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- 1 - 1821 SOUTH AVENUE WEST • FIFTH FLOOR • P.O. BOX 2368 • MISSOULA, MONTANA 59806-2368 TEL: [PHONE REDACTED] • FAX: [PHONE REDACTED] • WEB: www.azworld.com ANDERSON ZURMUEHLEN & CO., P.C. • CERTIFIED PUBLIC ACCOUNTANTS & BUSINESS ADVISORS MEMBER: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS • MSI GLOBAL ALLIANCE INDEPENDENT MEMBER FIRM Mayor and City Council City of Missoula Missoula, Montana We have audited 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 Missoula (the “City”) for the year ended June 30, 2009, and have issued our report thereon dated December 22, 2009. Professional standards require that we provide you with the following information related to our audit. Our Responsibilities under U.S. Generally Accepted Auditing Standards and OMB Circular A-133 As stated in our engagement letter, our responsibility, as described by professional standards, is to express opinions about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. In planning and performing our audit, we considered the City’s internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and not to provide assurance on the internal control over financial reporting. We also considered 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 our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. As part of obtaining reasonable assurance about whether the City’s financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grants, 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. Also in accordance with OMB Circular A-133, we examined, on a test basis, evidence about the City’s compliance with the types of compliance requirements described in the “U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement” applicable to each of its major federal programs for the purpose of expressing an opinion on the City’s compliance with those requirements. While our audit provides a reasonable basis for our opinion, it does not provide a legal determination on the City’s compliance with those requirements. ---PAGE BREAK--- - 2 - Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing previously communicated to you in our planning meeting on July 16, 2009. Significant Audit Findings Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. One new accounting policy, GASB Statement No. 45 relating to post employment benefits, was implemented in 2009. The accounting policy change is documented in the footnotes to the comprehensive annual financial report (CAFR). We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. There were no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimates affecting the financial statements were: Management’s estimate of the incurred but unpaid claims in the insurance fund is based on a retrospective review of claims paid after year end. We evaluated the key factors and assumptions used to develop the incurred but unpaid claims estimate determining that it is reasonable in relation to the financial statements taken as a whole. Management’s estimate of depreciation expense is based on estimating capital asset useful lives. We evaluated the key factors and assumptions used to develop the depreciation expense estimate determining that it is reasonable in relation to the financial statements taken as a whole. Management’s estimate of its other post employment benefit liability is based on actuarial study which involves estimates of the value of reported amounts and assumptions about the probability of events far into the future. Projections of future benefits are based on the pattern of sharing of costs between the City and plan participants. The actuarial valuation performed for June 30, 2009 utilized the projected unit credit actuarial cost method. The disclosures in the financial statements are neutral, consistent, and clear. Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. ---PAGE BREAK--- - 3 - Difficulties Encountered in Performing the Audit We encountered no significant difficulties in dealing with management in performing and completing our audit. Corrected and Uncorrected Misstatements Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. The attached schedule summarizes uncorrected misstatements and corrected material misstatement which were detected as a result of audit procedures. Management has determined that the effects of the uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. Other Information in Documents Containing Audited Financial Statements In connection with the City’s CAFR, we did not perform any procedures or corroborate other information included in the CAFR, including the management’s discussion and analysis and required supplementary information. However, we read the CAFR and considered whether the information or the manner in which it is presented was materially inconsistent with information or the manner of presentation of the financial statements. Based on our reading, we concluded that the information did not require revision. Disagreements with Management For purposes of this letter, professional standards define a disagreement with management as a financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our audit. Management Representations We have requested certain representations from management that are included in the management representation letter dated December 22, 2009. Management Consultations with Other Independent Accountants In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting principle to the governmental unit’s financial statements or a determination of the type of auditor’s opinion that may be expressed on those statements, our professional standards require the consulting accountant to check with us to determine that the consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. ---PAGE BREAK--- - 4 - Other Audit Findings or Issues We generally discuss a variety of matters, including the application of accounting principles and auditing standards, with management each year prior to retention as the governmental unit’s auditors. However, these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. This information is intended solely for the use of the City Council and management of the City and is not intended to be and should not be used by anyone other than these specified parties. Missoula, Montana December 22, 2009 ---PAGE BREAK--- City of Missoula Summary of Corrected Differences For the Year Ended June 30, 2009 Description Financial Statement Impact Dr. Cr. Dr. Cr. 1 General Fund - To agree taxes receivable to supporting schedules 254,713 254,713 - - 2 Other Debt Service Funds - To agree SID receivables and deferred revenue to supporting schedules 380,559 380,559 - - Total 635,272 635,272 - - Net Governmental Fund Financial Statement Impact - $ - $ Description Financial Statement Impact Dr. Cr. Dr. Cr. Error found in infrastructure spreadsheet 1,387,856 - 1,387,856 - Total 1,387,856 - 1,387,856 - Net Government Wide Financial Statement Impact 1,387,856 $ (1,387,856) $ Governmental Funds Balance Sheet Governmental Funds Statement of Revenues, Expenditures and Changes in Fund Balances Government wide Statement of Net Assets Government wide Statement of Activities