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R9C-Committee Of The Whole- Discuss Audit ReportsMIAMI BEACH City of Miami Beach, 1700 Convention Center Drive, Miami Beach, Florida 33139, www.miomibeochfl.gov N COMMITTEE OF THE WHOLE MEMORANDUM FROM: Mayor Matti Herrera Bower and Members!~he~ity ommission Kathie G. Brooks, Interim City Manage~~ . / . January 16, 2013 TO: DATE: 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 Auditorts Reeorts for FY 2010/11 {Previously distributed via LTC on July 13, 2012) 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 appHcable 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, and Florida Rules of the Auditor General, Section 10.550. The external auditors issue a separate management letter, which addresses any Agenda Item 89 C. 558 Date /~lb-13 recommendations to improve financial management, accounting procedures, and internal 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 180~2012 dated July 13, 2012 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 30% of an office associate (net of time allocated to other divisions within the department, Grants, Budget and Organizational Development). Three field agents are responsible for auditing business required to file resort taxes and one field agent is responsible for sanitation audits of franchise haulers and roll-off operators and administrative functions of the City's Cleanliness Assessment program. Additionally, the Internal Auditor, Assistant Internal Auditor, and the office associate also provide support for the resort tax function, resulting in the equivalent of 2.8 full time employees (FTE's) for the internal audits other than Parking and Sanitation. 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 2011/12 was $54,071,219. 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 ,830 businesses registered to collect resort taxes. Our goal is to audit the 763 businesses consisting of hotels, restaurants, nightclubs, and bars at least once every four to five years, approximately 153 2 559 per year. New accounts are to be audited soon after they are opened. The remaining 1,067 accounts representing apartments having less risk are audited much less frequently. The total combined goal is 250 audits per year. In fiscal year 2011/12 the Division completed 210 resort tax audits (84% of our total goal) of which 121 were hotels, restaurants, nightclubs, and bars. Total audits completed fell short due to the contracted audit firms only performing 68 out of the 100 audits targeted for completion. The 210 audits resulted in additional tax assessments of $278,579. This represented 0.63% of the total resort tax reported for these 21 0 entities over the multi-tax year audited and approximately 0.52% of the total resort tax generated for fiscal year 2011/12. 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 2011/12 (Exhibit 1). Audits completed in 2012 are shown in bold. Overall, twenty-one Department and Not~For-Profit audit areas were completed during fiscal year 2011/12. That represents 70% completed out of thirty audit areas initially targeted for the year. Out of the audit areas completed, three audits were added during the year. In addition, a significant amount of time was dedicated in the analysis of code and fire cases resulting from the April arrests of seven city employees as part of a criminal investigation. Other areas including additional time were the supervision of resort tax audits and coordinating responses to audits of FEMA hurricane grants. The remaining twelve audits were carried forwarded to next fiscal year. Seventeen of the audits were accomplished by the staff of 2.8 FTEs in addition to four continuous monitoring audits in parking and sanitation by two of the staff. Attached is Summary of Internal Audit Activities (Exhibit 2) 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 .. 3 560 Fiscal Year 2012/13 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. KGB:JJs..-?1 F:\OBPl\$AUDirrERNAl AUDIT Fli.ES\DOC 12-13\A.UD COMIDiscussion of Audits Comm of the Whole 12-12-12.doc 4 561 Exhibit 1 -LTC 180-2012 562 f!l MIAMI BEACH OFFICE OF THE CITY MANAGER NO. LTC# 180-2012 TO: Mayor Matti Herrera Bower and Members of the City Commission lEITER TO COMMISSION FROM' Kathie G. Brooks, Interim City Manager/~ fL · DATE: July 13, 2012 ,....;) c;::;l l"o,) -n '-"""""' c:: •'Ti r-,-~. ' .l w ~~n -o ~~:( X ;ll w -... .. ""'' co SUBJECT: External Auditor's (McGiadrey & Pulen) Annual Audit Report on the City of Miami Beach (the City) for the period ended September 30, 2011 Attached for your information is the external auditor's report on the City for the fiscal year ended September 30, 2011. This package includes the following: A The Report to the Mayor and Members of the City Commission, discussing the Auditor's required communications to the Mayor and City Commission, summary of recorded audit adjustments, accounting estimates and, recently issued governmental accounting standards. The Report also includes the following: • Exhibit A -Certain written communications between management and the Auditors - Representation letter; • Exhibit 8 -McGtadrey & Pullen's Independent auditor's report on compliance with requirements applicable to each major federal program and state project and on internal controls over compliance in accordance with OMS Circular A-133 and Chapter 10.550, Rules of the Auditor General of the State of Florida and Schedule of Expenditures on Federal Awards and State Financial Assistance; and • Exhibit 8-McGiadrey & Pullen's management letter, in accordance with the Rules of the Auditor General of the State of Florida, to the Mayor and Members of the City Commission. 8. The City's Comprehensive Annual Financial Report (CAFR) for the fiscal year ended September 30, 2011. If you have any questions or need additional information please contact Patricia Walker at 305-673- 7574 563 564 July 9, 2012 The City of Miami Beach, Flor!da 1700 Convention Center Drive Miami Beach, Florida 33139 Attention: The Honorable Mayor and Members of the City Commission 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, 2011. 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 Pollee 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, 2012, 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, 2011. 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 about this report. We appreciate the opportunity to continue to be of service to the City. tr"".-"lHi:»:;l Di U'it~ t~·;r.~ tnt<-m.:ttl\ml)i Hi"t\.:<lr•tk ul md•:f4_,.rJ~1m ;;.:r:,J.unH:r1~·! un· :t)\d <•'Jnwh!nn fi::n.;. 565 Required Communications ......................................................................................................................... 1-2 Summary of Accounting Estimates ...................................................................................................... 3-4 Recently Issued Accounting Standards ............................................................................................... 5-6 Exhibit A-Certain Written Communications Between Management and Our Firm Exhibit B-Single Audit Reports in Accordance with OMB-Circular A-133 and the Florida Single Audit Act and Management Letter in Accordancee with the Rules of the Auditor General of the State of Florida 566 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 Management's Judgments and Accounting Estimates Financial Statement Disclosures 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 Management has the ultimate responsibility for the appropriateness of the accounting policies used by the City. In the current year, the City did not adopt any new Governmental Accounting Standards Board (GASB) Statements. 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. 