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2013 Monticello Auditor's Special Purpose Report CITY OF MONTICELLO WRIGHT COUNTY, MINNESOTA Special Purpose Audit Reports on Internal Controls and Compliance With Laws and Regulations Year Ended December 31, 2013 THIS PAGE INTENTIONALLY LEFT BLANK Page Independent Auditor’s 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 1–2 Independent Auditor’s Report on Minnesota Legal Compliance3 Schedule of Findings and Responses4–5 CITY OF MONTICELLO Special Purpose Audit Reports Year Ended December 31, 2013 Table of Contents THIS PAGE INTENTIONALLY LEFT BLANK -1- INDEPENDENT AUDITOR’S 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 To the City Council and Management City of Monticello, Minnesota We have audited, in accordance with 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, each major fund, and the aggregate remaining fund information of the City of Monticello, Minnesota (the City) as of and for the year ended December 31, 2013, 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 27, 2014. 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. Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were not identified. However, as described in the accompanying Schedule of Findings and Responses, we identified certain deficiencies in internal control that we consider to be material weaknesses and significant deficiencies. 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 combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected, on a timely basis. We consider the deficiency described in the accompanying Schedule of Findings and Responses as item 2013-001 to be a material weakness. (continued) -1- -2- 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. THE CITY’S RESPONSES TO THE FINDINGS The City’s responses to the findings identified in our audit are described in the accompanying Schedule of Findings and Responses. The City’s responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them. 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 report is not suitable for any other purpose. Minneapolis, Minnesota June 27, 2014 -3- INDEPENDENT AUDITOR’S REPORT ON MINNESOTA LEGAL COMPLIANCE To the City Council and Management City of Monticello, Minnesota We have audited, in accordance with 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, each major fund, and the aggregate remaining fund information of the City of Monticello, Minnesota (the City) as of and for the year ended December 31, 2013, 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 27, 2014. The Minnesota Legal Compliance Audit Guide for Political Subdivisions, promulgated by the Office of the State Auditor pursuant to Minnesota Statute § 6.65, contains seven categories of compliance to be tested: contracting and bidding, deposits and investments, conflicts of interest, public indebtedness, claims and disbursements, miscellaneous provisions, and tax increment financing. Our audit considered all of the listed categories. In connection with our audit, nothing came to our attention that caused us to believe that the City failed to comply with the provisions of the Minnesota Legal Compliance Audit Guide for Political Subdivisions, except as described in the Schedule of Findings Responses as items 2013-002 and 2013-003. However, our audit was not directed primarily toward obtaining knowledge of such noncompliance. Accordingly, had we performed additional procedures, other matters may have come to our attention regarding the City’s noncompliance with the above referenced provisions. The City’s responses to the legal compliance findings identified in our audit have been included in the Schedule of Findings and Responses. The City’s responses were not subject to the auditing procedures applied in our audit of the financial statements and, accordingly, we express no opinion on them. The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion on compliance. Accordingly, this report is not suitable for any other purpose. Minneapolis, Minnesota June 27, 2014 -3- THIS PAGE INTENTIONALLY LEFT BLANK CITY OF MONTICELLO Schedule of Findings and Responses Year Ended December 31, 2013 -4- A. FINDINGS – INTERNAL CONTROL OVER FINANCIAL REPORTING 2013-001 PRIOR PERIOD ADJUSTMENT Criteria – Management is responsible for establishing and maintaining effective internal controls over the financial reporting process. These controls include the responsibility for the preparation of the City of Monticello, Minnesota’s (the City) comprehensive annual financial report in accordance with accounting principles generally accepted in the United States of America. Condition – During our audit, we noted a material prior period adjustment, as detailed in the notes to basic financial statements, that was necessary to adjust special assessment receivables to correctly report special assessments that had been duplicated in the City’s records and special assessments that were contemplated but never assessed to the property owners by the City. Auditing standards consider the necessity of recording a material prior period adjustment to be indicative of a material weakness in the related internal controls. Context – Assets and revenues reported in the prior periods for the City’s governmental activities were overstated by $3,282,241. Consequently, net position reported for the governmental activities as of December 31, 2013 was overstated by $3,282,241. This is a current year finding. Cause – The City’s internal controls were properly designed to monitor special assessments. However, the internal controls were not properly implemented. Effect – The City’s basic financial statements, as of and for the year ended December 31, 2013, contained a material misstatement. Recommendation – We recommend that the City review its accounting procedures and internal controls for special assessments to assure transactions such as these are properly reported in the future. Management Response – There is no disagreement with the audit finding. The City will review controls over special assessments to ensure proper financial statement presentation. The nature and details of the misstatement have been reviewed with the individuals responsible and appropriate guidance has been given to assure such transactions are reported correctly in the future. Finance Director, Wayne Oberg will monitor the implementation of these corrective actions. B. MINNESOTA LEGAL COMPLIANCE AUDIT 2013-002 CLAIMS DECLARATION – PAYROLL Criteria – Minnesota Statute § 412.271, Subd. 2, paragraph (b), requires supervisors, or other officers or employees having knowledge of the facts, to sign a declaration indicating the facts recited on the payroll are correct to the best of the declarant’s information and belief. The statute also requires that claims for payroll be signed in proper forms or with a declaration to the effect that the employee has received the wages and has done the work for which wages have been paid. CITY OF MONTICELLO Schedule of Findings and Responses (continued) Year Ended December 31, 2013 -5- B. MINNESOTA LEGAL COMPLIANCE AUDIT (CONTINUED) 2013-002 CLAIMS DECLARATION – PAYROLL (CONTINUED) Condition – During the audit procedures for the year ended December 31, 2013, we noted that the payroll claims for several community center employees did not have the required signed declarations from employees. Context – This is a current year finding. Cause – This was an oversight by city personnel. Effect – Employees could be receiving wages for which they have not done the work. Recommendation – We recommend that the City obtain a signed declaration to the effect that the facts recited on the payroll are correct to the best of the declarant’s information and belief and that the employee has received the wages and done the work for which wages have been paid. Management Response – There is no disagreement with the audit finding. The City will review its internal payroll authorization process and make any necessary changes to prevent future occurrences of this finding. 2013-003 PAYMENT OF INVOICES Criteria – Minnesota Statute § 471.425, Subd. 2. Condition – Minnesota Statutes require prompt payment of local government bills within a standard payment period of 35 days from the receipt of goods and services for governing boards that meet at least once a month. One disbursement tested was not paid within the statutory time limit. Context – One out of twenty-five disbursements tested were not in compliance. This is a current year finding. Cause – This was an oversight by city personnel. Effect – Certain payments made to vendors were not paid within the timeframe as required by state statutes. Recommendation – We recommend that the City review current procedures in place to ensure that all invoices are paid within statutory requirements. Management Response – There is no disagreement with the audit finding. The City will review its procedures in place to ensure future compliance with the statute.