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LTC 197-2008 External Auditor's (McGladrey & Pullen) Annual Audit Report on the City of Miami Beach (the City) for the period ended September 30, 2007~~(;~'!~:OF~ m MIAMI BEACH OFFICE OF THE CITY MANAGER NO. LTC # 197-2008 2008 AUG - I Pad 2~ 59 OITY ~~.~ ~K"S OFI" IC.E LETTER TO COMMISSION TO: Mayor Mattie Herrera Bower and Members of the City Commission FROM: Jorge M. Gonzalez, City Manager DATE: July 31, 2008 SUBJECT: External Auditor's (McGladrey & Pullen) Annual Audit Report on the City of Miami Beach (the City) for the period ended September 30, 2007 Attached for your information is the external auditor's report on the City for the fiscal year ended September 30, 2007. The audit report and accompanying transmittal letter are dated March 28, 2008 which represents the date that the auditor's field work was completed and the date required to be used for the report under generally accepted auditing standards. The attach transmittal from McGladrey and Pullen was received by the City on July 15, 2008. This package includes the following: A. A transmittal letter to the Mayor and Members of the City Commission, discussing the auditor's responsibility under professional standards, accounting policies and alternative accounting treatment, management's judgment and use of accounting estimates, audit adjustments made to the trial balance (Appendix A), and information about consultation with other accountants. Appendix A includes thirteen journal entries resulting from reclassifications, adjustments, changes in accounting method, and corrections of account balances proposed by the auditors and recorded by the City. The letter also states that the auditors had no disagreements with the City's management, no difficulties were encountered in performing the audit and includes a schedule of uncorrected misstatements (Schedule B). Schedule B lists one journal entry to defer revenue received by the City in fiscal year 2006. This entry was proposed by the auditors but not recorded by the City. Management believes that the correction of the uncorrected misstatement, which would result in the restatement of the prior year's ending balance, is immaterial to our financial statements taken as a whole; B. The City's Comprehensive Annual Financial Report (CAFR) for the fiscal year ended September 30, 2007; C. Additionally, we have included in a single bound document, the following required reporting information for the fiscal year ended September 30, 2007, completed on various dates: • McGladrey & Pullen's management letter, in accordance with the Rules of the Auditor Genera! of fhe State of Florida, to the Mayor and Members of the City Commission. There were no observations in the current year. Prior year's observations are documented in Appendix A or page 140 of the report; Annual Audit Report Pg. 2 • McGladrey & Pullen's Independent Auditor's Report on Internal controls over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Governmental Auditing Standards; • McGladrey & 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 OMB Circular A-133 and Chapter 10.550, Rules of fhe Auditor General of the State of Florida and Schedule of Expenditures on Federal Awards and State Financial Assistance; • Annual Report for the City in accordance with continuing disclosure requirements of SEC Rule 15c2-12, and • Annual Report for the Miami Beach Redevelopment Agency in accordance with continuing disclosure requirements of SEC Rule 15c2-12. If you have any questions or need additional information please contact Patricia Walker at 305-673- 7574 JMG:PDW:aw McGladrey & Pul ten Certified Public Accountants March 28, 2008 To the Honorable Mayor and Members of the City Commission of the City of Miami Beach, Florida Miami Beach, Florida ce;~; /,r. -..r~ ~.~ ~~ fF ,.. ~~~ This letter is intended to inform the Mayor, and Members of the City Commission about significant matters related to the conduct of the annual audit so it can appropriately discharge its oversight responsibility and that we comply with our professional responsibilities to the Mayor, and the Members of the City Commission. In addition to our report on your financial statements, we have provided, a letter, dated March 28, 2008, 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, 2007. The following summarizes various matters which must be communicated to you under auditing standards generally accepted in the United States of America. The Auditor's Responsibility Under Auditina Standards Generally Accepted in the United States of America Our audit of the financial statements of the City for the year ended September 30, 2007 was conducted in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards issued by the Comptroller General of the United States, Those standards require we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error, fraudulent financial reporting or misappropriation of assets. