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Audit Report 09.30.2001 r ~ ~ ~ ~ i~ <~ ::!I Il~ ..~ '=3 ,3 cil ,~ ~ eiI ~ ~ ~ .~ fa f;II ~ ~ !a ~ ~ !11 jjI !11 IW !8 III ~ lW CITY OF OKEECHOBEE, FLORIDA Financial Statements Year Ended September 30, 2001 CITY OF OKEECHOBEE, FLORIDA Table of Contents Year Ended September 30, 200 I Page Introductory Section Title Page Table of Contents 11 City Officials 111 Financial Section Independent Auditor's Report General Purpose Financial Statements · Combined Balance Sheet - All Fund Types and Account Groups and Discretely Presented Component Unit · Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - All Governmental Fund Types · Combined Statement of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual (Budgetary Basis) - All Governmental Fund Types · Combined Statement of Changes in Plan Net Assets - Fiduciary Fund Type - Pension Trust Funds and Discretely Presented Component Unit · Notes to Financial Statements IV-V 2-3 5 6-7 8 9-22 Combining and Individual Fund Financial Statements Fiduciary Fund Type - Pension Trust Funds · Combining Balance Sheet · Combining Statement of Changes in Plan Net Assets 24 25 Additional Elements Required By Government Auditin2 Standards and the Rules of the Auditor General · Independent Auditor's Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards · Independent Auditor's Management Letter 29-30 31-34 11 r --- - - I I CITY OF OKEECHOBEE, FLORIDA I City Officials I As of September 30, 200 I I I I I James E. Kirk Mayor, Chairman I I Noel A. Chandler Robert Oliver I Dowling R. Watford, Jr. D. Clayton Williams, Jr. . Council Members I John R. Cook I City Attorney I I Bill L. Veach City Administrator I ~ I Bonnie S. Thomas, CMC City Clerk I I Lola Parker I Account Supervisor I Lois Keith Tomey II I Chief of Fire I Denny Davis I Chief of Police I I Donnie Robertson Director of Public Wor1es I I I I 111 I HOYMAN, DOBSON & COMPANY, P.A. CERTIFIED PUBLIC ACCOUNTANTS un 1 ,n:_"*""",.' . . v" 215 Boy tree Drive, Melbourne, Florida 32940, 32/-255-0088, Fox 32/-259-8648, www.hoyman.com Charles W Haymon, jl Barbara J Oswalt Thomas L Kirk Karen E. Kirkland Deborah A. Bradley DIRECTOR EMERITUS Roger W Dobson Eugene K. Bjerning Independent Auditor's Report Honorable Mayor and Members of the City Council City of Okeechobee, Florida We have audited the accompanying general purpose financial statements of the City of Okeechobee, Florida, as of and for the year ended September 30, 2001, as listed in the table of contents. These general purpose financial statements are the responsibility of the City of Okeechobee, Florida's management. Our responsibility is to express an opinion on these general purpose financial statements based on our audit. We did not audit the financial statements of the fiduciary fund type and the discretely presented component unit. Those financial statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the fiduciary fund type and the discretely presented component unit, is based on the reports of the other auditors. Except as discussed in the following paragraph, 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the general purpose financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the general purpose financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall general purpose financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion. Because of the inadequacy of the accounting records for the years prior to October 1, 1999, we were unable to form an opinion regarding the amounts at which real property general fixed assets are recorded in the accompanying Combined Balance Sheet - All Fund Types and Account Groups and Discretely Presented Component Unit at September 30,2001. In our opinion, based on our audit and the reports of other auditors, except for the effects of such adjustments, if any, as might have been determined to be necessary in the Combined Balance Sheet - All Fund Types and Account Groups and Discretely Presented Component Unit had records concerning general fixed assets been adequate, the general purpose financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of the City of Okeechobee, Florida, as of September 30, 2001, and the results of its operations for the year then ended in conformity with accounting principles generally accepted in the United States of America. "w'1G__""*llflUllIilll nT . American Institute of Certified Public Accountants' Florida institute of Certified Public Accountants' SEC Practice Section of the A I. C. PA . CPAmerico international r II II II tJ ~ ~ ~ lB ~ ~ ~ ~ ~ ~ ~ .