City of Van Alstyne 2016 Annual Financial Report Presented by: Susan K. LaFollett CPA Managing Partner LaFollett and Abbott PLLC Certified Public Accountants May 9, 2017

Agenda Objectives & Scope of Audit Financial Report Financial Highlights Overview of Audit Results Recommendations Required Governance Communications Letter Closing Remarks

Objectives & Scope of Audit Conduct an audit in accordance with Government Auditing Standards Plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement Full Scope Audit Governmental Activities Business-type Activities Component Units – EDC & CDC Each Major Fund

Financial Report Table of Contents Independent Auditor’s Report (pgs. 1-2) Management’s Discussion and Analysis (pgs. 3-7) Government-Wide Financial Statements (pgs. 8-9) Fund Financial Statements (pgs. 10-16) Notes to Financial Statements (pgs. 17-41) Required Supplemental Information (pgs. 42-44) Independent Auditor’s Report on Internal Controls and Compliance (pgs. 45-49)

Financial Highlights – Government-Wide Statements Full Accrual Basis: Net Position of City is $7,766,719 (pg. 8) at FYE16. Overall, Net Position of the City increased by $1,207,934 (pg. 9) or 16%. Unrestricted Net Position of City is $828,602 (pg. 8) at FYE16. This is an increase of $47,889 from FYE15.

Financial Highlights – Government-Wide Statements This is year two for GASB Standard #68 – Accounting and Financial Reporting for Pensions TMRS has estimated the City’s pension liability to be $700,375 (pg. 8) at FYE16, which is an increase of $176,579 from FYE15. The Schedule of Changes in Net Pension Liability (pg. 44) shows the City’s pension is 82% funded at FYE16.

Financial Highlights – Fund Statements – General Fund General Fund unassigned fund balances (pg. 10): $979,764 at FYE16 $701,868 at FYE15 Increase by $277,896 These funds can be used to meet the City’s ongoing obligations Represents 3.7 months reserves at FYE16 3 to 6 months reserve is optimal The City had 1.82 months reserves at FYE13 Overall, the General Fund had an increase in fund balances of $250,422 (pg. 12) for FYE16

Financial Highlights – Fund Statements – Water & Sewer Water & Sewer Fund unrestricted net position (pg. 14): $(165,668) at FYE16 ($297,279) at FYE15 The reduction of the negative balance in the amount of $131,611 resulted from rate increases There is no reserves at FYE16, which may be used to meet the Fund’s ongoing obligations. 3 to 6 months reserve is optimal Total net position increased by $328,886 (pg. 15) or 7%.

Financial Highlights – Component Units Discretely Presented Component Units (pgs. 8-9): EDC Total Net Position - $675,234 Net Change - increase in Net Position $79,593 CDC Total Net Position - $267,835 Net Change - increase in Net Position $4,486

Overview of Audit Results Independent Auditors Report (pgs. 1-2) Unmodified Audit Opinion (“Clean Opinion”)

Overview of Audit Results 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 (pgs. 45-49) Material Weakness: 2016-002 Accounts Payable Reconciliation – the City did not reconcile the accounts payable detail per the module to the general ledger. As a result, accounts payable and various expenses per the general ledger were overstated by $36,114 in the General Fund and $41,182 in the Water & Sewer Fund A material weakness is a deficiency 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.

Overview of Audit Results 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 (pgs. 45-49) Significant Deficiency: 2016-001 Cash Reconciliations – the City has numerous cash accounts that are reconciled manually. The manual process, along with inadequate review, resulted in errors that were not detected until the audit. Cash was overstated by $38,939 in the Debt Service Fund and understated by $13,014 in the General Fund A significant deficiency is a deficiency in internal control that is less severe that a material weakness, yet important enough to merit attention by those charged with governance.

Recommendations Adopt budgets for the Water & Sewer Fund to increase overall net position and the unrestricted net position to an optimal amount of 3–6 months of operating expenses. Capitalize all governmental fixed asset purchases greater than $5,000 and utilize the capital outlay accounts to record these purchases. Reconcile ambulance revenue per the general ledger to cash receipts per the third party billing company reports on a monthly basis. Reconcile court revenue per the general ledger to the court receipts detail per the court system reports on a monthly basis. Continue to work closely with the City consultant to refine year-end closing procedures to ensure that all routine closing adjustments are posted before the audit.

Recommendations CDC EDC Closely monitor cash balances and the risk of uninsured cash. EDC Continue to refine year-end closing procedures to ensure that all routine closing adjustments are correctly posted.

Required Governance Communications Letter Miscellaneous matters discussed in this letter: Qualitative Aspects of Accounting Practices – Sensitive estimates – allowance for uncollectible municipal court fines and ambulance services Significant disclosures – long-term debt Difficulties encountered in performing the audit – none Corrected and uncorrected misstatements - All recommended adjustments were accepted by the City – see list at Schedule A Various immaterial uncorrected adjustments were noted – see list at Schedule B Disagreements with management – none

Closing Remarks We would like to thank: Frank Baker - City Manager Jennifer Gould - City Clerk EDC/CDC - Kanita Larkins & Doti Izzi These individuals were very responsive to our audit requests and a pleasure to work with on this engagement. Questions or Comments?