TOWN OF TALIHINA, OKLAHOMA REPORT ON AUDIT OF …Construction Fund Expenses 61,952 Other Services and Charges 0 Depreciation 0 Total Expenditures 695,274 Increase (Decrease) in Net

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TOWN OF TALIHINA, OKLAHOMA

REPORT ON AUDIT OF FINANCIAL STATEMENTS

AND

SUPPLEMENTAL DATA FOR THE

TWELVE MONTHS ENDED JUNE 30, 2018

CYNTHIA L WARREN CPA, P.C.

Eufaula, Oklahoma 74432

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TOWN OF TALIHINA

TALIHINA, OKLAHOMA

JUNE 30, 2018

Table of Contents

FINANCIAL SECTION:

Independent Auditor's Report 3

Basic Financial Statements:

Exhibit A - Statement of Net Position – Modified Cash Basis 5

Exhibit B - Statement of Activities – Modified Cash Basis 6

Exhibit C - Balance Sheet - Governmental Funds – Modified Cash Basis 7

Exhibit D - Statement of Revenues, Expenditures and Changes in

Fund Balances - Governmental Funds, Modified Cash Basis 9

Exhibit E - Statement of Net Position - Proprietary Funds, Modified Cash Basis 10

Exhibit F - Statement of Revenues, Expenses and Changes in

Net Assets - Proprietary Funds, Modified Cash Basis 10

Exhibit G – Statement of Cash Flows – Modified Cash Basis, Proprietary Fund 12

Exhibit H - Statement of Fund Balances – Fiduciary Funds, Cash Basis 13

Notes to the Financial Statements 14

INTERNAL CONTROL & COMPLIANCE SECTION:

Independent Auditor's Report on the Internal Control over

Financial Reporting Based on an Audit of Financial Statements

Performed in Accordance with Government Auditing Standards 24

Schedule of Findings 26

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P.O. Box 189 (918) 452-2116

Eufaula, OK 74432 Fax (918) 452-3509

INDEPENDENT AUDITOR'S REPORT

To the Town Council

Town of Talihina

Talihina, Oklahoma

Report on the Financial Statements

I was engaged to audit the accompanying modified cash basis financial statements of the governmental

activities, the business-type activities, the aggregate discretely component units, each major fund, and

aggregate remaining fund information of the Town of Talihina as of and for the year ended June 30, 2018,

which collectively comprise the Town’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in

accordance with the modified cash basis of accounting described in Note A; this includes determining that

the modified cash basis of accounting is an acceptable basis for the preparation of the financial statements

in the circumstances. Management is also responsible for the design, implementation, and maintenance of

internal control relevant to the preparation and fair presentation of financial statements that are free from

material misstatement, whether due to fraud or error.

Auditor’s Responsibility

My responsibility is to express an opinion on these financial statements based on my audit. I conducted

my audit 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. Because of the matter described in the Basis for Disclaimer of

Opinion paragraph, however, I was not able to obtain sufficient appropriate audit evidence to provide a

basis for an opinion.

Basis for Disclaimer of Opinion

The previous management of the Town imposed restrictions as access to financial records, or did not

maintain adequate accounting records. Management did not properly record transactions in the book of

account; did not designate qualified individuals with the necessary expertise to be responsible and

accountable for maintaining adequate, effective internal controls for the preparation, substantial accuracy

and completeness of the financial statements. As a result, I was unable to determine whether any

adjustments to the amounts of the accounts reported were necessary.

Disclaimer of Opinion

Because of the significance of the matters discussed in the Basis for Disclaimer of Opinion paragraph, I

was not able to obtain sufficient, appropriate audit evidence to provide a basis for an audit opinion.

Accordingly, I do not express an opinion on these financial statements.

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Basis of Accounting

Note A of the notes to the financial statements describes the basis of accounting. The Town of Talihina

prepares the financial statements on the modified cash basis of accounting, which is a basis of accounting

other than accounting principles generally accepted in the United State of America. My opinions are not

modified with respect to this matter.

Other Matters

Management’s Discussion and Analysis was not included in the financial statements. My audit was

conducted for the purpose of forming opinion on the financial statements that collectively comprise the

Town of Talihina’s basis financial statements. The Budgetary Comparison information is also not included

and has not been subjected to the auditing procedures applied in the audit of the basic financial statements,

and accordingly, I do not express an opinion or provide any assurance on it. Due to the unavailability of

information, the cash flows for the proprietary fund has not been included.

Report Issued in Accordance with Government Auditing Standards

In accordance with Government Auditing Standards, I have also issued a report dated April 25, 2019 on my

consideration of the Town of Talihina's internal control over financial reporting and my tests of its

compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The

purpose of that report is to describe the scope of my testing of internal control over financial reporting and

compliance and the results of that testing and not to provide an opinion on the internal control over financial

reporting or on compliance. This report is an integral part of an audit performed in accordance with

Government Auditing Standards in considering the internal control over financial reporting and compliance.

Cynthia L Warren CPA, P.C.