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.» We did not identify any items relating to the neutrality, consistency, and clarity of the disclosures in the financial statements which we deemed are required to be discussed with the City's Management Page 1 567 Area 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 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 management's 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 difficulties 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 Page 2 568 f 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 determine and record these accounting estimates. The following describes the significant accounting estimates reflected in the City's September 30, 2011 financial statements: Depreciation of Capital Asset Allowance for Doubtful Accounts Other post~ employment benefit Depreciation on capital assets is provided using the straight-line method. leasehold improvements are amortized on a straight- line basis over the shorter of the lease term or estimated useful life of the assets. All trade and other receivables are reported at net realizable value. The net OPEB obligation/( asset) reported for the difference between the annual required contribution and the actual contributions made by the City. Capital assets are recorded at historical cost or estimated historical cost and depreciated using the straight-nne method over the estimated usefulltves of the related assets. Receivables are analyzed for their collectability based on the creditors' ability to pay (i.e. financial condition, credit history, and current economic conditions). The City has informed us they used all the relevant facts available to them at the time 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. 569 : 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. We have audited the underlying data supporting the estimate and believe the resulting estimate to be reasonable. Page 3 Risk 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 rep()rted ..... A net pension obligation/(asset) is reported for the difference between the annual required contribution and the actual contributions made by the City. 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. 570 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. Page 4 The GASB has issued several statements not yet implemented by the City. The City's management has not yet determined the effect these Statements will have on the City's financial statements. However, the City plans to implement all standards by the required dates. The Statements which might impact the City are as follows: GASB Statement No. 60, Accounting and Financial Reporting for Service Concession Arrangements. GASB Statement No. 61, 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 This Statement, issued November 2010, will be effective for the City beginning with its year ending 2013 (effective for periods beginning after December 15, 2011.) This Statement addresses how to account for and report service concession arrangements (SCAs), a type of public-private or public-public partnership that state and local governments are increasingly entering into. 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 This Statement, issued December 2010, will be effective for the City beginning with its fiscal year ending September 30, 2013. The objective of this Statement is to incorporate into the GASB's authoritative literature certain accounting and financial 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. Page 5 571 GASB Statement No. 63, Financial Reporting of Deferred Outflow, Deferred Inflows of Financial Resources and Net Position GASB Statement No. 64, Derivative Instruments: Application of Hedge Accounting Termination Provisions-an amendment of GASB 53 This Statement, issued June 2011, will be effective for the City beginning with its fiscal year ending September 30, 2013. The objective of this Statement is to provide a framework that specifies where deferred outflows of resources and deferred inflows of resources-as well as assets and liabilities-should be displayed. The Statement also discusses how net position-no longer net assets-should be displayed. Ultimately, this new framework wm serve to standardize the presentation of deferred balances and their effects on a government's net position and address uncertainty related to their display. This Statement, issued June 2011, will be effective for the City beginning with its fiscal year ending September 30, 2012. The objective of this Statement is to clarify whether an effective hedging relationship continues after the replacement of a swap counterparty or a swap counterparty's credit support provider. This Statement sets forth criteria that establish when the effective hedging relationship continues and hedge accounting should continue to be applied. PageS 572 573 ~ MIAMI BEACH "="'" City of Miami Beach, 1700 Convention Center Drive, Miami Beach, Florida 33139, www.miamibeochfl.gov OFFICE OF THE CITY MANAGER Ph: 305-673-7010 March 30, 2012 · McGiadrey & Pullen, LLP 801 Brickell Avenue, suite 1050 Miami, Fl 33131 In connection with your audit of 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, 2011 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 the date of this letter, 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 Governmental 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. 574 McGiadrey & Pullen, LLP Page 2 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. 9. We have properly determined and reported the major governmental and enterprise funds based on the required quantitative criteria. 10. 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 ~ a.\'\ We ore commillad lo providing exo:llent public sorvice and safettlo ol! who live. work. ond ploy !n our vibrant. lropk:uL ltisJorlc community. 575 ·. McGiadrey & Pullen, LLP Page 3 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 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. \No oro commitlod fo providing excellent public service and safely to oil who live, work, ond play in our vibron!, ftopical. historic wmmvnily, 576 McGiadrey & Pullen, LLP Page4 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: 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, 2011 and/or for expected retroactive insurance premium adjustments applicable to periods through September 30, 2011. c. For pension obligations. post-retirement benefits other than pensions and deferred compensation agreements attributable to employee services rendered through September 30, 2011. 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 lf 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. Unasserted claims or assessments beyond what we included in the City's self insurance program, that our lawyer has 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. 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. \life ore commHted lo providing excellefll public 5ervice and safely !o oil wlro live. work and pia'/ in our vibrcml, !ropicol, historic community. 577 McGiadrey & Pullen, LLP Page 5 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. m. Derivative financial instruments. n. Material environmental clean-up obligations. 22.1n 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 all owned assets. \No ore commi!led fo providing oxcelien! public service and sa[;,•ty lo oil v;.f1o live, v;nrk, and play in our vibrant I!Opicol, historic community, 578 McGiadrey & Pullen, LLP Page6 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. 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 Stormwater revenue bonds and refunding bonds on December 7, 2011, and the issuance of General Obligation Bonds on December 1, 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 VVe ore commil!ed to providing excellenl pvblic service ond safely to all who live, wo1k. and piO)' in our vib:anf. tropical, hislo•ic community. 