~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ I ~ ~ Fii F!I , ~ Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Two As described in Note 3.E. to the financial statements, in the previous year the City reported a capital lease as an operating lease. In accordance with Government Auditing Stllndards, we have also issued our report dated January 11, 2002 on our consideration of the City of Okeechobee, Florida's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was performed for the purpose of forming an opinion on the general purpose financial statements taken as a whole. The combining and individual fund financial statements, listed in the table of contents, are presented for purposes of additional analysis and are not a required part of the general purpose financial statements of the City of Okeechobee, Florida and we express no opinion on these statements because they were audited by other auditors as indicated in the first paragraph. #~/~;~/~.4 Hoyman, Dobson & Company, P.A. January 11, 2002 v I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I GENERAL PURPOSE FINANCIAL STATEMENTS These basic financial statements provide a summary overview of the financial position of all funds and account groups and discretely presented component unit as well as the operating results of all funds. They also serve as an introduction to the more detailed statements that are in the following subsections. 1 The accompanying notes are an integral part of this financial statement. 2 GOVERNMENT COMPONENT Totals Reporting Account Groups Totals UNIT Entity General General General Long- (Memorandum Employees' (Memorandum Fixed Assets Term Debt Only) Pension Trust Only) $ $ $ 5,128,260 $ 163,940 $ 5,292,200 4,105,203 2,971,425 7,076,628 172,827 45,361 218,188 160,134 160,134 12,720 12,720 8,272 7,696 15,968 3,636,752 3,636,752 3,636,752 73,472 73,472 73,472 1,186,853 1,186,853 1,186,853 $ 3,636,752 $ 1,260,325 $ 14,484,493 $ 3,188,422 $ 17,672,915 $ $ $ 32,992 $ 5,868 $ 38,860 33,352.00 33,352 2,012 2,012 26,954 26,954 1,260,325 1,260,325 1,260,325 1,260,325 1,355,635 5,868 1,361,503 3,636,752 3,636,752 3,636,752 349,022 349,022 12,720 12,720 73,472 73,472 609,930 609,930 19,734 19,734 4,457,357 3,182,554 7,639,911 3,969,871 3,969,871 3,636,752 13,128,858 3,182,554 16,311,412 $ 3,636,752 $ 1,260,325 $ 14,484,493 $ 3,188,422 $ 17,672,915 3 TIllS PAGE IS INTENTIONALLY LEFf BLANK. 4 CITY OF OKEECHOBEE, FLORIDA Combined Statement of Revenues, Expenditures, and Changes in Fund Balances- All Governmental Fund Types Year Ended September 30, 200 I Law Totals Enforcement (Memorandum General Special Revenue Only) Revenues Taxes $ 1,995,097 $ $ 1,995,097 Intergovernmental 1,474,928 1,474,928 Charges for services 246,792 246,792 Licenses and permits 140,604 140,604 Fines and forfeitures 32,925 7,050 39,975 Interest income 264,967 490 265,457 Miscellaneous 14,342 14,342 Total revenues 4,169,655 7,540 4,177,195 Expenditures Current: General government 723,204 723,204 Public safety 1,716,830 1,002 1,717,832 Transportation 495,099 495,099 Physical environment 176,102 176,102 Capital outlay 1,386,024 7,246 1,393,270 Debt service: Principal 588,022 588,022 Interest 47,538 47,538 Total expenditures 5,132,819 8,248 5,141,067 Deficiency of revenues under expenditures (963,164) (708) (963,872) Other financing sources Capital lease proceeds 406,700 406,700 Proceeds from sale of fixed assets 387,410 387,410 Total other financing sources 794,110 794,110 Deficiency of revenues and other financing sources under expenditures (169,054) (708) (169,762) Fund balances, beginning of year (as restated) 5,184,069 20,442 5,204,511 Fund balances, end of year $ 5,015,015 $ 19,734 $ 5,034,749 The accompanying notes are an integral part of this finncial statement. 5 CITY OF OKEECHOBEE, FLORIDA Combined Statement of Revenues, Expenditures, and Changes in Fund Balances- Budget and Actual (Budgetary Basis) - All Governmental Fund Types Year Ended September 30, 2001 General Actual Variance (on Budgetary Favorable Budget Basis) (Unfavorable) Revenues Taxes $ 1,888,180 $ 1,995,097 $ 106,917 Intergovernmental 1,298,911 1,474,928 176,017 Charges for services 240,780 246,792 6,012 Licenses and permits 100,202 140,604 40,402 Fines and forfeitures 33,875 32,925 (950) Interest income 215,300 264,967 49,667 Miscellaneous 9,100 14,342 5,242 Total revenues 3,786,348 4,169,655 383,307 Expenditures Current: General government 756,366 753,726 2,640 Public safety 1,915,787 1,716,830 198,957 Transportation 570,164 488,845 81,319 Physical environment 186,133 176,102 10,031 Capital outlay 1,006,414 1,397,449 (391,035) Debt service Principal 192,791 588,022 (395,231) Interest 46,574 47,538 (964) Total expenditures 4,674,229 5,168,512 (494,283) Excess (deficiency) of revenues over (under) expenditures (887,881) (998,857) (110,976) Other financing sources Capital lease proceeds 406,700 406,700 Proceeds from sale of fixed assets 5,000 387,410 382,410 Total other financing sources 5,000 794,110 789,110 Deficiency of revenues and other financing sources under expenditures (882,881 ) (204,747) 678,134 Fund balances, beginning of year (as restated) 5,184,069 5,184,069 Fund balances, end of year $ 4,301,188 4,979,322 $ 678,134 Reconciliation of budgetary to GAAP basis: Current year encumbrances 349,022 Prior year encumbrances (313,329) $ 5,015,015 The accompanying notes are an integral part of this financial statement. 