AGENDA LEBANON CITY COUNCIL FEBRUARY 19, 2020

AGENDA LEBANON CITY COUNCIL FEBRUARY 19, 2020

9. NEW BUSINESS:

9.A – PRESENTATION OF 2018 FINANCIAL AUDIT

Representatives from Plodzik & Sanderson will be present to discuss the 2018 City of Lebanon financial audit and to answer any questions.

ACTION

No action is required by the Council; it is for informational/discussion purposes only.

Included in this Section:

1. February 13, 2020 Memo from Vicki Lee, Finance Director re: 2018 Annual FinancialStatement Audit

2. January 14, 2020 Letter of Governance from Plodzik and Sanderson

Available but not included:

1. 2018 City of Lebanon Financial Audit

Lebanon City Council February 19, 2020

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https://lebanonnh.gov/DocumentCenter/View/11384/2018-City-of-Lebanon---Financial-Audit-Reportpdf

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To: Honorable Mayor and City Council Cc: City Manager Shaun Mulholland, Deputy City Manager Paula Maville From: Vicki Lee, Finance Director Date: February 13, 2020 Re: 2018 Annual Financial Statement Audit The objective of the annual financial statement audit is to provide independent assurance that financial information is reliable. Transparency and accountability in government audits is essential to show that public functions are being carried out efficiently, ethically, and equitably. The City’s independent auditors, Plodzik & Sanderson, conducted the audit in accordance with auditing standards generally accepted and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Implementation of Governmental Accounting Standards Board Statements The Government Accounting Standards Board is responsible for developing standards of state and local governmental accounting and financial reporting (Generally Accepted Accounting Principles – GAAP) that will result in useful information for users of financial reports and guide and educate the public, including issuers, auditors, and users of those financial reports. The City has implemented all relevant GASB Statements. Plodzik & Sanderson are required to communicate to the City Council certain standard information related to the audit. These include terms of engagement, auditor responsibilities under generally accepted auditing standards, the planned scope and timing of the audit, and any significant audit findings. Please see the attached letter for details. Under the classification of Other Audit Findings or Issues are four items that I will address. 1. Permanent Trust Funds – A repeat from the 2017 audit, the refer to three trust funds with a

market value of $17,183.41 at the end of 2018. In order to resolve this, the City of Lebanon Trustees of Trust Funds would have to go through the legal process of filing a Cy Pres Petition with the court to apply the fund to a purpose that most nearly approximates the charitable intent of the original creation of the fund. This was done with the Bicentennial Fund in 2011. The Finance Director will discuss this with the Trustee of Trust Funds at their next meeting.

2. Water and Sewer Warrant Approval – The water and sewer warrant for the first quarter billing was not signed by the City Manager. This was an oversight by the water/sewer clerk.

3. Budget Journal Entry Approval – There was a couple instances where the budget journal entries were not properly approved by the City Manager. These were done by the previous Finance Director.

4. Information Technology Policies and Procedures – The City is working with Systems Engineering to address this with the 2020 goal to develop an information security program for the entire City, consisting of the following policies and procedures:

1. Business Continuity Plan (currently in draft form) a. Disaster Recovery plan

2. Acceptable use of technology (currently in draft form) 3. Information Security Policy (currently in framework draft)

a. Risk management framework Lebanon City Council February 19, 2020

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b. Cybersecurity framework c. Data classification framework

4. Annual Table Top exercise and summary 5. Vendor Management policy (Currently in Draft creation)

The auditors noted a number of pronouncements issues by the Governmental Accounting Standards Board (GASB) that may impact future financial presentations. It has not yet been determined what, if any, impact implementation of the statements may have on the City’s financial statements.


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James A. Sojka, CPA*

Sheryl A. Pran, CPA***

MichaelJ. Campo, CPA, MACCY

Scon T. Eagen, CPA, CFE

Donna M. faChi., CPe--

AshleyJ. Miller-Klem, CPA, MSA

Tyler A. Paine, CPA'**

Kyle G. Gingru, CPA

Ryan T. Gibbons, Cl'A, CFE

Derek M, Barton, CPA

Sylvia Y Pcuo, MSA, CFE

January 14,2020

To the Members of the City CouncilCity of Lebanon5l North Park StreetLebanon, NH 03766

Dear Members of the Council:

We have audited the financial statements of the governmental activities, business-type activities, each

major fund, and aggregate remaining fund information of the City of Lebanon for the year ended

December3l,2018. Professional standards require that we provide you with information about ourresponsibilities under generally accepted auditing standards, Government Auditing Standards, and the

Uniform Guidance, as well as certain information related to the planned scope and timing of our audit. We

have communicated such information in our letter to you dated March 3,2017. Professional standards also

require that we communicate to you the following information related to our audit.