579 McGiadrey & Pullen, LLP Page 7 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 Allison R. w;,0!,~r Chief Accountant \Nu ote commilled to prov;ding excel.fonl public ~ervice and safety lo ail who l:vo, work, and play in our vibronl, ltopicol, h•slotic communi~! 580 MIAMI BEACH City of Miami Beach, 1700 Convention Center Drive, Miomi Beach, F!or!do 33139, www.miomibeochfl.gov FINANCE DEPARTMENT Tel: 305-673-7000 Fox: 305.673.7795 June 7, 2012 McGiadrey & Pullen, LLP 801 Brickel! Avenue, suite 1050 Miami, F! 33131 In connection with your audit of federal awards and state projects as of and for the year ended September 30, 2011 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 aU 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 an 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. t, We have provided you with our interpretations of any compliance requirements that have varying interpretations. 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 Wo ~ ro•miiOd < P"'""'w ~~'""' ,;VI< -. ood ooioly b o.! who •~. ~1k, ood ploy /1 OJ< 0b""'· .J~p<ol, IJ/>100' ""'m"'Y ~ Y '; 581 McGladrey & Pullen, LLP Page 2 of 3 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 aU documentation related to the compliance requtrements, 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. L 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, Rules of the 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 aH 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 !s audited. · s. We have disc!osed 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 fs 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, Rufes 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 actlon on findings. · 2. Unless disclosed to you, there have been no complaints filed with or concerning our compliance with ?-\-; the provisions of: . ~ We ore commifled lo providing excellenl public seNice ond safety lo oil wl!o live, work, ond ploy In our vibronl, tropical, l1is!oric community. 582 McG!adrey & Pullen, LLP Page 3 of 3 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 --({'vf ;{ · n d ~ ·' 'lbv~·· Patricia D. Walker Chief Financial Officer Hilda mandez ~ ·Assistant City Manager Allisoo0i~ Chief Accountant \Ale ore commilled /o providing exc<;llenl public ser;Jce ond ~o{efy lo oil who live. work. ond ploy in our vibror.J, lropicol, his!ork commtmily. 583 it 584 l l 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, 2011 585 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, 1-2 Rules of the Auditor General, State of Florida 3 -5 --~~~~~~~~~~~~~~~-----------------------------.------~ Schedule of Expenditures of Federal Awards and State Financial Assistance 6-8 Notes to Schedule of Expenditures of Federal Awards and State Financial Assistance 9 Schedule of Findings and Questioned Costs 10-16 Schedule of Prior Year Audit Findings 17-18 586 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 Miam! 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, 2011, which collectively comprise the City's basic financial statements and have issued our report thereon dated March 30, 2012. 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 Management of the City is responsible for establishing and maintaining effective 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, Our consideration of internal control over financial reporting 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 financial reporting that might be deficiencies, 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 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 compHance with 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, 2012. 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, 2012 2 588 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 OMS 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, 2011. 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 each of 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 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 Genera! 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 audit 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, 2011. 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 2011-01, CF 2011-02 and CF 2011-03. 3 t,tl:j 1"\.n>:·t <ri H'l>t H·~M!Oh:tn~Hrm .. ~t JH~~· • ..;M~; fd l{,~i<:·p•r<Jrd.:.·nt ;.;(;{f,HHtl:ti<]," t:H ~~nd n.:.t~·ulH~'Il h, Hl't 589 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 for the 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 llmited purpose described in the first paragraph of this section and was not designed to identify an 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 2011-01 and IC 2011-02. 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. 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 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, 2011 and have issued our report thereon dated March 30, 2012. Our report was modified to include a reference to other auditors. 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 refation to the basic financial statements taken as a whole. 4 590 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 June 7, 2012, except for the Schedule of Expenditures of Federal Awards and State Financial Assistance which is dated March 30, 2012. 5 591 City of Miami Beach, Florida Schedule of Expenditures of Federal Awards and State Financial Assistance Year Ended September 30, 2011 ------------------------------------------------------- FederalfState Grantor/Pass-Through Entity Program Title F ederai Grants: U.R Department of Housing ar,d Urban Development Direct Programs: Comm®ity Development Block Gran!! EntiUement Grants Community Development Bleck Grant! En!il!emer,J Grants (NSP3) Home investment Partnership Program Community Development Block Gran!S~Seclion 108loa.~ Guarantees ARRA-Community Develcpmet•l Block Grant Recovery ARRA Entitlement Grants (CDBG-R} Re<:overy Act Funded ARRA-Homeless Prevention and Rapid Rehousing Program F'ass-lhrough DepL Community Affairs -Pass through -Miami Dade County: &upportive Housing Program Community Development Block Grant.ORI-Villa Maria Community Development Block Grant-DR! Flamingo Park Neighborhood Improvements Pass-through Department of Commun~y Affairs: Community Development Block Grants-Neighborhood Stabiazation Prc9ram Total U.S. Department of Housing and Urban Development U$ Department o! Justice: Direct Program: Par! E -Developing, Testing and Demonstrating Pcomising New Programs-.Juvenile Justice and O<tlinquency Prevention -Teen Club PartE·· Developing, Testing and Demonstrating Promising New Programs-Juvenile Justice and Delinquency Prevention -Teen Club Salary Congressionaijy Recommended Awards-Teen Club 2010 Edward Byrne Memorial Justice Assistance Grant Program -JAG ARRA-Edward Byrne Memorial Juslica AssistaP.ce (JAG-CADIRMS) Federal Equitable Sharing Agreement Community Oriented Po,cing Services: Public Safety Partnership and Community Policing Gran!