6 Law Enforcement Special Revenue Actual Variance (on Budgetary Favorable Budget Basis) (Unfavorable) Totals (Memorandum Only) Actual Variance (on Budgetary Favorable Budget Basis) (Unfavorable) $ $ $ 5,125 7,540 2,415 $ 1,888,180 $ 1,995,097 $ 106,917 1,298,911 1,474,928 176,017 240,780 246,792 6,012 100,202 140,604 40,402 38,875 39,975 1,100 215,425 265,457 50,032 9,100 14,342 5,242 3,791,473 4,177,195 385,722 5,000 125 7,050 490 2,050 365 756,366 753,726 2,640 1,002 (1,002) 1,915,787 1,717,832 197,955 570,164 488,845 81,319 186,133 176,102 10,031 7,246 (7,246) 1,006,414 1,404,695 (398,281) 192,791 588,022 (395,231) 46,574 47,538 (964) 8,248 (8,248) 4,674,229 5,176,760 (502,531) 5,125 (708) (5,833) (882,756) (999,565) (116,809) 406,700 406,700 5,000 387,410 382,410 5,000 794,110 789,110 5,125 (708) (5,833) (877,756) (205,455) 672,301 20,442 20,442 5,204,511 5,204,511 $ 25,567 19,734 $ (5,833) $ 4,326,755 4,999,056 $ 672,301 349,022 (313,329) $ 19,734 $ 5,034,749 7 CITY OF OKEECHOBEE, FLORIDA Combined Statement of Changes in Plan Net Assets Fiduciary Fund Type - Pension Trust Funds and Discretely Presented Component Unit Year Ended September 30,2001 Totals PRIMARY COMPONENT Reporting GOVERNMENT UNIT Entity General Pension Employees (Memorandum Trust Pension Trust Only) Additions Contributions State $ 145,427 $ $ 145,427 Employer 600 75,293 75,893 Employee 56,290 109,256 165,546 Total contributions 202,317 184,549 386,866 Investment income Net depreciation in fair value of investments (960,482) (692,259) (1,652,741) Interest and dividends 152,118 110,199 262,317 (808,364) (582,060) (1,390,424) Less investment expense (34,674) (25,014) (59,688) Net investment income (843,038) (607,074) (1,450,112) Total additions (640,721) (422,525) (1,063,246) Deductions Benefits paid to participants 108,785 90,714 199,499 Refunds on termination 17,933 57,066 74,999 Administrative expenses 16,825 9,671 26,496 Total deductions 143,543 157,451 300,994 Net decrease (784,264) (579,976) (1,364,240) Net assets held in trust for pension benefits, beginning of year 5,241,621 3,762,530 9,004,151 Net assets held in trust for pension benefits, end of year $ 4,457,357 $ 3,182,554 $ 7,639,911 The accompanying notes are an integral part of these statements. 8 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2001 NOTE CONTENTS PAGE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity 10 B. Basis of Presentation-Fund Accounting 10 C. Basis of Accounting 11 D. Budgetary Data 12 E. Assets, Liabilities, and Fund Equity 13 F. Memorandum Only Total Columns 14 2. STEW ARDSIllP, COMPLIANCE, AND ACCOUNTABILITY A. Budgetary Compliance 14 B. Budgeted Expenditures in Excess of Budgeted Revenues 14 C. Excess of Expenditures Over Appropriations 15 3. DETAIL NOTES - ALL FUNDS AND ACCOUNT GROUPS A. Deposits and Investments 15 B. Receivables 17 C. Property Taxes 17 D. Changes in General Fixed Assets 18 E. Capital Leases 18 F. Long-Term Debt 19 G. Defeased Debt 19 H. Retirement Commitments 20 4. RESTATEMENT OF FUND EQUITY 22 5. RISK MANAGEMENT 22 6. COMMITMENTS 22 7. SUBSEQUENT EVENTS 22 9 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES \ The City ofOkeechobee (the City) was originally incorporated in 1915 and its present charter was adopted in 1919 under Chapter 8318 of Special Acts of 1919. The City operates under the council form of government and provides the following services: general government, public safety, transportation, and physical environment. The accounting policies of the City conform to generally accepted accounting principles as applicable to governmental units. The following is a summary of the more significant accounting policies. A. REPORTING ENTITY As required by generally accepted accounting principles, these financial statements present the primary government and its component units. Blended component units, although legally separate entities, are, in substance, part of the government's operations and so data from these units are combined with data of the primary government. Discretely presented component units are entities that are legally separate from the City, but whose relationship with the City are such that the exclusion would cause the City's financial statements to be misleading or incomplete. The financial data of these entities are reported in a separate column in the combined financial statements. Blended Component Units City of Okeechobee Municipal Police Officers' Pension Trust Fund and City of Okeechobee Municipal Firefighters' Pension Trust Fund - The City's public safety employees participate in one of two public safety employees retirement systems. Each single employer plan functions for the benefit of the City's public safety employees and is governed by a Board of Trustees. The Police Officers' and Firefighters' Pension Trust Funds were established by City Ordinances Nos. 657 and 656, respectively, as amended and restated by City Ordinances Nos. 749 and 750, respectively. Discretely Presented Component Unit City of Okeechobee and Okeechobee Utility Authority Employees' Retirement System - Substantially all of the City's general employees and the employees of the Okeechobee Utility Authority participate in this cost sharing, multiple employer public employee retirement system. The plan was established by City Ordinance No. 655, as amended and restated by City Ordinance No. 686. B. BASIS OF PRESENTATION - FUND ACCOUNTING The accounts of the City are organized and operated on the basis of funds and account groups. A fund is a separate accounting entity with a self-balancing set of accounts. An account group is a fmancial reporting device designed to provide accountability for certain assets and liabilities that are not recorded in the funds because they do not directly affect net expendable available fmancial resources. The funds of the City are classified into two categories: governmental and fiduciary. 