Eufaula, Oklahoma April 25, 2019

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Exhibit A


STATEMENT OF NET POSITION – MODIFIED CASH BASIS

JUNE 30, 2018

Governmental Business-type

Activities Activities Total

ASSETS

Current Assets: Cash and Cash Equivalents $ 206,889 247,947 $ 454,836

Investments, Unrestricted 70,638 55,502 126,140

Total Current Assets 277,527 303,449 580,976

Noncurrent Assets:

Restricted Investments, Debt Reserve 0 196,436 196,436

Restricted Cash and Cash Equivalents,

Meter Funds 0 55,690 55,690

Capital Assets, Net of Depreciation 0 3,401,558 3,401,558

Total Assets $ 277,527 $ 3,957,133 $ 4,234,660

LIABILITIES

Current Liabilities:

Accounts Payable $ 0 $ 0 $ 0

Notes Payable, Current 0 56,406 56,406

Total Current Liabilities 0 56,406 56,406

Noncurrent Liabilities: Customer Deposits Payable 0 46,212 46,212

Notes Payable 0 2,978,022 2,978,022

Total Noncurrent Liabilities 0 3,024,234 3,024,234

Total Liabilities 0 3,080,640 3,080,640

NET POSITION Invested in Capital Assets, Net of Related Debt 0 367,130 367,130

Restricted 0 196,436 196,436

Unrestricted 277,527 312,927 590,454

Total Net Position 277,527 876,493 1,154,020

Total Liabilities and Net Position $ 277,527 $ 3,957,133 $ 4,234,660

See accompanying notes to the basic financial statements.

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Exhibit B


STATEMENT OF ACTIVITIES – MODIFIED CASH BASIS

FOR THE TWELVE MONTHS ENDED JUNE 30, 2018

Net (Expenses) Revenue

Program Revenues and Changes in Net Assets

Operating Capital

Charges for Grants and Grants and Governmental Business-type

Expenses Services Contributions Contributions Activities Activities Total

Governmental Activities: General Government $ 511,028 23,638 $ 0 $ (487,390) $ 0 $ (487,390)

Police 37,933 (37,933) 0 (37,933)

Fire Department 27,107 (27,107) 0 (27,107)

Cemetery 7,608 8,210 0 602 0 602

Swimming Pool 18,232 19,762 0 1,530 0 1,530

Street & Alley 82,058 0 (82,058) 0 (82,058)

Airport 94,000 0 (94,000) 0 (94,000)

Total Governmental Activities 777,966 27,972 23,638 0 (726,356) 0 (726,356)

Business-type Activities:

Public Works - Water and Sewer 735,039 1,002,549 0 0 0 267,510 267,510

Other 61,952 0 0 0 0 (61,952) (61,952)

Total Business-type Activities 796,991 1,002,549 0 0 0 205,558 205,558

Total $ 1,574,957 $ 1,030,521 $ 23,638 $ 0 $ (726,356) $ 205,558 $ (520,798)


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Exhibit B


STATEMENT OF ACTIVITIES – MODIFIED CASH BASIS, CONTINUED

FOR THE TWELVE MONTHS ENDED JUNE 30, 2018

Net (Expenses) Revenue

and Changes in Net Assets

Governmental Business-type

Activities Activities Total

Program Revenues: Expenses (Over) Under Revenues $ (726,356) $ 205,558 $ (520,798)

General Revenues: Governmental Taxes and Other

Revenues 532,977 0 532,977

Miscellaneous 53,595 56,823 110,418

Total General Revenues 586,572 56,823 643,395

Changes in Net Assets - Operating (139,784) 262,381 122,597

Transfers In (Out) 116,478 (55,972) 60,506

Unknown Differences 43,634 (58,718) (15,084)

Change in Net Position 20,328 147,691 168,019

Net Position at Beginning of Year 257,199 728,802 986,001

Net Position at End of Year $ 277,527 $ 876,493 $ 1,154,020


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Exhibit C


BALANCE SHEET – MODIFIED CASH BASIS

GOVERNMENTAL FUNDS

JUNE 30, 2018

Other Total

General Governmental Governmental

Fund Funds Funds

ASSETS Current Assets: Cash $ 153,910 52,979 206,889

Accounts Receivable, Net 0 0 0

Investments, Unrestricted 70,638 0 70,638

Total Current Assets $ 224,548 $ 52,979 $ 277,527

LIABILITIES AND FUND BALANCES Current Liabilities: Accounts Payable $ 0 $ 0 $ 0

Total Current Liabilities 0 0 0

Fund Balances: Unreserved Fund Balance 224,548 52,979 277,527

Total Fund Balances 224,548 52,979 277,527

Total Liabilities and Fund Balances $ 224,548 $ 52,979

Capital Assets, net of accumulated depreciation, used in Governmental Activities are not current financial resources and therefore are not reported in the governmental funds. 0

Net Assets of Governmental Activities $ 277,527


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TOWN OF TALIHINA, OKLAHOMA Exhibit D

STATEMENT OF REVENUES, EXPENDITURES, AND

CHANGES IN FUND BALANCES – MODIFIED CASH BASIS

GOVERNMENTAL FUNDS

FOR THE YEAR ENDED JUNE 30, 2018

Other Total

General Governmental Governmental

Fund Fund Funds

Revenues: Governmental Revenues $ 523,309 0 523,309

Cemetery Revenues 8,210 8,210

Swimming Pool Revenues 19,762 19,762

Street & Alley Revenues 9,668 9,668

Airport Revenues 53,595 53,595

Cemetery Perpetual Care Revenues 0 0

Grant Income 23,638 0 23,638

Total Revenues 546,947 91,235 638,182

Current Expenditures: General Government Governmental Expenditures 509,128 0 509,128

Police 37,933 37,933

Fire Department 27,107 27,107

Cemetery Expenditures 7,608 7,608

Park and Recreation 1,900 1,900

Swimming Pool Expenditures 18,232 18,232

Street & Alley Expenditures 82,058 82,058

Airport Expenditures 94,000 94,000

Total Expenditures 509,128 268,838 777,966

37,819 (177,603) (139,784)

