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R9C-Committee Of The Whole- Discuss The Audit CommitteeMIAMI BEACH City of Miami Beach, 1700 Convention Center Drive, Miami Beach, Florida 33139, www.miamibeachA.gov COMMITTEE OF THE WHOLE MEMORANDUM TO: FROM: DATE: Mayor Matti Herrera Bower and Members of the City Commission Jorge M. Gonzalez, City Manager r6' January 11, 2012 ~ SUBJECT: COMMITTEE OF THE WHOLE-AUDIT COMMITTEE BACKGROUND The "Committee Of The Whole" serves as the City's audit committee to review the following items: • The External Auditors' reports. • Internal Audit's annual risk areas I plan. • Annual Review of Internal Audit findings and status. Typically, the Committee reviews the status of the City's audits in the spring; however since the external auditor reports are not usually finalized until July, these reports are typically discussed around this time along with a discussion of the City's Internal Audit's annual risk areas I plan. 1. External Auditor's Reports for FY 2009/10 (Previously distributed via LTC on July 22, 2011) The City's External Auditors are responsible for issuing an opinion after conducting an audit of the City's financial statements in accordance with Generally Accepted Auditing Standards and the standards applicable to financial audits contained in the Governmental Auditing Standards. The City contracts an external independent audit firm of licensed certified public accountants to prepare and issue an auditor's opinion after conducting an audit of the City Comprehensive Annual Financial Report (CAFR) in accordance with Generally Accepted Auditing Standards and the standards applicable to financial audits contained in the Governmental Auditing Standards, issue by the Comptroller General of the United States. The current firm under contract is McGiadrey & Pullen, LLP. The audit is conducted and an opinion expressed on the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining funds information of the City except for the retirement and pension funds which are audited by other auditors. Florida State Statues requires this annual audit. The external auditors also perform a Single Audit separate from the CAFR audit to satisfy the audit requirements imposed by the Single Audit Act and the U.S. Office of Management and Budget (OMB) Circular A-133 and the Florida Single Audit Act in accordance with and Florida Rules of the Auditor General, Section 10.550. The external auditors issue a separate management letter which addresses any recommendations to improve financial management, accounting procedures, and internal Agenda Item R q C. 359 Date {-l/-I'L control. Their report on internal controls included any reportable condition and material weaknesses in the system of which they became aware as a result of obtaining an understanding of the City's internal controls and performance of tests of internal controls. The report of compliance addresses any material errors, fraud, violation of compliance requirement and other responsibility imposed by state and federal statutes and regulations which they may be aware. For the past several years, the external auditor's management letters contained no reportable conditions and/or material weakness only minor recommendations to improve financial management, accounting procedures and internal controls. Further, the external auditors issue separate opinions on the Miami Beach Redevelopment Agency, (RDA), the Parking Service Fund, the Miami Beach Convention Center and Jackie Gleason Theater, the Visitor and Convention Authority (VCA), City of Miami Beach Safe Neighborhood Parks Bonds Projects, the City of Miami Beach Building Bond Communities Bond Projects, and the City's Children Trust Fund. Annually, a Letter to Commission is sent to satisfy the auditors' required communication with management. Information forwarded with this letter included their Management Letter, the Single Audit Report, the City's Comprehensive Annual Financial Report and the auditors required communication with management. Attached as Exhibit 1 is LTC 187-2011 dated July 22, 2011 containing the required reports for communication with the City Commission. 2. Internal Auditor's Reports The City's Internal Audit Division, a component of the Office of Budget and Performance Improvement, is responsible for ensuring: • Compliance with Resort Tax Ordinances by auditing Miami Beach businesses; • Compliance with City policies and procedures and financial integrity and sufficiency of internal controls by Departments and Not-for-Profits; • Supporting and special projects assisting other City areas; and • Integrity of performance measures reported Citywide. The Division is comprised of nine full time staff including four auditors, four field agents and one office associate. Three field agents are responsible for auditing business required to file resort taxes and one is responsible for sanitation audits of franchise haulers and roll-off operators and administrative functions of the City's Cleanliness Assessment program. Additionally, resources are shared between resort tax and internal audit functions for the Internal Auditor, Assistant Internal Auditor, and the office associate. Resort Tax Audits The majority of resources in the Division are dedicated to auditing the Miami Beach businesses required to report and remit resort taxes. This effort is supported by approximately half of the positions in the Division as well as by outside contract auditors. Resort tax generated for the fiscal year 2010/11 was $49,011,381. Scheduled audits are based upon the type of business, actual resort tax receipts received, and the frequency of the last audit. There are approximately 1,802 businesses registered to collect resort taxes. Our goal is to audit the 733 businesses consisting of hotels, restaurants, nightclubs, and bars at least once every 4 years, approximately 183 per year. New accounts are to be audited soon after they are opened. The remaining 1 ,069 accounts representing apartments having less risk are audited much less frequently. In fiscal year 2010/11 the Division completed 205 resort tax audits (82% of our total goal) of which 120 were hotels, restaurants, nightclubs, and bars. The 205 audits resulted in 2 360 additional tax assessments of $411 ,438. This represented 2.54% of the total resort tax reported for these 205 entities over the multi-tax year audited and approximately 0.84% of the total resort tax generated for fiscal year 2010/11. More importantly, the audits serve as a deterrent to ensure compliance with the City's resort tax ordinances. Internal Audits Scheduled audits are those areas targeted by the Internal Audit Division based on a risk assessment approach. Audits are classified as to high, medium or low risk. Higher assigned risk areas are subject to more frequent audits, and lower risk areas are often less frequent. The Parking Department is considered particularly high risk due to the considerable revenues received and the manner of collection and therefore has resources dedicated for ongoing audits. The review of waste franchise contractors and roll-off haulers for compliance with the City's sanitation ordinance also has been made a priority over the past several years. In addition, inputs for audits in other Departments are obtained from Directors and the City Manager. In general, our internal audit goals are as follows: • Audit 90% of the high risk areas approximately once every five years • Audit 75% of the medium risk areas approximately once every seven years • Audit 60% of the low risk areas approximately once every ten years. However, special circumstances are taken into account which may lengthen or shorten the period. In addition unplanned projects may impact the schedule in any given year. Annually required audits include those mandated by City Code and State Agreements, as well as providing assistance to the City's external auditors. At previous Finance and City Wide Projects Committee meetings, the Committee recommended that the administration present a report annually on the status of Department and Not-For-Profit Internal Audits within the City. Attached is our Status of Audit Areas through Fiscal Year 2010/11 (Exhibit 2). Audits completed in 2011 are shown in bold. Overall, twenty-five Department and Not-For-Profit audit areas were completed during fiscal year 2010/11. The represents 89.2% completed out of twenty-eight audit areas initially targeted for the year. Out of the audit areas completed, one audit was added during the year. The remaining four audits were carried forwarded to next fiscal year. This was accomplished by a staff of five, including 4 continuous monitoring audits in parking and sanitation by two of the staff. Attached is Summary of Internal Audit Activities (Exhibit 3) for the past fiscal year. The Finance and Citywide Projects Committee suggested that Committee members have the opportunity to review the Internal Audit Reports on-line. Reports are listed on-line on the City's website at http://web.miamibeachfl.gov/obpi/scroll.aspx?id=36612. Fiscal Year 2011/12 Risk Assessment Areas /Audit Plan Areas highlighted on the Status of Audit Areas report represent those areas considered for audits based upon the projected frequency. These highlighted areas are a primary source in developing the annual audit plan. However, the comments provided also indicate reasons why areas may not be audited within the projected frequency. The Division continues to take on more supporting projects and other activities relating to OBPI objectives. These areas include coordinating a revision of City-wide policies and procedures for posting to intranet and developing a coordinated approach for contract management reviews for all citywide contracts. JMG:KGB:JJS F:\OBPI\$AUD\INTERNAL AUDIT FILES\DOC11-12\AUD COM\Discussion of Audits Comm of the Whole 1-11-12.doc 3 361 Exhibit 1 -LTC 187-2011 362 MIAMI BEACH OFFICE OF THE CITY MANAGER NO LTC# 187-2011 TO COMMISSION TO: Mayor Matti Herrera Bower and Members of the City Commission FROM: DATE· SUBJECT: External Auditor's (McGiadrey & Pulen} Audit Report on the City of Miami Beach (the City) for the period ended :se1tne1mD1er 30, 2010 Attached for your information is the external auditor's on the City for the fiscal year ended September 30, 2010. This package includes the following: A. The Report to the Mayor and Members of the City ~nnuni•C!coi,,.... discussing the Auditor's required communications to the Mayor and City summary of recorded audit adjustments, accounting estimates and, recently governmental accounting standards. The Report also includes the following: • Exhibit A ~ Certain written communications hl'>tw,.,~n management and the Auditors - Representation letter; • Exhibit 8 -McGiadrey & Pullen's lndten,~ncJtant auditor's report on compliance with requirements applicable to each major federal and state project and on internal controls over compliance in accordance with Circular A ... 133 and Chapter 10.550, Rules of the Auditor General of the State of and Schedule of Expenditures on Federal Awards and State Financial and • Exhibit 8-McGiadrey & Pullen's management Auditor General of the State of Florida, to Commission. , in accordance with the Rules of the Mayor and Members of the City B. The City's Comprehensive Annual Financial Rl'>r'\t1lrt (CAFR) for the fiscal year ended September 30, 2010. If you have any questions or need additional information pte1~se contact Patricia Walker at 305-673- 7574 JMwr McGiadrey The City of Miami Beach MtG!i'ldr-ey & Pullen, U.P Certif1ed Public Accauntant'ft Report to the Honorable Mayor and the Members of the City Commission September 30, 2010 MrGia<lwy I• Ill< bt>>'<l urnl~< w~nl> RSM MtG!.,tlMy,ln,. ond ll<kGkdr<')l & P•ll~<>. UP'"'"" (i!t'nt>'l>\.t<.IM~' n«>th. Tht twQ (!rm-. op~f~'lr~ ~& i~pgtat-e I(><(J<l~ u-ntithtlS ao .tn .:&it~rthl-t~~ pr~"',tk:it 'Hructuw, 364 ~mt"Wt nfRSM~nt~trt~ticr..al nNWM>...~ nt:-twor!-1. of tnd~nt~<!'~H ,\f!o;_mttn'}. t..1:t anti t:on;~.dtmg fmm.. lad The City of Miami Beach, Florida 1700 Convention Center Drive Miami Beach, Florida 33139 Attention: The Honorable Mayor and Members of the City Commission IVh:G!adrey & Pullen, i.i.P Certihe-d P'ublu: Auountant~ We are pleased to present this report related to our audit of the financial statements of The City of Miami Beach, Florida (the City} for the year ended September 30, 2010. In addition to our report on your financial statements which was modified to refer to the use of other auditors related to the City of Miami Beach Florida Employees' Retirement Plan, the City of Miami Beach Florida Pension Fund for Firefighters and Police Officers, the Firemen's Relief and Pension Fund, and the Policemen's Relief and Pension Fund (collectively, the Plans), the Visitor and Convention Authority and the Miami Beach Convention Center as managed by Global Spectrum, we have provided, under separate cover, a letter, dated March 30, 2011, concerning whether there were any significant deficiencies and material weaknesses in internal control that we noted during our audit of the City of Miami Beach, Florida's (the "City") basic financial statements for the year ended September 30, 2010. This report summarizes certain matters required by professional standards to be communicated to you in your oversight responsibility for the City's financial reporting process. Also included is a summary of recently issued accounting standards that may affect future financial reporting by the City. This report is intended solely for the information and use of the Mayor and Members of the City Commission and management and is not intended to be and should not be used by anyone other than these specified parties. It will be our pleasure to respond to any questions you have regarding this report. We appreciate the opportunity to continue to be of service to the City. Miami, Florida March 30, 2011 McG!