10 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) B. BASIS OF PRESENTATION - FuND ACCOUNTING (CONTINUED) Governmental Fund Types General Fund - The general fund is the City's primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund. Special Revenue Fund - A special revenue fund is used to account for revenues that are legally restricted to finance particular functions or activities of the government. Fiduciary Fund Type Pension Trust Funds - The pension trust funds account for the assets held in trust for employee pension benefits. The discretely presented component unit is accounted for as a fiduciary fund. Account Groups The following is a description of the City's account groups: General Fixed Assets Account Group - This account group represents a summary of the property and equipment of the City other than infrastructure. Capital outlay in the General Fund is recorded as an expenditure of that fund at the time of purchase and is subsequently recorded, at cost, for control purposes in this account group. General Long-Term Debt Account Group - Long-term liabilities expected to be financed from the General Fund are accounted for in this account group. The accounting and financial reporting applied to a fund is determined by its measurement purpose. Governmental funds are accounted for using a current financial resources measurement focus. Only current assets and current liabilities are included on the balance sheet. All pension trust funds are accounted for on a flow of economic resources measurement focus. All assets and all liabilities associated with the operation of these funds are included on the balance sheet. C. BASIS OF ACCOUNTING Basis of accounting refers to the point at which revenues and expenditures or expenses are recognized in the accounts and reported in the financial statements. Basis of accounting relates to the timing of the measurements made, regardless of the measurement focus applied. 11 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 200 I NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. BASIS OF ACCOUNTING-(CONTINUED) 1. Modified Accrual Governmental funds are accounted for using the modified accrual basis of accounting. Revenues are recognized as soon as they become measurable and available. Revenues are considered to be "available" when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers revenues to be available if they are collected within sixty days of the end of the current fiscal period. Property tax revenue is recognized in the fiscal year for which the taxes have been levied, provided the availability criteria have been met. Expenditures are generally recognized under the modified accrual basis of accounting when the related fund liability is incurred. An exception to this general rule is principal and interest on general long-term debt which is recognized when due. 2. Accrual All pension trust funds (including the discretely presented component unit) are accounted for using the accrual basis of accounting. Revenues are recognized when they are earned and expenses are recognized when incurred. Plan member contributions are recognized in the period in which the contributions are due. Employer contributions are recognized when due and the employer has made a formal commitment to provide the contributions. Benefits and refunds are recognized when due and payable in accordance with the terms of the plan. D. BUDGETARY DATA 1. Budget Policy The City Council adopts an annual budget ordinance for all governmental funds prior to September 30 for the next ensuing fiscal year. The budget is prepared on a modified accrual basis except encumbrances are presented as expenditures. Unencumbered appropriations lapse at fiscal year end. Budgetary control is legally maintained at the department level. Budget transfer authority is provided to the City Administrator within departments. Revisions to budgeted totals of any department require approval of the City Council. 2. Encumbrances Encumbrances represent commitments related to unperformed contracts for goods and services. Encumbrances outstanding at year-end are recorded to reserve that portion of the applicable appropriation. 12 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2001 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. ASSETS, LIABILITIES, AND FUND EQUITY 1. Cash The City's cash includes cash on hand, demand and time deposits, money market funds, and State Board of Administration (SBA) accounts. Investment of public funds with the State Board of Administration is governed by Section 218.407, Florida Statutes. These investments consist primarily of Federal agency obligations, repurchase agreements, bankers' acceptances, U.S. treasury bills, bonds and notes, commercial paper, and certificates of deposit. The SBA has adopted operating procedures consistent with Regulation 2a-7. The pool is regulated by the State and the fair value of the position in the pool is the same as the share value of the pool share. 