HomeMy WebLinkAbout2013 Management Letter
CITY OF EVANSTON, ILLINOIS
COMMUNICATION TO THOSE CHARGED WITH GOVERNANCE
AND MANAGEMENT
As of and for the Year Ended December 31, 2013
CITY OF EVANSTON, ILLINOIS
TABLE OF CONTENTS
Page No.
Required Communication of Internal Control Related Matters Identified in the
Audit to Those Charged with Governance 1
Material Weaknesses 2 - 3
Significant Deficiencies 4 - 5
Other Communications with Those Charged with Governance
Two Way Communication Regarding Your Audit 6 - 7
Communication of Recommendations and Informational Points
to Management that are not Material Weaknesses or Significant Deficiencies
Recommendation 8
Informational Points 9 - 10
Required Communications by the Auditor with Those Charged with Governance 11 - 14
Summary of Uncorrected Financial Statement Misstatements
Management Representations
REQUIRED COMMUNICATION OF INTERNAL CONTROL RELATED MATTERS IDENTIFIED IN THE
AUDIT TO THOSE CHARGED WITH GOVERNANCE
To the Honorable Elizabeth B. Tisdahl, Mayor and
Members of the City Council
City of Evanston, Illinois
� BAKER TILLY
Baker Tilly Virchow Krouse, LLP
1301 \Xf 22nd Sr, Ste 400
Oak Brook, IL 60523-3389
rel630 990 3131
fax 630 990 0039
bakcrrilly.com
In planning and performing our audit of the financial statements of the City of Evanston as of and for the year
ended December 31, 2013, in accordance with auditing standards generally accepted in the United States of
America, we considered its internal control over financial reporting (internal control) as a basis for designing our
auditing procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the
financial statements, but not for the purpose of expressing an opinion on the effectiveness of its internal control.
Accordingly, we do not express an opinion on the effectiveness of its internal control.
Our consideration of internal control was for the limited purpose described in the preceding paragraph and was
not designed to identify all deficiencies in internal control that might be material weaknesses or significant
deficiencies and, therefore, material weaknesses or significant deficiencies may exist that were not identified.
However, as discussed below, we identified certain deficiencies in internal control that we consider to be
material weaknesses and other deficiencies that we consider to be significant deficiencies.
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 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. We consider the following
deficiencies in the City's internal control to be material weaknesses:
> Journal Entries
> External Financial Reporting
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe
than a material weakness, yet important enough to merit attention by those charged with governance. We
consider the following deficiencies in the City's internal control to be significant deficiencies:
> Information Technology
> Cash Receipts Controls
The City of Evanston's written responses to the material weakness and significant deficiencies identified in our
audit have not been subjected to the auditing procedures applied in the audit of the financial statements and,
accordingly, we express no opinion on them.
This communication is intended solely for the information and use of management, those charged with
governance, and others within the organization and is not intended to be, and should not be, used by anyone
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Page 1
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Page 2
MATERIAL WEAKNESSES
JOURNAL ENTRIES
The ability to prepare and initiate journal entries is delegated to various levels of finance employees.
These entries do not post to the system until the Accounting Manager reviews and approves them.
However, there is no review and approval of journal entries initiated and recorded by the Accounting
Manager. An entry could be made or improperly supported without the City’s knowledge.
CITY RESPONSE:
The City believes there are adequate controls in place for journal entry management. It is not
common for organizations to have several steps in journal entry review and is much more
acceptable to have entries done by one staff member and reviewed by the manager. To make the
process more efficient, most of the journals are now entered by one of the accountants and
approved by the Accounting Manager with the exception of very few journals as a result of
budget/Audit compliance or directives from CFO.
EXTERNAL FINANCIAL REPORTING
The system of internal controls over financial reporting is addressed by auditing standards. In theory, a
good system of internal controls staffed with enough people with enough training would provide your
organization with the ability to not only process and record monthly transactions, but also to prepare a
complete set of annual financial statements.
The current standard makes it clear that the definition of a material weakness in internal control should
now include consideration of the year-end financial reporting process. To avoid the auditor reporting a
material weakness in internal controls, your system of controls would need to be able to accomplish the
following:
1. Present the books and records to the auditor in such a condition that the auditor is not able to
identify any material journal entries for the current or prior periods as a result of our audit
procedures. This is very rare indeed for most of our clients.
2. Prepare a complete set of year-end financial statements with a very high level of accuracy.
The current standard requires that the level of accuracy be such that there is only a remote
likelihood that the auditor discovers a material change to the statements or footnotes. While a
number of our clients prepare their own statements, it may not be cost beneficial to scrutinize
those statements internally to the same degree that the auditor will do later. If the auditor,
therefore, discovers a material change to the statements, by definition, the system of internal
controls over financial reporting must have a material weakness.