Transfers In 116,478 0 116,478

Unknown Differences (98,216) 141,850 43,634

Change in Fund Balance 56,081 (35,753) 20,328

Fund Balance, Beginning 168,467 88,732

Fund Balance, End $ 224,548 $ 52,979

Adjustments for the Statement of Activities: Governmental funds report capital outlays as expenditures while governmental activities report depreciation expense to allocate those expenditures over the life of the assets. This is

the amount of depreciation expense in the

current period less capital outlay. 0

Change in Net Assets $ 20,328


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Exhibit E


STATEMENT OF NET POSITION – MODIFED CASH BASIS

PROPRIETARY FUNDS

JUNE 30, 2018

Enterprise

Funds

ASSETS Current Assets: Cash $ 247,947

Accounts Receivable, Net 0

Investments, Unrestricted 55,502

Total Current Assets 303,449

Noncurrent Assets: Restricted Cash 196,436

Restricted Cash, Meter Funds 55,690

Capital Assets, Net of Depreciation 3,401,558

Total Assets $ 3,957,133

LIABILITIES Current Liabilities: Accounts Payable $ 0

Accrued Interest Payable 0

Notes Payable, Current Portion 56,406

Total Current Liabilities 56,406

Noncurrent Liabilities: Customer Deposits Payable 46,212

Notes Payable, Less Current Maturities 2,978,022

Total Noncurrent Liabilities 3,024,234

Total Liabilities 3,080,640

NET POSITION Invested in Capital Assets, Net of Related Debt 367,130

Restricted 196,436

Unrestricted 312,927

Total Net Position 876,493

Total Liabilities and Net Position $ 3,957,133


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Exhibit F


STATEMENT OF REVENUES, EXPENSES AND CHANGES

IN NET POSITION – MODIFIED CASH BASIS

PROPRIETARY FUNDS


Enterprise

Funds

Operating Revenues: Charges for services $ 1,002,549

Miscellaneous 51,072

Total Revenues 1,053,621

Operating Expenses: Revenue Fund Expenses 633,322

Construction Fund Expenses 61,952

Other Services and Charges 0

Depreciation 0

Total Expenditures 695,274

Increase (Decrease) in Net Position 358,347

Transfer In (Out) 90,675

Transfer (Out) (146,647)

Interest Income 5,751

Interest Expense (101,717)

Unknown Transactions (58,718)

Difference between prior year and current year 0

Change in Net Position 147,691

Net Position, Beginning 728,802

Net Position, Ending $ 876,493


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Exhibit G


STATEMENT OF CASH FLOWS – MODIFIED CASH BASIS

PROPRIETARY FUNDS

JUNE 30, 2018

Enterprise

Funds

Cash Flows from Operating Activities: Receipts from Customers $ 1,002,549

Receipts from Other Income 51,072

Payments to Suppliers and Vendors (695,274)

Net Cash Provided (Used) by Operating Activities 358,347

Cash Flows from Capital and Related Financing Activities: Principal Paid on Long-term Debt (51,163)

Interest Paid on Long-term Debt (101,717)

Net Cash Provided (Used) by Capital and Related Financing Activities (152,880)

Cash Flows from Investing Activities: Receipts of Interest Income 5,751

(Increase) Decrease in Investments 14,498

Transfer In (Out) (55,972)

Unknown Transactions (58,718)

Net Cash Provided (Used) from Investing Activities (94,441)

Net Increase (Decrease) in Cash and Cash Equivalents 111,026

Cash and Cash Equivalents, Beginning 389,047

Cash and Cash Equivalents, Ending $ 500,073

Cash and Cash Equivalents $ 247,947

Restricted Cash, Reserves 196,436

Restricted Cash, Meter Funds 55,690

$ 500,073

Reconciliation of Operating Income to Net Cash

Provided (Used) by Operating Activities:

Operating Income (Loss) $ 358,347

Adjustments to reconcile Operating Income (Loss) to Net Cash Provided (Used) by Operating Activities: Depreciation 0

Net Cash Provided (Used) by Operating Activities $ 358,347


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Exhibit H


STATEMENT OF FUND BALANCES – CASH BASIS

FIDUCIARY FUNDS

JUNE 30, 2018

Police

Funds

ASSETS Cash and Cash Equivalents $ 10,212

Investments 0

Total Current Assets $ 10,212

LIABILITIES AND FUND BALANCES

Due to Other Funds $ 10212

Total Current Liabilities 10212

Fund Balances: Restricted 0

Unassigned 0

Total Fund Balances 0

Total Liabilities and Fund Balances $ 10,212


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Page 1 of 10


NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2018

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reporting Entity

The Town of Talihina, Oklahoma operates under a Town Board of Trustees form of government with an

elected five-member Board of Trustees.

The Town of Talihina, for financial reporting purposes, includes all funds and authorities over which the

Town Trustees exercise oversight responsibility. In defining the reporting entity for financial reporting

purposes, management has considered potential component units by applying criteria set forth in Statement

14 of the Governmental Accounting Standard Board. On this basis, the reporting entity of the Town of

Talihina includes all its funds as well as the accounts of the blended component units; the Talihina Public

Works Authority (PWA).

The Talihina Public Works Authority is a public trust created under the authority of and pursuant to the

provisions of Title 60, Oklahoma Statutes 1961, and Sections 176 to 180, for the use and benefit of the

Town of Talihina. The trust has as its purpose to finance, develop, and operate the water, wastewater, and

sanitation services or activities of the Town of Talihina. The Town Trustee members of the Town of

Talihina act as trustees of the Authority.