~r~y i~ the-twmrl tmdQ-r whkh .HSM Mt.<d..'l.dt<Jy. toe M<d !th.Gbduw & Pt<ll~1n. UP w~\!~l r.n~~nH-'bu\hh"?'§~ ~:.h. {h~,. tw~ fnra;~ QPf..'t;,h• ,a, ~~p-.u.u.H~ h:Q>Jt .ttr.t~tii?fl in J:~ .l!te-~n~tive-pt~'H,~!r.~ 'l:in~s:H.l!1t'. 365 M&mh<~f ui RSMtrnrun:.lttt.tn~li nHwark, .a rum•:ar~ cf itH.h.,..._..H:·ndet\t il:{C~unttnq. ~~~ <.lnd o:.onfluhi~q: f~m:~.. Contents Required Communications Summary of Accounting Estimates Recently Issued Accounting Standards Exhibit A-Certain Written Communications Between Management and Our Firm Representation Letter Exhibit B-Single Audit Reports in Accordance with OMS-Circular A-133 and the Florida Single Audit Act and Management Letter in Accordance with the Rules of the Auditor General of the State of Florida 366 1-2 3-4 5 Required Communications Statement on Auditing Standards No. 114 requires the auditor to communicate certain matters to keep those charged with governance adequately informed about matters related to the financial statement audit that are, in our professional judgment, significant and relevant to the responsibilities of those charged with governance in overseeing the financial reporting process. The following summarizes these communications. Area Auditor's Responsibility Under Professional Standards Accounting Practices Comments Our responsibility under auditing standards generally accepted in the United States of America Government Auditing standards issued by the Comptroller General of the United States; the provisions of the Single Audit Act; OMB Circular A-133; OMB's Compliance Supplement; has been described to you in our arrangement letter dated October 26, 2006. Adoption of, or Change in, Accounting Policies • GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets. This Statement provides guidance regarding how to identify, account for and report intangible assets. The new standard characterizes an intangible asset as an asset that lacks physical substance, is nonfinancial in nature and has an initial useful life extending beyond a single reporting period. • Statement No. 53, Accounting and Financial Reporting for Derivative Instrument. This statement improves financial reporting by requiring governments to measure derivative instruments at fair value in their economic resources measurement focus financial statements. The changes in fair value of hedging derivative instruments do not affect investment revenue but are reported as deferrals. On the other hand, the changes in fair value of investment derivative instruments (which include ineffective hedging derivative instruments) are reported as part of investment revenue in the current reporting period. Significant or Unusual Transactions We did not identify any significant or unusual transactions or significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Page 1 367 Area Management's Judgments and Accounting Estimates Financial Statement Disclosures Audit Adjustments Uncorrected Misstatements Disagreements with Management Consultations with Other Accountants Significant Issues Discussed with Management Difficulties Encountered in Performing the Audit Certain Written Communications Between Management and Our Firm Comments Alternative Treatments Discussed with Management We did not discuss with management any alternative treatments within generally accepted accounting principles for accounting policies and practices related to material items during the current audit period. Summary information about the process used by management in formulating particularly sensitive accounting estimates and about our conclusions regarding the reasonableness of those estimates is in the attached "Summary of Accounting Estimates." In our meeting with you we will discuss with you the following items as they relate to the neutrality, consistency and clarity of the disclosures in the financial statements: • Adoption of accounting standards • Results of the Single Audit There were no audit adjustments. There are no uncorrected misstatements. We encountered no disagreements with management over the application of significant accounting principles, the basis for managemenfs judgments on any significant matters, the scope of the audit, or significant disclosures to be included in the financial statements. We are not aware of consultations management had with other accountants about accounting or auditing matters. No significant issues arising from the audit were discussed or were the subject of correspondence with management. We did not encounter any difficuHies in dealing with management during the audit. Copies of certain written communications between our firm and the management of the City are attached as Exhibit A. Page2 368 The City of Miami Beach Summary of Accounting Estimates Year Ended September 30, 2010 Accounting estimates are an integral part of the preparation of financial statements and are based upon management's current judgment. The process used by management encompasses their knowledge and experience about past and current events and certain assumptions about future events. You may wish to monitor throughout the year the process used to compute and record these accounting estimates. The following describes the significant accounting estimates reflected in the City's September 30, 2010 financial statements: Area Accounting Polley Estimation Process Comments Depreciation of Depreciation on capital Capital assets are We have audited the Capital Asset assets is provided recorded at historical underlying data supporting using the straight-line cost or estimated the estimate and believe method. Leasehold historical cost and the resulting estimate to improvements are depreciated using the be reasonable. amortized on a straight-line method straight-line basis over over the estimated the shorter of the lease useful lives of the term or estimated related assets. useful life of the assets. Allowance for All trade and other Receivables are We have audited the Doubtful Accounts receivables are analyzed for their underlying data supporting reported at net collectability based on the estimate and believe realizable value. the creditors' ability to the resulting estimate to pay (i.e. financial be reasonable. condition, credit history, and current economic conditions). Other post· The net OPEB The City has informed We have audited the employment benefit obligation/( asset) us they used all the underlying data supporting reported for the relevant facts available the estimate and believe difference between the to them at the time to the resulting estimate to annual required determine the be reasonable. contribution and the assumptions used by actual contributions the actuary in made by the City. calculating the City's Annual Required Contribution and have approved the results of the actuarial determination. Page3 369 The City of Miami Beach Summary of Accounting Estimates Year Ended September 30, 2010 Rls k Management Pension Plans The City is partially self-insured for general and auto liability, property, workers' compensation, and employees' health and dental. The accrued liability for estimated claims represents an estimate of the eventual loss on claims including claims incurred but not yet reported. A net pension obligation/(asset) is reported for the difference between the annual required contribution and the actual contributions made by the City. 370 Management with input from its Risk actuary developed the actuarial assumptions based on relevant criteria. Management reviewed and approved the financial statement estimates derived from the Risk actuarial report. The City has informed us that they used all the relevant facts available to determine the assumptions used by the actuary in calculating the City's Annual Required Contribution and have approved the results of the actuarial determination. We have audited the underlying data supporting the estimate and believe the resulting estimate to be reasonable. We have audited the underlying data supporting the estimate and believe the resulting estimate to be reasonable. Page4 City of Miami Beach Recently Issued Accounting Standards Year Ended September 30, 2010 GASB Statement No. 59, Financial Instruments Omnibus GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements GASB Statement No. 61, The Financial Reporting Entity: Omnibus-an amendment of GASB Statements No. 14 and No. 34 This Statement, issued June 2010, will be effective for the City beginning with its year ending 2011 (effective for periods beginning after June, 15, 201 0) The objective of this Statement is to update and improve existing standards regarding financial reporting and disclosure requirements of certain financial instruments and external investment pools for which significant issues have been identified in practice. The Statement, issued November 2010, will be effective for the City beginning with its year ending 2013 {effective for periods beginning after December 15, 2011.)The objective of this Statement is to improve financial reporting by addressing issues related to service concession arrangements (SCAs), which are a type of public-private or public-public partnership. The Statement, issued November 2010, will be effective for the City beginning with its year ending 2013 (effective for periods beginning after June 15, 2012.} The objective of this Statement is to modify certain requirements for inclusion of component units in the financial reporting entity. This Statement also amends the criteria for reporting component units as if they were part of the primary government (that is, blending) in certain circumstances. This Statement also clarifies the reporting of equity interests in legally separate organizations. It requires a primary government to report its equity interest in a component unit as an asset. GASB Statement No. 62, Codification This Statement, issued December 2010, will be effective for the of Accounting and Financial City beginning with its fiscal year ending September 30, 2013. Reporting Guidance Contained In Pre-The objective of this Statement is to incorporate into the November 30, 1989 FASB and A/CPA GASB's authoritative literature certain accounting and financial Pronouncements reporting guidance that is included in the following pronouncements issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncements: (1) Financial Accounting Standards Board (FASB) Statements and Interpretations; (2) Accounting Principles Board Opinions; and (3) Accounting Research Bulletins of the American Institute of Certified Public Accountants' (AICPA) Committee on Accounting Procedure. PageS 371 Exhibit A-Certain Written Communications Between Management and Our Firm 372 tt::. i\ /\' ! /\ = :' •! \ -=- City of Miami Beach, 1700 Convention Cenler Drive, Miami Beach, Florida 33 139, www.micmibeochll.gov FINANCE DEPARTMENT Tel: 305-673-7466, Fox: 305-673-7795 March 30, 2011 McGiadrey & Pullen, LLP 801 Brickell Avenue, suite 1050 Miami, Fl 33131 In connection with your audit of the basic financial statements of the City of Miami Beach, Florida, (the "City") as of and for the year ended September 30, 2010 we confirm that we are responsible for the fair presentation in the financial statements of financial position, changes in financial position, and cash flows in conformity with accounting principles generally accepted in the United States of America. We confirm to the best of our knowledge and belief, as of March 30, 2011 the following representations made to you during your audit. 1. The financial statements referred to above are fairly presented in conformity with accounting principles generally accepted in the United States of America. 2. We have identified for you all organizations that are part of this reporting entity or with which we have a relationship, as these organizations are defined in Section 2100 of the Governmental Accounting Standards Board Codification of Governmental Accounting and Financial Reporting Standards that are Component units. The City's Blended Component Units and two Discrete Component Units are properly presented in the financial statements. 3. We are not a component unit of any other government, as this term is defined in Section 2100 of the Governmental Accounting Standards Board's Codification of Governmentat , Accounting and Financial Reporting Standards. 