To accomplish such a high level of internal control over financial reporting is a difficult task for most
governments. During the course of our audit, it was discovered that receivables and revenue in the Sewer
Fund were materially misstated resulting in audit adjusting entries prepared by the City. The adjustments
to the financial statements increased reimbursement receivable and revenue by $860,353.
This entry was necessary to ensure that the financial statements are fairly stated and, in our judgment,
was material to the financial statements. Management subsequently recorded these amounts.
As noted above, the design and implementation of internal controls over financial reporting are the
responsibility of the City as emphasized in Statement of Auditing Standards statement No. 115,
Communicating Internal Control Related Matters in an Audit. We have observed that the improper design
and implementation of controls (a complete and documented review of subsequent transactions for
proper inclusion/exclusion in the current year financial statements) is normally a constraint of cost
containment and lack of staffing available to public entities.
Page 3
MATERIAL WEAKNESSES (cont.)
CITY RESPONSE:
The City received the above payment from MWRD in the month of March 2014. As the MWRD
didn’t make the final acceptance (for payment) until 2014, the finance staff reported the funds as
Grant revenue in the current fiscal year. The Auditors felt that since the grant was a
reimbursement for work done last summer, it should be reported as revenue in the FY2013.
Page 4
SIGNIFICANT DEFICIENCIES
INFORMATION TECHNOLOGY
As part of the audit, we were required to identify the processes in place that provide a controlled
information technology (IT) environment for the applications, supporting systems and infrastructure
determined to be critical to the financial statement audit. We documented the processes in place for each
of the three main areas of focus: change management, logical access and IT operations. We then
assessed the design effectiveness of each of these processes and noted the following opportunities to
strengthen the City’s IT controls.
The City has some logical restrictions in place, such as requiring a unique user ID and password to
access the systems. Through our discussions with the City and related observations, we noted that the
Network password login from the active directory requires eight characters and is changed every 90 days;
password complexity is required and the system remembers the last five passwords. Some of the City’s
software systems such as AQUAS and PAL also follow these password criteria. Other of the City’s
software systems such as CryWolf, JDE and RecTrac require passwords; however they are not in line
with recommended password complexity standards. Best practices indicate that other steps could be
taken to further ensure the integrity of the data. All passwords should be changed periodically. They
should also meet the industry standards for length, expiration, characters, and history (passwords cannot
be repeated). However, we understand that purchased software cannot always be modified in order to
strengthen password complexity requirements.
CITY RESPONSE – Provided by Information Technology (IT):
The City has purchased and is in the process of completing the implementation of a new financial
system to replace JDE. This new software, New World Systems, is active-directory integrated
and utilizes user’s Windows credentials. This login requires eight characters, is changed every 90
days, password complexity requirements, and remembers the last five passwords. Aquas and
PAL (Accela) are also active-directory integrated. RecTrac is not active-directory integrated, but
does not allow the reuse of previous 5 password, has password complexity requirements, and
must change every 90-days. The City will evaluate if active-directory integration is possible for
this and all third-party systems.
CASH RECEIPTS CONTROLS
In an optimal internal control environment, certain control processes and segregation of duties would exist
in order to prevent a misstatement of financial information. This is accomplished when no single person
can initiate, record, and control distribution of a single transaction or series of transactions. In some
instances, the personnel constraints of many organizations do not always allow for ideal segregation of
duties. However, it is our responsibility as auditors to communicate this deficiency.
During the course of our audit, we noted that the Operations Coordinator in the Collector’s Office is
responsible for reconciling daily cash receipts collected by the cashiers, preparing the deposit for pickup
by Garda, and sending the batch receipts to the City’s accounting department for posting. However, the
Operations Coordinator still has the ability to post entries in the accounting system. This presents a risk of
the misappropriation of cash receipts to be concealed within the accounting system. We recommend that
a second individual review the amount prepared for deposit in comparison to the original cash register
reports and amounts posted to the general ledger for accuracy.
Page 5
SIGNIFICANT DEFICIENCIES (cont.)
CITY RESPONSE:
Since 2011, Accounting Division has been posting batches prepared by Operations Coordinator.
With the implementation of New World Systems in 2014, Operation Coordinator has no ability to
post the batches in the Accounting System.
OTHER COMMUNICATIONS WITH THOSE CHARGED WITH GOVERNANCE
Page 6
TWO WAY COMMUNICATION REGARDING YOUR AUDIT
(SAS) NO. 114 The Auditor’s Communication With Those Charged with Governance
As part of our audit of your financial statements, we are providing communications to you throughout the
audit process. Auditing requirements provide for two-way communication and are important in assisting
the auditor and you with more information relevant to the audit.
As this past audit is concluded, we use what we have learned to begin the planning process for next
year’s audit. It is important that you understand the following points about the scope and timing of our
next audit:
a. We address the significant risks of material misstatement, whether due to fraud or error, through
our detailed audit procedures.
b. We will obtain an understanding of the five components of internal control sufficient to assess the
risk of material misstatement of the financial statements whether due to error or fraud, and to
design the nature, timing, and extent of further audit procedures. We will obtain a sufficient
understanding by performing risk assessment procedures to evaluate the design of controls
relevant to an audit of financial statements and to determine whether they have been
implemented. We will use such knowledge to:
> Identify types of potential misstatements.