$-Child Sexual Predator Prog •am National Institute of Justice: National Institute of ,ius!ice Research, Evaluatlon. and Deve!opment-Poiice Homicide Cold Case Bulletproofvest Partnership/Body Armor Safety lni!iative Bulletproof Vest Partnership Program Pass-Thro~gh State of Flmida!Miami-Dade County: Edward Byrne Memoria! Justice Assistance Grant Program-Byrne Crim:nal Justice Records Total U.S. Department of Justlei! (Continued} 6 592 CFDAI CSFA Number 14"218 14.218 14.239 14.248 14.253 14.257 14"235 14.228 14.228 14.228 16,54i 16.541 16.753 16.738 16,804 16.000 16.710 16560 16.607 16.738 Grant/Contract Number Expenditures B-XX-MC-12-0014 $ 2,126,545 B-1 1 ·MN· ",2-0G39 33,775 M-XX-MC-12-0!H4 1,3S4,906 8-94-MC-12-0014 5,411 B-C-9-MY· 12-0014 325,436 S09-MY -12-0007 213,135 FL017784000DB02 & Fl017784D0010C3 59,080 03DB-D3-11-23.01-A01 42,244 OS·DB-D3-l1-23·01·AO 1 1,441,100 10DB·4X-11-23-01-F16 351,070 5,993,352 2008-Jl-FX-048", 45,198 2009-01-BX-0291 7,721 52,919 2010-DD-BX-0435 159,008 2010-DJ.BX-0161 61,500 2009-SB-89-2634 228,067 FL0130700 127,736 2009CSWY.0004 176,213 2009-DN-BX-K009 106,074 OMB# 1121.0235 15,182 NIA 14,7&7 943,406 City of Miami Beach, Florida Schedule of Expenditures of Federal Awards and State Financial Assistance Year Ended September 30, 2011 U.S. Department of Energy: Direct Program: ARRA-Energy Efficiency and Conservation Bll>ek Grant Total U.S. Department of Energy Pass.through Slate of Fbrida: Office of Al!orney General Crime Vf~lim Assistance -VOCA Total Office of Attorney U.S. Department cf Interior: Pass-through Slate of Florida: Department of Slate, Qr;ision of Historical Resources Total Historic Prnervallon Grants·ln-Ald U.S. Department ofT ransportation: Federal TranSit Administration Direct Program· Fr<deral Transit-Capital investment Grants-Elec!rowave Shutt!e Ser;ice Pass-lhroU{lh State of Florida: Florida Department ofT ransportalion Highway Planning and Cons!ructlco-WJddle. Beach Recreational Corridor Phase 1 Highway Planning and Construction-Middle Beach Recreational Corridor Phase 2 Highway Plan~ing and Cons~'\lction-Venetian Causeway Highway Planning and Construction-West Avem;e Bridge Highway Planning and Construction-South Beach Neigh. Trail Highway Planning and ConstrJclion-Dade Boulevard Bike Highway Planning and Cons!ruction-Coains Canal Seawall ARRA·Highway Planning and Construction-Sunset Dr. Bridge ARRA-Highway Planning and Cons!ructlon-Sunset Or. Bridge ARRA·Highway Planning and Construc!iO!l-Henedon Ave. Bridge ARRA-Highway Pl3nning and CoostrucUM,Dickens Avenue Lap Project ARRA-Highway Planning and Construction-Byron Avenue ARRA-Highway Planning and Construction-Indian Creek Drive Total U.S. Department of Transportation U.S. Department of Homeland Security Direct Program: Emergency Food and Sheller National Board Program- EFS Phase 28 E!l'.ergency Food and Shelter National Boa•d Program - EFS Phase 29 Assistance to Firelighters Grant-Fire Grant Total U.S. Department of Homeland Security {Continued) 7 593 81.128 16.575 15.904 20.500 20.20S 20.205 20.205 202[)5 20.205 20.205 20205 20.205 20.205 20.205 20.205 20.205 20.205 97.024 97.024 97.044 DE-SCOOG3489 V09027 f1CO? FL-03-0245 APG78 APT97 APG95 APJ33 APH49 APS17 AP718 42650i-l {AP060) 426502-1 (AP061) 426497~ 1 (AP062) 426629-:3 ( APS 85) 426&29-4 tAPS 86) 426500.1 {AP037) 159400-076 159400-076 EMW-2009-F0-1 0767 $ 552,742 m,742 58,226 58,22() 9,200 9,200 22,049 22,04~ 11,600 125 35&,537 226,375 275,211 39.704 25,100 860 1,430 920 17,344 1,500 2.13,248 1,163,954 1,186,003 ~.299 575 !\2,000 71,874 City of Miami Beach, Florida Schedule of Expenditures of Federal Awards and State Financial Assistance (Continued) Year Ended September 30, 2011 Federal/State Grantor/Pass-Through Entity Program Title Pass-through Slate of Florida: Florida Department of CommunHy Affairs Pass-through ~/Jaml Dade County Office of Domestic Preparedness Homeland Securi!y Grant Program -Urban Areas Security initiative 2007 Homeland Security Grant Program -Urban Areas Security Initiative 2008 Pass-through State of Florida: Florida Department o! Commu~i!y Affairs Disaster Grants-Pubiic Assistance-FEMA-Disaster Relief Funding Agreement Hazard Mitigation Grant Emergency Preparedness Demonstration Pf!J\}ram (EOC GranQ Total State-Pa~s-Florlda Dept. of Community Affairs Na\iQna1 Endowment for \he Arts: Direct Program: Promotion of !he Arts Grants to Organization and lndi\'iduals Total Nallonal Endowment for the Arts Total Expenditures offederal Awards State Grams: F!ori:la Department of Health: Pass-Through Miami-Dade Counly: Emergency Prev/PreplResponse-EMS County Grants Florida Department of State: Division of Historical Resources: Historic Preservation Grant-Fire Station No 2 Dlvlsior. of Cultural Affairs: Cultural and Museum Granl$1Cuilure Builds Florida Florida Department of Environmental Protection: Florida Recreaticn Developmer.l Assistance Program-FiarrJngo Park Tennis Renov. Florida Housing Finance Oxporalion: Slate Housing lniliatil'es Partnership Program Florida Department ol T ransporta!ion Stale Highway Project Re~mbursement-indian Creek SR AlA 41st-26th Street Total Expenditures of State Financial Assistance Total Expenditures of federal Awards and State financial Assistance NIA-Not Avaiiable See Notes to Schedule of Expenditures ol Federal Awards and Slate Financial Assistance. 8 594 CFOAI CSFA Number SH67 97.007 9i'.036 97.039 97.001 45.!)24 64.005 45031 45.062 37.0i7 52.901 55.023 Grant/Contract Number 09DS-24-11-23-02-011 10DS-48·l t-23-02-195 06-Wl·&K-11-23-02-567& 08HM-6G-11-23-02..0GO 11DS-37-11-23-02-198 1i-620C-7031 C-9013 SC114 12.5.0004 A08187 NA AOY 48 Expenditures $ 69,813 118,351 168,164 52,252 4$2,63ll 188,208 693,096 39,612 39,a12 !},735,669 2.,472 147,029 19,150 68,353 461,976 490,381 1,189,367 10,925,036 City of Miami Beach, Florida Notes to the Schedule of Expenditures of Federal Awards and State Financial Assistance 1. General The accompanying Schedule of Expenditures of Federal Awards and State Financial Assistance (the "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, 2011. 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 wen as amounts passed through other government agencies are included in the 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. Sub-recipient 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 sub-recipients: Name of Program/Projects Federal: Community Development B!ock Grant Community Development Biock Grant-DR! Community Development Block Grant -Neighborhood Stabilization Grant Home Program Total Federal State: State Housing Initiatives Partnership Program 9 595 CFDA/CSFA Number 14.218 14.228 14.228 14.239 52.901 Amount Provided to Subredpient $ 1,527,216 42,244 242,194 1,289,904 $ 3,101,558 $ 435,547 City of Miami Beach, Florida Schedule of Findings and Questioned Costs Federal Awards Programs and State Projects Financial Statements Type of auditor's report issued: Internal control over financial reporting: Material weakness{es) identified? Significant deficiency(ies) identified that are not considered to be material weakness{es)? Noncompliance materiaf to financial statements noted? Federal Awards Internal control over major program: Material weakness(es) identified? Significant deficiency(ies) identified that are not considered to be material weakness( as}? Type of auditor's report issued on compliance for major programs: Any audit findings 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 and 14.253 14.228 16.738 and 16.804 20.205 81.128 97.039 Dollar threshold used to distinguish between type A and type 8 programs: Auditee qualified as low-risk auditee? Unqualified Yes X No -------- Yes ----X No _ _,.;..;,.