Basis of Presentation

Government-wide Financial Statements:

The Statement of Net Position and Statement of Activities display information about the reporting

government as a whole within limitations of the modified cash basis of accounting. They include all funds

of the reporting entity except for the fiduciary funds. The statements distinguish between governmental

and business-type activities. Governmental activities generally are financed through taxes,

intergovernmental revenues, and other nonexchange revenues. Business-type activities are financed in

whole or in part by fees charged to external parties for goods or services.

Fund Financial Statements:

Fund financial statements of the reporting entity are organized into funds, each of which is considered to

be separate accounting entities. Each fund is accounted for by providing a separate set of self-balancing

accounts that constitute its assets, liabilities, fund equity, revenues, and expenditure/expenses. Funds are

organized into three major categories: governmental, proprietary, and fiduciary. An emphasis is placed on

major funds within the governmental and proprietary categories. The funds of the financial reporting entity

are described below:

Governmental Funds:

General Fund - The general fund is the primary operating fund of the Town and always classified as a major

fund. This fund accounts for all activities except those legally or administratively required to be accounted

for in other funds.

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Page 2 of 10



JUNE 30, 2018

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Special Revenue Fund - These funds are used to account for the revenues derived from specific taxes,

governmental grants, or other revenue sources which are designated to finance particular functions or

activities of the Town. Special Revenue Funds include Street/Alley Fund, Airport Fund, BIA Grant Fund,

DARE Account Fund, Swimming Pool Fund, CDBG Fund, EDA Project Fund and Cemetery Care Fund.

Proprietary Fund Types:

Enterprise Fund - Enterprise Funds are used to account for operations (a) that are financed and operated in

a manner similar to private business enterprises - where the intent of the governing body is that the costs

(expenses, including depreciation) of providing goods or services to the general public on a continuing basis

be financed or recovered primarily through user charges; or (b) where the governing body has been decided

that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for

capital maintenance, public policy, management control, accountability or other purposes. The Town's

Enterprise fund consists of the Talihina Public Works Authority.

Measurement Focus and Basis of Accounting

Measurement Focus:

Measurement focus is a term used to describe which transactions are recorded within the various financial

statements. Basis of accounting refers to when and how transactions are recorded regardless of the

measurement focus applied.

The government-wide financial statements and proprietary funds are typically reported using the economic

resources measurement focus as applied to the modified cash basis of accounting. Revenues are recorded

when earned and expenses are recorded when a liability is incurred, regardless of the timing of the related

cash flows. Grants and similar items are recognized as soon as all eligibility requirements imposed by the

provider have been met. The Town of Talihina has elected to report its financial statements on the modified

cash basis.

Governmental fund financial statements are reported using the current financial resources measurement

focus and the cash basis of accounting. Revenues are recognized when received. Revenues are considered

to be available when they are collectible with the current period. Expenditures are recorded when paid.

Capital assets and long-term debt are not reported in governmental fund financial statements because they

do not involve current financial resources.

The proprietary fund utilizes an economic resources measurement focus within the limitation of the

modified cash basis of accounting. The accounting objectives of this measurement focus are the

determinations of operating income, changes in net position, net financial position, and cash flows. All

assets, deferred outflows, liabilities, and deferred inflows associated with their activities are generally

reported within the limitations of the modified cash basis of accounting.

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Page 3 of 10



JUNE 30, 2018


Basis of Accounting:

The financial statements are presented on a modified cash basis of accounting, which is a basis of

accounting other than GAAP as established by GASB. This basis of accounting involves modifications to

the cash basis of accounting to report in the statements of net position cash transactions or events that

provide a benefit or result in an obligation that covers a period greater than the period in which the cash

transaction or event occurred. Such reported balances include investments, capital assets and related

depreciation, and short-term and long-term liabilities arising from cash transaction or events.

This modified cash basis of accounting differs from GAAP primarily because certain assets and their related

revenues (such as accounts receivable and revenue billed or provided services not yet collected and other

accrued revenue and receivables) and certain liabilities and their related expenses (such as accounts payable

and expenses for goods or services received but not yet paid and other accrued expenses and liabilities) are

not recorded in these financial statements. In addition, other economic assets, deferred outflows, liabilities,

and deferred inflows that do not arise from a cash transaction or event are not reported, and the measurement

of reported assets and liabilities does not involve adjustment to fair value.

If the Town utilized the basis of accounting recognized as generally accepted in the United States, the fund

financial statements for governmental funds would use the modified accrual basis of accounting, and the

fund financial statement for proprietary fund types would use the accrual basis of accounting. All

government-wide financial statements would be presented on the accrual basis of accounting.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the

United States of America requires management to make estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial

statements and the reported amounts of revenues and expenses during the accounting period. Actual results

could differ from those estimates.

Budget Process

Annually a legally adopted budget is prepared for the General Fund and other governmental funds and an

operating budget forecast is prepared for the Public Works Authority Funds. The budgets are formally

approved by the Town Council before filing with the State of Oklahoma. The legal level of budgetary

control is that level of expenditure authority that may not be exceeded or reassigned with the approval of

the Town Council. Historically, the appropriated budget for the General Fund is prepared by department

or activity.

Assets, Liabilities, and Equity

Cash and Cash Equivalents:

For the purpose of the Statement of Net Position, and the proprietary funds Statement of Cash Flows, “cash

and cash equivalents” includes all demand and savings accounts and certificates of deposit with an original

maturity of three months or less.

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Page 4 of 10



JUNE 30, 2018


Investments:

Investments consist of long-term certificates of deposits and are stated at cost, which approximates market

unless otherwise indicated with a maturity at the time of purchase of more than three months.