> Consider factors that affect the risks of material misstatement.
> Design tests of controls, when applicable, and substantive procedures.
We will not express an opinion on the effectiveness of internal control over financial reporting or
compliance with laws, regulations, and provisions of contracts or grant programs. For audits done
in accordance with Government Auditing Standards, our report will include a paragraph that
states that the purpose of the report is solely to describe (a) the scope of testing of internal
control over financial reporting and compliance and the result of that testing and not to provide an
opinion on the effectiveness of internal control over financial reporting or on compliance, (b) the
scope of testing internal control over compliance for major programs and major program
compliance and the result of that testing and to provide an opinion on compliance but not to
provide an opinion on the effectiveness of internal control over compliance and, (c) that the report
is an integral part of an audit performed in accordance with Government Auditing Standards in
considering internal control over financial reporting and compliance. The paragraph will also state
that the report is not suitable for any other purpose.
c. The concept of materiality recognizes that some matters, either individually or in the aggregate,
are important for fair presentation of financial statements in conformity with generally accepted
accounting principles while other matters are not important. In performing the audit, we are
concerned with matters that, either individually or in the aggregate, could be material to the
financial statements. Our responsibility is to plan and perform the audit to obtain reasonable
assurance that material misstatements, whether caused by errors or fraud, are detected.
d. Your financial statements contain components, as defined by auditing standards generally
accepted in the United States of America, which we also audit.
We are very interested in your views regarding certain matters. Those matters are listed here:
a. We typically will communicate with your top level of management unless you tell us otherwise.
b. We understand that the City Council has the responsibility to oversee the strategic direction of
your organization, as well as the overall accountability of the entity. Management has the
responsibility for achieving the objectives of the entity.
c. We need to know your views about your organization’s objectives and strategies, and the related
business risks that may result in material misstatements.
Page 7
TWO WAY COMMUNICATION REGARDING YOUR AUDIT (cont.)
d. Which matters do you consider warrant particular attention during the audit, and are there any
areas where you request additional procedures to be undertaken?
e. Have you had any significant communications with regulators or grantor agencies?
f. Are there other matters that you believe are relevant to the audit of the financial statements or the
federal awards?
Also, is there anything that we need to know about the attitudes, awareness, and actions of the City
concerning:
a. The City’s internal control and its importance in the entity, including how those charged with
governance oversee the effectiveness of internal control?
b. The detection or the possibility of fraud?
We also need to know if you have taken actions in response to developments in financial reporting, laws,
accounting standards, governance practices, or other related matters, or in response to previous
communications with us.
With regard to the timing of our audit, here is some general information. If necessary, we may do
preliminary financial audit work during the month of December or January. Our final financial fieldwork is
scheduled during the spring to best coincide with your readiness and report deadlines. After fieldwork, we
wrap up our financial audit procedures at our office and may issue drafts of our report for your review.
Final copies of our report and other communications are issued after approval by your staff. This is
typically 6-12 weeks after final fieldwork, but may vary depending on a number of factors.
Keep in mind that while this communication may assist us with planning the scope and timing of the audit,
it does not change the auditor’s sole responsibility to determine the overall audit strategy and the audit
plan, including the nature, timing, and extent of procedures necessary to obtain sufficient appropriate
audit evidence.
We realize that you may have questions on what this all means, or wish to provide other feedback. We
welcome the opportunity to hear from you.
COMMUNICATION OF RECOMMENDATIONS AND INFORMATIONAL POINTS TO MANAGEMENT
THAT ARE NOT MATERIAL WEAKNESSES OR SIGNIFICANT DEFICIENCIES
Page 8
RECOMMENDATION
DEFICIT FUND NET POSITION
At December 31, 2013, the City’s Insurance Internal Activity Fund, reported deficit fund net position of
$3,727,663. The Insurance Fund began the period with a deficit net position balance of $7,376,499. As
this is an internal service fund, all revenues and transfers of net assets are supported by the City’s other
funds including the General Fund, Water Fund, and Sewer Fund. These funds are expected to subsidize
the Insurance Internal Service Fund’s improvement in future years.
CITY RESPONSE:
The City agrees with the above deficit fund net position numbers for the Insurance Fund. The City
started making inter-fund transfers from the other funds during the 2010-11 fiscal year to reflect
proportionate estimated insurance costs for those funds. It is worth noting that the negative net
position is mainly due to an accrual for short/long-term claims payable recorded for the potential
liability in the fund financial statements for the year ended December 31, 2013.
