HomeMy WebLinkAbout1991 Audit Report Financials..... u u ' • CITY OF PASCO Code City Franklin County, Washington January 1, 1991 Thru December 31, 1991 Independent Auditor's Report On Compliance With Laws And Regulations At The Financial Statement Level (Plus Additional State Compliance Requirements Per RCW 43.09.260) State Audlo(s Oftloa City Council City of Pasco Pasco, Washington We have audited the general purpose financial statements, as listed in the table of contents, of the City of Pasco, Franklin Coooty, Washington, as of and for the year ended December 31, 1991, and have issued our report thereon dated October 21, 1992. As part of our audit, we tested the city's compliance with certain laws and regulations which, if not followed, could have a direct and material impact on the financial statements. We also performed additional tests of compliance with state laws and regulations as required by RCW 43.09.260, which requires the State Auditor to make inquiry as to whether the city com-plied with the laws and the Constitution of the State of Washington, its own ordinances and orders, and the requirements of the Division of Municipal Corporations. We conducted our audit in accordance with generally accepted auditing standards, Government Auditing Standards issued by the Comptroller General of the United States, and the provisions of Office of Management and Budget (0MB) Circular A-128, "Audits of State and Local Governments." Those standards and 0MB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Compliance with laws, regulations, contracts, and grants applicable to the City of Pasco is the responsibility of the city's management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of the city's compliance with certain provisions of laws, regulations, contracts, and grants. However, the objective of our audit of the financial statements was not to provide an opinion on overall compliance with such provisions. Accordingly, we do not express such an opinion. We also performed additional tests of compliance with state laws and regulations as required by RCW 43.09.260. This statute requires the State Auditor to inquire as to whether the city complied with the laws and Constitution of the State of Washington, its own ordinances and orders, and the requirements of the Division of Municipal Corporations. Our responsibility is to examine, on a test basis, evidence about the city's compliance with those requirements and to make a reasonable effort to identify any instances of misfeasance, malfeasance or nonfeasance in office on the part of any public officer or employee and to report any such instance to the auditing department of the city and to the Attorney General. However, the Division ol Munlc~al Corporations M-1
... .... ,,..,. sr.. , ., ii1i1 •• -~ ,--· Fx'!i CITY OF PASCO Code City Franklin County, Washington January 1, 1991 Thru December 31, 1991 Independent Auditor's Report On Internal Control Structure At The Financial Statement Level Stale Audll or's Office City Council City of Pasco Pasco, Washington We have audited the general purpose financial statements of the City of Pasco, Franklin County, Washington, as of and for the year ended December 31, 1991, and have issued our report thereon dated October 21, 1992. We conducted our audit in accordance with generally accepted auditing standards, Government Auditing Standards issued by the Comptroller General of the United States, and the provisions of Office of Management and Budget (0MB) Circular A-128, Audits of State and Local Governments. Those standards and 0MB Circular A-128 require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. In planning and performing our audit of the financial statements of the city, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control structure. The management of the city is respo:Uble for establishing and maintaining an internal control structure. In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of internal control structure policies and procedures. The objectives of an internal control structure are to provide management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations in any internal control structure, errors or irregularities may nevertheless occur and not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk that procedures may become inadequate because of changes in conditions or that the effectiveness of the design and operation of policies and procedures may deteriorate. For the purpose of this report, we have classified the significant internal control structure policies and procedures in the following categories: • Cash receipts • Cash disbursements r'\IJ. .... ,. .. ,..., ..... _._.__. ,.. __ -.••
-M--4 • Receivables • Accounts payable • Purchasing and receiving • Payroll • Inventory control • Property, plant and equipment • General ledger For all of the control categories listed above, we obtained an understanding of the design of relevant policies and procedures and whether they have been placed in operation, and we assessed control risk. We noted certain matters involving the internal control structure and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that. in our judgment. could adversely affect the entity's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial state-ments. The matters involving the internal control structure and its operation that we consider to be reportable conditions are included in the schedule of findings accompanying this report. A material weakness is a reportable condition in which the design or operation of 1 or more of the internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weak-nesses as defined above. However, we believe none of the reportable conditions described in the schedule of findings is a material weakness. This report is intended for the information of management and the city council. This is not intended to limit the distribution of this report. which is a matter of public record. Robert V. Graham State Auditor October 21, 1992 Stale AudltOl"s O!f1ce Division oC Munlc~al Corporations