4. We do not meet the definition of an other organization, as defined in Section 2100 of the Governmental Accounting Standards Board's Codification of Governmental Accounting and Financial Reporting Standards. 5. We do not have a joint venture relationship with any other organization, as defined in Section 2100 of the Governmental Accounting Standards Board's Codification of Governmental Accounting and Financial Reporting Standards. 6. We are not a jointly governed organization, as this term is defined in Section 2100 of the Governmental Accounting Standards Board's Codification of Governmental Accounting and Financial Reporting Standards. 7. We have identified for you all of our funds, governmental functions, and identifiable business-type activities. 8. We have properly classified all funds and activities. 373 9. We have properly determined and reported the major governmental and enterprise funds based on the required quantitative criteria. 1 0. We are responsible for compliance with laws and regulations applicable to the City including adopting, approving, and amending budgets. 11. We have identified and disclosed to you all laws and regulations that have a direct and material effect on the determination of financial statement amounts including legal and contractual provisions for reporting specific activities in separate funds. 12. We have made available to you: a. All financial records and related data of all funds and activities, including those of all special funds, programs, departments, projects, activities, etc., in existence at any time during the period covered by your audit. b. All minutes of the meetings of the governing board and committees of board members or summaries of actions of recent meetings for which minutes have not yet been prepared. c. All communications from grantors, lenders, other funding sources or regulatory agencies concerning noncompliance with: (1} Statutory, regulatory or contractual provisions or requirements. (2} Financial reporting practices that could have a material effect on the financial statements. 13. We have no knowledge of fraud or suspected fraud affecting the entity involving: a. Management or employees who have significant roles in the internal control. b. Others where the fraud could have a material effect on the financial statements. 14. We have not received any communications from employees, former employees, regulators, vendors or others of any allegations of fraud or suspected fraud affecting the City. 15. We acknowledge our responsibility for the design and implementation of programs and controls to provide reasonable assurance that fraud is prevented and detected. 16. We are aware of no significant deficiencies, including material weaknesses, in the design or operation of internal controls that could adversely affect the entity's ability to record, process, summarize, and report financial data, except as reported in your compliance and internal control letters. 17. There have been no communications from regulatory agencies concerning noncompliance with, or deficiencies in, financial reporting practices. 18. We have no plans or intentions to engage in any activity that may materially affect the carrying value or classification of assets and liabilities. 19. The following have been properly recorded and/or disclosed in the financial statements, where applicable: a. Related party transactions, including those as defined in Section 2100 of the Governmental Accounting Standards Board's Codification of Governmental Accounting and Financial Reporting Standards, and interfund transactions, including interfund accounts and advances receivable and payable, sale and purchase transactions, interfund transfers, long-term loans, leasing arrangements and 374 guarantees, all of which have been recorded in accordance with the economic substance of the transaction and appropriately classified and reported. b. Security agreements in effect under the Uniform Commercial Code. c. Any other liens or encumbrances on assets or revenues or any assets or revenues which were pledged as collateral for any liability or which were subordinated in any way. d. The fair value of investments. e. Amounts of contractual obligations for construction and purchase of real property or equipment not included in the liabilities or encumbrances recorded on the books. f. Any liabilities which are subordinated in any way to any other actual or possible liabilities. g. Debt issue provisions and bond refunding amounts. h. All leases and material amounts of rental obligations under long"term leases. i. All significant estimates known to management which are required to be disclosed in accordance with the AICPA's Statement of Position 94-6, Disclosure of Certain Significant Risks and Uncertainties. Significant estimates are estimates at the balance sheet date which could change materially within the next year. j. Risk financing activities. k. Deposits and investment securities categories of risk. I. Pollution remediation obligations as required under GASB Statement No. 49. m. Defined benefit plans and other post employment benefit plans. n. Line of credit or similar arrangements. o. Authorized but unissued bonds and/or notes. p. We have adopted the following GASB Statements: GASB Statement No. 51, "Accounting and Financial Reporting for Intangible Assets," and It is management's decision not to disclose the following GASB Statements which have been issued, but not yet adopted, due to the fact that these statements will not have a material effect on the financial statements of the City until upcoming fiscal years: GASB Statement No. 59, Financial Instruments Omnibus -GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements GASB Statement No. 61, The Financial Reporting Entity: Omnibus GASB Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre"November 30, 1989 FASB and A/CPA Pronouncements 20. We are responsible for making the accounting estimates included in the financial statements. Those estimates reflect our judgment based on our knowledge and experience about past and current events and our assumptions about conditions we expect to exist and courses of action we expect to take. In that regard, adequate provisions have been made: 375 a. To reduce receivables to their estimated net collectable amounts. b. For risk retention, including uninsured losses or loss retentions (deductibles) attributable to events occurring through September 30, 2010 and/or for expected retroactive insurance premium adjustments applicable to periods through September 30,2010. c. For pension obligations, post-retirement benefits other than pensions and deferred compensation agreements attributable to employee services rendered through September 30, 2010. No provision is required: a. To reduce obsolete, damaged, or excess inventories to their estimated net realizable values. b. To reduce investments, intangibles, and other assets which have permanently declined in value to their realizable values. 21. There are no: a. Material transactions that have not been properly recorded in the accounting records underlying the financial statements. For purposes of this representation, we consider items to be material, regardless of their size if they involve the misstatement or omission of accounting information that in light of surrounding circumstances makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement. b. Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency. In that regard, we specifically represent that we have not been designated as, or alleged to be, a "potentially responsible party" by the Federal Environmental Protection Agency or any equivalent state agencies in connection with any environmental contamination. c. Other material liabilities or gain or loss contingencies that are required to be accrued or disclosed by Statement of Financial Accounting Standards No. 5 and/or GASB Statement No. 10. d. Guarantees, whether written or oral, under which the Government is contingently liable. e. Arrangements with financial institutions involving compensating balances or other arrangements involving restrictions on cash balances. f. Agreements to repurchase assets previously sold. g. Debt issue repurchase options or agreements, or sinking fund debt repurchase ordinance requirements. h. Special and extraordinary items. i. Impairment of capital assets. j. Material losses to be sustained in the fulfillment of, or from the inability to fulfill, any service commitments. k. Material losses to be sustained as a result of purchase commitments. I. Arbitrage liabilities. 376 m. Derivative financial instruments. n. Mater:ial environm&r.:Jtal cl8aR up oblisatiene. nv/ 22. In connection with your audit, conducted in accordance with Government Auditing Standards, we confirm: a. We are responsible for: i. Compliance with the laws, regulations, and provisions of contracts and grant agreements applicable to the City. ii. Establishing and maintaining effective internal control over financial reporting. b. We have identified and disclosed to you: I. All laws, regulations, and provisions of contracts and grant agreements that have a direct and material effect on the determinations of financial statement amounts or other financial data significant to audit objectives. ii. Violations (and possible violations) of laws, regulations, and provisions of contracts and grant agreements whose effects should be considered for disclosure in the auditor repository or noncompliance. c. We have no violations of provisions of contracts or grant agreements that have been reported. d. We have a process to track the status of audit findings and recommendations. e. We have identified for you previous financial audits, performance audits, or other studies related to the objectives of the audit being undertaken and the corrective action taken to address significant findings and recommendations. 23. We have no direct or indirect, legal or moral, obligation for any debt of any organization, public or private or to special assessment bond holders that is not disclosed in the financial statement. 24. We have satisfactory title to aU owned assets. 25. We have complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance. 26. Net asset components {invested in capital assets, net of related debt; restricted included and not limited to excess building permit fees; and unrestricted} are properly classified and, if applicable, approved. 27. GASB 54 establishes fund balance classifications (nonspendable, restricted, committed, assigned and unassigned) that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources reported in governmental funds. Fund balance for governmental funds in each of the aforementioned categories is properly classified and disclosed in accordance with GASB 54 and if applicable, approved. 28. Expenses have been appropriately classified in or allocated to functions and programs in the statement of activities, and allocations have been made on a reasonable basis. 29. Revenues are appropriately classified in the statement of activities within program revenues and general revenues. 377 30. Capital assets, including infrastructure assets, are properly capitalized, reported, and depreciated. 31. Required supplementary information is properly measured and presented. 32. There are no unasserted claims or assessments that our lawyers have advised us are probable of assertion and must be disclosed in accordance with Statement of Financial Accounting Standards No. 5 and/or GASB Statement No. 10. 33. We are responsible for and have reviewed and approved the proposed adjustments to the trial balances identified during the audit and will post all adjustments accordingly. 34. The City has complied with the provisions of Section 218.415, Florida Statutes regarding the investment of public funds. 35. The City is not in a state of emergency based upon the conditions described in Section 218.503(1}, Florida Statutes. 