Page 9
INFORMATIONAL POINTS
The following is a schedule of GASB projects:
Task or Event Effective Date Impact
GASB No. 67 –
Financial Reporting for
Pension Plans
December 31, 2014 This standard is applicable to the Illinois Municipal
Retirement Fund (IMRF) plan and the City’s Police
Pension and Firefighters’ Pension plans.
GASB No. 68 ‒
Accounting and
Financial Reporting for
Pensions
December 31, 2015 The City belongs to the Illinois Municipal Retirement
Fund (IMRF) and has the Police and Firefighters’ Pension
plans. IMRF is an agent, multiple-employer, defined-
benefit, public employee retirement system. IMRF has
represented that it will provide the information
necessary for the employers to implement GASB No.
68. The City’s Police and Firefighters’ Pension plans
are single employer, defined-benefit retirement
systems. The City will need to calculate the information
necessary to report the net pension liability/ asset for
the Police and Firefighters’ Pension plans. The City’s
net pension liability / asset will be reported in its
government-wide financial statements. The footnote
disclosures will have significant changes.
GASB No. 69 ‒
Government
Combinations and
Disposals of
Government
Operations
December 31, 2014 This standard provides the guidance necessary for
government combinations and disposals of
government operations. This is unlikely to impact the
City
GASB No. 70 ‒
Accounting and
Financial Reporting
For Non-exchange
Financial Guarantees
December 31, 2015 This standard provides guidance for non-exchange
financial guarantees. This would impact the City only
to the extent it enters into such transactions.
GASB No. 71 –
Pension Transition for
Contributions Made
Subsequent to the
Measurement Date –
an amendment of
GASB No. 68
December 31, 2015 The requirements of this Statement will eliminate the
source of a potential significant understatement of
restated beginning net position and expense in the first
year of implementation of GASB No. 68 in the accrual-
basis financial statements of the City. This will be
addressed along with the implementation of GASB No.
68.
Current Agenda Topic:
Conceptual
Framework -
Measurement
The GASB Board is
scheduled to issue a
final Concepts
Statement in March
2014
The objective of this project is to consider the
measurement concepts that should be used in
governmental financial statements. A measurement
approach determines whether an asset or liability
presented in a financial statement should be (1)
reported at an amount that reflects a value at the date
that the asset was acquired or the liability was incurred
or (2) remeasured and reported at an amount that
reflects a value at the date of the financial statements.
Page 10
INFORMATIONAL POINTS (cont.)
Task or Event Effective Date Impact
Current Agenda
Project: Fair Value
Measurement
The GASB Board is
scheduled to issue
an Exposure Draft in
May 2014
The objective of this project is to review and consider
alternatives for the further development of the
definition of fair value, the methods used to measure
fair value and the applicability of fair value guidance to
investments and other items currently reported at fair
value, and the potential disclosures about fair value.
Current Agenda
Project: Fiduciary
Responsibilities
The GASB Board is
expected to issue an
Exposure Draft on
this project in
September 2014
This project is to assess what additional guidance
should be developed regarding the application of the
fiduciary responsibility criteria in deciding whether and
how governments should report fiduciary activities in
their financial reports.
Current Agenda
Project: Leases
The GASB Board is
scheduled to issue
an Exposure Draft in
November 2014
The objective of this project is to reexamine issues
associated with lease accounting, consider
improvements to existing guidance, and provide a
basis for the GASB Board to consider whether the
current guidance is appropriate based on the
definitions of assets and liabilities.
Current Agenda
Project:
Postemployment
Benefits Accounting
and Financial
Reporting: Other
Postemployment
Benefits Accounting
and Financial
Reporting
During the first part
of 2014, the GASB
Board will review
remaining issues
before issuing
Exposure Drafts on
employer and plan
OPEB accounting
and financial
reporting and
pensions not within
the scope of
Statement 68
The Board will consider the possibility of modifications
to the existing standards of accounting and financial
reporting for other postemployment benefits (OPEB)
by state and local governmental employers and b y the
trustees, administrators, or sponsors of OPEB plans.
GASB has stated that their objectives are to increase
financial reporting transparency and to improve the
usefulness of information to the various users of the
financial statements.
The GASB has two other projects which are on hold. They include the conceptual framework for
recognition and economic condition reporting – financial projections.
The GASB also revisits GASB standards ten (10) years after issuance. The GASB is currently revisiting
GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis for
State and Local Governments, as well as reporting model-related pronouncements including Statements
No. 37, Basic Financial Statements – and Management’s Discussion and Analysis-for State and Local
Governments; Omnibus, No. 41, Budgetary Comparison Schedules – Perspective Differences, and No.
46, Net Assets Restricted by Enabling Legislation, and Interpretation No. 6, Recognition and
Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements. The
GASB has indicated that they are revisiting the following major provisions of these standards:
management’s discussion and analysis, government-wide financial statements, fund financial statements,
capital asset reporting, budgetary comparisons, special purpose government reporting, and related notes
to financial statements. We will share updates with you as they become available.
