City of Van Alstyne 2017 Annual Financial Report Presented by: Susan K. LaFollett CPA Managing Partner LaFollett and Abbott PLLC Certified Public Accountants May 8, 2018

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 $12,591,203 (pg. 8) at FY17. Overall, net position of the City increased by $4,824,484 (pg. 9) or 62%. $3,516,281 of the increase is due to capital contributions. Unrestricted net position of the City is $786,848 (pg. 8) at FY17. This is a decrease of $41,754 from FY16.

Financial Highlights – Government-Wide Statements This is year 3 for GASB Standard #68 – Accounting and Financial Reporting for Pensions TMRS has estimated the City’s pension liability to be $737,568 (pg. 8) at FY17, which is an increase of $37,193 from FY16. The Schedule of Changes in Net Pension Liability (pg. 44) shows the City’s pension is 83% funded at FY17.

Financial Highlights – Fund Statements – General Fund General Fund unassigned fund balances (pg. 10): $1,190,217 at FY17 $979,764 at FY16 Increase of $210,453 These funds can be used to meet the City’s ongoing obligations Balances represents 3.6 months reserves at FY17. 3 to 6 months reserves are optimal.

Financial Highlights – Fund Statements – Water & Sewer Water & Sewer Fund unrestricted net position (pg. 14): $(176,391) at FY17 $(165,668) at FY16 There is no reserves at FY17, which may be used to meet the Fund’s ongoing obligations. 3 to 6 months reserves are optimal. Total net position increased by $2,066,043 (pg. 15) or 41%. Increase is due mostly to capital contributions of $1,629,009. Total net position is invested in capital assets or restricted by GTUA, with negative unrestricted amounts.

Financial Highlights – Component Units Discretely Presented Component Units (pgs. 8-9): EDC Total net position - $685,688 Increase in net position $10,454 CDC Total net position - $319,693 Increase in net position $47,902

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): FY16 Material Weakness - Corrected in FY17: 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.

Overview of Audit Results FY17 Significant Deficiencies: 2017-001 Cash Reconciliations – cash reconciliations are performed by a clerk with check writing authority and are not reviewed by a supervisor. 2017-002 Review of Key Cash Receipts & Disbursement Procedures – a review and approval of daily cash drawer counts and reconciliations, bank deposit slip packages, check registers, payroll, and accounts payable are not performed.

Recommendations The city manager should utilize a log in to the financial software to review and approve key financial data. Create and implement written cash handling policies. Implement written inventory policies and procedures to manage and record inventory. Capitalize all fixed asset purchases greater than $5,000 and record the amounts in the capital outlay accounts. For construction in progress, maintain a detail of each project by invoice, record the amounts in construction in progress in fund 98, and on the depreciation schedule. Implement a Check Request Form or Approval Stamp to document approval on paid invoices for routine monthly payments.

Recommendations For electronic payments, add a level of telephone or electronic approval at the bank. Such as payments over $5,000 must be approved by city clerk and payments over $10,000 must be approved by city manager before the bank will process the electronic payment. Create and implement written credit card policies, including appropriate approvals, to govern the credit card purchasing process. Consider establishing a special revenue fund to account for the street project funds generated by sales tax revenues. Record all invoices in to the accounts payable module based on the date the goods or services were received and not the invoice date. Consider closing fund 80 for the S&N Project, as this project has ended.

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. Monitor the budget to actual results to ensure that expenditures do not exceed appropriations. Amend the budget, as necessary. 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. FY16 – Corrected in FY17 Ambulance revenue budgets are more realistic in FY17 and variances between the ambulance revenue per the general ledger and cash receipts per the third party billing company reports were most likely due to timing differences and immaterial. Court revenue per the general ledger and court receipts detail was reconciled within an immaterial variance.

Recommendations CDC EDC Closely monitor cash balances and the risk of uninsured cash. Provide additional training for the CDC staff who are responsible for maintaining the QuickBooks file and supervising the month end and year end closing process. EDC Do not back date checks in QuickBooks but instead utilize the accounts payable function to record amounts paid after year end to the prior year. Provide additional training for the EDC staff who are responsible for maintaining the QuickBooks file and supervising the month end and year end closing process.

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: City Clerk -Jennifer Gould Interim City Manager - Lane Jones CDC/EDC Directors – Rodney Williams & Jodi Carr These individuals were very responsive to our audit requests and a pleasure to work with on this engagement. Questions or Comments?