Signifi cant Audit Findings

Qualitative Aspects of Accounting Practices

Management is responsible for the selection and use of appropriate accounting policies. The significantaccounting policies used by the City of Lebanon are described in Note I to the financial statements, As

described in Note 1-Q to the financial statements, the City of Lebanon changed accounting palicies tochange the way the City calculates and reports the costs associated with postemployment benefits other

than pensions by adopting Governmental Accounting Standards Board (GASB) Statement No. 75,

Accounting and Financial Reportingfor Postemployment Benefits Other than Pensions in fiscal year 2018.Accordingly, the cumulative effect of the accounting change as of the beginning of the year is reported inNote 2-D, Accounting Change/Restatement.

We noted no transactions entered into by the City of Lebanon during the year for which there is a lack ofauthoritative guidance or consensus. All significant transactions have been recognized in the financialstatements in the proper period.

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 significantlyfrom those expected.

The most sensitive estimates affecting the government-wide and proprietary fund financial statements were:

Management's estimates of the capital asset useful lives are based on historicalinformation and industry guidance. We evaluated the key factors and assumptions used todevelop the capital asset useful lives in determining that they are reasonable in relation tothe financial statements taken as a whole.

Management's estimates of the net pension liability, deferred outflows and inflows ofresources related to pensions, and pension expense are based on assumptions of futureevents, such as employment, mortality, and estimates of value of reported amounts. Weevaluated the key factors and assumptions used to develop the net pension liability,defened outflows and inflows of resources related to pensions, and pension expense indetermining that they are reasonable in relation to the financial statements taken as awhole.

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City of LebanonJanuary 14,2020Page 2

Management's estimates of the other postemployment benefit (OPEB) liabilities, deferred outflows and

inflows of resources related to OPEB, and OPEB expense are based on the assumptions of future events, such

as employment, mortality, and the healthcare cost trend, as well as estimates of the value of reported amounts.We evaluated key factors and assumptions used to develop the OPEB liability, deferred outflows and inflowsof resources related to OPEB, and OPEB expense in determining that they are reasonable in relation to thefinancial statements taken as a whole.

Management's estimate of the accrued landfill closure and postclosure care costs is based on the amount thatwould be paid if all equipment, facilities, and services required to close, monitor, and maintain the landfillwere acquired as of December 3 l, 2018. This amount is determined by the City's engineer. We evaluatedthe key factors and assumptions used to develop the accrued landfill closure and postclosure care costs indetermining that they are reasonable in relation to the financial statements taken as a whole.

Management's estirnate of the allowance for uncollectible taxes is based on 50% of unredeemed liens subject

to deeding and 100% of unpaid taxes relating to properties in bankruptcy. We evaluated the key factors and

assumptions used to develop the allowance for uncollectible taxes in determining that it is reasonable inrelation to the financial statements taken as a whole, (Governmental Activities only)

The most sensitive estimates affecting the governmental fund financial statements were:

Management's estimate of the allowance for uncollectible ambulance receivables is based on 50% ofambulance receivables 30 days or less, 90% of ambulance receivables 31-90 days, and l00o/o of ambulancereceivables oldel than 90 days. We evaluated the key factors and assumptions used to develop the allowancefor uncollectible ambulance receivables in determining that it is reasonable in relation to the financialstatements taken as a whole.

Management's estimate of the assigned for abatements is based on management's knowledge of assessment

appeals and evaluation of the potential tax risks. We evaluated the key factors and assumptions used todevelop the assigned for abdtements in determining that it is reasonable in relation to the financial statements

taken as a whole.

The financial statement disclosures are neutral, consistent, and clear.

Dfficulties Encountered in Performing the Audit

We encountered no significant difficulties in dealing with management in performing and completing our audit.

C orr ected and Uncorr ect ed Misst at ements

Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than those

that are clearly trivial, and communicate them to the appropriate level of management. Management has corrected all such

misstatements. Adjustments proposed and approved by management were primarily of a routine nature which management

expects the independent auditors to make as part oftheir year-end procedures. The adjustments for the general fund had a netloss effect of$458,27 l.

D is a gr e ements w it h Management

For purposes of this letter, a disagreement with management is a financial accounting, reporting, or auditing matter, whether ornot resolved to our satisfaction, that could be significant to the financial statements or the auditor's report. We are pleased toreport that no such disagreements arose during the course ofour audit.

Managem ent Repr e s ent at i o ns

We have requested certain representations from management that are included in the management representation letter dated

January 10,2020.

Management Consultations with Other Independent Accountants

In some cases, management may decide to consult with other accountants about auditing and accounting matters, similar toobtaining a "second opinion" on certain situations. If a consultation involves application of an accounting principle to the City


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City of Lebanonfanuary 14,2020Page 3

of Lebanon'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.

Other Audit Findings or Issues

We generally discuss a variety of matters, including the application of accounting principles and auditing standards, withmanagement each year prior to retention as the City of Lebanon's auditors. Howevero these discussions occurred in the normalcourse ofour professional relationship and our responses were not a condition to our retention.

Permanent Trust Funds (repeat)

During our review of the Trustees of Trust Funds records, the engagement team noted three trust funds reported with the

Permanent Trust Funds that lacked supporting documentation to indicate the formation of the funds and the method as to whichthe trust can be spent, specifically if principal is expendable or not. We recommend research be performed to determine the

type oftrust these three trust funds quali$ as and whether they are expendable or nonexpendable trust funds.