A full list of projects, as well as many resources, is available on GASB’s website at www.gasb.org.
REQUIRED COMMUNICATIONS BY THE AUDITOR WITH THOSE CHARGED WITH GOVERNANCE
Page 11
Baker Tilly Virchow Krause, LLP
1301 W 22nd St, Ste 400
Oak Brook, IL 60523-3389
tel 630 990 3131
fax 630 990 0039
bakertilly.com
To the Honorable Elizabeth B. Tisdahl, Mayor and
Members of the City Council
City of Evanston, Illinois
Thank you for using Baker Tilly Virchow Krause, LLP as your auditor.
We have completed our audit of the financial statements of the City of Evanston, Illinois for the year
ended December 31, 2013, and have issued our report thereon dated July 2, 2014. This letter presents
communications required by our professional standards.
OUR RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE UNITED STATES OF
AMERICA, GOVERNMENT AUDITING STANDARDS, AND OMB CIRCULAR A-133
The objective of a financial statement audit is the expression of an opinion on the financial
statements. We conducted the audit in accordance with auditing standards generally accepted in
the United States of America, Government Auditing Standards and OMB Circular A-133. These
standards require that we plan and perform our audit to obtain reasonable, rather than absolute,
assurance about whether the financial statements prepared by management with your oversight
are free of material misstatement, whether caused by error or fraud. Our audit included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. Our audit does not
relieve management or the City Council of their responsibilities.
We also considered internal control over compliance with requirements that could have a direct
and material effect on a major federal or major state program in order to determine our 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.
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 grants, noncompliance with which could have a direct and material
effect on the determination of financial statement amounts. However, providing an opinion on
compliance with those provisions was not an objective of our audit.
Also, in accordance with OMB Circular A-133, Prado & Renteria CPAs will examine, on a test basis,
evidence about the City’s compliance with the types of compliance requirements described in the
U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement applicable to
each of the City’s major programs for the purpose of expressing an opinion on the City’s compliance
with those requirements. While the audit provides a reasonable basis for the opinion, it does not
provide a legal determination on the City’s compliance with those requirements.
Prado & Renteria CPAs will issue a separate document which contains the results of our audit
procedures to comply with OMB Circular A-133.
Page 12
Honorable Elizabeth B. Tisdahl, Mayor and
Members of the City Council
City of Evanston, Illinois
OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS
Our responsibility does not extend beyond the audited financial statements identified in this report. We do
not have any obligation to and have not performed any procedures to corroborate other information
contained in client prepared documents, such as official statements related to debt issues.
PLANNED SCOPE AND TIMING OF THE AUDIT
We performed the audit according to the planned scope and timing previously communicated to you in
our letter about planning matters dated June 28, 2013.
QUALITATIVE ASPECTS OF THE ENTITY’S SIGNIFICANT ACCOUNTING PRACTICES
Accounting Policies
Management is responsible for the selection and use of appropriate accounting policies. In accordance
with the terms of our engagement letter, we will advise management about the appropriateness of
accounting policies and their application. The significant accounting policies used by the City of Evanston,
Illinois are described in Note 1 to the financial statements. As described in Note 1 to the financial
statements, the City of Evanston, Illinois changed accounting policies related to inclusion of certain
component units in the financial reporting entity and their reporting by adopting Governmental Accounting
Standards (GASB) Statement No. 61, The Financial Reporting Entity: Omnibus – an amendment of
GASB Statements No. 14 and No. 34 and changed accounting policies related to reporting certain items
previously reported as assets and liabilities by adopting Statement No. 65, Items Previously Reported as
Assets and Liabilities in 2013. We noted no transactions entered into by the City of Evanston, Illinois
during the year that were both significant and unusual, and of which, under professional standards, we
are required to inform you, or transactions for which there is a lack of authoritative guidance or
consensus.
Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management's knowledge and experience about past and current events and assumptions
about future events. Certain accounting estimates are particularly sensitive because of their significance
to the financial statements and because of the possibility that future events affecting them may differ
significantly from those expected. The most sensitive estimates affecting the financial statements were:
Depreciation expense
Allowance for doubtful accounts
Insurance claims payable
OPEB liability
We evaluated the key factors and assumptions used to develop these estimates in determining that they
are reasonable in relation to the financial statements taken as a whole.
Financial Statement Disclosures
The disclosures in the financial statements are neutral, consistent, and clear.
DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT
We encountered no significant difficulties in dealing with management in performing our audit.
Page 13
Honorable Elizabeth B. Tisdahl, Mayor and
Members of the City Council
City of Evanston, Illinois
CORRECTED AND UNCORRECTED MISSTATEMENTS
Professional standards require us to accumulate all known and likely misstatements identified during the
audit, other than those that are trivial, and communicate them to the appropriate level of management.
