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HomeMy WebLinkAboutCOM 0548.001 2010-201291C»uNcn. cickAM Acuity11P CERTIFIED PUBLIC ACCOUNTANTS Quality. Integrity. Insight. County of Hawaii 2011 Audit Results Presentation to the Hawaii County Council February 1, 2012 Presented by: Cindy Yee Donn Nakamura R n V CI BAKER TILLY INTERNATIONAL Table of Contents Page(s) Scope of Services 1 -2 Required Communications 3 -8 Journal Entries 9 -10 Summary of Uncorrected Misstatements 11 -13 2012 Audit Plan 14 -15 AuItyLLP an independent member of BAKER TILLY INTERNATIONAL Scope of Services • Report of Independent Auditors — Financial Statements • Unqualified opinion on the basic financial statements • Audit conducted in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards • 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 ACCUItYLLP • No material weaknesses in internal control over financial reporting • Significant deficiency in internal control over financial reporting related to information technology. 1 BAKER TILLY I NTFRNATIONAL Scope of Services • Report on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A -133 ACCUItYLLP • Major programs: o Section 8 Housing Choice Vouchers o Highway Planning and Construction Cluster o Capitalization Grants for Clean Water State Revolving Funds o Capitalization Grants for Drinking Water State Revolving Funds o Assistance to Firefighters ■ No material weaknesses in internal controls over compliance 2 BAKER TILLY I NT F RN AT ION A I Required Communications • Statement on Auditing Standards No. 114 — Communication with those charged with governance in relation to an audit of financial statements. These required communications are addressed in the following pages. Our procedures and scope require communication of various matters to the individuals responsible consistent with our planned audit strategy. • As a result of our audit procedures performed relating to the financial statements for the year ended June 30, 2011, there are no matters which came to our attention that would require further communication or action by management other than those discussed in the following pages. ACCUItYLLP 3 BAKER TILLY I NTFRNATIONAI Communicated in our contract No. C.002904 dat Required Communications Required Communications Auditor's responsibility under Generally Accepted Auditing Standards. The auditor should communicate the level of responsibility assumed for fraud and illegal acts, whether the financial statements are free of material misstatement and whether management's assessment of the effectiveness of the organization's internal control over financial reporting is fairly stated. Overview of the planned scope of the audit. The overview of the planned scope and timing of the audit should be communicated to those charged with governance. Significant accounting policies, including critical accounting policies and the auditor's judgment about the quality of accounting principles. The organization's initial selection of and changes in significant accounting policies or their application; methods used to account for significant unusual transactions; and effect of significant policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus should be communicated to those charged with governance. Application to the County Our primary responsibility as the County of Hawaii's (the "County ") independent auditor is to evaluate and report on the fairness of the County's financial statements prepared in accordance with generally accepted accounting principles. Based upon the results of our audit, which was performed in accordance with generally accepted auditing standards, we issued an unqualified opinion on the County's financial statements. Our responsibilities were communicated in our contract No. C.002904 dated August 16, 2010. ed August 16, 2010. For the year ended June 30, 2011, the County adopted Governmental Accounting Standards Board Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. We believe that management has adopted appropriate and reasonable accounting policies and applied them in its financial reporting. A©ity„ 4 independent member of BAKER TILLY INTFRNAT ION AI Required Communications Required Communications Management judgments and accounting estimates. Those charged with governance should be informed about the process used by management in formulating sensitive accounting estimates and about the auditor's conclusions regarding the reasonableness of those estimates. Audit adjustments. All significant financial statement adjustments arising from the audit or proposed during the audit and any uncorrected misstatements that were determined to be immaterial by management individually and in the aggregate should be communicated to those charged with governance. AuItyLLP 5 Application to the County The more difficult and subjective judgments and estimates were: • Allowance for uncollectible receivables. • Depreciation and valuation of capital assets. • Calculation of the other postemployment benefit ( "OPEB ") obligation, claims and judgments liability, and landfill costs payable. Management's estimates were evaluated and appeared to be reasonable. For the primary government's financial statements as of and for the year ended June 30, 2011, there was one adjusting and two reclassification entries. There were also three adjustments and one reclassification entry for the Department of Water Supply's fiscal 2011 financial statements. All proposed adjustments and reclassifications were recorded by management in the audited financial statements. We noted various uncorrected misstatements that were deemed