Restricted Assets:

Under the terms of the loan agreements, the Talihina Public Works Authority must maintain certain "funds".

These are not funds in the sense of fiscal and accounting entities with self-balancing sets of accounts; they

merely represent mandatory asset segregation. The primary restricted assets are related to bond reserves

and utility meter deposits.

Capital Assets:

The Town does not maintain adequate records for property and equipment of the governmental or

proprietary fund types, therefore, Capital assets are not reported as required by the modified cash basis of

accounting. The capital assets that are included in the financial statements are accounted for as follows:

• All capital assets are valued at historical cost or estimated historical cost if actual is unavailable,

except for donated capital assets which are recorded at their estimated fair value at the date of

donation. The range of estimated useful lives by type of assets is as follows:

Buildings 10 – 15 years

Utility Systems 10 – 50 years

Equipment 5 – 10 years

Capitalization Policy

It is the policy of the Town to capitalize all assets with a cost of $500 or greater and an estimated useful

life in excess of one year.

Long-term Obligations:

The accounting treatment of long-term obligations depends on whether the assets are used in governmental

fund operations or proprietary fund operations and whether they are reported in the government-wide or

fund financial statements. All long-term debt to be repaid from governmental and business type resources

are reported as liabilities in the government-wide statements.

Net Position Classifications:

Government-wide Statements

Net Position is classified and displayed in the following components:

• Net Investment in Capital Assets - Consists of capital assets including restricted capital assets, net

of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages,

notes or other borrowings that are attributable to the acquisition, construction or improvement of

those assets.

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JUNE 30, 2018


• Restricted - Consists of net assets with constraints placed on the use either by external groups such

as creditors, grantors, contributions, or laws or regulations of other governments; or law through

constitutional provisions or enabling legislation.

• Unrestricted - All other net assets that do not meet the definition of “restricted” or “net investment

in capital assets.”

It is the Town’s policy to first use restricted net resources prior to the use of unrestricted net resources when

an expense is incurred for purposes for which both restricted and unrestricted net resources are available.

Fund Statements

Governmental fund equity is classified as fund balance. Fund Balance is further classified as nonspendable,

restricted, committed, assigned and unassigned. Proprietary fund equity is classified the same as in the

government-wide statements.

Revenues, Expenditures, and Expenses

Sales Tax:

The Town is currently receiving sales tax on each dollar. This is deposited into the general fund for the

purpose of paying the operation and maintenance costs incurred by the Town with distributions made to

other funds according to current ordinances.

Operating Revenues and Expenses:

Operating revenues and expenses for proprietary funds are those that result from providing services and

delivering goods and/or services. It also includes all revenue and expenses not related to capital and related

financing, noncapital financing, or investing activities.

In the fund financial statements, governmental funds report expenditures of financial resources. Proprietary

funds report expenses relating to use of economic resources.

Interfund Transfers

Interfund receivables and payables arise from Interfund transactions and are recorded by all programs

affected in the period in which the transactions are executed. These receivables and payables within the

same fund type are eliminated for presentation of the financial statements in the government-wide

statements. Net receivables and payables between governmental activities and business-type activities are

reported as internal balances and internal transfers.

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Page 6 of 10



JUNE 30, 2018

NOTE 2 - CASH AND CASH EQUIVALENTS, RESTRICTED CASH AND INVESTMENTS

The Town of Talihina is governed by the deposit and investment limitations of state law. The deposits and

investments held at June 30, 2018, and reported at fair value are as follow:

TYPE

Carrying

Value

Deposits:

Demand Deposits $ 706,962

Investments: Certificates of Deposit 126,140

Total Deposits and Investments 833,102

Reconciliation to Statement of Net Assets:

Cash and Cash Equivalents 454,836

Investments, Unrestricted 126,140

Restricted Cash and Cash Equivalents 252,126

$ 833,102

Custodial Credit Risk - State law governs the requirements for managing custodial credit risk. Such law

requires uninsured deposits to be secured with collateral having market value at least equal to the amount

of uninsured deposits. Deposits in financial institutions, reported as components of cash, cash equivalents,

and investments, had a bank balance of $874,444 at June 30, 2018, which was fully insured by depository

insurance or secured with collateral held by the Town's agent in its name. All investments, evidenced by

individual securities, are registered in the name of the Town or one of its component units.

Investment Credit Risk - The Town has established a formal investment policy that governs the investment

of all funds other than its permanent funds, private-purpose funds, and agency funds. Pursuant to its

Investment Policy and applicable Oklahoma law, investments for the Town and its component units are

reported at fair value. Additionally, investments are restricted or confined to Certificates of Deposit.

Concentration of Investment Credit Risk - The Town places no limit on the amount it may invest in any one

issuer. At June 30, 2018, the Town had limited concentration of credit risk.

Restricted Cash

The Talihina Public Works Authority has notes payable to OWRB which required the TPWA to set aside

funds in a sinking fund for payments on the debt, as well as a reserve fund to be used for payment of the

debt principal and interest in the event that funds are not otherwise available to pay the debt service

payments when due. The TPWA has also set aside funds in a sales tax reserve t be used for debt payments.

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Page 7 of 10



JUNE 30, 2018

NOTE 2 - CASH AND CASH EQUIVALENTS, RESTRICTED CASH AND INVESTMENTS,

Continued

Loan agreements with the United States Department of Agriculture Rural Development (USDA) requires

the Town to set aside into a Reserve Account the sum of 10% of the monthly installment payment each

month.

