material misstatement. Accounting Policies and Practices Preferability of Accounting Policies and Practices Under generally accepted accounting principles, in certain circumstances, management may select among alternative accounting practices. In our view, in such circumstances, management has selected the preferable accounting practice. Adoption of, or Change in, Accounting Policies Management has the ultimate responsibility for the appropriateness of the accounting policies used by the City. In the current year, the City adopted the following Governmental Accounting Standards Board (GASB) Statement: x GASB Statement No. 68, Accounting and Financial Reporting for Pensions.The primary objective of this Statement is to improve accounting and financial reporting by state and local governments for pensions. The adoption of this Statement required the City to recognize its long-term obligation for pension benefits related to the General Employees’ Retirement Plan (GERP) as a liability within their financial statements, as well as, to more comprehensively and comparably measure the annual costs of pension benefits. This statement also enhances the accountability and transparency through revised and new note disclosures and required supplementary information. As a result of implementing this new Statement, the City restated (reduced) its beginning net position of the governmental activities, business-type activities, each major enterprise fund and the aggregate remaining fund information to record a net pension liability relating to GERP by $2.5 million and $5.9 million for governmental activities and business-type activities, respectively. 2 Area Comments Significant or Unusual Transactions We did not identify any significant or unusual transactions or significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Management’s Judgments and Accounting Estimates Summary information about the process used by management in formulating particularly sensitive accounting estimates and about our conclusions regarding the reasonableness of those estimates is in the attached Summary of Significant Accounting Estimates. Audit Adjustments There were no audit adjustments proposed by us that were made to the original trial balance presented to us to begin our audit. Uncorrected Misstatements Uncorrected misstatements are summarized in the attached Summary of Uncorrected Misstatements. Disagreements With Management We encountered no disagreements with management over the application of significant accounting principles, the basis for management’s judgments on any significant matters, the scope of the audit, or significant disclosures to be included in the financial statements. Consultations With Other Accountants We are not aware of any consultations management had with other accountants about accounting or auditing matters. Significant Issues Discussed With Management No significant issues arising from the audit were discussed with or were the subject of correspondence with management. Significant Difficulties Encountered in Performing the Audit We did not encounter any significant difficulties in dealing with management during the audit. Accounting Pronouncements Please refer to the attachment for new accounting pronouncements that have been recently issued that may affect the City’s financial statements in future periods. Report on Internal Control Over Financial Reporting and on Compliance and other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards We have separately issued a report on internal control over financial reporting and on compliance and other matters based on our audit of the financial statements and major awards, as required by the Government Auditing Standards and the Uniform Guidance. This communication is included within the compliance report of the City for the year ended December 31, 2015. Significant Written Communications Between Management and Our Firm Copies of significant written communications between our firm and the 3 Summary of Significant Accounting Estimates Accounting estimates are an integral part of the preparation of financial statements and are based upon management’s current judgment. The process used by management encompasses their knowledge and experience about past and current events and certain assumptions about future events. You may wish to monitor throughout the year the process used to determine and record these accounting estimates. The following describes the significant accounting estimates reflected in the City’s December 31, 2015 basic financial statements. Estimate Accounting Policy Management’s Estimation Process Basis for Our Conclusions on Reasonableness of Estimate Depreciable Useful Life of Capital Assets The depreciable useful life of capital assets is set at the estimated useful life of the related asset. The determination is made at the time the asset is placed into service and involves