to be immaterial individually and in the aggregate. However, governmental activities entry #3 related to the classification of the OPEB deposit represented 16% of the noncurrent liabilities. The County was notified by the Hawaii Employer -Union Health Benefits Trust Fund ( "EUTF ") in November 2011, that the deposits made by the County do not meet the criteria of contributions and are considered assets to offset the liability. This results in a gross up of the statement of net assets and the EUTF is working to resolve this matter. The County administration believes this misstatement is not material from a qualitative perspective. See entries on pages 11 -13. dependent member of BAKER TTLLY I NT E RN AT I ON Al . Required Communications Required Communications Potential effect on the financial statements of any significant risks and exposures. Those charged with governance should be aware of major risks and exposures facing the organization and how they are disclosed. Material uncertainties related to events and conditions, specifically going concern issues. Any doubt regarding the organization's ability to continue as a going concern and any other material uncertainties should be communicated. Other information in documents containing audited financial information. Those charged with governance should be informed of the auditor's responsibility for information in a document containing audited financial statements, as well as of any procedures performed and the results. Disagreements with management. Disagreements with management, whether or not satisfactorily resolved, about matters that could be significant to the organization's financial statement or the auditor's report should be communicated. ACcu ityLLP 6 Application to the County No major risks and exposures noted other than contingencies and commitments disclosed in the County's financial statements. No issues related to the County's ability to continue as a going concern or other material uncertainties were noted. We will review the County's annual report to ensure there are no material inconsistencies with the audited financial statements. There were no disagreements with management. i,dependent member of BAKER TILLY INTERNATIONAL. Required Communications Required Communications Application to the County Consultation with other accountants. When the auditor is aware that management has consulted with other accountants about significant accounting or auditing matters, the auditor's view about the consultation subject should be communicated to those charged with governance. We know of no such consultations made by management. Major issues discussed with management prior to retention. Any major accounting, auditing or reporting issues discussed with management in connection with our initial or recurring retention should be communicated. There were none. Difficulties encountered in performing the audit. Serious difficulties encountered in dealing with management that related to the performance of the audit are required to be brought to the attention of those charged with governance. There were no serious difficulties encountered in performing the audit. A©ItyLLP 7 Independent rnern0 er 0! BAKER TILLY INTERNATIONAL MO =11 II Required Communications Required Communications Internal control deficiencies. Those charged with governance should be informed of any significant deficiencies or material weaknesses in the design or operation of internal control that came to the auditor's attention during the audit. Fraud and illegal acts. Fraud or illegal acts involving senior management, or those responsible for internal controls, or causing a material misstatement of the financial statements where the auditor determines there is evidence that such fraud may exist should be communicated. Any illegal acts coming to the auditor's attention involving senior management and any other illegal acts, unless clearly inconsequential. Other material written communications. • Summary of uncorrected misstatements. • Management representation letter. • Internal Control and Business Issues Report. • Engagement letter. Application to the County There were no material weaknesses, however, there was one significant deficiency identified during our audit, which is reported in the Single Audit of Federal Financial Assistance Programs Report. We also noted certain matters that we reported to the County Council and management of the County in our Internal Control and Business Issues Report. We are not aware of any fraud or illegal acts. • Disclosed on pages 11 -13. • Management representation letter is available upon request. • Internal Control and Business Issues Report provided to the County Council. • Contract is available upon request. A©ity P 8 odependent member o' BAKER TILLY I NTFRNATIONAI Journal Entries Auity„, an ladependent rnernbel ot BAKER TILLY I NTFRNATIONAL A©ity„, Adjusting Entries dune 30, 2011 General Fund Ad'ustin • Journal Entries JE # 301 To reverse intergovernmental receivables and revenues that were improperly recognized. INTERGOVERNMENTAL RECEIVABLES FROM OTHER GOVERNMENTS Total Department of Water Suppl Ad'ustin • Journal Entries JE # 101 To properly state depreciation expense. RESERVE FOR DEPR DEPRECIATION Total De • artment of Water Su • • I Ad'ustin • Journal Entries JE # 102 To properly state depreciation expense related to Honomu Well. DEPRECIATION RESERVE FOR DEPR Total 4,275,000 4,275,000 262, 808.00 262,808.00 322,245.00 322,245.00 Department of Water Supply Adjusting Journal Entries JE # 103 To properly state CIAC and CIP. CIP 1,583,953.00 CIAC INCOME 1,583,953.00 ELECTRIC PUMP EQUIP