2. Investments Pension trust fund investments (including the discretely presented component unit) are reported at fair value. Short- term investments are reported at cost, which approximates market value. Securities traded on a national exchange are valued at the last reported sales price. 3. Fixed Assets Fixed assets used in the General Fund are accounted for at historical cost, if purchased, and at fair market value at date of gift, if donated, in the General Fixed Assets Account Group, rather than in the General Fund. Public domain general fixed assets consisting of certain improvements including roads, bridges, curbs and gutters, streets and sidewalks, drainage systems and lighting systems are not capitalized as general fixed assets. No depreciation has been provided for assets accounted for in the General Fixed Assets Account Group. 4. Compensated Absences It is the government's policy to permit employees to accumulate earned but unused vacation and sick pay benefits. Vacation pay that is expected to be liquidated with expendable available financial resources is reported as an expenditure of the General Fund. Amounts not expected to be liquidated with expendable available financial resources and vested sick pay are reported in the General Long-Term Debt Account Group. Full-time employees accrue paid vacation ranging from 6 days after 6 months of continuous service, up to 20 days after 15 years of service. Unused vacation will be paid up to a maximum of 240 hours upon termination of employment. Sick leave for employees is accumulated at the rate of 12 days per year. Payment for unused sick leave upon termination of employment may be made for employees with 10 years or more of continuous service at a rate of 50% of the unused sick leave balance. 13 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 200 I NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) E. ASSETS, LIABILITIES, AND FUND EQUITY (CONTINUED) 5. Deferred Revenue Deferred revenue includes amounts collected before the revenue recognition criteria are met and receivables which, under the modified accrual basis of accounting, are measurable but not yet available. The City's deferred revenue consists primarily of occupational license fees. 6. Long-Term Obligations Long-term debt is recognized as a liability of a governmental fund when due. For other long-term obligations, only that portion expected to be fmanced from expendable fmancial resources is reported as a fund liability of a governmental fund. The remaining portion of such obligations is reported in the General Long-term Debt Account Group. 7. Fund Equity - Reserves Reserves represent those portions of fund equity not appropriable for expenditure or legally segregated for a specific use. All of the available assets of the fiduciary funds and the discretely presented component unit are reserved by definition for the purpose for which the funds were created. F. MEMORANDUM ONLY TOTAL COLUMNS Total columns on the combined statements are captioned "Memorandum Only" to indicate that they are presented only to facilitate financial analysis. Data in these columns does not present financial position or results of operations in conformity with generally accepted accounting principles. Such data is not comparable to a consolidation. Interfund eliminations have not been made in the aggregation of this data. NOTE 2 - STEW ARDSIllP, COMPLIANCE, AND ACCOUNTABILITY A. BUDGETARY COMPLIANCE The City's budgetary data and actual data are presented on the modified accrual basis for the General and Law Enforcement Special Revenue Funds except that encumbrances are included as expenditures of the current period for the budget to actual comparison. B. BUDGETED EXPENDITURES IN EXCESS OF BUDGETED REVENUES The City's budgeted expenditures exceeded budgeted revenues in the General Fund; however, this is pursuant to the legally adopted budget to expend available fund equity and does not constitute a budget deficit. 14 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2001 NOTE 2 - STEW ARDSIDP, COMPLIANCE, AND ACCOUNTABILITY (CONTINUED) \ C. EXCESSOFEXPENDnITrnESOVERAPPROPRlATIONS Expenditures exceeded appropriations in the General Fund and the Law Enforcement Special Revenue Fund. These overexpenditures were funded by greater than anticipated other financing sources in the General Fund and available fund equity in the Special Revenue Fund. NOTE 3 - DETAIL NOTES - ALL FUNDS AND ACCOUNT GROUPS A. DEPOSITS AND INVESTMENTS Banks and savings and loans must meet the criteria to be a qualified public depository as described in the Florida Security for Public Deposits Act in accordance with Chapter 280, Florida Statutes before any investment of public funds can be made with them. At year end, the carrying amount of the City's (Primary Government) deposits was $3,707,112 and the bank balance was $3,805,424. The canying amount and bank balance of