__ Yes X No -------- Yes X No -------- X Yes ----None reported ---- Unqualified X Yes No -------- Name of Federal Program or Cluster U.S. Department of Housing and Urban Development: ARRA • Community Development Block Grant U.S. Department of Housing and Urban Development: Community Development Block Grants-Neighborhood Stabilization Program U.S. Department of Justice: ARRA-Edward Byrne Memorial Justice Assistance U.S. Department of Transportation: ARRA-Highway Planning and Construction U.S. Department of Energy: ARRA-Energy Efficiency and Conservation Block Grant Program Pass-through State of Florida Department of Community Affairs: Hazard Mitigation Grant $300,000 X Yes No -------- 10 596 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(!es) 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 lobe reported in accordance with Chapter 10.550, Rules of the Auditor General? Identification of major projects: State CSFA No. 52.901 ---- ---- ---- Yes X No ------ Yes X None reported ------ Unqualified Yes X No ------ Name of State Projects Florida Housing Finance Corporation: State Housing Initiatives Partnership Program 55.023 Dollar threshold used to distinguish between type A and type B programs: 11 597 Florida Department of Transportation: State Highway Project Reimbursement- Indian Creek SR A1A 41st-26th Street $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 2011-01 Allowable Costs U.S. Department of Housing and Urban Development (HUD)- Community Development Block Grant ucDBG" (CFDA No. 14.218 & 14.253) Criteria: OMB Circular A-87 requires that in situations where employees work on multiple grants, their salary distribution must be supported by personnel activity reports or similar documents delineating the hours worked on each grant and other activities. ln addition, the personnel activity reports should be prepared at least monthly and must include the employee's signature. In situations where all of an individual's salary is charged to a federal program, certifications should be prepared at least bi-annually to support the amounts charged to the federal program. In addition, 2 CFR part 215 requires that non-federal entities receiving federal awards to establish and maintain internal control designed to reasonably ensure compliance with federal laws, regulations, and program compliance requirements. Condition: We noted that there were no procedures in place over payroll to monitor and ensure that personnel activity reports delineating the hours worked by employees on each grant or certifications for those employees that work solely on one grant, are completed. We noted individuals whose salaries were charged to the federal program did not have certifications completed. In addition, we noted that there were no personnel activity reports or similar documents delineating the hours worked on each grant and other activities for employees that worked on multiple grants. Questioned costs: $25,868 Context: For all 33 salaries and wage selections selected for testing we noted the City did not complete the required certifications for employees working solely on one Federal program. For those employees working on multiple grants, we noted the City did not have authorized personnel activity reports delineating the hours worked on each grant. Effect: Failure to maintain complete certifications could result in disallowance by the grantor of payroll expenditures. Without adequate internal controls over program costs, management faces the risk of submitting reimbursement requests for unallowable costs. 12 598 City of Miami Beach, Florida Schedule of Findings and Questioned Costs (Continued) Federal Awards Programs and State Projects Cause: The City does not have a fonnal process in place to ensure that aU individuals whose salaries are charged to federal programs are included in the certifications. Further, there does not appear to be effective internal controls over payroll to ensure compliance with Federal requirements. Recommendation: We recommend that the City establish a formal policy and procedure relating to the payroll certification process. The policy should include notifying division heads of the process and ensuring that they are aware of the provisions, which includes the following: (1) If only a portion of the individual's salary is charged to the program, an after-the-fact payroll distribution should be maintained. (2} If all of the employee's salary is charged to the program, the required certification should be prepared at least semi- annually. Views of responsible officials and planned corrective action: The City has recently established a Policy and Procedure for the payroll certification process which states: 1. Charge for salaries and wages for employees expected to work solely on a single Federal award or cost objective will be supported by payroll certifications. Certifications will cover the period worked solely on the program by the employee and prepared at least semi-annually. 2. Employees working on multiple activities or cost objectives, a distribution of their salary and wages will be supported by payroll timesheets which include the following: • Multiple activities portion/percentage of the employee salary charged to the programs • Sole activity 100% of the employee's salary charged to the program, and if so a certification sheet will be filed semi annually • Training, vacation and sick days accounted for the employee IC 2011·02-Sub-recipient Monitoring U.S. Department of Housing and Urban Development Community Development Block Grants-Neighborhood Stabilization Program (NSP) (CFDA No. 14.228) Criteria: Per review of the sub-recipient grant agreement, it was noted that monthly reports are to be submitted by the subrecipient to the City, by the 101h of the following month. The City must ensure that internal control policies are adhered to on a timely basis by the sub-recipient. Condition: Monthly reports were not submitted in a timely manner by the sub-recipient to the City. Questioned costs: Undeterminable. Context: In fiscal year 2011, the City received the November 2010, December 2010 and January 2011 reports late from the sub-recipient. Effect Sub-recipients may not be administering the activities funded by the program in accordance with the provisions of the program requirements and grant agreements. Cause: The City did not track the timely submission of the sub-recipient reporting requirements to ensure contract compliance requirements are being adhered to by the sub-recipient 13 599 City of Miami Beach, Florida Schedule of Findings and Questioned Costs (Continued) Federal Awards Programs and State Projects Recommendation: We recommend the City track the timely submission of the reports from the sub-recipient and ensure that all policies and procedures implemented by the City are adhered to by the sub-recipient Views of responsible officials and planned corrective action: A Policy and Procedure for Monitoring of Sub- recipients was created in April 2010, along with an Outlook calendar for program monitors. While the original NSP sub-recipient grant agreement between the City and MBCDC included a monthly reporting provision, monthly sub-recipient reports are neither required by the HUD NSP rules nor by the State of Florida rules. Therefore, the monthly reporting provision was amended to quarterly reports by Amendment No. 5 to the sub-recipient agreement. executed on August 22, 2011. State Awards None reported B. Compliance Findings Federal Awards CF 2011-01 Allowable Costs U.S. Department of Housing and Urban Development (HUD)- Community Development Block Grant "CDBG" (CFDA No.14.218 & 14.253) See IC 2011-01 Views of responsible officials and planned corrective actions: See IC 2011~01 for detailed views of responsible officials and planned corrective action. 14 600 City of Miami Beach, Florida Schedule of Findings and Questioned Costs (Continued) Federal Awards Programs and State Projects CF 2011-02 Procurement U.S. Department of Housing and Urban Development (HUD)- Community Development Block Grant "CDBG" (CFOA No.14.218 & 14.253) Criteria: As stated in the terms and conditions of the American Recovery and Reinvestment Act of 2009 (ARRA} award agreement, all ARRA funding Recipients are required to comply with the Buy American provisions of ARRA (Section 1605 of Title XVI). The Buy American provisions of ARRA require that a!l iron, steel and manufactured goods used in projects funded by ARRA for the construction, alteration, maintenance or repair of a public building or public work must be produced in the United States unless one of three listed exceptions applies -non-availability, unreasonable cost, or inconsistent with the public interest -and a waiver is granted by the United States Department of Energy (DOE). The Buy American provisions of ARRA are implemented by guidance issued by the Office of Management and Budget (OMB} found at 2 Code of Federal Regulations, Part 176, Subpart B. Condition: We observed that the City did not comply with the provisions of the American Recovery and Reinvestment Act of 2009 (ARRA) to include language within the contract between their su!rrecipient, who received ARRA funding under the Community Development Block Grant (14,253) to state that they must comply with the Buy American provisions of ARRA (Section 1605 of Title XVI). Questioned costs: Undeterminable. Context: The City's contract with one sub-recipient did not have a disclosure indicating that the funding Recipient is required to comply with the Buy American provisions of ARRA (Section 1605 of Title XVl). 