various judgments and assumptions based on prior experience. We tested the propriety of information underlying management’s estimates. Based on our procedures, we concluded that management’s estimates are reasonable. Incurred But Not Reported (IBNR) Property Liability, Worker’s Compensation, Health Dental and Vision The City records an estimated reserve for workers’ compensation and other risk management liabilities based on actual and estimated claims outstanding as of year- end, and calculations performed by a specialist and include numerous assumptions and estimates. The assumption factors to estimate the year-end 4 Estimate Accounting Policy Management’s Estimation Process Basis for Our Conclusions on Reasonableness of Estimate Allowance for Doubtful Accounts The allowance for doubtful accounts is based on management’s estimate of collectability of identified receivables, as well as aging of customer accounts. The allowance is adjusted as information and specific accounts become available. The City also compares current allowance amounts to prior-year collection or write-off experience. We tested the underlying information supporting this allowance, including the most recent aging reports and collection experience. We concluded that management’s estimate is reasonable. Net Pension Liability The City’s net pension liability and related deferred inflows and outflows of resources and pension expenses from the General Employees’ Retirement Plan are recorded in the financial statements in accordance with GASB Statement No. 68. The City uses an actuary to calculate the net pension liability/asset and expense based on assumptions and estimates established by the Plan’s Board and management from past history and investment returns. City management reviews 5 Estimate Accounting Policy Management’s Estimation Process Basis for Our Conclusions on Reasonableness of Estimate Assets Held for Sale The assets held for sale are recorded at the lower of cost or fair value. The assets held for sale are initially recorded at cost and evaluated by management on an annual basis for any declines in the value of the property based on fair value. Fair value is the sale price of the property when it eventually sells, less selling costs. We tested the underlying information supporting this estimate and concluded that the estimate and the process used by management is reasonable. Modified Approach Infrastructure The City has elected to use the “Modified Approach” as defined by GASB Statement No. 34 for infrastructure reporting for its streets pavement system. These assets are not required to be depreciated, but the City is required to estimate the annual amount to maintain and preserve the assets at the established condition assessment level. The City’s pavement management program conducts condition assessment surveys on a three-year cycle. Based on the information obtained for these surveys, the City uses a pavement 6 Summary of Uncorrected Misstatements During the course of our audit, we accumulated uncorrected misstatements that were determined by management to be immaterial, both individually and in the aggregate, to the basic financial statements and to the related basic financial statement disclosures. Following is a summary of those differences. Governmental Activities Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ 1,154,000 $ (1,041,000) $ (113,000) Current misstatement, factual: Overstatement of current year expenses from capital asset correcting entry - - 325,000 - (325,000) To correct the unreconciled bank to book cash balances 352,000 - - (244,000) (108,000) Subtotal $ 352,000 $ - 1,479,000 $ (1,285,000) $ (546,000) Effect of current year passed adjustments on net position (1,831,000) Total $ (352,000) Aggregate Remaining Fund Information Assets Liabilities Fund Balance/ Net Position Revenue Expense/ Expenditure Description: Carryover impact from previous years $ - $ - $ 401,000 $ (288,000) $ (113,000) Current misstatement, factual: To correct the unreconciled bank to book cash balances 352,000 - - (244,000) (108,000) Subtotal $ 352,000 $ - 401,000 $ (532,000) $ (221,000) Effect of current year passed adjustments on fund balance (753,000) Total $ (352,000) Business-Type Activities Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ (164,000) $ - $ 164,000 Current misstatement, factual: Correction of errors recorded in prior years relating to inappropriately capitalized interest for the Halligan Water Supply Project - - 962,000 - (962,000) Entry to record capitalized interest 1,646,000 - - - (1,646,000) Subtotal $ 1,646,000 $ - 798,000 $ - $ (2,444,000) Effect of current year passed adjustments on net position (2,444,000) Total $ (1,646,000) Debit (Credit) to Correct the Misstatements Debit (Credit) to Correct the Misstatements Debit (Credit) to Correct the Misstatements 7 Summary of Uncorrected Misstatements (Continued) Water