the discretely presented component unit's deposits was $24,618. Monies invested in amounts greater than the FDIC insurance coverage are secured by the banks pledging securities with the State Treasurer in the multiple financial institutions collateral pool. The investment of municipal funds is authorized by local ordinance and Florida Statutes which allow the City to invest in the Local Government Surplus Funds Trust Fund or any intergovernmental investment pool authorized pursuant to the Florida Interlocal Cooperation Act, SEC registered money market funds with the highest credit quality rating, interest-bearing time deposits or savings accounts in qualified public depositories, direct obligations of the U.S. Treasury, commercial paper with certain ratings, pre-refunded municipal obligations, banker's acceptances maturing within one year, investment agreements, direct and general long-term and short-term obligations of any state with proper credit rating and full faith and credit pledge, rnunicipal obligations with proper credit rating and repurchase agreements with maturities of 30 days or less with organizations with certain stipulations and requirements. The Primary Government's pension trust funds are authorized to invest in annuity and life insurance contracts; insured time or savings accounts of banks, saving and loan associations, and credit unions; obligations of the U.S Government or agencies thereof; bonds issued by the State of Israel; stocks, commingled funds administered by national or state banks, mutual funds, bonds, or other evidences of indebtedness issued or guaranteed by a corporation organized under the laws of the United States, any state or organized territory of the United States, or the District of Columbia; foreign securities up to 10% of the fund assets; and real estate, provided the cost is no more than 10%. The City of Okeechobee and the Okeechobee Utility Authority Employees' Retirement System (Discretely Presented Component Unit) is authorized to invest in annuity and life insurance contracts; insured time or savings accounts of banks or savings and loan associations; obligations of the U.S Government or agencies thereof; bonds issued by the State of Israel; and bonds, stocks, commingled funds administered by national or state banks, or other evidences of indebtedness issued or guaranteed by a corporation organized under the laws of the United States, any state or organized territory of the United States, or the District of Columbia, provided the security is traded on a nationally recognized exchange and holds a rating in one of the three highest classifications. 15 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2001 NOTE 3 - DETAIL NOTES - ALL FUNDS AND ACCOUNT GROUPS (CONTINUED) A. DEPOSITS AND INVESTMENTS (CONTINUED) The Primary Government's and Discretely Presented Component Unit's investments are categorized to give an indication of the level of risk assumed at year end. Those investments assigned a credit risk under Category 1 include investments that are insured or registered, or securities that are held by the entity or its agent in the entity's name. Category 2 includes uninsured and unregistered investments with the securities being held by the counterparty's trust department or agent in the entity's name. Category 3 includes uninsured and unregistered investments with the securities being held by the counterparty, or by its trust department or agent but not in the entity's name. As of September 30,2001, the fair value and category of credit risk ofthe City's investments are as follows: Primary Government Investments: Government and agency securities Corporate bonds Corporate stocks 1 Categories of Credit Risk 2 3 Fair Value $ $ $ 1,169,831 642,807 2,292,565 4,105,203 $ 1,169,831 642,807 2,292,565 $ 4,105,203 $ $ $ Investments not subject to categorization: Investments with State Board of Administration Money market funds Total Investments 1,172,106 248,893 5,526,202 $ Discretely Presented Component Unit Investments: Government and agency securities Corporate bonds Corporate stocks 1 Categories of Credit Risk 2 3 Fair Value $ $ $ 845,450 455,910 1,670,065 2,971,425 $ 845,450 455,910 1,670,425 2,971,425 $ $ $ $ Investments not subject to categorization: Money market funds Total Investments $ 139,322 3,110,747 16 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2001 NOTE 3 - DETAIL NOTES - ALL FUNDS AND ACCOUNT GROUPS (CONTINUED) \ A. DEPOSITS AND INVESTMENTS (CONTINUED) These deposits and investments are reflected on the accompanying balance sheet in the following classifications: Cash Less cash on hand Total Cash $ 5,292,200 (149) 5,292,051 7,076,628 12,368,679 Investments Total Cash and Investments - Reporting Entity $ B. RECEIVABLES Receivables as of September 30,2001, including the applicable allowance for uncollectible accounts, are as follows: Total Primary Component General Fund Pension Trust Government Unit FranchiselUtility taxes $ 107,950 $ $ 107,950 $ Garbage 21,449 21,449 Contributions 3,698 3,698 26,688 Other 14,787 14,787 Interest 10,785 27,158 37,943 18,673 154,971 30,856 185,827 45,361 Less allowance (13,000) (13,000) Receivables, net $ 141,971 $ 30,856 $ 172,827 $ 45,361 C. PROPERTY TAXES The City's property tax is levied annually on the real and personal property located in the City on January 1st of the prior year. Tax collections by the Okeechobee County tax collector begin in November of each year with a due date of March 31 of the following year. All property taxes remaining unpaid at May 30 are subject to a tax certificate sale. The City Council determines the millage rates and adopts a tax levy by resolution prior to September 30 to fund the next ensuing fiscal year's budget. The assessment of all properties and collection of municipal taxes are provided by the County's property appraiser and tax collector. The City is permitted by state law to levy taxes up to 10 mills of assessed valuation for the General Fund. The tax rate for the fiscal year was 5.9399 mills. 17 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2001 NOTE 3 - DETAIL NOTES - ALL FUNDS AND ACCOUNT GROUPS (CONTINUED) - D. CHANGES IN GENERAL FIXED ASSETS A summary of changes in general fIxed assets follows: Balance Oct. 1, 2000 Disposals! Other (Restated) Additions Retirements Adjustments Land and improvements $ 818,489 $ 36,869 $ $ Buildings 639,024 571,905 Equipment and furniture 1,497,338 536,682 (487,789) 24,234 $ 2,954,851 $ 1,145,456 $ (487,789) $ 24,234 E. CAPITAL LEASES Balance Sept. 30, 2001 $ 855,358 1,210,929 1,570,465 $ 3,636,752 In fIscal year 2000, the City purchased vehicles under a master lease agreement it had with a fInancial institution. The lease called for eight quarterly payments of $15,000 with the balance to be paid in March 2002. In fIscal year 2001, the City sold the vehicles and paid off the balance of the lease. This lease was recorded as an operating lease for the fIscal year ended September 30,2000. In accordance with FASB Technical Bulletin No. 79-10, the master lease agreement's fIscal funding clause does not prohibit the lease from being capitalized if it meets the other requirements of a capital lease. Therefore, the October 1, 2001 balances in the changes in general fIxed assets (Note 3.D.) and changes in long term debt (Note 3.F.) have been restated to reflect the capitalization of this vehicle lease. The City entered into a new lease/purchase agreement for the purchase of City vehicles during the current year. The lease is for fIve years at 4.74% interest, with nineteen quarterly payments of $15,000 and the balance due in March 2006. This lease is accounted for in the General Long Term Debt Account Group and the vehicles have been recorded in the General Fixed Asset Account Group in the amount of $406,700. The following is a schedule of future minimum lease payments under this capital lease: Year ending September 30, 2002 2003 2004 2005 2006 Total minimum lease payments Less amount representing interest Present value of net minimum lease payments $ 60,000 60,000 60,000 60,000 189,644 429,644 (58,783) $ 370,861 Capital lease payments for fIscal year 2001 totaled $415,483, including the early payoff of the fIscal year 2000 lease. 18 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2001 NOTE 3 - DETAIL NOTES - ALL FUNDS AND ACCOUNT GROUPS (CONTINUED) F. LONG-TERM DEBT Notes payable as of September 30, 2001 are as follows: 5.25% gas tax revenue note to a bank, payment of $99,682, including interest, due semi-annually through December 30, 2004; collateralized by and payable from a pledge of the City's share of the local option gas tax, municipal tax on motor fuels and motor fuel rebate 5.527% note to a bank, payment of $40,000, including interest, due annually through October 1, 2003 with final payment due October 2004 of $27,171; collateralized by annually budgeted non-ad valorem revenues $ 630,078 $ 129,664 $ 759,742 Notes payable debt service requirements to maturity, including interest, are as follows: Year ending September 30, 2002 2003 2004 2005 Gas Tax Revenue $ 168,472 177,433 186,843 97,330 $ 630,078 Municipal Promissory $ 32,827 34,641 36,556 25,640 $ 129,664 Interest $ 38,066 27,291 15,966 3,980 $ 85,303 $ Total 239,365 239,365 239,365 126,950 845,045 $ A summary of changes in long-term debt for the year ended September 30, 2001 is as follows: Balance Oct. 1, 2000 (restated) Addition Reductions Balance Sept. 30, 2001 Notes payable Capital leases payable Compensated absences Total $ 950,808 361,117 149,830 1,461,755 $ $ (191,066) (396,956) (20,108) $ (608,130) $ 759,742 370,861 129,722 1,260,325 406,700 $ $ 406,700 $ G. DEFEASED DEBT The Water and Sewer Refunding and Improvement Revenue Bonds, Series 1987, the Water and Sewer Improvement Revenue Bonds, Series 1989, and the Water and Sewer Improvement Revenue Bonds, Series 1992A were defeased on September 28, 1995 upon the transfer of the water and sewer system to the Okeechobee Utility Authority. Monies were deposited in an irrevocable trust to provide for all future debt service payments on these bonds. Accordingly, trust assets and liabilities for the defeased bonds are not included in the City's financial statements. On September 30, 2001, $500,000 of bonds outstanding are considered defeased. 