Water and Sewer Warrant Approval

We noted the water and sewer warrants for the first quafter billings were not signed by the City Manager. The City's internalcontrols require that all warrants be signed by the City Manager authorizing the billings. We recommend the City ensure the

warrants are properly approved prior to release ofthe billings.

Budget Journal Entry Approval

Through our testing ofbudget adjustments, we discovered several instances where the budgetjournal entries were not properlyapproved by the City Manager. In accordance with the City's internal control policy, we recommend the City ensure that allbudget journalentries are approved by the City Manager.

Information Technology Policies and Procedures

Based on our review of the City's information technology (IT) policies and procedures, we detennined the City has not adoptedformal policies over sevsral key areas, including information security, user access, data retention, backups, and disaster

recovery, In an ever-increasing electronic environment, such policies and procedures are essential to ensure smooth and

reliable operation of the City's IT system. We recommend the City work with their contracted IT Director to develop the

necessary policies and procedures.

Other Matters

Implementation of New GASB Pronouncements

The Governmental Accounting Standards Board (GASB) has issued several pronouncements that have effective dates that rnayimpact future financial presentations. Management has not currently determined what, if any, impact implementation of thefollowing statements may have on the financial statements.

GASB Statement No. 830 Certain Asset Retirement Obligations, issued in November 2016, will be effectivefor the City beginning with its fiscal year ending December 31, 2019. It addresses accounting and financialrepofting for certain asset retirement obligations and establishes criteria for determining timing and pattern ofrecognition of a liability and conesponding defened outflow of resources.

GASB Statement No. 84, Fitluciary Activities, issued in January 2017, will be effective for the Citybeginning with its fiscal year ending December 31,2019. This Statement will improve guidance regarding theidentification of fiduciary activities for accounting and financial reporling purposes and how those activitiesshould be reported.

GASB Statement No. 87, Leases, issued in June 2017, will be effective for the City with its fiscal year

ending December 31, 2020. This Statement will improve accounting and financial reporting for leases bygovernments by requiring recognition of certain lease assets and liabilities for leases that previously wereclassified as operating leases.


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City of LebanonJanuary 14,2020Page 4

GASB Statement No. 88, Certain Disclosutes Related to Debt, Including Direcl Borrowings snd DirectPlacements, issued April 2018, willbe effective for the City with its fiscal year ending December 31,2019.This Statement will improve the information that is disclosed in notes to the government financial statements

related to debt, including direct borrowings and direct placements. It also clarifies which liabilitiesgovernments should include when disclosing information related to debt.

GASB Statement No. 89, Accounting for Interest Cost Incurred Before the End of a Construction Period,issued June 201 8, will be effective for the City with its fiscal year ending December 31 , 2020, This Statementwill enhance the relevance and comparability of information about capital assets and the cost of borrowing fora reporting period and to sirnplify accounting for interest cost incurred before the end ofa construction period.

GASB Statement No. 90, Majority Equity Interests -An Amendment of GASB Statements No. 14 and 61,

issued August 2018, will be effective for the City with its fiscal year ending December 31,2019. ThisStatement will improve the consistency and comparability of reporting a government's majority equity interestin a legally separate organization and to improve the relevance of financial statement information for certaincomponent units.

We applied certain limited procedures to the following, which are required supplementary information (RSI) that supplementsthe basic financial statements:

. Schedule of the City's Proportionate Share of Net Pension Liability,o Schedule of City Contributions - Pensionso Schedule of the City's Proportionate Share of the Net Other Postemployment Benefits Liability,. Schedule of City Contributions - Other Postemployment Benefits. Schedule of Changes in the City's Total Other Postemployment Benefits Liability and Related Ratios, and

. Notes to the Required Supplernentary Information

Our procedures consisted of inquiries of management regarding the methods of preparing the information and comparing the

information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledgewe obtained during our audit of the basic financial statements. We did not audit the RSI and do not express an opinion orprovide any assurance on the RSi.

We were engaged to repoft on the combining and individual fund schedules and Schedule of Expenditures of Federal Awards,which accompany the financial statements but are not RSI. With respect to this supplementary information, we made certaininquiries of management and evaluated the form, content, and methods of preparing the information to determine that theinformation complies with accounting principles ggnerally accepted in the United States of America, the method of preparing ithas not changed from the prior period, and the information is appropriate and complete in relation to our audit of the financialstatements. We compared and reconciled the supplementary information to the underlying accounting records used to prepare

the financial statements or to the financial statements themselves.

Restriction on Use

This information is intended solely for the information and use of the members of the City Council, City Manager, and

management of the City of Lebanon, and is not intended to be, and should not be, used by anyone other than these specifiedparties.

Respectfully

Aloql&rt&*&rast^"PLODZIKT SANDERSONProfessional Association


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AGENDA LEBANON CITY COUNCIL FEBRUARY 19, 2020