36. Management has assessed the financial condition of the City and noted no deteriorating financial condition. Except for the issuance of Parking revenue refunding bonds on November 16, 2010, and the authorization of a line of credit not to exceed an aggregate principle amount of $30 million on January 19, 2011, there are no events or transactions that have occurred subsequent to the balance sheet date and through the date of this letter that would require adjustment to, or disclosure in, the financial statements. During the course of your audit, you may have accumulated records containing data which should be reflected in our books and records. All such data have been so reflected. Accordingly, copies of such records in your possession are no longer needed by us. The City of Miami Beach, Florida Patricia D. Walker Chief Financial Officer 378 (9 MIAMI BEACH City of Miami Beach, 1700 Convenlion Center Drive, Miami Beoch, Florido 33139, www.miomibeochll.gov FINANCE DEPARTMENT Tel: 305-673·7000 Fox: 305.673.7795 June 24, 2011 McGiadrey & Pullen, LLP 801 Brickell Avenue, suite 1050 Miami, Fl 33131 In connection with your audit of federal awards and state projects as of and for the year ended September 30, 2010 conducted in accordance with OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and Chapter 10.550, Rules of the Auditor General, we confirm: 1. a. We are responsible for complying, and have complied in all material respects with the requirements of Circular A-133 and Chapter 10.550, Rules of the Auditor General. b. We have prepared the schedule of expenditures of federal awards and state projects in accordance with Circular A-133 and Chapter 10.550, Rules of the Auditor General and have Included expenditures made during the period being audited for all awards provided by federal agencies in the form of grants, federal cost·reimbursement contracts, loans, loan guarantees, property (including donated surplus property, cooperative agreements, interest subsidies, insurance, food commodities, direct appropriations, and other assistance. c. We are responsible for establishing and maintaining, and have established and maintained, effective internal control over compliance for federal programs and state projects that provides reasonable assurance that the City is managing federal awards and state projects in compliance with laws, regulations, and the provisions of contracts or grant agreements that could have a material effect on our federal programs and state projects. d. We are responsible for complying with the requirements of laws, regulations, and the provisions of contracts and grant agreements related to each of the City's federal programs and state projects and have complied, in all material respects, with those requirements. e. We have identified and disclosed to you the requirements of laws, regulations, and the provisions of contracts and grant agreements that are considered to have a direct and material effect on each major program. f. We have provided you with our interpretations of any compliance requirements that have varying interpretations. We ore commilledlo ptoviding excel/enl public seiYice one/ i!Oiely looN w/10 live, work, and play In our vibloni. tropical. /Jistoric community 379 McGiadrey & Pullen, LLP Page2or3 g. We have made available all contracts and grant agreements (including amendments, if any) and any other correspondence that has taken place with federal agencies or pass-through entities related to federal programs and state projects. h. We have identified and disclosed to you all amounts questioned and any known noncompliance with the requirements of federal awards and state projects, including those resulting from other audits or program reviews. i. We have charged costs to federal awards and state projects in accordance with applicable cost principles. j. We have made available to you all documentation related to the compliance requirements, including information related to federal program and state projects financial reports and claims for advances and reimbursements. k. Federal program and state projects financial reports and claims for advances and reimbursements are supported by the books and records from which the basic financial statements have been prepared. I. The copies of federal program and state projects financial reports provided to you are true copies of the reports submitted, or electronically transmitted, to the federal and state agency or pass- through entity, as applicable. m. We are responsible for and have accurately prepared the summary schedule of prior audit findings to include all findings required to be included by Circular A-133 and Chapter 10.550, Rufesofthe Auditor General. n. We have provided you with all information on the status of the follow-up on prior audit findings by federal awarding agencies and pass-through entities, including all management decisions. o. We have accurately completed the appropriate sections of the data collection form. p. We have disclosed all contracts or other agreements with service organizations. q. We have disclosed to you all communications from service organizations relating to noncompliance at those organizations. r. We have disclosed any known noncompliance occurring subsequent to the period for which compliance is audited. s. We have disclosed whether any changes in internal control over compliance or other factors that might significantly affect internal control, including any corrective action taken by management with regard to significant deficiencies (including material weaknesses), have occurred subsequent of the date as of which compliance is audited. t. We have monitored subrecipients to determine that they have expended pass-through assistance in accordance with applicable laws and regulations and have met the requirements of Circular A- 133 and Chapter 10.550, Rules of the Auditor General. u. We have issued management decisions on a timely basis after our receipt of subrecipients' auditors reports that identified noncompliance with laws, regulations, or the provisions of contracts or grant agreements, and we have ensured that subrecipients have taken the appropriate and ..... \ timely corrective action on findings. \fi' ~? We ate commilfecl 10 ptoviding exceDem public s91Vice and safely Jo aM wl1o live, w01k, and ploy in OU£ vibronl, ltopic:al, bi$1CJ1ic COIIIIIIUilily 380 McGiadrey & Pullen, LLP Page 3of3 2. Unless disclosed to you, there have been no complaints filed with or concerning our compliance with the provisions of: a. Davis-Bacon Act relative to payment of prevailing wage rates. b. Uniform Relocation Assistance and Real Property Acquisition Polices Act of 1970 relative to acquisition or real property and the relocation of occupants of acquired property. 3. We have acknowledged the findings as described in the single audit report and the management letter and have provided responses and planned corrective actions accordingly. The City of Miami Beach, Florida Patricia D. Walker Chief Financial Officer Allison R. Will!~ Chief Accountant We o1e commilled lo pto111rling exceUenl public service ond 5ofety Jo oH who live. wane. and play in ovt vibtonl, ltopi<::al, l!isla•ic COtiiiiKJIIily 381 Exhibit B -Single Audit Reports in Accordance with OMS- Circular A-133 and the Florida Single Audit Act and Management Letter in Accordance with the Rules of the Auditor General of the State of Florida 382 City of Miami Beach, Florida Single Audit Reports in Accordance With OMB Circular A-133 and Chapter 10.550, Rules of the Auditor General of the State of Florida September 30, 2010 383 Contents 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 Independent Auditor's Report on Compliance With Requirements That Could Have a Direct and Material effect on Each Major Program and State Project and on Internal Control Over Compliance in Accordance With OMB Circular A-133 and Chapter 10.550, Rules of the Auditor General, State of Florida Schedule of Expenditures of Federal Awards and State Financial Assistance Notes to Schedule of Expenditures of Federal Awards and State Financial Assistance Schedule of Findings and Questioned Costs Schedule of Prior Year Audit Findings 384 1-2 3-5 6-8 9 10-18 19-20 IMcGiadrey 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 The Honorable Mayor and City Commissioners City of Miami Beach, Florida We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Miami Beach, Florida (the "City") as of and for the year ended September 30, 2010, which collectively comprise the City's basic financial statements and have issued our report thereon dated March 30, 2011. Our report included references to other auditors. We conducted our 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. Other auditors audited the financial statements of the Visitor and Convention Authority; the Miami Beach Convention Center as managed by Global Spectrum ("Global Spectrum"); the City of Miami Beach Florida Employees' Retirement Plan; the City of Miami Beach Florida Pension Fund for Firefighters and Police Officers; the Firemen's Relief and Pension Fund; and the Policemen's Relief and Pension Fund, as described in our report on the City's financial statements. This report does not include the results of the other auditors' testing of internal controls over financial reporting or compliance and other matters that are reported on separately by those auditors. The financial statements of Global Spectrum, the City of Miami Beach Florida Employees' Retirement Plan; the City of Miami Beach Florida Pension Fund for Firefighters and Police Officers; and the Miami Beach Policeman's Relief and Pension Fund, audited by other auditors, were not audited in accordance with Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. 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 a 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. McG"'drey Is the brand unclor which IISM Mc:Gladr.y, Inc. and McGiodr.y • Pullen, UP sorve clients' bu•ln•os nee<lo. The two firms opmotlng u separat. leg•lentl~sln on •lternatlve practice struclllre. 385 Member of IISM lnt.motlonal network. • network of lndop&ndent ICCGUIItlng, ta and consulting fir,.. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the City's basic financial statements are free of material misstatement, we performed tests of its 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 statement amounts. However, providing an opinion on compliance wHh those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. We noted certain matters that we reported to management of the City in a separate letter dated March 30, 2011. This report is intended solely for the information and use of the Honorable Mayor, the Members of the City Commission, management of the City, the Auditor General of the State of Florida, federal and state awarding agencies and pass-through entities, and is not intended to be, and should not be used by anyone other than these specified parties. Miami, Florida March 30, 2011 2 386 IMcGiadrey Independent Auditor's Report on Compliance With Requirements That Could Have a Direct and Material effect on Each Major Program and State Project and on Internal Control Over Compliance in Accordance With OMB Circular A·133 and Chapter 10.550, Rules of the Auditor General, State of Florida The Honorable Mayor and City Commissioners City of Miami Beach, Florida Compliance We have audited the City of Miami Beach, Florida (the "City") compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement and the requirements described in the Department of Financial Services' State Projects Compliance supplement, that could have a direct and material effect on each of the City's major federal programs and each of its major state projects for the year ended September 30, 2010. The City's major federal programs and state projects are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws, regulations, contracts, and grants applicable to its major federal programs and state projects is the responsibility of the City's management. Our responsibility is to express an opinion on the City's compliance based on our audit. We conducted our audit of compliance in accordance wtth auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained In Government Auditing Standards, issued by the Comptroller General of the United States; OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations; and Chapter 10.550, Rules of the Auditor General, State of Florida. Those standards, OMB Circular A-133 and Chapter 10.550, Rules of the Auditor General, require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program or major state project occurred. An audtt includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination of the City's compliance with those requirements. In our opinion, the City complied, In all material respects, with the compliance requirements referred to above that could have a direct and material effect on each of its major federal programs and its major state projects for the year ended September 30, 2010. However, the results of our auditing procedures disclosed instances of noncompliance with those requirements, which are required to be reported in accordance with OMB Circular A-133 and Chapter 10.550, Rules of the Auditor General, and which are described in the accompanying schedule of findings and questioned costs as items CF 2010-01 through CF 2010-03. MG>Iad"'llls the brand ubdor which RSM f*Gfadnly,lnc. and McG!ad,.y • Pullen, UP "''"" clients' Mlnaa needs. lhe IWD flnns operating as separate legal 11>lltlts In an altetM1lve practice suuc:tura. 3 387 M11111bor of RSMin-tlonll-rk.a neiWolk of Independent accounting. laX and consulting firms Internal Control Over Compliance The Management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts, and grants applicable to federal programs and state projects. In planning and performing our audit, we considered the City's internal control over compliance with requirements that could have a direct and material effect on a major federal program or major state project to determine the auditing procedures for the purpose of expressing our opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133 and Chapter 10.550, Rules of the Auditor General, but not forthe purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program or state project on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there Is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program or state project will not be prevented, or detected and corrected on a timely basis. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in Internal control over compliance that might be deficiencies, significant deficiencies or material weaknesses. We did not identify any deficiencies over compliance that we consider to be material weaknesses, as defined above. However, we identified certain deficiencies in internal control over compliance that we consider to be significant deficiencies as described in the accompanying Schedule of Findings and Questioned Costs, as items IC 2010-01 through IC 2010-06. A significant deficiency In internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program or state project that is less severe than a material weakness in Internal control over compliance, yet important enough to merit attention by those charged with governance. Schedule of Expenditures of Federal Awards and State Financial Assistance We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City as of and for the year ended September 30, 2010 and have issued our report thereon dated March 30, 2011. Our audit was performed for the purpose of forming our opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying schedule of expenditures of federal awards and state financial assistance is presented for purposes of additional analysis as required by OMB Circular A-133, and Chapter 10.550, Rules of the Auditor General, and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. The City's responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs. We did not audit the City's response and, accordingly, we express no opinion on it. 4 388 This report is intended solely for the information and use of the Honorable Mayor, the Members of the City Commission, management of the City, the Auditor General of the State of Florida, federal and state awarding agencies, and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. Miami, Rorida June 24, 2011, except for the Schedule of Expenditures of Federal Awards and State Financial Assistance which is dated March 30, 2011 5 389 City of Miami Beach, Florida Schedule of Expenditures of Federal Awards and State Financial Assistance Year Ended September 30, 2010 Federal/State Grantor/Pass· Through Entity Program Title Federal Grants: U.S. Department of Housing and Urban Development: Oirect Programs: Corrmmity Development Block Grantl£ntitlement Grants Home Investment Parllletship Program Community Development Block Grants_ Section 108 Loan Guatantees ARRA-Community Development Block Grant Reoovery ARRA Entitlement Grants (CDBG-RJ Recovely Act Funded ARRA-1-Iomeless Prevention and Rapid Rehousing Program Pass-through Dept. Canrnunity Affairs-Pass tlllough -Miami Dade County: CFDAI CSFA Number 14.218 14.239 14148 14.253 14.257 Grant/Contract Number B-XX·MC-12.0014 M·XX-MC-12.()()14 B-94-MC-12.Q014 8-09-MY-12..()()14 SQ9..MY-12..()()(l7 Supportive HoUSing Program 14.235 FL 148800034 & FL0177B40000802 Community Development Block Grant·DRJ.ViUa Marla Community Development Block Grani·DRI Flamingo Park Neighborllood Improvements Pass-through Department of Communfty Affairs: Community Development Block Grants-Neighborhood StallUizatlon Program Total u.s. Department of Housing and Urban Development u.s. Oeparlmeot of JustiCe: Oirect Program: Part E -Developing, Testing and Demonstrating Promising New Programs -Juvenne Justice and Delinquency Prevention -Teen Club Part E -Developing, Testing and Demonstrating PromiSing New Programs-Juvenile Jusuce and Delinquency PreventiOn -Teen Club Salaly ARRA-Edward Byrne Memorial Justice Assistance (JAG -CADJRMS) Community Oriented Policing Services: Public Safety Parlnershlp and Community PoriCing Grants-Child Sexual Predator Program NationallnstilUie of Justice: NationalinsHiute o1 Justice Research, Evaluation, and Development-Pofice Homicide Cold Case Bulletproofvest Parlnarship/Body Armor Safety lnltlative Buftetproof Vest Parlllership Program BuHetprool Vest Parlllership Program Pass-ThroUgh State of Aorida/Miam~Dade County: Edward Bynne Memorial JustiCe Assistance Grant Program -Bynne Criminal Justice Records Total u.s. Department of Justice (Continued) 6 390 14.228 OSDB·D3-11·23-01·A01 14.228 08-DB-03-11-23-01-AOI 14.228 10DB-4X-11-23-01-F16 16.541 2008-Jl-FX-0481 16.541 2009-01-BX-0291 16.804 2009-SB-89-2634 16.710 2009CSWX0004 16.560 21J09.DN-BX-K009 16.607 OMS# 1121·0235 16.607 OMB# 1121·0235 16.738 NfA Expenditures s 1,534,050 1,548,407 7,063 91,G86 359,G82 62,460 398,250 58,900 7,154,374 7,611,524 11,214,672 205,317 192,232 397,548 32,686 111,378 70,1)20 4,631 2,200 6,131 14.437 687~ City of Miami Beach, Florida Schedule of Expenditures of Federal Awards and State Financial Assistance (Continued) Year Ended September 30, 2010 CFDAI Federal/State Grantor/Pass· Through Entity CSFA Grant/Contract Program Title Number Number U.S. Department ol Energy: Otrect Program: ARRA-Energy Efficiency and Conse!Vation Block Grant 81128 OE.SC0003489 Total U.S. Department of Energy Pass-lhl'ougll Slate of Florida: OffiCe of Attorney General Crime VJClim Assistance-VOCA 16.575 V09027 Total Office of Altomey Pass-lhrougll Stale of Florida: Department of Agriculture and Consumer Services Cooperative Forestry Assistance -Urban and Community Foreslly 10.664 015154 ARRA-Recovery Acl of 2009: Wildland Fire Management: Forest Health Improvement Initiative \0.688 015956 Total Qepartment of Agriculture and Consumer Services U.S. Department ofT ransportation: Federal Transit Administration Direct Program: Fedetal Transit-Capital Investment Grants-Electrowave Shul\le Service 20.500 FL-0~0233 Federal Transit -Capital Investment Grants -Electrowave Shuttle Service 20.500 FL$0245 Fedetat Transit-Capital investment Grants-Electrowave Shul\le Service 20-500 FL-90-X487-00 Pass-through Slate of Florida: Florida Department of Transportation Highway Planning and Construction-Beachwalk II 20.205 412796-1 ARRA-Highway Planning and Construction-Sunset Dr, Bridge 20.205 426501·1 ( ARRA-453) ARRA-Highway Planning 8lld Construction-Sunset Or. Bridge 20.205 426502-1 [ ARRA-454) ARRA-Highway Plannillg and Construction-Hanedon Ave. Bridge 20.205 426497.1 ( ARRA·339) Total U.S. Department of Tr111sportatlon U.S. Oepa1melltofHomeland Security: Direct Program: Emergency Food and Shelter National Board Program - EFSPhase27 97.024 159400.076 Emergency Food and SheRer National Board Program - EFSPhase28 97024 159400-076 Total U.S. Department of Homtland Security Pass-through Slate of Florida: Florida Department of Community Alfairs Pass-through Miami Dade County Office of Domestic Preparedness Homeland Security Grant Program-Urban /lteas Security Initiative 2007 97.067 OSOS-24-t 1-23-02-011 Homel811d Security Grant Program-Urban Areas Security Initiative 2008 97,067 100S-48-11·23-02-195 Pass-througll Slate of Aorida: Florida Department of Com!TIInity Alfairs Disaster Grants-Public Assistance-FEMA-Oisaster ReHel Funding Agreement 97.,036 06-Wl-&K-11-23-02-567& Hazard Mitigation Grant 97.039 08HM-6G-11-23-02-050 Total State-Peas-Florida Dept of Community Affairs Total Expenditures of Federllf Awards (Cootinued) 7 391 !l!e!!nditures 197.438 197,438 52,927 52,927 15,000 18,000 33,800 735,121 377,951 800,000 117131m 34,626 2&9,458 254,014 199,834 757.924 2,471,69& 7,739 9,675 17,414 228,037 15,000 243,037 68,466 59,831 371&!!! 15,048,389 City of Miami Beach, Florida Schedule of Expenditures of Federal Awards and State Financial Assistance (Continued) Year Ended September 30, 2010 CFDAI Federal/State Grantor/Pass· Through Entity CSFA Grant/Contract P~amTitle Number Number State Granls: Florida Department of Health: Pass-Through Miami-Dade County: Emer{lency PreviPrep/Response-EMS County Grants 64.005 C-9013 Florida Department of Heat Ill: Emergency Prev/Prep/Response-EMS County Grants 64.003 M9273 Department of Management Services Pass through Mami-Oade County: E911 State Grant Program 72.002 52-08-10·5 Florida Department of State: Division of Historical Resources: Historic PreservatiOn Grant-Fire Station No 2 45.031 SC114 Division of Cultural Alfails: Cultural and Museum Grants/Culture Bu~ Florida-Sleepless Night 2009 45.058 NIA Florida Department of Environmental Protection: Florida Recreation Development Assistance Program-Flamingo Park Tennis Renov. 37.017 A08187 Florida Housing Finance C01poration: Slate Housing lnillaUves Partnership Program 52.001 NA Florida OepartmentofTransportatiOn Slate Highway Project Reimbursement-Indian Creek SR A 1A 41st-26th Slreet 55.023 AOY48 16th Street Corridor 55.012 ANH65 Total ExpencliturH of State Rnanclal Assistance Total Expendltum of fecletal Awards and State Financial Assistam:e See Notes to Schedule of Expenditures of Federal Awards and State Financial Assistance. 8 392 Exe!!!ditures $ 49,794 14,42$ 467,324 81,91& 25,000 178,910 1,039,266 939,803 27,165 2,823l06 $ 17,a701095 City of Miami Beach, Florida Notes to Schedule of Expenditures of Federal Awards and State Financial Assistance 1. General The accompanying Schedule of Expenditures of Federal Awards and State Financial Assistance (tl1e "Schedule") presents the expenditure activity of all federal awards and state projects of the City of Miami Beach, Florida (the "City") for the year ended September 30, 2010. The City's reporting entity is defined in Note 1 of the City's basic financial statements. All federal awards and state financial assistance received directly from federal and state agencies, as well as amounts passed through ot11er government agencies are included in t11e accompanying Schedule of Expenditures of Federal Awards and State Financial Assistance. Because the schedule presents only a selected portion of the operations of the City, it is not intended to and does not present the financial position or changes in net assets of the City. 2. Basis of Accounting The accompanying Schedule of Expenditures of Federal Awards and State Financial Assistance is presented using the modified accrual basis of accounting for grants which are accounted for in the governmental fund types and on the accrual basis of accounting for grants which are accounted for in the proprietary fund types. The information in the Schedule of Expenditures of Federal Awards and State Financial Assistance is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations and Chapter 10.550, Rules of the Auditor General. Therefore, some amounts presented in this schedule may differ from amounts presented in or used in the preparation of the basic financial statements. 3. Subrecipient Awards Of the federal awards and state financial assistance presented in the Schedule of Expenditures of Federal Awards and State Financial Assistance, the City provided the following amounts to subrecipients: Name of Program/Projects Federal: Community Development Block Grant Community Development Block Grant-DRI Community Development Block Grant-Neighborhood Stabilization Grant Home Program ARRA-Community Development Block Grant Recovery Total Federal State: State Housing Initiatives Partnership Program 9 393 CFDAICSFA Number 14.218 14.228 14.228 14.239 14.253 52.901 Amount Provided to Subrecipient $ 909,386 398,250 7,057,456 1,447,860 91,086 $ 9,904,038 $ 1,023,370 City of Miami Beach, Florida Schedule of Findings and Questioned Costs Federal Awards Programs and State Projects Section 1-Summary of Auditor's Results financial Statements Type of audito(s report issued: Internal control over financial reporting: Material weakness(es) identified? Significant deficiency(ies) idenlifJed that are not considered to be material weakness(es)? Noncompliance material to financial statements noted? Federal Awards Internal control over major program: Material weakness(es) identified? Significant defiCiency(ies) identified that are not consfdered to be material weakness(es)? Type of auditor's report issued on compliance for major programs: Any audit fllldings disclosed that are required to be reported in accordance with Section 510(a) of Circular A-133? Identification of major program: Federal CFDA No. 14.218 14.228 14.257 20.205 20.500 Dollar threshold used to distinguish between type A and type B programs: Auditee qualified as low-risk auditee? Yes ---- Yes ----Yes Yes ---- X Yes _....;..;..._ X Yes _.......;..;___ Unqualified _......;x.;.__No _......;x.;.__No _.....;X.;.