Fund Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ (164,000) $ - $ 164,000 Current misstatement, factual: Correction of errors recorded in prior years relating to inappropriately capitalized interest for the Halligan Water Supply Project - - 962,000 - (962,000) Entry to record capitalized interest 460,000 - - - (460,000) Subtotal $ 460,000 $ - 798,000 $ - $ (1,258,000) Effect of current year passed adjustments on net position (1,258,000) Total $ (460,000) Light and Power Fund Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ - $ - $ - Current misstatement, factual: Entry to record capitalized interest 448,000 - - - (448,000) Subtotal $ 448,000 $ - - $ - $ (448,000) Effect of current year passed adjustments on net position (448,000) Total $ (448,000) Wastewater Fund Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ - $ - $ - Current misstatement, factual: Entry to record capitalized interest 477,000 - - - (477,000) Subtotal $ 477,000 $ - - $ - $ (477,000) Effect of current year passed adjustments on net position (477,000) Total $ (477,000) Storm Drainage Fund Assets Liabilities Net Position Revenue Expense Description: Carryover impact from previous years $ - $ - $ - $ - $ - Current misstatement, factual: Entry to record capitalized interest 261,000 - - - (261,000) Subtotal $ 261,000 $ - - $ - $ (261,000) Effect of current year passed adjustments on net position (261,000) Total $ (261,000) Debit (Credit) to Correct the Misstatements Debit (Credit) to Correct the Misstatements Debit (Credit) to Correct the Misstatements Debit (Credit) to Correct the Misstatements 8 Recently Issued Accounting Standards The GASB has issued several statements not yet implemented by the City. The City’s management has not yet determined the effect these statements will have on the City’s financial statements. However, the City plans to implement all standards by the required dates. The standards which will impact the City are as follows: GASB Statement No. 75, Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions This Statement, issued June 2015, will be effective for the City beginning with its fiscal year ending December 31, 2018. The Statement replaces the requirements of GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions and requires governments to report a liability on the face of the financial statements for the OPEB they provide and outlines the reporting requirements by governments for defined benefit OPEB plans administered through a trust, cost-sharing OPEB plans administered through a trust and OPEB not provided through a trust. The Statement also requires governments to present more extensive note disclosures and required supplementary information about their OPEB liabilities. Some governments are legally responsible to make contributions directly to an OPEB plan or make benefit payments directly as OPEB comes due for employees of other governments. In certain circumstances, called special funding situations, the Statement requires these governments to recognize in their financial statements a share of the other government’s net OPEB liability. GASB Statement No. 77, Tax Abatement Disclosures This Statement, issued August 2015, will be effective for the City beginning with its fiscal year ending December 31, 2016. The requirements of this Statement improve financial reporting by giving users of financial statements essential information that is not consistently or comprehensively reported to the public at present. Disclosure of information about the nature and magnitude of tax abatements will make these transactions more transparent to financial statement users. As a result, users will be better equipped to understand (1) how tax abatements affect a government’s future ability to raise resources and meet its financial obligations and (2) the impact those abatements have on a government’s financial position and economic condition. GASB Statement No. 79, Certain External Investment Pools and Pool Participants This Statement, issued December 2015, will be effective for the City beginning with its fiscal year ending December 31, 2016. This Statement will enhance comparability of financial statements among governments by establishing specific criteria used to determine whether a qualifying external investment pool may elect to use an amortized cost exception to fair value measurement. Those criteria will provide qualifying external investment pools and participants in those pools with consistent application of an amortized cost-based measurement for financial reporting purposes. That measurement approximates fair value and mirrors the operations of external investment pools that transact with participants at a stable net asset value per share. GASB Statement No. 80, Blending Requirements for 9 GASB Statement No. 82, Pension Issues – an amendment of GASB Statements No. 67, No. 68, and No. 73 This Statement, issued March 2016, will be effective