As noted, in the required communication of internal control related matters identified in the audit to those
charged with governance section of this report, we identified a material adjustment to the City’s financial
statements that was subsequently recorded by management.
A summary of uncorrected financial statement misstatements follows this required communication.
Management has determined that their effects are immaterial, both individually and in the aggregate, to
the financial statements taken as a whole.
DISAGREEMENTS WITH MANAGEMENT
For purposes of this letter, professional standards define a disagreement with management as a matter,
whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter
that could be significant to the financial statements or the auditor’s report. We are pleased to report that
no such disagreements arose during the course of our audit.
CONSULTATIONS WITH OTHER INDEPENDENT ACCOUNTANTS
In some cases, management may decide to consult with other accountants about auditing and accounting
matters. If a consultation involves application of an accounting principle to the governmental unit’s
financial statements or a determination of the type of auditors’ opinion that may be expressed on those
statements, our professional standards require the consulting accountant to check with us to determine
that the consultant has all the relevant facts. To our knowledge, there were no such consultations with
other accountants.
MANAGEMENT REPRESENTATIONS
We have requested certain representations from management that are included in the management
representation letter. This letter follows this required communication.
INDEPENDENCE
We are not aware of any relationships between Baker Tilly Virchow Krause, LLP and the City of Evanston
that, in our professional judgment, may reasonably be thought to bear on our independence.
Relating to our audit of the financial statements of the City of Evanston for the year ended December 31,
2013, Baker Tilly Virchow Krause, LLP hereby confirms that we are, in our professional judgment,
independent with respect to the City in accordance with the Code of Professional Conduct issued by the
American Institute of Certified Public Accountants. We provided no services to the City other than audit
services provided in connection with the audit of the current year’s financial statements and nonaudit
services which in our judgment do not impair our independence.
Honorable Elizabeth B. Tisdahl, Mayor and
Members of the City Council
City of Evanston, Illinois
OTHER MATTERS
With respect to the supplementary information accompanying the financial statements, we made certain
inquiries of management and evaluated the form, content, and methods of preparing the information to
determine that the information complies with accounting principles generally accepted in the United
States of America, the method of preparing it has not changed from the prior period, and the information
is appropriate and complete in relation to our audit of the financial statements. We compared and
reconciled the supplementary information to the underlying accounting records used to prepare the
financial statements or to the financial statements themselves.
OTHER AUDIT FINDINGS OR ISSUES
We generally discuss a variety of matters, including the application of accounting principles and auditing
standards, with management each year prior to retention as the City's auditors. However, these
discussions occurred in the normal course of our professional relationship and our responses were not a
condition to our retention.
This information is intended solely for the use of those charged with governance and management and is
not intended to be, and should not be, used by anyone other than these specified parties.
We welcome the opportunity to discuss the information included in this letter and any other matters.
Thank you for allowing us to serve you.
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July 2, 2014
Page 14
SUMMARY OF UNCORRECTED FINANCIAL STATEMENT MISSTATEMENTS
Governmental Activitie�
Business-Type Activitie�
Discretely Presented Component Uni
General Fund
Capital Improvement Fum
Parking Fund
City of Evanston
SUMMARY OF UNCORRECTED FINANCIAL STATEMENT MISSTATEMENTS
Total Assets/
Deferred Outflow.:
(848,797)
848,797
114,906
(66,512)
--
As of and for the Year Ended December 31, 2013
Total Liabilities.
Deferred Inflow�
-
149,192
-
(149,192)
149,192
Financial Statements Effect -
Debit (Credit) to Financial Statement Total
Total
Net Position!
Fund Balances
615.436
(997,989)
(114.906)
66,512
.
(149.192)
Total
Revenues
(114,906)
66,512
Total
Expenses/
Ex12enditure�
943,109
(729,307)
645,972
(233,361)
(149_,J92)
Change in Beginning
Net Position/ Net Position/
Fund Balances Fund Balances
943 109 (94,312)
(729,307) (268,682)
(114,906)
712.,484 (496,780)
(233,361) 233,361
(149,192)
MANAGEMENT REPRESENTATIONS
�·�
Cily of Evanston�
July 2, 2014
Baker Tilly Virchow Krause, LLP
1301 W. 22nd Street
Suite 400
Oak Brook, IL 60523
Dear Baker Tilly Virchow Krause, LLP:
2100 Ridge Avenue
Evanston, IL 60201-2798
T 847.866.2 936
F 847.448.8083
www.cityofevanston.org
Wally Bobklewlcz
City Manager
We are providing this letter in connection with your audit of the financial statements of the City of Evanston
as of December 31, 2013 and for the year then ended for the purpose of expressing an opinion as to whether the
financial statements present fairly, in all material respects, the respective financial position of the governmental
activities, the business-type activities, the discretely presented component unit, each major fund, and the aggregate
remaining fund information of the City of Evanston and the respective changes in financial position and cash flows,
where applicable, in conformity with accounting principles generally accepted in the United States of America. We
confirm that we are responsible for the fair presentation of the previously mentioned financial statements in conformity
with accounting principles generally accepted in the United States of America. We are also responsible for adopting
sound accounting policies, establishing and maintaining internal control over financial reporting, and preventing and
detecting fraud.