__ No X No ____ None reported Unqualified ____ No Name gf Federal Prooram or Cluster U.S. Department of Housing and Urban Development: Community Development Block Grant U.S. Department of Housing and Urban Development: Community Development BloCk Grants-Neighborhood Stabilization Program U.S. Department of Housing and Urban Development: ARRA-Homeless Prevention and Rapid Rehousing Program U.S. Department of Transportation: ARRA-Hlghway Planning and Construction U.S. Department ofTransportation: FTA section 5309-Eiectrowave Shuttle service $451,392 X Yes -~~-No ---- 10 394 City of Miami Beach, Florida Schedule of Findings and Questioned Costs (Continued) Federal Awards Programs and State Projects State Financial Assistance Internal control over major projects: Material weakness(es) Identified? Significant defiCiency(ies} identified that are not considered to be material weakness(es)? Type of auditor's report issued on compliance for major projects: Any audit findings disclosed that are required to be reported in accordance with Chapter 10.550, Rules of the Auditor General? IdentiFICation of major projects: State CSfA No. 52.901 55.023 72.002 Dollar threshold used to distinguish between type A and type 8 programs: Yes ----X No __ __,;..;..._ __ X Yes ______ None reported ---- Unqua&fied X Yes No ---------- Name of State Pro!ects Florida Housing Finance Corporation: State Housing Initiatives Partnership Program 11 395 Florida Department of Transportation: State Highway Project Reimbursement- Indian Creek SR A1A 41st-26th Street Department of Management Services Pass through Miami-Dade County: E911 State Grant Program $300,000 City of Miami Beach, Florida Schedule of Findings and Questioned Costs (Continued) Federal Awards Programs and State Projects Section II-Financial Statement Findings A. Internal Control None reported. B. Compliance None reported Section Ill-Federal Awards and State Financial Assistance Findings and Questioned Costs A. Internal Control over Compliance Federal Awards IC 2010·01 Subrecipient Monitoring U.S. Department of Housing and Urban Development (HUD)- Community Development Block Grant (CDBG){CFOA No. 14.218) U.S. Department of Housing and Urban Development (HUD}- Community Development Block Grant (CDBG){CFDA No. 14.228) ~: OMB Circular A-133, and the subrecipient agreements, requires that a pass-through entity be responsible for monitoring subrecipient activ~ies and that the subrecipient is administering federal awards in compliance with federal requirements. A control system should be in place to ensure subrecipient monitoring activities occur on a timely basis. Condition: Monthly and/or quarterly reports were not prepared and/or submitted in a timely manner by the subrecipients to the City. It was noted that the following reports were not submitted correctly by the subrecipients: • One out of twelve required monthly reports was submitted for the Miami Beach Community Development Corporation -N. Beach Scattered Site project. • Five out of twelve required monthly reports were submitted for the Housing Authority Rebecca Towers N. Elevators. Additionally of the five, December 2009, January 2010, March 2010, were submitted past their due date project. • One out of four required quarterly reports was submitted for the Miami Beach Community Development Corporation -Home Ownership project. • One out offour required quarterly reports was submitted for Miami Beach Community Development Corporation -Rehab Rental Housing project. • Eight out of twelve required reports were not submitted for Miami Beach Community Development Corporation-Neighborhood Stabilization Program. 12 396 City of Miami Beach, Florida Schedule of Findings and Questioned Costs (Continued) Federal Awards Programs and State Projects Questioned costs: Undeterminable. Context We selected five of the eighteen subrecipients who received CDBG funds. See relationship of findings to the population tested in the condition above. Effect: Subrecipients may not be administering the activities funded by the program in accordance with the provisions of the program requirements and grant agreements which may result in repayment of awards. ~: The City has not developed formal policies and procedures on subrecipient monitoring and report review. Recommendation: We recommend the City establish formal policies and procedures for monitoring and reviewing the activities of the sub-grantees of the program. A spreadsheet should be maintained for all subrecipients to track the timely submission of the reports. Views of resPOnsible officials and planned corrective action: Policies and Procedures were developed in January 2011 and are being reviewed for implementation. These include moving to quarterly reporting versus monthly reporting for all new sub recipients. Monitoring requirements for Real Estate, Housing & Community Development (REHCD) staff is also included and staff training will be conducted once they are finalized and implemented. IC 2010·02 Reporting U.S. Department of Housing and Urban Development (HUD)- Community Development Block Grant "CDBG" (CFDA No. 14.218) Criteria: By the 15th of each quarter, a Federal Cash Transaction Report is to be submitted to the agency. The City must have an internal control policy in place to review each Federal Cash Transaction Report and ensure compliance with the reporting requirements. CondiUon: There were no procedures in place to monitor and ensure compliance with the reporting requirements of the CDBG Program. As a result, the required report for one quarter was submitted approximately 5 months past due by the City to the Department of Housing and Urban Development. Questioned costs: Undeterminable. Context: In fiscal year 2010, the City submitted the Federal Cash Transaction Report for the quarter ended 9/30/10 on March 2, 2011, approximately 5 months past due. Effect: City's non compliance with grant requirements may result in repayment of award monies. ~: The City has not developed a procedure to ensure compliance requirements are being adhered to. 13 397 City of Miami Beach, Florida Schedule of Findings and Questioned Costs (Continued) Federal Awards Programs and State Projects Recommendation: We recommend the City establish a formal policy and procedure to notify City employees on pertinent due dates relating to grant awards. A tracking system should be developed to track the timely submission of the reports. Views of responsible officials and planned corrective action: A procedure has been established which includes the designation of responsibility for this requirement, and the inclusion of deadlines for the Federal Cash Transaction Reports on the Division's master calendar of required reports. Additionally, staff is reviewing current contract tracking/monitoring software options for feasibility of implementation. IC 201 0·03 Procurement & Suspension and Debarred U.S. Department of Housing and Urban Development (HUD)- Community Development Block Grant "CDBG" (CFDA No. 14.218) Criteria: local governments shall use their own procurement procedures provided that they conform to applicable Federal law and regulations and standards identified in the A-102 Common Rule. Additionally, Non-Federal entities are prohibited from contracting with or making subawards under covered transactions to parties that are suspended or debarred or whose principals are suspended or debarred. "Covered transactions• including those procurement contracts for goods and services awarded under a nonprocurement transaction (e.g., grant or cooperative agreement) that are expected to equal or exceed $25,000 or meet certain other specified criteria. Condition: In fiscal year 2010, the City did not have a system in place to verify whether vendors under contract were suspended or debarred. Questioned costs: Undeterminable. Context: In fiscal year 2010, four of the five covered transactions/contracts that were entered into on behalf of the City, were not reviewed for the suspension and debarred requirement. ~: City's non compliance with grant requirements may result in repayment of award monies. Cause: The City has not developed a procedure to ensure compliance requirements are being adhered to. Recommendation: We recommend the City establish a formal policy and procedure to notify City employees on pertinent requirements relating to grant awards and to ensure compliance requirements are being adhered to. Views of responsible officials and planned corrective action: Policies and Procedures (PAP) were developed in January 2011 and are under review. A procedure will be included In the PAP requiring the confirmation and documentation by the City's sub-awardees that parties that they will contract with have been screened by them to ensure that none have been suspended or debarred/have principals that have been suspended or debarred, prior to the City's sub-awardee receiving any allocations of funding from the City relating to that contracted entity. 14 398 City of Miami Beach, Florida Schedule of Findings and Questioned Costs (Continued) Federal Awards Programs and State Projects IC 2010-04 Davis Bacon Act U.S. Department of Housing and Urban Development (HUD)- Community Development Block Grant "CDBG" (CFDA No. 14.218) ~: According to Department of Labor Regulation 29 CFR Part 5 and the OMB Circular A-11 0, all laborers and mechanics employed by contractors or subcontractors to work on construction contracts in excess of $2,000 financed by Federal assistance funds must be paid wages not less than those established for the locality of the project (prevailing wage rates) by the Department of Labor. Condition: In fiscal year 2010, wages for three work classifications were noted to be under the Miami-Dade County minimum requirement. Questioned costs: Undeterminable. Context: In fiscal year 2010, wages for three work classifiCations were noted to be under the Miami-Dade County minimum requirement. Effect City's non compliance with grant requirements may result in repayment of award monies. Cause: The City has not developed a procedure to ensure compliance requirements are being adhered to. Recommendation: We recommend the City establish a formal policy and procedure to notify City employees on pertinent requirements relating to grant awards and to ensure compliance requirements are being adhered to. Views of responsible officials and planned corrective action: Policies and Procedures (PAP) were developed in January 2011 and are being reviewed for implementation. The PAP will delineate the requirements for the monitoring of construction projects and establishes criteria for use by contract monitors to ensure compliance with all federal requirements, Including the Davis-Bacon Act. 15 399 City of Miami Beach, Florida Schedule of Findings and Questioned Costs (Continued) Federal Awards Programs and State Projects State Awards IC 2010·05-Subrecipient Monitoring Florida Department of Environmental Protection State Housing Initiatives Partnership "SHIP" (CFSA No. 52.901} Criteria: Florida statutes, Sections 420.907 through 420.9079 over the SHIP grant and Chapter 67-37.007 Florida Administrative Code, stipulates that a pass-through entity is responsible for monitoring subrecipient activities and that the subrecipient is administering state awards in compliance with state requirements. A control system should be in place to ensure subrecipient monitoring activities occur on a timely basis. Condition: There were no procedures in place to monitor and ensure compliance with the subrecipient requirements of the SHIP Program. As a result, monthly reports were not prepared and or submitted in a timely manner by the subrecipient, Miami Beach Community Development Center, to the City as required by the subrecipient's agreements. Questioned costs: Undeterminable. Context: In fiscal year 2010, there was one subrecipient who received SHIP funds. We tested the one subrecipient and noted for the months of January, February, April, July, and August of 2010 the reports were submitted past the due date of 10 days after month end. Effect: Subrecipients may not be administering the activities funded by the program in accordance with the provisions of the program requirements and grant agreements which may result in repayment of awards. ~: The City has not developed a formal policy and procedures on subreciplent monitoring and site visit review. Recommendation: We recommend the City establish a formal policy and procedure for monitoring and reviewing the activities of the sub-grantees of the program. A spreadsheet should be maintained for all subreclpients to track the timely submission of the reports. Views of responsible officials and planned corrective action: Policies and Procedures (PAP) were developed in January 2011 and are being reviewed for implementation. The PAP will delineate the requirements for contract monitoring. In addition, staff is reviewing current contract tracking software options for feasibility of implementation to assist In tracking compliance requirements. However, it should be noted that the Florida Housing Program Administration Manual, which are the rules for the SHIP program, does not require monthly or quarterly reporting from sub-recipients, only the submission of an annual report by the City to the State. However, the City's Fiscal Year 2009/2010 contract with the City's sub-recipient required quarterly status reports containing information derived from each reimbursement request submitted by the sub-recipient. 16 400 City of Miami Beach, Florida Schedule of Findings and Questioned Costs {Continued) Federal Awards Programs and State Projects IC 2010..