for the City beginning with its fiscal year ending December 31, 2017. The requirements of this Statement will improve financial reporting by enhancing consistency in the application of financial reporting requirements to certain pension issues. Exhibit A—Significant Written Communications between Management and Our Firm 555 17th St Suite 1000 Denver, CO 80202 T +1 303 298 6400 F +1 303 298 6401 www.rsmus.com June 14, 2016 To the Honorable Mayor and Members of the City Council and City Manager City of Fort Collins, Colorado In planning and performing our audit of the financial statements of the City of Fort Collins, Colorado (the City) as of and for the year ended December 31, 2015, in accordance with auditing standards generally accepted in the United States of America, we considered the City’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. 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 deficiency in design exists when (a) a control necessary to meet the control objective is missing, or (b) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met. A deficiency in operation exists when a properly designed control does not operate as designed or when the person performing the control does not possess the necessary authority or competence to perform the control effectively. 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. 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. Following are descriptions of other identified deficiencies in internal control that we determined did not constitute significant deficiencies or material weaknesses: Cash Reconciliations The City did not reconcile all bank accounts in a timely manner throughout the year ending December 31, 2015. Cash reconciliations provided during the audit had unreconciled differences between the bank statements and general ledger of approximately $352,000. We recommend the City establish procedures to prepare and review cash reconciliations timely and accurately to reconcile the bank balance to the book balance with no significant unreconciled differences. City of Fort Collins, Colorado June 14, 2016 Page 2 Reconciliation of Federal Transit Administration (FTA) grant expenditures During 2015, the City performed monthly reconciliations of the FTA drawdowns requested/received to the amounts recorded in the general ledger. The City utilized these drawdown requests to populate the year- end schedule of expenditures of federal awards (SEFA). The City does not have an adequate process in place however, for also reconciling expenditure accruals recorded in the general ledger subsequent to year-end, to the SEFA to ensure these expenditure accruals are recorded properly in the SEFA. As a result of this, FTA expenditures were reported on the 2015 SEFA that should have been reported on the 2014 SEFA, consistent with the expenditure recognition in the financial statements. We recommend the City develop an adequate process to reconcile year-end expenditure accruals to the SEFA to verify that federal expenditures for the FTA grants are reported in the proper period. This communication is intended solely for the information and use of management, City Council, others within the City, and is not intended to be and should not be used by anyone other than these specified parties. City of Fort Collins, Colorado Compliance Report Year Ended December 31, 2015 ATTACHMENT 2 Contents Schedule of expenditures of federal awards 1-2 Notes to schedule of expenditures of federal awards 3 Report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Government Auditing Standards 4-5 Report on compliance for each major federal program; report on internal control over compliance; and report on the schedule of expenditures of federal awards required by The Uniform Guidance 6-7 Summary schedule of prior audit findings 8 Schedule of findings and questioned costs 9-10 Corrective action plan 11 1 City of Fort Collins, Colorado Schedule of Expenditures of Federal Awards Year Ended December 31, 2015 Federal Pass-Through Federal Grantor/ CFDA Entity Identifying Federal Pass-Through Grantor/Program Title Number Number Expenditures Department of Housing and Urban Development Community Development Block Grants (Direct): Grant Year 2010 / 2011 14.218 B-10-MC-08-0008 $ 8,996 Grant Year 2012 / 2013 14.218 B-12-MC-08-0008 290,455 Grant Year 2013 / 2014 14.218 B-13-MC-08-0008 617,475 Grant Year 2014 / 2015 14.218 B-14-MC-08-0008 195,135 Grant Year 2015 / 2016 14.218 B-15-MC-08-0008 79,411 Subtotal 1,191,472 Home Investment Partnership Programs (Direct): Grant Year 2011 / 2012 14.239 M-11-MC-08-0209 45,466 Grant Year 2012 / 2013 14.239 M-12-MC-08-0209 52,329 Grant Year 2013 / 2014 14.239 M-13-MC-08-0209 28,941 Grant Year 2014 / 2015 14.239 M-14-MC-08-0209 1,053 Grant Year 2015 / 2016 14.239 M-15-MC-08-0209 12,490 Subtotal 140,279 Total Department of Housing and Urban Development 1,331,751 Department of Justice (Passed through the Colorado Division of Criminal Justice): RJ Juvenile Diversion Grant 16.523 None 49,022 Internet Crimes Against Children 16.543 2015-MC-FX-K009 7,000 JAG Grant 16.738 2013-DJ-BX-0149 22,337 Total Department of Justice 78,359 Department of Transportation National Highway Traffic Safety Administration (Passed through the Colorado Department of Transportation): DUI Grant 20.601 None 13,910 Police LEAF Grant 20.601 None 8,147 Seatbelt Grant 20.604 None 6,926 Total National Highway Traffic Safety Administration 28,983 Federal Highway Administration (Passed through the Colorado Department of Transportation): FC Bikes - CMAQ 20.205 14 HTD-649742 199,100 Horsetooth/Timberline Improvements 20.205 ACQ M455-010 (19307) 319,802 Traffic Responsive Signal System 20.205 AQC M455-098 (17573) 155,937 Jefferson Street/SH 14 Intersection 20.205 ACQ M455-088 (16525) 16,188 W Mulberry St Bridge Rprs 20.205 BRO M455-113 (19747) 371,956 Drake/Shield Intersection Impv 20.205 SHO M455-108 (19059) 45,979 Mulberry/Lemay Ped Brdg-P Trl 20.205 STE M455-105 (18399) 368,000 US287 - Conifer to Willox 20.205 STE M455-106 (18401) 3,571,910 Shields/Vine Intersection Improvements 20.205 STU M455-108 (18877) 827,980 N.College Pedestrian Connection 20.205 AQC M455-111 (19561) 25,882 Total Federal Highway Administration 5,902,734 (Continued) 2 City of Fort Collins, Colorado Schedule of Expenditures of Federal Awards (Continued) Year Ended December 31, 2015 Federal Pass-Through Federal Grantor/ CFDA Entity Identifying Federal Pass-Through Grantor/Program Title Number Number Expenditures Federal Transit Administration (Cluster) (Formula Grants - Capital 5309) (Direct): Capital 5309 (2010) 20.500 CO-04-0086-00 83,300 State of Good Repair (5309) -2010 20.500 CO-04-0087-00 541,863 State of Good Repair (5309) -2012 20.500 CO-04-0113-00 1,065,712 Section 5339 - 2013 20.500 CO-34-0004-00 261,963 2009 Mason Corridor Small Starts 20.500 CO-03-0206-01 2,587,179 Subtotal 4,540,017 (Urbanized Area Formula Grants - 5307) (Direct): 08/09 Flexed FHWA CMAQ 20.507 CO-95-X004-00 16,805 2013 Capital & Operating 20.507 CO-90-X217-00 2,214,134 2014 Capital & Operating 20.507 CO-90-X219-00 5,332,186 2013 Rides to Wellness - 2013 20.507 CO-16-X048-00 74,936 2013 Rides to Wellness - 2014 20.507 CO-16-X049-00 26,709 7,664,770 Total Federal Transit Administration (Cluster) 12,204,787 Total Department of Transportation 18,136,504 Institute of Museum and Library Services (Direct) IMLS High Park Fire 45.301 MA-10-13-0562-13 63,976 Environmental Protection Agency (Passed through the Colorado Department of Public Health and Environment): 2013-2014 Radon Grant 66.032 None 4,973 Department of Veterans Affairs Veterans Adaptive Sports Grant (Direct) 64.034 2015-ASG-16 15,885 Department of Energy (Direct) ARRA - Smart Grid Investment Grant 81.122 DE-OE0000357 1,193,838 Office of National Drug Control Policy (Direct) HIDTA Grant 95.001 G14RM0020A 116,190 Total Expenditures of Federal Awards $ 20,941,476 See notes to schedule of expenditures of federal awards. City of Fort Collins, Colorado Notes to Schedule of Expenditures of Federal Awards Year Ended December 31, 2015 3 Note 1. Basis of Presentation The accompanying schedule of expenditures of federal awards (the “Schedule”) includes the federal grant activity of the City of Fort Collins, Colorado (the City) and its discretely presented component unit under programs of the federal government for the year ended December 31, 2015. All federal awards received directly from federal agencies, as well as federal awards passed through other governmental entities, are included in the Schedule. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the City, it is not intended to and does not present the financial position, changes in net position or cash flows of the City. Note 2. Significant Accounting Policies Expenditures of federal awards are reported on the modified accrual basis of accounting in the governmental funds and the accrual basis of accounting in the proprietary funds. Expenditures of federal awards are recognized in the accounting period when the liability is incurred. Such expenditures are recognized following the cost principles contained OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, or the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Negative amounts shown on the schedule represent adjustments or credits made in the normal course of business to amounts reported as expenditures in prior years. Pass-through identifying numbers are presented where available. Note 3. Subrecipients Of the federal expenditures presented in the schedule, the City provided federal awards to subrecipients during the year ended December 31, 2015, as follows: Amount Federal CFDA Provided to Program Title Number Subrecipients Community Development Block Grant (CDBG) - Entitlement Grants 14.218 $ 944,379 Home Investment Partnership Program 