Certain representations in this letter are described as being limited to matters that are material. Items are considere d
material, regardless of size, if they involve an omission or misstatement of accounting information that, in the 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. An omission or misstatement that is monetarily
small in amount could be considered material as a result of qualitative factors.
We confirm, to the best of our knowledge and belief, the following representations made to you during your audit.
Financial Statements
1 . We have fulfilled our responsibilities, as set out in the terms of the audit engagement letter.
2. The financial statements referred to above are fairly presented in conformity with accounting principles generally
accepted in the United States of America and include all proper1y classified funds and other financial information of
the primary government and all component units required by accounting principles generally accepted in the United
States of America to be included in the financial reporting entity.
3 . We acknowledge our responsibility for the design, implementation, and maintenance of internal control relevant to
the preparation and fair presentation of financial statements that are free from material misstatement, whether due
to fraud or error.
Baker Tilly Virchow Krause, LLP
July 2, 2014
Page 2
4. We acknowledge our responsibility for the design, implementation, and maintenance of internal control to prevent
and detect fraud.
5. Significant assumptions we used in making accounting estimates are reasonable.
6. Related party relationships and transactions, including revenues, expenditures/expenses, loans, transfers, leasing
arrangements, and guarantees, and amounts receivable from or payable to related parties have been appropriately
accounted for and disclosed in accordance with the requirements of accounting principles generally accepted in
the United States of America.
7. All events subsequent to the date of the financial statements and for which accounting principles generally
accepted in the United States of America require adjustment or disclosure have been adjusted or disclosed. No
other events, including instances of noncompliance, have occurred subsequent to the balance sheet date and
through the date of this letter that would require adjustment to or disclosure in the aforementioned financial
statements.
8. All material transactions have been recorded in the accounting records and are reflected in the financial
statements.
9. We believe the effects of the uncorrected financial statement misstatements summarized in the attached schedule
are immaterial, both individually and in the aggregate, to the basic financial statements taken as a whole. In
addition, you have recommended adjusting journal entries, and we are in agreement with those adjustments.
1 0. The effects of all known actual or potential litigation, claims, and assessments have been accounted for and
disclosed in accordance with accounting principles generally accepted in the United States of America.
11. Guarantees, whether written or oral, under which the City of Evanston is contingently liable, if any, have been
properly recorded or disclosed.
Information Provided
1 2. We have provided you with:
a. Access to all information, of which we are aware, that is relevant to the preparation and fair presentation of the
financial statements, such as financial records and related data , documentation, and other matters.
b. Additional information that you have requested from us for the purpose of the audit.
c. Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit
evidence.
d. Minutes of the meetings of the City Council or summaries of actions of recent meetings for which minutes have
not yet been prepared.
13 . We have disclosed to you the results of our assessment of the risk that the financial statements may be materially
misstated as a result of fraud.
14. We have no knowledge of any fraud or suspected fraud that affects the entity and involves:
a. Management,
b. Employees who have significant roles in internal control, or
c. Others where the fraud could have a material effect on the financial statements.
15. We have no knowledge of any allegations of fraud or suspected fraud affecting the entity received in
communications from employees, former employees, regulators, or others.
Baker Tilly Virchow Krause, LLP
July 2, 2014
Page 3
16. We have no knowledge of known instances of noncompliance or suspected noncompliance with provisions of
laws, regulations, contracts, or grant agreements, or abuse, whose effects should be considered when preparing
financial statements.
17. We have disclosed to you all known related parties and all the related party relationships and transactions of
which we are aware.
Other
18. There have been no communications from regulatory agencies concerning noncompliance with, or deficiencies in,
financial reporting practices. This excludes activities covered under the Single Audit Act.
19. We have a process to track the status of audit findings and recommendations.
20. We have identified to you any previous financial audits, attestation engagements, and other studies related to the
audit objectives and whether related recommendations have been implemented.
21. We have provided our views on reported findings, conclusions, and recommendations, as well as our planned
corrective actions, for our report.
22. The City of Evanston has no plans or intentions that may materially affect the carrying value or classification of
assets, liabilities, or equity as of December 31, 2013 .
23 . We are responsible for compliance with federal, state, and local laws, regulations, and provisions of contracts and
grant agreements applicable to us, including tax or debt limits and debt contracts; and we have identified and
disclosed to you all federal, state, and local laws, regulations and provisions of contracts and grant agreements
that we believe have a direct and material effect on the determination of financial statement amounts or other
financial data significant to the audit objectives, including legal and contractual provisions for reporting specific
activities in separate funds.