POWER & PUMP STRUC DIST RES & STANDPIPES DIST MAINS & ACCESS DEFERRED REVENUES — NONCURRENT Total 3,167,906.00 9 4,275,000 4,275,000 262, 808.00 262,808.00 289,036.00 91, 590.00 745,358.00 457, 969.00 1, 583, 953.00 3,167,906.00 �y independenl member or RAKER TILLY I NT F RN AT ION Al. Reclassification Entries June 30, 2011 Governmental Activities Reclassif in • Journal Entries JE # 107 To properly classify revenues and expenses by function. HEW CAPITAL GRANT - HEW GENERAL GOVERNMENT CAPITAL GRANT - GENERAL GOVERNMENT Total Kulaimano Reclassifyin. Journal Entries JE # 201 To properly classify noncurrent investments at year end. INVESTMENTS — NONCURRENT INVESTMENTS Total Department of Water Suppl Reclassif in. Journal Entries JE # 301 To properly place the Honomu Well in service. ELECTRIC PUMP EQUIP DIST RES & STANDPIPES STRUCTURES & IMPR -RES CIP Total ACcUItyLLP 10 4, 941, 580.00 242,434.00 5,184,014.00 600,332.00 600,332.00 2,165,462.00 1,400, 000.00 250,001.00 3,815,463.00 4, 941, 580.00 242,434.00 5,184,014.00 600, 332.00 600,332.00 3,815,463.00 3,815,463.00 an independent member of RAKER TILLY 1NTFR. NAT10NAL Governmental Activities - Summary of Uncorrected Misstatements Description Total Expenses Statement of Net Assets Current Year Net Assets Current Assets Noncurrent Assets Current Liabilities Noncurrent Liabilities 1 Expenses 115,880 Accounts payable (115,880) (To properly accrue for accounts payable at year end) 2 Buildings and improvements 2,553,319 Construction work in progress (2,553,319) (To properly classify capital assets at year end) 3 Deposit in trust 61,585,777 Other long -term liabilities (61,585,777) (To properly classify OPEB deposits) 4 Revenues 273,665 Receivables (273,665) (To properly recognize revenues and receivables) 5 Construction work in progress 140,897 Accounts payable (140,897) (To properly accrue for accounts payable at year end) 6 Unrestricted net assets 443,531 Restricted net assets (443,531) (To properly classify restricted net assets) Total adjustments 389,545 - (273,665) 61,726,674 (256,777) (61,585,777) Financial statement amounts 345,544,934 (606,436,981) 189,188,007 867,757,216 (82,059,703) (368,448,539) Impact as a percentage of f/s amounts 0.1% 0.0% -0.1% 7.1% 0.3% 16.7% ACcuityLLP 11 wdependerd mere ber of BAKER TILLY INTERNATIONAL. Capital Projects Fund - Summary of Uncorrected Misstatements Description Total Expenditures Balance Sheet Current Year Fund Balance Assets Liabilities 1 Revenues 273,665 Receivables (273,665) (To properly recognize receivables and revenues) 2 Capital Outlay 140,897 Accounts Payable (140,897) (To properly accrue for accounts payable at year end) Total adjustments 414,562 - (273,665) (140,897) Financial statement amounts 98,384,537 (50,016,302) 73,234,161 (23,217,859) Impact as a percentage of f/s amounts 0.4% 0.0% -0.4% 0.6% A©ity«P 12 independent member of BAKER TILLY INTERNATIONAL I I I Other Governmental Funds - Summary of Uncorrected Misstatements Description Total Expenditures Balance Sheet Current Year Fund Balance Assets Liabilities 1 Expenses Accounts payable (To properly accrue accounts payable at year end) 2 Committed Fund Balance Restricted Fund Balance (To properly classify restricted fund balance) Total adjustments 115,880 443,531 (443,531) (115,880) 115,880 - - (115,880) Financial statement amounts Impact as a percentage off /s amounts 88,863,823 0.1% (39,520,077) 0.0% 46,728,598 0.0% (7,208,521) 1.6% ACcuityLLP 13 —45A— au i;dependent member of RAKER TILLY I NTFRNATIONAL 2012 Audit Plan Auity„, -.11V ildepentier■t member 0 BAKER TILLY I NTFRNATIONAL i Audit Plan for June 30, 2012 - Key Audit Areas Audit Area Accounts Receivable, Capital Assets, and Net Assets Long -Term Debt Claims and Judgments and OPEB Audit Procedures Due to adjusted and uncorrected misstatements identified in the June 30, 2011 audit, we will perform specific tests over recording of receivables from other governments and private contributions, classification of capital assets, and classification of net assets. We will review management's assessment of the American Recovery and Reinvestment Act State Revolving Fund loans payable from the State of Hawaii for proper fulfillment of loan conditions and recognition of revenue. Information Technology ( "IT ") We will obtain actuarial reports and evaluate the assumptions used by the actuaries and assess OPEB amount to determine if the County should record any adjustment. As we identified a significant deficiency related to IT during the June 30, 2011 audit, we will review IT policies and procedures and perform tests of controls to assess whether management has implemented appropriate measures to address IT risks. ACCUItYLLP 14 an indeoend ent member of BAKER TILLY INTERNATIONAL Audit Plan for June 30, 2012 - Timeline ACCUitYLLP 15 BAKER TILLY INTERNATIONAI Discussion with management to understand any key risks or areas of focus for current year May 2012 Planning and interim fieldwork June 2012 Year -end financial statement fieldwork September - November 2012 Issue Comprehensive Annual Financial Report December 26, 2012 (November 30, 2012 per contract) Issue Single Audit of Federal Financial Assistance Programs Report December 26, 2012 (December 31, 2012 per contract) ACCUitYLLP 15 BAKER TILLY INTERNATIONAI Acuity11P CERTIFIED PUBLIC ACCOUNTANTS First Hawaiian Center 999 Bishop Street, Suite 1900 • Honolulu, Hawaii 96813 Phone: (808) 531 -3400 • Fax: (808) 531 -3433 www.accuityllp.com © 2012 Accuity LLP. This publication is protected under the copyright laws of the United States and other countries as an unpublished work. All rights reserved.