14.239 118,072 4 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor’s Report Honorable Mayor and Members of the City Council and City Manager of the City of Fort Collins, Colorado Fort Collins, Colorado We have audited, in accordance with the 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 discretely presented component unit, each major fund and the aggregate remaining fund information of the City of Fort Collins, Colorado (the City), as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated June 14, 2016. The beginning net position of the governmental activities, business-type activities, each major enterprise fund and the aggregate remaining fund information was restated due to the implementation of GASB Statement No. 68 to recognize a net pension liability. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’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’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. 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. 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. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 5 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’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. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. 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 City’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 City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Denver, Colorado June 14, 2016 6 Report on Compliance for Each Major Federal Program, Report on Internal Control Over Compliance and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance Independent Auditor’s Report Honorable Mayor and Members of the City Council and City Manager of the City of Fort Collins, Colorado Fort Collins, Colorado Report on Compliance for Each Major Federal Program We have audited the City of Fort Collins, Colorado’s (the City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended December 31, 2015. 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 Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. 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 the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance 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 on compliance for each major federal program. However, our audit does not provide a legal determination of the City’s compliance. Opinion on Each Major Federal Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2015. 7 Report on Internal Control over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with The Uniform Guidance, 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. 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. 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 material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Fort Collins, Colorado as of and for the year ended December 31, 2015, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated June 14, 2016, which contained unmodified opinions on those financial statements. The beginning net position of the governmental activities, business-type activities, each major enterprise fund and the aggregate remaining fund information was restated due to the implementation of GASB Statement No. 68 to recognize a net pension liability. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Denver, Colorado June 14, 2016 8 City of Fort Collins, Colorado Summary Schedule of Prior Audit Findings Year Ended December 31, 2015 Corrective Action or Number Comment Status Other Explanation None Reported 9 City of Fort Collins, Colorado Schedule of Findings and Questioned Costs Year Ended December 31, 2015 I. Summary of the Independent Auditor's Results Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: . Material weakness(es) identified? Yes No . Significant deficiency(ies) identified? Yes No . Noncompliance material to financial statements noted? Yes No Federal Awards Internal control over major programs: . Material weakness(es) identified? Yes No . Significant deficiency(ies) identified? Yes No 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 Section 2 CFR 200.516(a)? Yes No Identification of major programs: CFDA Number Name of Federal Program or Cluster 20.205 Federal Highway Administration Grants 81.122 ARRA - Smart Grid Investment Grant Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? Yes No (Continued) City of Fort Collins, Colorado Schedule of Findings and Questioned Costs (Continued) Year Ended December 31, 2015 10 II. Findings Related to the Financial Statement Audit as Required to be Reported in Accordance with Generally Accepted Government Auditing Standards A. Internal Control None reported. B. Compliance findings None reported. III. Findings and Questioned Costs for Federal Awards A. Internal Control None reported. B. Instances of Noncompliance None reported. 