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Accordingly, the audit was designed to obtain reasonable, rather than absolute, assurance about the financial statements. We believe our audit accomplished that objective. In accordance with Government Auditing Standards, we have also performed tests of intemal control over internal control over financial reporting and tests of compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters that contribute to the evidence supporting our opinion on the financial statements. However, they do not provide a basis for opining on the City's internal control over financial reporting or on compliance and other matters. Management Judgments and Accounting Estimates 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. Management has informed us they used all the relevant facts available to them at the time to make the best judgments about accounting estimates and we considered this information in the scope of our audit. Estimates significant to the financial statements include such items as actuarial assumption used for the City's pension plans, allowances for doubtful accounts, estimated liability for claims incurred but not reported and the estimated useful lives of the City's capital assets. The Mayor, Members McGladrey 8 Pullen, LLP is a member firm of RSM International. an affiliation of separate and independent legal entities. of the City Commission and the City Manager may wish to monitor throughout the year the process used to compute and record these accounting estimates. Audit Adjustments There were various audit adjustments made to the original trial balance presented to us to begin our audit. Of the adjustments that were recorded, the attached Appendix A is a description of the adjustments that could, in our judgment, either individually or in the aggregate, have a significant effect on the City's financial reporting process. Uncorrected Misstatements We also accumulated some uncorrected misstatements, which were discussed with management and were determined by management to be immaterial, both individually and in the aggregate, to the opinion units of the financial statements of which we concur. Therefore, the adjustments to correct these misstatements were not made to the financial statements. These uncorrected misstatements are summarized in the accompanying Schedule B. Accounting Policies and Alternative Treatments Management, Members of the City Commission and the City Manager have the ultimate responsibility for the appropriateness of the accounting policies used by the City. The City did not adopt any significant new accounting policies nor have there been any changes in existing significant accounting policies during the current period which should be brought to your attention for approval. Following is a description of significant accounting policies or their application that did not effect the current year, but which will be implemented in future years. GASB Statement No. 43, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans, was issued April 2004. This Statement establishes uniform financial reporting standards for the postemployment benefit plans (OPEB plans) and supersedes existing guidance. The provisions of this Statement will be effective for the City beginning with its year ending September 30, 2008. GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions will be effective for the City beginning with its year ending September 30, 2009. This Statement improves the relevance and usefulness of financial reporting by requiring systematic, accrual-basis measurement and recognition of OPEB cost (expense) over a period that approximates employees' years of service and provides information about actuarial accrued liabilities associated with OPEB and whether, and to what extent, progress is being made in funding the plan. GASB Statement No. 48, "Sales and Pledges of Receivables and Future Revenues and Intra-Entity Transfers of Assets and Future Revenues," was issued September 2006. This Statement establishes accounting and financial reporting standards for transactions in which a government receives, or is entitled to, resources in exchange far future cash flows generated by collecting specific receivables or specific future revenues. It also provides disclosure requirements for a government that pledges or commits future cash flows from a specific revenue source. In addition this Statement establishes accounting and financial reporting standards for intra-entity transfers of assets and future revenues. The provisions