()6-Reporting Florida Department of Environmental Protection State Housing Initiatives Partnership "SHIP" (CFSA No. 52.901) ~: Each county of eligible municipality shall submit to the Florida Housing Finance Corporation (FHFC) by September 15 of each year a report of itS affordable housing programs and accomplishments through June 30th. The City must have an internal control policy in place to review each housing project and ensure compliance with the reporting requirements. Condition: There was no procedure in place to monitor and ensure compliance with the reporting requirements of the SHIP Program. As a result, the required report was submitted two days late by the City toFHFC. Questioned costs: Undeterminable. Context: In fiscal year 2010, the City submitted the Annual Report for fiscal years 2007-2008, 2008-2009, and 2009-2010 on September 17,2010, two days past due. Effect: City's non compliance with grant requirements may result in repayment of award monies. Cause: The City has not developed a procedure to ensure compliance requirements are being adhered to. Recommendation: We recommend the City establish a formal policy and procedure to notify City employees on pertinent due dates relating to grant awards. A tracking system should be developed to track the timely submission of the reports. Views of resoonsible officials and planned corrective action: The annual SHIP report was sent on the due date, September 15, 2010, via electronic correspondence to Florida Housing Finance Corporation, but was not accepted as a timely submission due to the new online submission requirement. A procedure and new time-line has been established and calendared to complete and file the annual SHIP report as required by program rules. This procedure will be memorialized in the Policies and Procedures manual. 17 401 City of Miami Beach, Florida Schedule of Findings and Questioned Costs (Continued} Federal Awards Programs and State Projects B. Compliance Findings Federal Awards CF 2010.01 Reporting U.S. Department of Housing and Urban Development (HUD)- Community Development Block Grant "CDBG" (CFDA No. 14.218) See IC 2010-02 Views of responsible officials and planned corrective actions: See IC 2010-02 for detailed view of responsible officials and planned corrective action. CF 2010.02 Davis Bacon U.S. Department of Housing and Urban Development (HUD)- Community Development Block Grant "CDBG" (CFDA No. 14.218) See IC 2010·04 Views of responsible officials and planned corrective actions: See IC 2010-04 for detailed view of responsible officials and planned corrective action. State Financial Assistance CF 2010..03-Reporting Florida Department of Environmental Protection State Housing Initiatives Partnership "SHIP" (CFSA No. 52.901) See IC 2010..06 Views of resoonsible officials and planned corrective actions: See IC 2010-06 for detailed view of responsible officials and planned corrective action. 18 402 City of Miami Beach, Florida Schedule of Prior Year Audit Findings Federal Awards Programs and State Projects Finding # Finding Title Findings related to financial statements: CF 2009-01 Subreclpient Monitoring (CFDA No.14.218) StatU$ Monthly reports were not prepared and/or Not Corrected submitted in a timely manner by the subrecipients to the City as required by the subrecipient agreements. in addition, no evidence of monitoring visits were found in several subrecipient's files. CF 2009..02 Earmarking (CFDA No.14.218) There was no procedure in place to monitor and Corrected ensure compliance with the earmarking requirements of the CDBG Program, therefore, the City exceeded the allotted amount during fiscal year2009. CF 2009..03 Special Test (CFOA No.14.218) An environmental review was not completed for the Corrected Miami Beach Community Development Corporation -AHen House Apartments. CF 2009-04 Subreclplent Monitoring (CFDA No.14.239) Monitoring of subrecipent activities was not conducted during fiscal year 2009 for the Miami Beach Community Development Center- Community Housing Development Organization. CF 2009-05 Reporting (CSfA No. 55.901) There was no procedure in place to monitor and ensure compliance with the reporting requirements of the SHIP Program. As a result the required report was submitted forty-nine days late by the City to FHFC. Corrected Corrected 19 403 Explanation The City agrees that fOOTial policies and procedures for monitoring and reviewing activities are necessary. The City concurs that a formal process must be implemented for monitoring visits and other program compliance. The City is currently undergoing a review of all files and developing monitoring tools for each subrecipient file which will document responsibilities, contract deliverables, and deadlines. Furthermore, The City is in the process of notifying all subrecipients that failure to file monthly reports is a defauH under their contracts. The City corrected the specific finding in fiscal year 2009. The City corrected the specific finding in fiscal year 2009. The City corrected the specific finding in fiscal year 2009. The City corrected the specifiC finding in fiscal year 2009. City of Miami Beach, Florida Schedule of Prior Year Audit Findings Federal Awards Programs and State Projects (Continued) CF 2009-06 Special Test (CSFA No. 55.901) There was no procedure in place to monitor and ensure compliance with the earmarking requirements of the SHIP Program. As a result, the City aid not meet any of the required earmarking requirements during fiscal year 2009 for the closing year of fiscal year 2006-2007. CF 2009-07 Subreelplent Monitoring (CSFA No.55.901) There was no procedure in place to monitor and ensure compHance with the subreclplent requirements of the SHIP Program. As a result, monthly reports were not prepared and or submitted in a timely manner by the subrecipient, Miami Beach Community Development Center, to the City as required by the subreciplent's agreements. Additionally, monitoring of subrecipent activities was not conducted during fiscal year 2009 by the aty. Corrected Corrected 20 404 The City corrected the specific finding in fiScal year 2009. The City corrected the specific finding in fiScal year 2009. City of Miami Beach, Florida Management Letter in Accordance with the Rules of the Auditor General of the State of Florida September 30, 2010 405 Contents Management Letter in Accordance with the Rules of the Auditor General of the State of Florida Appendix A-Current Year's Recommendations to Improve Financial Management, Accounting Procedures and Internal Controls Appendix B -Prior Year's Recommendations to Improve Financial Management. Accounting Procedures and Internal Controls 406 1-2 3-4 5 IMcGiadrey Management Letter in Accordance with the Rules of the Auditor General of the State of Florida To the Honorable Mayor and City Commissioners City of Miami Beach, Florida We have audited the financial statements of the governmental activities, the business-type activities, the aggregate discretely presented component units, each major fund, and the aggregate remaining fund information of the City of Miami Beach, Florida (the "City") as of and for the year ended September 30, 2010, which collectively comprise the City's basic financial statements, and have issued our report thereon dated March 30, 2011. Our report was modified to include a reference to other auditors. We conducted our audtt in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments and Non-Profit Organizations. We have issued our Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audtt of Financial Statements Performed in Accordance with Government Auditing Standards dated March 30, 2011, and Independent Auditor's Report on Compliance with Requirements Applicable to Each Major Federal Program and State Project and on Internal Control over Compliance and Schedule of Findings and Questioned Costs dated March 30, 2011. Disclosures in those reports and schedule should be considered in conjunction with this management letter. Additionally, our audit was conducted in accordance with the provisions of Chapter 10.550, Rules of the Auditor General, which governs the conduct of local governmental entity audits performed in the State of Florida. This letter includes the following information, which is not included in the aforementioned auditor's reports or schedule: Section 10.554(1)(i) 1., Rules of the Auditor General, requires that we determine whether or not corrective actions have been taken to address findings and recommendations made in the preceding annual financial audit report. Corrective actions have been taken to address findings and recommendations made in the preceding annual financial audit report, except for those reported below under the heading "Prior Year's Recommendations to Improve Financial Management, Accounting Procedures and Internal Controls" listed in Appendix B. Section 1 0.554(1 )(1)2., Rules of the Auditor General, requires our audit to include a review of the provisions of Section 218.415, Florida Statutes, regarding the investment of public funds . In connection with our audit, we determined that the City complied with Section 218.415, Florida Statutes, relating to local government investment policies. Section 10.554(1)(i)3., Rules of the Auditor General, requires that we address in the management letter any recommendations to improve financial management The recommendations to improve the City's financial management have been addressed In Appendix A -Current Year's Recommendations to Improve Financial Management, Accounting Procedures and Internal Controls to this report. MeGiadtey Is the brand undor which RSM McGioldlwy,lnc. and McGiadrey 6 PuHen, LlP serve chent•' buslneu needs. 'l'lle twO ftrms operotlng as separate legal entitles In an alternative priCtlc:e tiJU<IU"'· 407 Member of RSM lntemolloMI network. a network of Independent accounting, IIX and consulting flrms Section 10.554(1)(i)4., Rules of the Auditor General, requires that we address violations of provisions of contracts or grant agreements, or abuse that have occurred, or are likely to have occurred, that have an effect on the financial statements that is less than material but more than inconsequential. In connection with our audit, we did not have any such findings. Section 10.554(1)0)5., Rules of the Auditor General provides that the auditor may, based on professional judgment, report the following matters that have an inconsequential effect on financial statements, considering both quantitative and qualitative factors: (1) violations of provisions of contracts or grant agreements, fraud, illegal acts, or abuse, and (2) deficiencies in internal control that are not significant deficiencies. In connection with our audit, we did not have any such findings. Section 10.554(1){1}6., Rules of the Auditor General, requires that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in this management letter, unless disclosed in the notes to the financial statements. The information is disclosed in Note 1A to the financial statements. Section 10.554(1)(i)7.a., Rules of the Auditor General, requires a statement be included as to whether or not the local governmental entity has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and identification of the specific condition met. In connection with our audit, we determined that the City did not meet any of the conditions described In Section 218.503(1 ), Florida Statutes. Section 10.554(1)(i)7.b., Rules of the Auditor General, requires that we determine whether the annual financial report for the City for the fiscal year ended September 30, 2010 filed with the Florida Department of Financial Services pursuant to Section 218.32(1)(a), Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended september 30, 2010. In connection with our audit, we determined that these two reports were in agreement. Pursuant to Sections 10.554(1)(i)7.c. and 10.556(7), Rules of the Auditor General, we applied financial condition assessment procedures. It is management's responsibility to monitor the City's financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. Pursuant to Chapter 119, Florida Statutes this management letter is a public record and its distribution is not limited. Auditing standards generally accepted In the United States of America require us to indicate that this letter is intended solely for the information and use of the Honorable Mayor, City Commissioners, management of the City, the State of Florida Office of the Auditor General, federal and state awarding agencies, and pass-through entities, and is not intended to be and should not be used by anyone other than these specified parties. Miami-Dade County, Florida March 30, 2011 2 408 City of Miami Beach, Florida Appendix A Current Year's Recommendations to Improve Financial Management, Accounting Procedures and Internal Controls Year Ended September 30, 2010 No. 2010-1 Current Year's Observations Self-Insurance Fund Deficit and Actuarial discount rate of the Self-Insurance Program 2010·1 Self-Insurance Fund Deficit and Actuarial discount rate Criteria: Proprietary funds (which include internal service funds) should be accounted for on a cost reimbursement basis. Also, actuarial assumptions used to estimate the City's self insurance liability should be reasonable