11 City of Fort Collins, Colorado Corrective Action Plan Year Ended December 31, 2015 Anticipated Current Date Number Comment Corrective Action Plan of Completion Contact Person None reported Attachment 3 The 2015 Comprehensive Annual Financial Report is available at http://www.fcgov.com/finance/pdf/cafr-2015.pdf Council Audit & Finance Committee Minutes 07/18/16 9:30 - 11:30 am CIC Room Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com Council Attendees: Mayor Wade Troxell, Gerry Horak, Ross Cunniff (arrived at 10 am) Staff: Darin Atteberry, Jeff Mihelich, Mike Beckstead, Travis Storin, Kelly DiMartino, Jamie Heckman, Lynn Sanchez, John Duval, Andres Gavaldon, Carolyn Koontz Others: Kevin Smith, RSM, Brian Wilkerson, Revolution Advisors (HR) Kristi Hess, HR Consultant OMNI Employment Management Services, Rich Shannon and Katy Kohnen from ColoradoCare, Kevin Jones, Chamber of Commerce and Dale Adamy Meeting started at 9:43 am. APPROVAL OF MINUTES Mayor Troxell made a motion to approve the June 20, 2016 Council Finance Committee minutes. Gerry Horak made a second to the motion. The minutes were approved unanimously. A. 2015 Audit Review Travis Storin, Accounting Director Kevin Smith, Assurance Partner, RSM US LLP EXECUTIVE SUMMARY RSM will be presenting the Report to the City Council. This report covers the audit of the basic financial statements and compliance of the City of Fort Collins for year-end December 31, 2015. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Staff seeks input on areas of priority or concern, other than those established in this Report to the City Council, for matters of recordkeeping and/or the City’s internal control environment. Otherwise there are no specific questions to be answered as this is a 2015 year-end report. BACKGROUND/DISCUSSION Every year the City is required to be audited in compliance with Government Auditing Standards. RSM finalized its financial statement audit and compliance report on June 14, 2016 and the firm is required to report the results of the audit to those charged with governance. ATTACHMENT 4 2 There were no findings identified related to Federal Grants in the Compliance Report. Financial misstatements identified by the auditors that were deemed immaterial for adjustment and control deficiencies identified by the auditors can be found in the Report to the City Council, Exhibit A. Staff will provide a written response to the audit findings and misstatements at the October Council Finance Committee meeting. Report to City Council - Formal communication document - Purpose of the audit is to give an opinion on the financial statements. Clean opinion was issued. Note: There was one major new accounting standard change this year involving new pension standards reporting. GERP has been added to the reporting and is reflected as a $14m liability. At the end of the Report to City Council document - Controlled Deficiency letter which outlines areas for improvement; 1) Cash Reconciliations - there were some unreconciled items at the end of the year – must be reporting in a timely manner and differences resolved 2) Reconciliation of Federal Transit Administration (FTA) grant expenditures - must be reported in a timely manner Compliance Report - Results of Federal Compliance audit - 2 programs tested this year; 1) Federal Highway Admin Grants - no findings 2) Smart Grid Program - no findings Mike Beckstead commented; our grant program has two components. In the 15-16 budget Council funded a grants process position (to help find grants) and Nalo Johnson fills that role. In addition we have a grants compliance person who then monitors compliance before the grant application is submitted to ensure we can meet all the requirements and obligations and to complete all necessary filing and forms. . Mayor Wade Troxell asked; can we pull together some information on the grant program - pre and post award to include; 1) what we are soliciting 2) number of proposals and plot that over time, how much and how many and to what agencies. Darin Atteberry added; some of the feedback we have received over the years is what got us thinking about grant compliance and how we needed to do that in a different way. We have made this an area of focus for constant improvement and we plan to keep it separate and very intentional. Nalo is working as a grant seeker. She helps find opportunities and also helps with writing the grants as needed. Mayor Wade Troxell and Darin Atteberry would like to see metrics that show that there is success there as the council conversation was very intentional about leveraging non-traditional funds (includes state and federal). Mike Beckstead added; every 3 years FTA comes in and does a deep dive review into purchasing and operations. We have had two reviews in a row with almost a perfect score. Gerry Paul had a big hand in that - I don’t have any concerns based on the last two audits. 