The Town has the following restricted cash and investments in the enterprise funds:

TPA Sinking Fund $ 0

Sales Tax Reserve 0

Reserve Fund 84,213

REAP Grant Sewer Project 56

RD Debt Service Reserve 90,876

RD Debt Reserve 21,347

Total Restricted Assets $ 196,492

Although it appears the Talihina Public Works should have the above restricted cash and investments, the

Talihina Public Works is not able to provide information on these accounts.

NOTE 3 – CAPITAL ASSETS

As disclosed previously the Town of Talihina and Talihina Public Works Authority has not maintained

adequate records of its capital assets and depreciation. The following information has not been updated for

the past few years and is not considered to be fairly stated.

Balance Balance

Governmental Activities: 6/30/2017 Additions Deletions 6/30/2018

Capital Assets - Not Depreciated $ 5,625 $ 0 $ 0 $ 5,625

Depreciable Assets:

Buildings 342,294 0 0 342,294

Infrastructure 788,544 788,544

Machinery and Equipment 241,794 0 0 241,794

1,372,632 0 0 1,372,632

Total Accumulated Depreciation 50,129 0 0 50,129

1,322,503 0 0 1,322,503

Total Net Assets $ 1,328,128 0 0 1,328,128

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Page 8 of 10



JUNE 30, 2018

NOTE 3 – CAPITAL ASSETS, Continued

Business-type Activities:

Capital Assets - Not Depreciated $ 69,994 $ 0 $ 0 $ 69,994

Depreciable Assets:

Buildings 3,768 0 0 3,768

Machinery and Equipment 80,469 0 0 80,469

Vehicles 26,231 0 0 26,231

Sewer Treatment Facility 2,729,330 0 0 2,729,330

Water Treatment Facility 705,166 0 0 705,166

Water Distribution Facility 2,037,061 0 0 2,037,061

5,582,025 0 0 5,582,025

Less: Accumulated Depreciation 2,250,461 0 0 2,250,461

3,331,564 0 0 3,331,564

$ 3,401,558 $ 0 $ 0 $ 3,401,558

The Town of Talihina and Talihina Public Works Authority has not maintained adequate records

of capital assets and depreciation; therefore, no depreciation is included in the financial statements.

NOTE 4 - LONG-TERM DEBT

Long-term debt consists of the following debt owed by the Talihina Public Works Authority. A summary

of long-term debt follows:

• Community Resource Group, Inc. dated January 3, 2008, with a total authorized amount of $16,400

payable in monthly installments of $1,839.40 for 120 months (10 years) at a rate of 5.9% interest,

beginning February 7, 2008. This loan was used to relocate 1080 feet of wastewater collection

lines, install new manholes, replace aerial pipe and the access road creed crossing at the treatment

lagoons. The loan required that the Authority maintains an operating ratio of not less than 1.05 as

measured on an annual basis. This loan has now been repaid and has a zero balance.

• USDA Rural Development loan #91-01 for an original amount of $2,963,000 payable in monthly

installments of $11,497 for 40 years at a rate of 3.5% beginning July 18, 2012. The loan was used

for a system improvement project. The balance as of June 30, 2018 is $2,674,112. Principal

payments of $43,536 were paid on this loan during the year ending June 30, 2018.

• USDA Development loan #91-03 for an original amount of $410,000 payable in monthly

installments of $1,243 for 40 years at a rate of 2.0%, beginning July 18, 2012. The loan proceeds

were used for a system improvement project. The balance as of June 30, 2018 is $360,315.

Principal payments of $7,627 were paid on this loan during the year ending June 30, 2018.

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Page 9 of 10



JUNE 30, 2018

NOTE 4 - LONG-TERM DEBT, Continued

Maturities of the Long-term debt are as follow:

Principal Interest

Year Ending June 30, Payments Payments Total

2019 56,406 96,474 152,880

2020 54,752 98,128 152,880

2021 56,577 96,303 152,880

2022 58,465 94,415 152,880

2023 60,418 92,462 152,880

2024 to 2028 333,794 430,606 764,400

2029 to 2033 393,685 370,715 764,400

2034 to 2038 464,603 303,797 768,400

2039 to 2043 548,620 215,780 764,400

2044 to 2048 648,186 116,214 764,400

2049 to 2051 358,922 15,180 374,102

$ 3,034,428 $ 1,930,074 $ 4,964,502

NOTE 5 – COMMITMENTS AND CONTINGENCIES

The entity is subject to possible examinations by federal regulators who determine compliance with terms,

conditions, laws and regulations governing grants given to the entity in the current and prior years. These

examinations may result in required refunds by the entity to the federal grantors and/or program

beneficiaries.

NOTE 6 – EMPLOYEE RETIREMENT SYSTEMS AND PENSION PLANS

The Town of Talihina belongs to the Oklahoma Municipal Assurance Group (OMAG) for most of its

municipal property and liability exposures. For worker’s compensation, the Town and its related authorities

participate in OMAG.

The Town of Talihina, on July 1, 1985, began contributing by ordinance into a retirement fund and system

designated the “Employee Retirement System of Talihina, Oklahoma” under authority granted by

Oklahoma Statutes. The Town participates with other cities in the Oklahoma Municipal Retirement

System, which is a cost sharing, multiple-employer public employee retirement system.

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Page 10 of 10



JUNE 30, 2018

NOTE 7 - RISK MANAGEMENT

The Town is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets,

errors and omissions injuries to employees; and natural disasters for which the Town purchases commercial

insurance. Management believes this coverage is sufficient to preclude any significant uninsured losses to

the Town. Settled claims have not exceeded coverage in any of the past three fiscal years.