and reflect current market related conditions. Condition: The City's self-insurance fund reported a net asset deficit of approximately $7.0 million, as of September 30, 2010. Additionally, it was noted, it may not be appropriate for the City to use a 5% rate for discounting the loss reserves, since the City's self-insurance fund has no assets and does not earn any investment income. Cause: The rates established to charge each participating fund of the City were not adequate enough to reimburse the cost of insurance. Effect: The City's may not have enough resources accumulated to fully liquidate insurable liabilities as they become due. In addition, by not property allocating these charges to the various funds and functions, the City might not incorporate all of the City's cost that would be applicable in order to accurately establish rates and fees for services that are charged by the City to external parties. Recommendation: We recommend that the City evaluate its self-insurance program, to not only help ensure that the level of amounts charged to user funds are sufficiently balanced to sustain the self-insurance program, but to help ensure that reserves will be replenished In order to fund the deficit. The total charge by the internal service fund to the other funds should be based on a systematic method and adjusted over a reasonable period of time so that internal service fund revenue and expenses are approximately equal. Views of responsible offiCials and planned corrective actions: The deficit in the Risk Management self insurance fund decreased from $8.985 million at September 30, 2009 to $6.811 million at September 30, 2010, a decrease of $2.17 4 million. It is the City's intention to continue to increase revenues and thus reduce the deficit in future years. In addition, the City considers, subject to commission budget approval, an annual contribution to reduce the Fund's defiCit. As w~h all other local governments, Fiscal Year 2010 was a diffiCult budget year, as is Fiscal Year 2011. Furthermore, Fiscal Year 2012 is expected to be even more challenging due to continued declines in property values through January 2011 and increased pension contribution requirements primarily because pension investments have not met actuarial assumptions in the last two years. As a result, for the short-term, the City has elected to use year- end surplus in the General Fund as carry-forward to future fiscal years, rather than to fund deficit increases in the self insurance fund. It is anticipated that property values will stabilize in the coming years and then resume normal historical increases and that investment returns will return to historical levels, thereby reducing the stress on the budget. It is therefore anticipated that, in the longer term, the City will once again be in the position to reduce the risk deficit as it has done in prior years. 3 409 City of Miami Beach, Florida Appendix A Current Year's Recommendations to Improve Financial Management, Accounting Procedures and Internal Controls (Continued) Year Ended September 30, 2010 In FY 2010 the City decreased the rate for discounting toss reserves from 6% to 5% and plans to further decrease it to 4% in FY 2011. At September 30, 2010, the City had $13.989 million in IBNR liabilities and $9,850 million in pending insurance claims liabilities. We feel that this is sufficient to liquidate any insurable liabilities that become due. 4 410 City of Miami Beach, Florida Appendix B Prior Year's Recommendations to Improve Financial Management, Accounting Procedures and Internal Controls Year Ended September 30, 2010 No. Prior Years' Observations 2009-1 Complexity of Passwords 2009-3 Budget Compliance 2002-2 Self-Insurance Fund Deficit see current year's comment at 2010-1 5 411 Observation is Still Relevant X Comment No Longer Relevant X X Exhibit 2-Audit Areas 412 Exhibit 2 -Audit Areas for FY201 0/11 CITY OF MIAMI BEACH INTERNAL AUDIT DEPARTMENT Audit Areas Areas highlighted are considered for audit based on projected frequency. Comments provided indicate reasons why area may not be audited within the projected frequency. Department • Audit Area Mayor and City Commission !operations Administrative Support Services Audit Areas 2011 Final Last Audit Risk ~ Comments ' external these financial areas annually within the scope their comprehensive financial audit of the city. -::-:-""'1'"'"'"~ this does not constitute a detailed internal 413 the controls are being reviewed. The City consultant study underway to update the of determination for management fees. 01/04/2012 Exhibit 2 -Audit Areas for FY201 0/11 CITY OF MIAMI BEACH INTERNAL AUDIT DEPARTMENT Audit Areas Areas highlighted are considered for audit based on projected frequency. Comments provided indicate reasons why area may not be audited within the projected frequency. Department -Audit Area Human Resources Operations includes Labor Relations Review of Benefits Formulas Pension Time Purchased by Leave Hours Health, Dental and Life Insurance Citv Clerk Operations, Record Retention I Public Requests I Special Masters I Election Invoices I City Attorney !operations Economic Dev. & Cultural Events Audit Areas 2011 Final etc. Last Audit Risk ~ 2005 L 2008 L 2010 L I 2011 I L I I 2010 I M I I 2008 I L I 2 414 Comments year, external auditor reviews internal controls over IT functions in their annual audit. Contract calls for annual certified statement of revenue. Audit reviewed 2008 year revenues in 4/2009. I I I 01/04/2012 Exhibit 2 -Audit Areas for FY201 0/11 CITY OF MIAMI BEACH INTERNAL AUDIT DEPARTMENT Audit Areas Areas highlighted are considered for audit based on projected frequency. Comments provided indicate reasons why area may not be audited within the projected frequency. Department -Audit Area Plans Review, Application Fees Operations Audit Areas 2011 Final Last Audit Risk ~ 2009 H 2008 H 3 415 Comments "nrnnl<>t.,.rt in 2009. Procurement of new n<>r·mi1~in,,l system in 2009. Code Compliance system being procured in 2010. Department is reviewed of Florida and HUD. by the 01/04/2012 Exhibit 2 -Audit Areas for FY201 0/11 CITY OF MIAMI BEACH INTERNAL AUDIT DEPARTMENT Audit Areas Areas highlighted are considered for audit based on projected frequency. Comments provided indicate reasons why area may not be audited within the projected frequency. Department • Audit Area Parks and Recreation Golf Mana~:~ement A~:~reement Miami Beach Golf Golf Management Agreement Normandy Shores Greenspace Management Landscaping Agreements Overtime (Parks & Recreation) Recreation fees I Cashier functions Tennis Centers Agreement Audit Areas 2011 Final Last Audit 2010 2010 2010 2010 2010 2010 4 I 416 Risk ~ M M L M M M L H Comments Course under renovation, completion in FY 2008/09. Contracts are effectively monitored by Parks Greenspace Mgmt and Procurement. Results are shared with Internal Audit. components were reviewed in with reimbursement requests made prior hurricanes. 01/04/2012 Exhibit 2 -Audit Areas for FY201 0/11 CITY OF MIAMI BEACH INTERNAL AUDIT DEPARTMENT Audit Areas Areas highlighted are considered for audit based on projected frequency. Comments provided indicate reasons why area may not be audited within the projected frequency. Department • Audit Area p k" ar ma Attended Parking Lots Monitoring Boat Show Parking Cashiers & Attendants Agreement(Parkina) Coin Room (Monitoring) Meter Collection County Court Fines Parking Meter Collection Agreement Parking Debit Card/In Car Meters Parking Enforcement Reviews (Meters) Parking Permits (Non-Revenue) Parking Permits (Revenue) ~ace Rentals -Meters Space Rentals -Parking Garages Towing Fees· Parking Department Valet Parking Agreement (Gold Star) Fl M eet anagement Fuel distribution Inventory & Processing Operations /Internal Service Charges Billings Vehicle Purchases Public Safety Audit Areas 2011 Final Last Audit 2011 2008 2010 2011 2003 2009 2010 2011 2011 2007 2008 2009 2009 2011 2009 2010 2011 2007 5 417 Risk ~ H M M H L M M H L M M M L M M L L L Comments Completed 4 reviews during the year. As of 8/2009 audit reauired annuallv. Completed 4 reviews of coin room during the year. Continuously monitored throughout year. 24 separate reviews performed. Audited vehicle purchasing process. no exceptions Internal Audit assisted police in reviewing new procedures for false alarm. Police in process of new software for 01/04/2012 Exhibit 2 -Audit Areas for FY201 0/11 CITY OF MIAMI BEACH INTERNAL AUDIT DEPARTMENT Audit Areas Areas highlighted are considered for audit based on projected frequency. Comments provided indicate reasons why area may not be audited within the projected frequency. Works, Parks, Audit Areas 2011 Final Last Audit 6 418 Risk ~ Study completed in 2009. Procurement of new permitting system in 2009. funding reviewed by City Econ Dev. Periodically reviewed by Federal HUD. Areas reviewed by external auditors through the Single Report under OMB Circular A-133. 01/04/2012 Exhibit 3 -Summary of Internal Audit Activities 419 Summary of Internal Audit Activities for Fiscal Year 2010/11 Internal Audits -Available On Line Cultural Arts Council First Class Parking, LLC Valet Parking Operational Audit -Art Basel 2010 Internal Audits-Pending Final Reports Accumulated Leave Liability Special Events Fees State Beachfront Management Agreement Boucher Brothers Miami Beach, LLC Beachfront Concession Agreement Concurrency Mitigation Fees Non-Revenue Municipal Parking Permits State Forfeited Funds Public Works Department's Warehouse Inventory Sanitation Fees Residential Billing and Service Agreement Sanitation Impact Fees Sanitation Fines and Forthwiths Storm Water Review Water and Sewer Billings Water and Sewer Impact Fees Procurement Division Operations City Clerk Operations Fleet Management Division -Internal Service Charge Billings Public Works Right of Way Permit Fees Miami Beach Gardens Conservancy -Management Agreement For fiscal year 2010/11 internal audits to date included the following recommendations: • Additional safeguards over inventory processing for areas of Public Works; • Revisions to update several departmental procedures and improve controls for Sanitation, Procurement and City Clerk offices; • Changes in procedures to comply to reporting requirements of approved grant funds distributed by the Cultural Arts Council; • Improve internal control processes and clarification of charges for Water and Sewer Impact Fees, Sanitation Impact Fees, Concurrency Mitigation Fees, Public Works Right of Way Permit Fees, Special Event Fees and Sanitation Fines; • Improve process and verification of charges for Water and Sewer, Storm water, and Sanitation Residential billings; • Strengthen oversight of compliance to the Beach Concession agreement; • Improvement of internal controls over Fleet Division internal service charges; recording and processing State Forfeited Funds; • Improve controls over donated leave and leave buy-back provisions; • Confirmation of funds forwarded to Miami Beach Conservancy to be used for proper agency purpose and recommendations for improvement in internal controls; • Verification of performance of valet parking operations and attended lots, and compliance with Parking Department procedures for Non-Revenue parking Permits. 420 Parking Monitoring Reviews In the Parking area, the Division completed twenty-four meter, four attended lot cash operations and four coin room reviews during the past fiscal year. While our parking meter reviews identified an improvement in enforcement over the previous fiscal year, areas of enforcement still fell short of desired benchmarks. Operational procedures for attended lots were found to comply with the city's guidelines. In addition, coin room operations were functioning in accordance the city's procedures. Sanitation Audits In FY 2006/07 our part time position was expanded to a fulltime position dedicated to monitoring and auditing waste haulers. This effort led to the issuance of seven audit reports in fiscal year 2010/11 resulted in $41,7 44 of audit assessments Other Support Additional support was directed to performing non-audit activities. • Assistance was provided for Cleanliness Assessment Program o Input of Daily Assessment results. o Preparation of Quarterly reports. o Testing new automated assessment system and reports. • Hurricane related grant monitoring responsibilities for the past fiscal year included: o Assisting FEMA and the State with their ongoing closeout for Hurricane Wilma 2005. o Preparation of Quarterly Reports to FEMA (still ongoing for Hurricane Wilma projects). o Monitoring each open project for completion and requested reimbursement. o Assisting Office of Inspector General with audit of FEMA funding received for Hurricanes Katrina and Wilma. Additional monies recovered during the past fiscal year for these claims amounted to $260,777 for Hurricane Wilma. Additional funds are pending as projects are completed. We anticipate that in fiscal year 2011/12 additional time will be spent on completing the request for payments and final closeouts for the 2005 storms. 421 THIS PAGE INTENTIONALLY LEFT BLANK 422