,I --~ CITY OF PASCO Code City Franklin County, Washington January 1, 1991 Thru December 31, 1991 Schedule Of Findings 1. lntcrfund Loans Should Ile Repaid Within 3 Years In May 1990, !be City of Pasco authorized an intcrfund loan in the amount of $550,000 from tl1e Equipment Rental Reserve Fund ($330,000) and the Stadium/Convention Center Fund ($220,000) to the Sun Willows Development Fund with a term of 7 years. Other loans from the Stadiwn/Convention Center Fund ($261,700) and the Water/Sewer Fund ($18,920) to the General Fund, that originated in 1983, have not been repaid. This is a repeat of our findings of 1988, 1989, and 1990. The Budgeting, Accounting and Reporting System (BARS) manual as promulgated by the State Auditor's Office, Volmne I, Part 3, Chapter 4, page l, states in part: The term of the loan may continue over a period of more than one year, but must be 'temporary' in the sense that no permanent diversion of the lending fund results from the failure to repay by the borrowing fund. A loan that continues longer than three years will be questioned as a 'pem1anent diversion' of moneys. RCW 43.09.210 states in part: ... All service renrlered by ... one department ... shall be paid for at its true and t"ull value by the department ... receiving the same, and no department ... shall benefit in any financial manner whatever by any appropriation or fund made for the support of another. The city failed to repay the old loans due to an economic down tum which eliminated the source of repayment-lot sales. The new loan was made under the assmnption that the BARS manual is only a guideline. The city felt, as long as a market rate of interest is charged and payments are made in accordance with the amortization schedule in the ordinance, that the term of the loan is not significant By loaning funds for a period of more than 3 years, tl1e city has created, by definition, a permanent diversion of funds. We recommend that the city restructure this loan to comply with the BARS manual requirements. We further recommend other intcrfund loans disclosed in our previous audit reports be repaid.
w ..... .. .. ·---~~---· Auditee's Response In reference to the May 21, 1990 inte,fund loan authorized by Ordinance No. 2779, there clearly is no intent for the permanent diversion of funds. The term of the loan i.; definitely established at seven years and the interest rate of eight percent was competitive at the time of the loan, in today's market, the interest rate is double what the lending funds would receive if the money were invested in the State Treasurer's Investment Pool. During 1992, over $60,000 will be paid toward the loan and the 1993 Budget includes $181,750 for loan repayment. We strongly disagree with the statement, "By loaning funds for a period of more than 3 years, the city has created, by definition, a permanent diversion of funds". The BARS manual states that: "A loan that continues longer than three years will be questioned as a 'permanent diversion• of moneys." The 1992 payments on the interfund loan in question and the budgeted payment for 1993 clearly answer the "questioned" intentions concerning the loan. The loan will be paid in full within the terms prescribed by Ordinance No. 2779. Concerning the 1983 loans: It is not MW nor has it ever been the intention of the city Mt to repay all interjund loans or to permanently divert funds. Interest will be paid back to the originating funds as soon as the planned source of revenue for repayment becomes available . The city is currently in the process of developing and selling the land that benejittedfrom the loan. As that property is sold, the city will repay the loans. Auditor's Concluding Remarks We remain persuaded that the extended interfund loan repayment schedule is inappropriate. The 1983 loans remain outstanding with no definitive date for final repayment The continual accrual of interest places both an increasing burden on the receiving fund, and deprives the loaning fund of current cash flow. Further, the extended repayment period for the more current loans deprives the loaning fund of working capital. We, therefore, affirm our finding. 2. Money In The Local Improvement District Guaranty Fund Should Only Be Used For Authorized Purposes In 1990 and 1991, the City of Pasco made transfers from the Local Improvement District (LID\~uaranty fund to select LID assessment funds to make early calls of bonds with high interest rates. This is a repeat of our 1990 finding. RCW 35.54.070 states: Use of fund -Purchase of bonds, coupons and warrants. Defaulted bonds, interest coupons and warrants against local improvement funds shall be purchased out of the guaranty fund, and as between the several issues of bonds, coupons, or warrants no preference shall exist but they shall be purchased in the order of their presentation. (Emphasis ours.) Using guaranty fund money to selectively call bonds which are not yet due is not an authorized use of LID guaranty funds. Further, using these funds to pay selected LID bonds reduces the protection provided by the guaranty fund to holders of other LID bonds. Stale Audlor"s Office OM.Jon of Munlc~al Coq>orallons