24. There are no:
a. Violations or possible violations of budget ordinances, federal, state, and local laws or regulations (including
those pertaining to adopting and amending budgets), provisions of contracts and grant agreements, tax or debt
limits, and any related debt covenants whose effects should be considered for disclosure in the financial
statements or as a basis for recording a loss contingency, or for reporting on noncompliance.
b. Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by accounting
principles generally accepted in the United States of America.
c. Nonspendable, restricted, committed, or assigned fund balances that were not properly authorized and
approved.
d. Rates being charged to customers that have not been authorized by the applicable authoritative body (either
City Council or City Management).
e. Violations of restrictions placed on revenues as a result of bond resolution covenants such as revenue
distribution or debt service funding.
Baker Tilly Virchow Krause, LLP
July 2, 2014
Page4
25. In regards to the nonattest service performed by you listed below, we have 1 ) made all management decisions
and performed all management functions; 2) designated an individual with suitable skill, knowledge, or experience
to oversee the services; 3) evaluated the adequacy and results of the services performed, and 4) accepted
responsibility for the results of the service.
a. Compiled regulatory reports
This non attest service does not constitute an audit under generally accepted auditing standards, including
Government Auditing Standards.
26. The City of Evanston has satisfactory title to all owned assets, and there are no liens or encumbrances on such
assets nor has any asset been pledged as collateral.
27. The City of Evanston has complied with all aspects of contractual agreements that would have a material effect on
the financial statement in the event of noncompliance.
28. We have followed all applicable laws and regulations in adopting, approv ing, and amending budgets.
29. The financial statements include all component units as well as joint ventures with an equity interest, and properly
disclose all other joint ventures and other related organizations.
3 0. The financial statements properly classify all funds and activities.
31. All funds that meet the quantitative criteria in GASB Statement No. 34 and No. 37 for presentation as major are
identified and presented as such and all other funds that are presented as major are particularly important to
financial statement users.
3 2. Components of net position (net investment in capital assets; restricted; and unrestricted) and equity amounts are
properly classified and, if applicable, approved.
33 . The City of Evanston has no derivative financial instruments such as contracts that could be assigned to someone
else or net settled, interest rate swaps, collars or caps.
34. Provisions for uncollectible receivables have been properly identified and recorded.
35. Revenues are appropriately classified in the statement of activities within program revenues and general
revenues.
36. lnterfund, internal, and intra-entity activity and balances have been appropriately classified and reported.
37. Deposits and investment securities are properly classified as to risk, and investments are properly valued.
Collateralization agreements with financial institutions, if any, have been properly disclosed.
3 8 . Capital assets, including infrastructure and intangible assets, are properly capitalized, reported, and, if applicable,
depreciated/amortized. Any known impairments have been recorded and disclosed.
3 9. We have appropriately disclosed the City of Evanston's policy regarding whether to first apply restricted or
unrestricted resources when an expense is incurred for purposes for which both restricted and unrestricted net
position are available and have determined that net position were properly recognized under the policy. We have
also disclosed our policy regarding how restricted and unrestricted fund balance is used when an expenditure is
incurred for which both restricted and unrestricted fund balance is available, including the spending hierarchy for
committed, assigned, and unassigned amounts.
Baker Tilly Virchow Krause, LLP
July 2, 2014
Page 5
40. We acknowledge our responsibility for the required supplementary information (RSI). The RSI is measured and
presented within prescribed guidelines and the methods of measurement and presentation have not ch anged from
those used in the prior period. We have disclosed to you any significant assumptions and interpretations
underlying the measurement and presentation of the RSI.
41. With respect to the supplementary information, (SI):
a. We acknowledge our responsibility for presenting the Sl in accordance with accounting principles generally
accepted in the United States of America, and we bi:Jiieve the Sl, including its form and content, is fairly
presented in accordance with accounting principles generally accepted in the United States of America. The
methods of measurement and presentation of the Sl have not changed from those used in the prior period, and
we have disclosed to you any significant assumptions or interpretations underlying the measurement and
presentation of the supplementary information.
b. If the Sl is not presented with the audited financial statements, we will make the audited financial statements
readily available to the intended users of the supplementary information no later than th e date we issue the
supplementary information and the auditor's report thereon.
42. We assume responsibility for, and agree with, the findings of specialists in evaluating the post employment
benefits, Pollee Pension Fund and Firefighter's Pension Fund and have adequately considered the qualifications
of the specialists in determining the amounts and disclosures used in th e financial statements and underlying
accounting records. We did not give or cause any instructions to be given to specialists with respect to th e values
or amounts derived in an attempt to bias their work, and we are not oth erwise aware of any matters that have had
impact on the independence or objectivity of the specialists.
43 . We have implemented GASB Statement No. 65 and believe th at all deferred outflows and deferred inflows have
been identified and properly classified in the financial statements and any other required classifications have been
computed in compliance with the Standard.
Sincerely,
City of Evanston
Signed W�� �
Signed ��