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 perform a review of contracts with sub-recipients containing ARRA grant monies to ensure that all provisions, including the Buy American provisions of ARRA (Section 1605 of Title XVI) disclosure be included in the agreement. Such procedure could be created in the form of a checklist that is completed and reviewed prior to the execution of the subrecipient's contract. Views of responsible officials and planned corrective action: The City will establish a formal Policy and Procedure to perform a review of contracts with su!rrecipients containing ARRA grant monies to ensure that aU provisions, including the Buy America provisions of ARRA (SecHon 1605 of Title XVI} disclosure be included in the agreement. 15 601 City of Miami Beach, Florida Schedule of Findings and Questioned Costs (Continued) Federal Awards Programs and State Projects CF 2011-03-Reporting U.S. Department of Transportation ARRA Highway Planning and Construction (CFOA No. 20.205) Criteria: Pursuant to the reporting requirements for the American Recovery and Investment Act 2009 {ARRA): "Contractors and consultants must report their required monthly employment data for employees, hours, and payroll wages, as well as for their subcontractors/subconsultants." The said employment data must be entered into Florida Department of Transportation (FDOT}'s ARRA Employment Reporting system by the 1 Qth of each month for the prior month. Condition: We noted that the monthly reports for March 2011 and May 2011 were not submitted timely for one project Questioned costs: Undeterminable. Context: Out of the three monthly reports selected for testing, we noted that the reports due April 10, 2011 and June 10, 2011 were not submitted timely< Cause: Although the City has procedure in place to ensure reporting requirements under ARRA Section 1512 are being adhered to, there was a misunderstanding on whether monthly employment data was required to be filed in the event there was no construction activity for the period. Recommendation: We recommend that grant personnel responsible for ARRA report submission become fully knowledgeable of the reporting and submission requirements< Views of responsible officials and planned corrective action: The City has procedure in place to ensure all required reports are filed in a timely manner. The procedure was not followed due to some misunderstanding on whether filing was necessary if there was no construction activity during that period. Additionally, the ARRA reporting for these proJects and the Notice to Proceed (NTP) were not finalized by FDOT until June 9, 2011. Subsequent to this audit, the City has taken steps to ensure monthly employment data are filed with FDOT even if there was no construction activity for the period and all subsequent reports were filed in a timely manner. 16 602 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: IC 2010·01 Subreciplent Monitoring (CFOA No.14.218 and 14.228) Monthly and/or quarterly reports were not prepared and/or submiiled in a timely manner by the subrecipienls to the City. IC 2010.02 Reporting (CFDA No.14.218) and CF 2010· 01 Thera 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 late by the City to the Department of Housing and Urban Development. Status Corrected Corrected IC 2010-03 Procurement, Suspension & Debarment (CFDA No.14.218) The City did not have a system in place to verify whether vendors under contract were suspended or debarred. tc 2010..04 Davis Bacon Act (CFOA No. 14.218) and CF 2010- 02 Wages for three work classifications were noted to be under the Miami-Dade County minimum requlrement IC 2010.05 Subrecip!ent Monitoring (CSFA No.52.9il1) There were no procedures in place to monitor and ensure compliance with the subrecipieni requirements of the SHIP Program. As a result, monthly reports were not prepared and or submitted in a timely manner by the subrecipient, Mlami Beach Community Development Center, to the City as required by the subrecipienfs agreements. Corrected Corrected Corrected 17 603 Explanation The City corrected the specific finding in fiscal year 2011. The City corrected the specific finding in fiscal year 2011. The City corrected the specifiC finding in fiscal year 2011. The City corrected the specific finding in fiscal year 2011. The City corrected the specific finding in fiscal year 2011. City of Miami Beach, Florida Schedule of Prior Year Audit Findings Federal Awards Programs and State Projects (Continued) IC 2010-06 Reporting (CSFA No.52.901) and CF 2010- 03 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 to FHFG, CF 2009-01 Subrecipient Monitorlng{CFDA No.14.218) Corrected Monthly reports were not prepared and/or submitted in a Corrected timely manner by the subreclpients to the City as required by the s ubrecl pient agreements, In addition, no evidence of monitoring visas were found in several subrecipient's files. 18 604 The City corrected the specific finding in fiscal year 201t The City corrected the specific finding in fiscal year 20it City of Miami Beach, Florida Management Letter in Accordance with the Rules of the Auditor General of the State of Florida September 30, 2011 605 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 606 1-2 3-4 5 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, 2011, which collectively comprise the City's basic financial statements, and have issued our report thereon dated March 30, 2012. Our report was modified to include a reference to other auditors. We conducted our audit 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 Audit of Financial Statements Performed in Accordance with Government Auditing Standards dated March 30, 2012, 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, 2012. 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 10.554(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)(1)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. 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)(1)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 quantitaUve 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)(i)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 1 0.554(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, 2011 flied 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, 2011. 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, Florida March 30, 2012 2 608 City of Miami Beach, Florida Appendix A Current Year's Recommendations to Improve Financial Management, Accounting Procedures and Internal Controls Year Ended September 30, 2011 No. 2011-1 Current Year's Observations Self-Insurance Fund Deficit and Actuarial discount rate of the Self-Insurance Program 2011-1 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 $7.9 million, as of September 30, 2011. Additionally, it was noted, it may not be appropriate for the City to use a 4% 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 properly 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 growing 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 increased from $6.811 million at September 30, 2010 to $7.927 million at September 30, 2011, an increase of $1.116 million. This net increase was driven by the actuarial determined liability which increased by $1.947 million for pending insurance claims and $1.528 million for Incurred by not reported claims (IBNR). At September 30, 2011, the City had $14.875 million in IBNR liabilities and $11.798 million in pending insurance claims liabilities. The cash balance available for paying claims at September 30, 2011 was $17.5 mlllion. The City feels that this is sufficient to liquidate any insurable liabilities that become due within the next fiscal year. It is the City's intention to continue to increase revenues and thus reduce the deficit in future years. ln addition, the City considers, subject to commission budget approval, an annual contribution to reduce the Fund's deficit. 