3 Mayor Wade Troxell asked; should these 2 letters go to council for acceptance? Gerry Horak agreed that this should go to Council to be accepted. Next Step: We will bring forward to Council on resolution. -1- RESOLUTION 2016-064 OF THE COUNCIL OF THE CITY OF FORT COLLINS ACKNOWLEDGING RECEIPT OF THE CITY’S 2015 AUDITED COMPREHENSIVE ANNUAL FINANCIAL REPORT AND FEDERAL COMPLIANCE AUDIT REPORT PREPARED BY RSM US LLP, AN INDEPENDENT PUBLIC ACCOUNTING FIRM WHEREAS, Article II, Section 17 of the City Charter requires the City Council to provide for an independent audit of all the City’s financial books and accounts to be conducted at least once annually by a certified public accountant; and WHEREAS, the City contracted with the independent certified public accounting firm of RSM US LLP (“RSM”) to conduct this audit for the City’s 2015 fiscal year; and WHEREAS, RSM has completed its independent audit of the City’s 2015 financial records and has delivered to the City’s Financial Officer its Comprehensive Annual Financial Report 2015 and Federal Compliance Audit Report for 2015, both of which are on file with the City Clerk (jointly, the “2015 Audited Financial Reports”); and WHEREAS, Article II, Section 17 also required that a summary of the 2015 Audited Financial Reports be published once in the manner provided for a legal notice within five months after the end of the City’s 2015 fiscal year, which summary was so published in the Coloradoan on May 31, 2016. NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City Council hereby makes any and all determinations and findings contained in the recitals set forth above. Section 2. That the City Council hereby acknowledges the City’s receipt of the 2015 Audited Financial Reports provided by RSM. Passed and adopted at a regular meeting of the Council of the City of Fort Collins this 16th day of August, A.D. 2016. _________________________________ Mayor ATTEST: _____________________________ City Clerk Certain Component Units – an Amendment of GASB Statement No. 14 This Statement, issued January 2016, will be effective for the City beginning with its fiscal year ending December 31, 2017. The objective of this Statement is to improve financial reporting by clarifying the financial statement presentation requirement for certain component units. This Statement establishes an additional blending requirement for the financial statement presentation of component units. This Statement applies to all state and local governments. This Statement applies to component units that are organized as not-for-profit corporations in which the primary government is the sole corporate member. This Statement does not apply to component units included in the financial reporting entity pursuant to the provision of Statement No. 39. This Statement amends Statement No. 14. condition index (PCI) which is a nationally recognized index, in order to compute the estimate. We tested the underlying information supporting this estimate and concluded that the estimate and the process used by management is reasonable. the actuarial results and considers the appropriateness of the assumptions used by the Plan. We analyzed management’s methodology, tested the underlying data, obtained the calculation and actuarial report and had an internal specialist review the significant assumptions and conclusions. We concluded that the process used by management and the estimates are reasonable. Other Postemployment Benefit Plan (OPEB) Assumptions The difference between the annual required contribution and actual contributions is recorded as a liability in the government-wide and proprietary fund financial statements of the City. The City utilizes the services of an actuary to determine the City’s annual required contribution. Management and the actuary determines the appropriateness of the actuarial assumptions to be utilized. The actuary’s calculation is reviewed and approved by management. We tested the information provided to the actuary and obtained the actuarial valuation report. We believe the estimates and processes used by management of the City are reasonable. liabilities include historical experience, general market experience and claims lag timing. An actuary is hired by the City to compute the year-end estimate and the results are reviewed by management. We tested the information provided to the actuary and obtained the actuarial reports. We believe the process used by management of the City and the estimates are reasonable. Fair Value of Investments The City records its investments at the estimated fair value. Investment securities are based on quoted market prices. We tested the proprietary of information underlying management’s estimates, including the use of a third-party independent pricing source. Based on our procedures, we conclude that management’s estimate is reasonable. management of the City, including the representation letter provided to us by management, are attached as Exhibit A.