NOTE 8 – NOTE DISCLOSURE DISCREPANCIES

Specific amounts reflected in the Notes to the Financial Statements generally do not agree with those

presented in the financial statements. Some of the figures shown in the Notes were derived from source

documents, confirmations and other information. However, the amounts shown in the financial statements

are the result of the errors, omissions, and other misstatements within the Town and Talihina and the

Talihina PWA’s financial statements.

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====================================================================

P.O. Box 189 (918) 452-2116

Eufaula, OK 74432 Fax (918) 452-3509

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 Board of Trustees

Town of Talihina, Oklahoma

I was engaged to audit, 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 Town of Talihina,

as of and for the year ended June 30, 2018, and the related notes to the financial statements, which were

prepared on the modified basis of accounting which is a comprehensive basis of accounting other than

generally accepted accounting principles, which collectively comprise the basic financial statements and

have issued my report thereon dated April 25, 2019, which is a disclaimer of opinion because inadequate

accounting records precluded me from performing sufficient audit procedures on the financial statements.

Internal Control over Financial Reporting

In planning and performing my audit of the financial statements, I considered the Town of Talihina's

internal control over financial reporting (internal control) to determine the audit procedures that are

appropriate in the circumstances for the purpose of expressing my opinion on the financial statements, but

not for the purpose of expressing an opinion on the effectiveness of the Town’s internal control.

Accordingly, I do not express an opinion on the effectiveness of the Town'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 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.

My consideration of the 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 and therefore, material weakness or significant deficiencies may

exist that were not identified. Given these limitations, during my audit I did not identify any deficiencies

in internal control that I consider to be material weakness. However, material weaknesses may exist that

have not been identified. I did identify certain deficiencies in internal control described in the

accompanying Schedule of Findings that I consider to be significant deficiencies. Those deficient are listed

as items #2018-001, #2018-002, #2018-003, #2018-004, #2018-005, #2018-006, #2018-007 and #2018-

008.

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Compliance and Other Matters

As part of obtaining reasonable assurance about whether the financial statements are free of material

misstatement, I performed tests of 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 statements amounts. However providing an opinion on compliance with those provisions was

not an objective of my audit and, accordingly, I do not express such an opinion. The results of my tests

disclosed instances of noncompliance or other matters that are required to be reported under Government

Auditing Standards, which are included in the Schedule of Findings as # 2018-009.

Town of Talihina’s Response to Findings

The Town of Talihina’s response to the findings identified in my audit is described in the accompanying

Schedule of Findings. The Town of Talihina’s response was not subjected to the auditing procedures

applied in the audit of the financial statements and, accordingly, I express no opinion on it.

Purpose of this Report

The purpose of this report is solely to describe the scope of my testing of internal control and compliance

and the results of that testing, and not to provide an opinion on the effectiveness of the Town'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 Town's internal control and compliance. Accordingly,

this communication is not suitable for any other purpose.

Cynthia L Warren CPA, P.C.

Eufaula, Oklahoma

April 25, 2019

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SCHEDULE OF FINDINGS


#2018-001 Lack of Segregation of Duties (Prior Year Finding #17-01)

Criteria: The Town should have a sufficient and properly designed internal control structure. This

structure relies greatly on a proper segregation of duties between individuals. In the perfect situation, duties

relating to initiating, authorizing, recording, processing and reporting financial data would be segregated to

provide a less than remote likelihood that a misstatement of the authority's financial statements which is

more than inconsequential would be prevented or detected.

Condition: Due to the size of the Town of Talihina, the Town’s major areas of internal control are not as

available as would be prevalent in a larger entity – such as, segregation of duties is not possible for the

number of employees which are available for the Town of Talihina.

Cause: Due to cost restrictions, the Town has limited staff. Resources are not currently available for

additional employees for the appropriate segregation of duties.

Effect: The lack of segregation of duties related to controls as stated above are significant deficiencies that

could result in the likelihood that a material misstatement of the financial statements may occur and not be

prevented or detected.

Recommendation: As the Town has limited resources available, at the current time, additional segregation

of duties is not financially feasible. The Town should review its procedures and controls to determine

additional controls which can be implemented in order to achieve the control objectives related to

segregation of duties. The cost effectiveness of these actions should be considered in the implementation

of additional controls.

Response from Management: The management of the Town has reviewed and discussed the Town’s

responsibilities over internal controls. As a result of this review, management has considered the cost

effectiveness of additional segregation of duties for compliance of the application of generally accepted

accounting principles. Due to the limitations of resources available at the current time, it has been

determined that it is not feasible to increase the segregation of duties.

#2018-002 Capital Asset Recordkeeping (Prior Year Finding #17-02)

Criteria: The Town should have a sufficient and properly designed internal control structure to provide

reasonable assurance regarding the achievement of objectives for safeguarding assets, ensuring validity of

financial records and reports, promoting adherent to policies, procedures, regulations and laws, and

promoting effectiveness and efficiency of operations.

Condition: The Town does not have strong internal controls to ensure validity of financial records and

reports, and in some instances is virtually non-existent.

Cause: Due to the weak internal controls, the Town has not maintained adequate recordkeeping for its

capital assets. At the current time, only minimal capital assets records are being maintained.

Effect: The Town of Talihina does not have adequate records for the capital assets owned by the Town

and Town PWA, therefore, interest has not been computed.

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#2018-002 Capital Asset Recordkeeping, Continued

Recommendation: The Town should perform timely periodic physical inventories which should then be

compared to the records of the capital assets to ensure adequate safeguarding of the assets.