3 609 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, 2011 As with all other local governments, the last several fiscal years have been challenging due to continued declines in property values through January 2010 and increased pension contribution requirements primarily because pension investments have not met actuarial assumptions in the three of the last four years. As a result, while the City has increased funding for the Risk Management Fund in its annual operating budget 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. In FY 2010 the City decreased the rate for discounting loss reserves from 6% to 5% and in FY 2011 from 5% to 4%. The City plans to consider further decreasing the rate to 3.5% in FY 2012. 4 610 City of Miami Beach, Florida Appendix 8 Prior Year's Recommendations to Improve Financial Management, Accounting Procedures and Internal Controls Year Ended September 30, 2011 No. Prior Years' Observations 2002-2 Self-lnsurance Fund Deficit see current year's comment at 2011-1 5 611 Observation is Still Relevant X Comment No Longer Relevant Exhibit 2-Audit Areas 612 CITY OF MIAMI BEACH INTERNAL AUDIT DEPARTMENT Audit Areas Fiscal Year Ended 9/30/12 Areas highlighted are considered for audit based on projected frequency. Comments provided indicate reasons why area may not be audited within the projected frequency. OeJ;!artment • Audit Are~ Mayor and City Commission !Operations Administrative Support Services Bud et & Performance lm rovement Management & Budget Grants Management Finance Cashier Functions-Central Cashier Cashier Functions -Other areas Building, Police, Parking) City Payment Processing 'Fixed Assets lnterfund Transfers (includes management fees for Convention Center, Parking, Sanita1ion, Storm, Sewer, Internal Service. Resort Tax} Intergovernmental Rev ( S/Tax, Gas Tax Motor Fuel) Miscellaneous Revenues to include the following; Road Impact Fee reimbursement, Beach Access, Accumulated Leave Liability Business Tax Receipts/ Certificate of Use Communication Service Tax Franchise Fees & Utility Taxes· Electric Franchise Fees & Utiiity Taxes-Gas Utility Taxes-Gas. Other Companies (Added) Investments Lien Letter Fees Payroll Processing Resort Tax Operations Storm Water Fee Billing Water and Sewer Billings Procurement Operations 11m Last Audit 2012 2012 2009 2009 2011 2008 2009 2009 2009 r~ ,, :~ l !!l imH1n~'ilti,HHh I H '! 'i<k;,;:: 2011 2011 2011 Risk me Comments L Annual budget has been presented to GFOA and earned their Distinguish Budget Award, and audited b external auditors. L Grants are included in ttle City's single audit by the Cit 's external auditors. H M H H M City's external auditors review the internal controls of these financial areas annually within the scope of their comprehensive financial audit of the city. M Whiie this does not constitute a detailed internal audit, the controls are being reviewed. The City L has a consultant study underway to update the basis of determination for management fees. L M M Previously Franchise Cable & Utility Tax- Telephone M M M M L H L Audits of resort tax business are under the internal audit function. Daily contact with this Finance section keeps Audit Division informed. M H H Various contract and procurement policies are reviewed and comments under areas of user departments. I Audit Areas 2012-Exhibit 2 COW 1-16·13 1/8/2013 613 CITY OF MIAMI BEACH INTERNAL AUDIT DEPARTMENT Audit Areas Fiscal Year Ended 9/30/12 Areas highlighted are considered for audit based on projected frequency. Comments provided indicate reasons why area may not be audited within the projected frequency. lnf T h ormation ec no ogy Operations (Applications, Support, Communications Services) IT Security Icontract)_recommended City Cellular Phone Char~es Overaqes Human Resources Operations includes Labor Relations Review of Benefits Formulas Pension Time Purchased by leave Hours Health, Dental and Life Insurance c ity Clerk Operations, Record Retention I Public Requests S_pecial Masters Election Invoices artment Services City Attorney !operations Economic Dev. & Cultural Events As tM se anaaemen Beachfront Concession !'Boucher Brothers) City Leases, Historic City Hall, 777 Building, etc. Colony Theater Restaurant Agreement Ballet Valet Company Lease Agreement Vending Machines Corporate Sponsorship Concession Agreement Penrods Pier Park Miami Beach Marina South Pointe Restaurant (Smith & Wol!ensky} State Beachfront Management A_greement Market Places Concession Aqreement Building Audit Areas 2012-Exhibit 2 COW 1-16-13 Comments Annually M Each year, external auditor reviews internal controls over IT functions in their annual audit Annually_ H l'i'Jili~~'W'i~~l\{'\ L :mWi;liitiH~HNi L 2005 M 2008 L 2010 L 2011 L 2010 H 2008 L 2011 L 2010 M 2008 L 2010 L llnli)jj~~~!i@ M M 2009 L 2010 L 2009 ' .... 2012 L Required Annua!lv bv State Aqreement 2005 L 2 1/8/2013 614 CITY OF MIAMI BEACH INTERNAL AUDIT DEPARTMENT Audit Areas Fiscal Year Ended 9/30/12 Areas highlighted are considered for audit based on projected frequency. Comments provided indicate reasons why area may not be audited within the projected frequency. Building Fees-Electrical, Plumbing, "'"''~""r'"'"ical, Training, Elevator Inspections, h'Aro:.•ct•t•r<>t<i"'\n Demolition, Building Code Plans Review, Application Fees I Permitting Concurrency Fees Parkin !m act fees ment Cultural Arts Council Convention Center Management Contract I Revenues -Rents & leases, Concessions, Telephones, Electrical, Services Last 2011 2010 Risk pment Process Fee ,,...,.,m"'"''''n in 2009. Procurement of new permitting in 2009. L H Building Development Process Fee Study completed in 2009. ln 20!2, Crowe Horwath L L L L Expenditure audit. minimum risk. Analysis of revenues and operations was done in 2003 for Friends of the Bass Audit M Close-out audit of SMG contract M L Count audit completed ln 2008. Operations c ode ComPliance Code Enforcement Violations and Operations I 2012 H Review Code and Fire violations by Internal Audit. Inspection process, Complaints Crowe Horwath is performing operational review of this area for 2013. Homeless Outreach Services Housing & Community Development CDBG grants Department ls reviewed periodically by the State r.H.,..o_m_e...-?ln'-v-e-st-m-.e-n..,.t-==P=-a-rt:-n_e_rs..,..h7ip_s_(-::-H-:-:0:-,M,..,.,E...,E::-n-:-tl::-tl-em_e_n.,.,.t);:~,,:,,~~,~.~;+,;;;,+---c--:---lof Florida and HUD. State Housing initiatives Part (SHIPj Programs Audit Areas 2012-Exhibit 2 COW 1-16-13 3 1/8/2013 615 CITY OF MIAMI BEACH INTERNAL AUDIT DEPARTMENT Audit Areas Fiscal Year Ended 9/30/12 Areas highlighted are considered for audit based on projected frequency. Comments provided indicate reasons why area may not be audited within the projected frequency. D ~p_artment • Ad" A U It rea Greenspace Management Landscaping Agreements Park Expenditures Payments Overtime (Parks & Recreation) Recreation fees I Cashier functions Tennis Centers Agreement Public Works Administration I Engineering Bus Shelter I Lincoln Road Directories DECO Bike Concession A_gmt Last Ad" U It .Hiii~i!miH!ii"i!j; 2010 •~Hl'i1Ui11Wf;1~'-~i 2010 2010 2010 2009 Risk T UIPe L M H M M M L M M Comments Environmental Resource Management Inventory (Public Works} L Area considered minimum risk. M Inventory Processing 2009 M Operations -Sewer 2011 M Operations-Storm Water 2011 M Operations-Streets, Street Lights L ! Operations-Water 2011 M Overtime !Public Works} 2010 M Permit Fees-News Racks 2012 L Permit Fees-Work in Right of Way 2011 H Permit Fees-Sidewalk 2012 L Purchasing -Public Works 2009 M Transportation Management L Water & Sewer Impact Fees 2011 M ., Operations Jl1 L Worked with ""f.'""'"""'" management on hurricane debris and roli-offs last four years, no ~~~~~~------------~ =9~-Tp==rob!e==ms==note=-d·------------~ ,waste •a"'-'"'"" Fees M -"""''"''"'.'