of this Statement will be effective for the City beginning with its year ending September 30, 2009. GASB Statement No. 49, "Accounting and Financial Reporting for Pollufion Remediation Obligations,"was issued November 2006. This Statement addresses accounting and financial reporting standards for pollution (including contamination) remediation obligations, which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups. The provisions of this Statement will be effective for the City beginning with its year ending September 30, 2009. GASB Statement No. 50, "Pension Disclosures - an amendment of GASB Statements No, 25 and 27," was issued May 2007. This Statement more closely aligns the financial reporting requirements for pensions with those for other postemployment benefits (OPEB) and, in doing so, enhances information disclosed in notes to financial statements or presented as required supplementary information (RSI) by pension plans and by employers that provide pension benefits. The provisions of this Statement will be effective for the City beginning with its year ending September 30, 2009. GASB Statement No. 51, "Accounting and Financial Reporting for Intangible Assets," was issued June 2007. This Statement establishes accounting and financial reporting requirements for intangible assets to reduce these inconsistencies, thereby enhancing the comparability of the accounting and financial reporting of such assets among state and local governments. The provisions of this Statement will be effective for the City beginning with its year ending September 30, 2010. 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. Other Information in Documents Containing Audited Financial Statements We are not aware of any other documents that contain the audited basic financial statements. If such documents were to be published, we would have a responsibility to determine that such financial information was not materially inconsistent with the audited statements of the City. Disagreements with Management 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. Consultations with Other Accountants We are not aware of any consultations management had with other accountants about accounting or auditing matters. Major Issues Discussed with Management Prior to Retention No major issues were discussed with management prior to our retention to perform the aforementioned audit. Difficulties Encountered in Performing the Audit We did not encounter any difficulties in dealing with management relating to the performance of the audit. Closing We will be pleased to respond to any questions you have about the foregoing, We appreciate the opportunity to continue to be of service to the City. This report is intended solely for the information and use of the Mayor and Members of the City Commission, the City Manager and management and is not intended to be and should not be used by anyone other than the specified parties. City of Miami Beach, Florida Appendix A -Adjusting Journal Entries 9.30.2007 Entry $ $ Number Account Number Account Description Debit Credit (1) 424-7000-135100 Interest Receivable -Investment 43,125 424-8000-361110 Interest on Investments (43,125) 423-7000-135100 Interest Receivable -Investment 21,563 a23-8000-361 1 1 0 Interest on Investments (21,563) 428-7000-135100 Interest Receivable -Investment 50,313 428-8000-361110 Interest on Investments (50,313) (2) 011-7000-135100 Accrued Interest Rec. 106,848 01 1-8000-361 1 1 0 Interest Revenue-USTB (106,848} 382-7000-135100 Accrued Interest Rec. 423 382-sooo-3s11oo Interest Revenue -USTB (423) 383-7000-135100 Accrued Interest Rec. 9,560 383-8000-361110 Interest Revenue -USTB (9,560) 384-7000-135100 Accrued Interest Rec. 28,298 384-8000-361110 Interest Revenue -USTB (28,298) 423-7000-135100 Accrued Interest Rec. 23,369 423-8000-361110 Interest Revenue-USTB (23,369) 424-7000-135100 Interest Receivable-Invest. 26,591 424-8000-361130 Interest Revenue (26,591) 428-7000-135100 Accrued Interest Rec. 38,846 428-8000-361110 Interest Revenue -USTB (38,846) 379-7000-135100 Accrued Interest Rec. 68,737 379-8000-361110 Interest Revenue -USTB (68,737) (3) 011-7000-151500 U5 Govt. Agency Securities 1,938,664 011-7000-151750 Corporate Bonds 55,126 011-8000-361720 Unrealized Gain on Investment (1,993,790) 011-7000-271100 Fund Balance 1,993,790 011-7000-271300 Designated for Unrealized GainlLoss (1,993,790) 382-7000-151100 US Treasury Securities 2,679 382-8000-361760 Unrealized Gain on Investments (2,679) 382-7000-271100 Fund Balance 2,679 382-7000-271300 Designated for Unrealized GainlLoss (2,679) 383-7000-151100 US Treasury Securities 60,554 383-8000-361760 Unrealized Gain on Investment (60,554) 383-7000-271100 Fund Balance 60,554 383-7000-271300 Designated for