Response from Management: The management of the Town has reviewed and discussed the Town’s

responsibilities over internal controls. The Town’s recordkeeping has been hindered by repercussions from

prior management.

#2018-003 Bank Reconciliations (Prior Year Finding #17-03)





Condition: During the time of this audit, bank reconciliations are being prepared, however, due to the

inadequacy of the financial statement recordkeeping, the Town is not able to compare and agree the bank

reconciliations to the financial statements.

Cause: Although the Town is now reconciling bank statements, the Town, during the time of the audit, did

not have a financial statement system of accounting that was adequate for the proper preparation of financial

statements. Due to this, bank reconciliations could not be easily compared to the financial statements.

Effect: The lack of proper financial statements and general ledger information provides the possibility that

bank reconciliations are not fairly stated in relation to the financial statements as a whole.

Recommendation: The Town needs to prepare financial statements and general ledgers in a timely manner

for the adequate safeguarding of the assets of the Town.

Response from Management: The management of the Town has obtained new financial statement

software which should eliminate these issues in the future.

#2018-004 Purchasing (Prior Year Finding #17-04)

Criteria: Purchase order law requires that purchases or contracts be encumbered against a designated

appropriation account prior to/or at the time the commitment is made. At the current time, there are not

procedures in place to ensure this happens.

Condition: During the time of the audit, the Town of Talihina does not have formal purchasing policies

and procedures in place.

Cause: The Town of Talihina is not adequately following purchase order law.

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#2018-004 Purchasing, Continued

Effect: The Town is not operating in compliance with laws and regulations under the State of Oklahoma.

Recommendation: The Town should properly adhere to the laws of regulations pertaining to purchasing

and procurement.

Response from Management: The Town now has new management and is working to adhere to all laws

and regulations.

#2018-005 Meter Deposits (Prior Year Finding #17-05)

Criteria: The Town should maintain proper and sufficient records for Meter Deposits as these are not

assets of the Town but owned by the customer until service is discontinued.

Condition: At the time of the audit, the Town does not have adequate records of Meter Deposits.

Cause: The Talihina PWA has had issues with accounting for Deposits due to changes in management and

personnel.

Effect: There is a possibility that customer may not receive proper reimbursement on the meter deposits.

There is a possibility that the financial records may be incorrect.

Recommendation: The Town needs to maintain adequate records for customer deposits.

Response from Management: The Town has both new management and personnel and is working to maintain proper documentation of

the customer deposits. Talihina Public Works Authority has obtained new software which will enable the

TPWA to computerize the documentation of meter deposits.

#2018-006 General Ledger (Prior Year Finding #17-06)





Condition: The Town of Talihina and Talihina PWA, during the time of the audit, did not have a

recordkeeping system or procedures in place to provide for the preparation of adequate financial records,

including a general ledger.

Cause: The Town of Talihina could not provide adequate financial information which would provide for

the proper preparation of financial statements. The Town basically provided bank reconciliations and a list

of checks/warrants written and revenues collected. A general ledger or financial statements could not be

provided.

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#2018-006 General Ledger , Continued (Prior Year Finding #17-06)

Effect: Adequate records have not been maintained by the Town which prevents a proper audit from being

performed. As a result, no opinion was given on the current audit.

Recommendation: The Town needs to prepare financial statements to provide a proper audit trail of

financial transactions.

Response from Management: The Town now has new personnel, new management and has obtained new

computer software which, in the future, should provide for proper preparation of financial information.

#2018-007 Revenue Documentation (Prior Year Finding #17-07)





Condition: The Town of Talihina and Talihina PWA, during the time of the audit, did not have a

recordkeeping system or procedures in place to provide for the preparation of adequate financial records,

including a general ledger which would provide for the proper documenting of revenues.




provided.


performed. As a result, no opinion was given on the current audit.


financial transactions, including revenue documentation.


computer software which, in the future, should provide for proper preparation of financial information.

#2018-008 Internal Revenue Issues





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#2018-008 Internal Revenue Service Issues, Continued

Condition: The Town of Talihina and Talihina PWA, in past years, did not properly prepare and file

required documents with the Internal Revenue Service. According to the Internal Revenue Service,

adequate deposits of payroll taxes were not made.

Cause: The Town of Talihina previously had different personnel and management. The above situation

occurred during 2012.

Effect: Adequate records have not been maintained by the Town in the past with proper reporting and

deposits being made. The current management of the Town was unaware of this situation until notified by

the Internal Revenue Service. The amounts declared to be owed by the Internal Revenue Service have been

paid subsequent to the audit period. Due to the inadequacy of records in prior years, at the current time,

there could be additional amounts owed to the Internal Revenue Service.

Recommendation: The Town needs to prepare all reporting to federal agencies in a timely manner and

make deposits accordingly.

Response from Management: The Town now has new personnel, new management and is working to

ensure that all reporting and deposits are being done in a timely manner.

#2018-009 Reserve Fund Requirement (Prior Year Finding #17-08)

Criteria: The Town has certain reserve requirements in order to remain compliant with the loan agreements

of the USDA.

Condition: The Town has not maintained proper recordkeeping for the required loan requirements.




provided.


performed. As a result, no opinion was given on the current audit and it appears that the Town is not in

compliance with the loan agreements.


financial transactions, including reserve documentation.


computer software which, in the future, should provide for proper preparation of financial information and

will become compliant with loan agreements.

Documents

TOWN OF TALIHINA, OKLAHOMA REPORT ON AUDIT OF …Construction Fund Expenses 61,952 Other Services and Charges 0 Depreciation 0 Total Expenditures 695,274 Increase (Decrease) in Net