-'" $anitatlon Fee ''"'"''u"'"'ial Biiling 2011 M ~~~~~~~!i~n Impact Fees (Construction & Commercial 2011 M I Fines & Forthwiths (Sanitation) L Roll-Off Franchise Fees 2012 H I Continuous audits. Com!)~ed 8 audits in 2012. Property Management Maintenance Agreements 2008 M I lD City Access cards L ' Internal Service Charge Billings (Including_ CAM} 2010 M ! Inventory (Property Manag_ement) 2009 L ) p k' ar mg Attended Parking Lots Monitoring 2012 H Completed 4 reviews during tile year. Boat Show Parking 2012 M Now performed annually thru quarterly attended lot review. Cashiers & Attendants Agreement (Parking} 2012 M As of 8/2009 audit required annually. Coin Room (Monitoring) Meter Collection 2012 H Completed 4 reviews of coin room during the year. County Court Fines (Parking) [c!:' ::·::>;:,.;,: ·;;:~: L Meter Collection Agreement 2009 M Audit Areas 2012-Exhibit 2 COW 1-16-13 4 1/8/2013 616 CITY OF MIAMI BEACH INTERNAL AUDIT DEPARTMENT Audit Areas Fiscal Year Ended 9/30112 Areas highlighted are considered for audit based on projected frequency. Comments provided indicate reasons why area may not be audited within the projected frequency. Last Risk Deoartment • Audit Area Parking Debit Card!ln Car Meters Parking Enforcement Reviews (Meters} ParkinQ Permits (Non-Revenue 1 Parking Permlts (Revenue) Space Rentals -Meters Space Rentals • Parking Garages Towing Agreements Comoliance Towinq Fees-Parking Department Valet Parking Agreement (Art Basel) Fl tM ee anagemen Fue! distribution Inventory & Processinq Operations /Internal Service Charges Billings Vehicle Purchases Public Safety Pollee County Court Fines-Traffic !False Alarm/Registration Forfeited Funds-Federal Forfeited Funds-State Off Dutv Account{Poiice) Official Authorized Funds-Criminal Investigation UnitiCIU) Official Authorized Funds· Strategic Investigation Unit!SIUl Audit 2010 2012 2011 2012 2008 2009 2012 2009 2012 2009 2010 2011 2007 2012 2006 2011 2009 2007 2007 Operations-(Patrol, Criminal Investigation. Support ~1:\gii~nm~m;~il Services & Technical Services} !~!Htfn\i~1HW11li1 Overtime (Police) 2009 Property Evidence Unit (Police) 2009 Towing Fees (Police) 2009 Fire Annual Fire Inspection Fees I Process I Special Events Fire Plan Review I Fire Prevention Permitting Fire Rescue Fees Audit Areas 2012-Exhibit 2 COW 1-16-13 5 617 ~ Comments M H Continuously monitored throughout year. 24 separate reviews performed. L M M M H Performed by outside Firm L M M L L L L Follow-up audit preformed 10/2003, no exceptions were noted. L Internal Audit assisted police ln reviewing new procedures for false alarm. Police in process of obtaining new software for operations L L M L L L H M L H M L M Building Development Process Fee Study completed in 2009. Procurement of new permitting system in 2009. In addtion, Crowe Horwath is performing operational review of this area for " 1 Building Development Process Fee Study completed in 2009. Procurement of new permitting system in 2009. Crowe Horwath is performing operational review of this area for 2013. 1/8/2013 CITY OF MIAMI BEACH INTERNAL AUDIT DEPARTMENT Audit Areas Fiscal Year Ended 9/30/12 Areas highlighted are considered for audit based on projected frequency. Comments provided indicate reasons why area may not be audited within the projected frequency. City wider· ..... ,~ ........... Capital Projects-Non-C!P, {Public Works & i'l!! Property Management. Parks, RDA, Convention !Center. etc) Non-Profit Organizations CDBG funding source: ot ·genera n an un mg source: Boys and Girls Club Miami Beach Community Health Center ,,, North Beach Development Corp Audit Areas 2012-Exhibit 2 COW 1·16-13 Last Risk Ill 2010 m 2008 6 618 H funding reviewed by Dev. -"'--_,Periodically reviewed by Federal HUD. Areas _.;;;....._,reviewed by external auditors through the Single Report under OMB Circular A-133. L General Fund for 2013 is $16.606. L General Fund for 2013 is $21,660. L General Fund for 2013 is $18.000. 1/8/2013 Exhibit 3 -Summary of Internal Audit Activities 619 Summary of Internal Audit Activities for Fiscal Year 2011/12 Internal Audits ~Available On Line County Court Fines -Traffic Ticket Cultural Arts Council 9/2011 Douglas Gardens Community Health Center Inc. Flrst Class Parking, LLC Valet Parking Operational Audit-Art Basel 2011 Imperial Parking Agreement for Cashiers Attendants and Supervisors -Year 3 Miami Design Preservation League Grant State Beachfront Management Agreement FY 2011 Towing Compliance Audit -Tremont * Towing Compliance Audit-Beach Towing* News Rack Permit Fee Revenues Sidewalk Cafe Permit Fee Revenues City Non-Pension Investment Revenue Central Cashier's Office Operational Audit Revenue Municipal Parking Permits Public Works Department's Warehouse Inventory Selected Departments' Cashiering Function Audit Analysis -Available On Line Analysis of Code Compliance and Fire Prevention Complaints and Cases *-Represents those audits performed by outside firm. For fiscal year 2011/12 internal audits to date included the following recommendations: • Additional safeguards over inventory processing and safeguarding for areas of Public Works; • Revisions to update several departmental procedures and improve controls over segregation of duties for Central Cashier Offices and miscellaneous cash receipts; • Changes in procedures to comply to reporting requirements of approved grant funds distributed by the Cultural Arts Council; • Improve internal control processes for processing traffic citations, revenue parking permits, beach concession fees, and upland fees; • Improve process, enforcement and verification of charges for News Rack and Sidewalk Cafe Permits; • Strengthen oversight of compliance to the Investment Advisor agreement and Towing Permits; • Verification of compliance to the revenue sharing provision of the Parking Agreement to provide cashiers and attendants; • Improvement of internal controls over Code and Fire enforcement by strengthening oversight, complaint and case processes, segregation of duties between processing and approval of billing and adjustments to fines; • Confirmation of funds forwarded to Miami Design Preservation League and Douglas Gardens Community Health Center to be used for proper agency purpose, verification of performance measures, and recommendations for improvement in internal controls; • Verification of performance of valet parking operations and attended lots, and compliance with Parking Department procedures for Revenue Parking Permits. 620 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 eight audit reports in fiscal year 2011/12 resulted in $55,001 of audit assessments Other Support Additional support was directed to performing non-audit activities. • Assistance was provided for Cleanliness Assessment Program o Uploading Blackberry units for assessment o Reviewing Assessment results for completeness. • 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 Responding to the Office of Inspector General's audit of FEMA funding received for Hurricanes Katrina and Wilma. Additional monies recovered during the past fiscal year for these cfaims amounted to $1,004,270 for Hurricane Wilma. Additional funds are pending for one completed project. 621