Unrealized Gain/Loss (60,554) 384-7000-151100 US Treasury Security 179,235 384-8000-361760 Unrealized Gain on Investment (179,235) 384-7000-271100 Fund Balance 179,235 384-7000-271300 Designated for Unrealized Gain/Loss (179,235) (4) 425-7000-117001 Allowance for City Bills 53,150 425-8000-369999 Miscellaneous (53,150) 198-7000-117001 Allowance for City Bills 2,105 198-8000-345905 Lot Clearing Lien Satisfaction (2,105) 011-7000-117001 Allowance for City Bills 26,283 011-8000-369960 City Bill Revenue (26,283) 427-7000-117001 Allowance for City Bills 2,391 427-8000-343710 Storm Water (2,391) 435-7000-117001 Allowance for City Bills 2,631 435-8000-354004 Sanitation Fines (2,631) 550-7000-117001 Allowance for City Bills 1,635 550-8000-369960 City Bill Revenue (1,635) (5) 011-7000-15150 US Govt. Agency Securities 380,028 011-7000-151750 Corporate Bonds (105,886) 011-8000-361110 Interest Income (274,141) 382-7000-151100 US Treasury Securities 1,790 382-8000-361110 Interest Income (1,790) 383-7000-151100 US Treasury Securities 40,450 383-8000-361110 Interest Income (40,450) 384-7040-151100 US Treasury Securities 119,729 384-8000-361110 Interest Income (119,729) 428-7000-151100 US Treasury Securities 57,313 428-8000-361 1 1 0 Interest Income (57,313) 424-7000-151100 US Treasury SeCUrities 49,881 424-8000-361 1 1 0 Interest Income (49,881) 423-7000-151100 US Treasury Securities 38,031 423-8000-361110 Interest Income (38,031) (6) 370-2157-067357 Parks-Capital Contracts 871 161-6235-000676 Rennovations 113,313 301-2157-067357 Parks-Capital Contracts 53,680 377-2157-067357 Parks-Capital Contracts 38,135 370-7000-202001 Accounts Payable (871) 161-7000-202001 Accounts Payable (113,313) 301-7000-202001 Accounts Payable (53,680) 377-7000-202001 Accounts Payable (38,135) (7) 427-0427-000540 Amortization Expense 71,449 427-7000-232000 Revenue Bonds Pay 71,449 (8) 425-0410-000540 Amortization Expense 36,122 425-7000-232000 Revenue Bonds Pay 36,122 (g) 540-1790-000312 Prafessional Services 6,250 540-1792-000312 professional Services 6,250 540-7000-155001 Prepaid Insurance (12,500) 540-1792-000373 Crime Insurance 2,073 540-7000-155001 Prepaid Insurance (2,073) 540-1792-000370 Liability Insurance 6,419 540-7000-155001 Prepaid Insurance (6,419) 540-7000-155001 Prepaid Insurance 509,847 540-1792-000378 Property Insurance (509,847) 540-7000-155001 Prepaid Insurance 6,734 540-1792-000378 Property Insurance (6,734) 540-1792-000378 Property Insurance 81,999 540-7000-155001 Prepaid Insurance (81,999) 540-1792-000390 Fine Arts 27,099 540-7000-155001 Prepaid Insurance (27,099) (10) 435-0430-000334 Incinerator 153,192 435-7000-202001 Accounts Payable (153,192) (11) 152-8000-331580 State of Florida SHIP Program 78,765 152-7000-223107 Deferred Revenue (78,765) (12) (13) 376-2323-061357 428-2323-061357 384-2323-061357 376-7000-202001 428-7000-202001 384-7000-202001 Design-Capital Contracts Design-Capital Contracts Design-Capital Contracts Accounts Payable Accounts Payable Accounts Payable 428-2127-060357 Storm water Capital Contracts 428-7000-202001 Accounts Payable 5,176 91, 648 91,648 (5,176) (91,648) (91,648) 155,679 (155,679) City of Miami Beach, Florida Schedule B -Passed Journal Entries As of and for the year ended September 30, 2007 N/e believe that the effects of the uncorrected misstatements aggregated by you and summarized below are immaterial, both individually and in the aggregate io the financial statements taken as a whole. For purposes of this representation, we consider items to be material, regardless of their size, if they involve the misstatement or omission of accounting information that, in fight of surrounding circumstances, makes it probable that, in the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement. Opinion Unit: Governmental Activities DESCRIPTION Effect -Debit {Credit) ASSETS LIABILITIES EQUITY REVENUE EXPENSES CARRYOVER IMPACT FROM PREVIOUS YEARS CURRENT YEAR MISSTATEMENTS Known Errors City is aware for the period of 9130!06 $ 547,830 $ (547,830) fund balance was over stated due to revenue related to SHIP program was received on cash basis as apposed io accrual basis. As a result, Non major special revenue fund was overstated by the amount noted on 9130106 and understated for the period ending 9130!07. Non Major Fund Effect -Debit (Credit) DESCRIPTION ASSETS LIABILITIES EQUITY REVENUE EXPENSES CARRYOVER IMPACT FROM PREVIOUS YEARS CURRENT YEAR MISSTATEMENTS Known Errors City is aware for the period of 9!30/06 fund balance was over stated due to revenue related to SHIP program was received on cash basis as apposed to accrual basis. As a result, Non major special revenue fund was overstated by the amount noted on 9/30/06 and understated for the period ending 9130107. 547,830 $ (547,830)