19 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2001 NOTE 3 - DETAIL NOTES - ALL FUNDS AND ACCOUNT GROUPS (CONTINUED) - H. RETIREMENT COMMITMENTS' Pension Plans - Primary Government Plan Descriptions - The City contributes to two single-employer defined benefit pension plans: City of Okeechobee Municipal Police Officers' Pension Trust Fund and City ofOkeechobee Municipal Firefighters' Pension Trust Fund (the Plans). The Plans provide retirement, disability, and death benefits to plan members and their beneficiaries. Chapters 185 and 175 of the Florida Statutes establish the minimum benefits and the minimum standards for the operation and funding of the Police Officers' and the Firefighters' Municipal Pension Trust Funds, respectively. Per City Ordinances Nos. 750 and 749, sole responsibility for administering the Plans is vested in the Board of Trustees of each plan. The Boards cannot amend the provisions of the plans without the approval of the City. The Plans issue publicly available financial reports that include financial statements and required supplementary information. Those reports are available from the City of Okeechobee, Florida, 55 S.E. Third Avenue, Okeechobee, Florida 34974. Funding Policy - The contribution requirements of plan members and the City are established and may be amended by City ordinance. Plan members are required to contribute 5% of their annual covered salary for the Police Officers' and Firefighters' Municipal Trust Funds. The City is required to contribute an amount equal to the difference in each year between the total aggregate member contributions for the year, plus state contributions for such year, and the normal cost for the year, as shown by the most recent actuarial valuation of the plan; the current rate is 10.84% and 4.15% of annual covered payroll for the Police Officers' and Firefighters' plans, respectively. The City recognized as revenues and expenditures on-behalf payments relating to pension contributions for its public safety employees that the State of Florida paid to the Police Officers' and Firefighters' Plans in the amounts of $91,386 and $54,041, respectively. These contributions are funded by an excise tax upon certain casualty insurance companies on their gross receipts of premiums from policy holders. Annual Pension Cost - The annual required pension contributions for the Plans were determined as part of the October 1, 2000 actuarial valuations using the aggregate actuarial cost method. The aggregate actuarial cost method does not identify or separately amortize unfunded actuarial liabilities. The actuarial assumptions included (a) 7% investment rate of return (net of administrative expenses) and (B) projected salary increases of 6% for the Police Officer's Trust and 7% for the Firefighter's Trust. Both (a) and (b) included an inflation component of 4%. The actuarial value of assets was determined using a method which recognizes actual investment return in excess of the assumed return evenly over a four year period. 20 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30, 2001 NOTE 3 - DETAIL NOTES - ALL FUNDS AND ACCOUNT GROUPS (CONTINUED) . H. RETIREMENT COMMITMENTS (CONTINUED) Three-year trend information Municipal Police Officers' Annual Percentage Net Year Pension OfAPC Pension Ending Cost (APe) Contributed Obligation 9/30/99 $ 65,916 134 % $ (400,733) 9/30/00 93,469 95 (396,334) 9/30/01 74,693 122 (413,027) 9/30/99 $ 688 7696 % $ (238,853) 9/30/00 17,412 348 (282,120) 9/30/01 15,194 360 (321,567) Municipal Firefighters' Pension Plan - Discretely Presented Component Unit Plan Description - The City contributes to the City of Okeechobee and Okeechobee Utility Authority Employees' Retirement System (the System), a cost-sharing multiple employer defined benefit pension plan administered by the System's Board of Trustees. The System provides retirement, disability, and death benefits to plan members and their beneficiaries. The Board of Trustees is authorized by City Ordinance No. 686 to establish and amend all plan provisions. The System issues a publicly available financial report that includes financial statements and required supplementary information. That report is available from the City of Okeechobee, Florida, 55 S.E. Third Avenue, Okeechobee, Florida 34974. Funding Policy - The contribution requirements of the plan members and the City are established and may be amended by City ordinance. Plan members are required to contribute 6% of their covered annual salary. The City is required to contribute at an actuarially determined rate; the current rate is 4.13 % of covered payroll. The City's contributions for the years ending September 30, 2001, 2000, and 1999 were $25,156, $16,817,and $15,147, respectively, and were equal to the required contributions for each year. 21 CITY OF OKEECHOBEE, FLORIDA Notes to Financial Statements September 30,2001 NOTE 4 - RESTATEMENT OF FUND EQUITY City Ordinance No. 758 established a 'separate law enforcement fund for the deposit of law enforcement administrative fees collected by virtue of Resolution No. 98-13 and funds obtained through the forfeiture procedures as set out in Florida Statute 932.701et.seq. The funds that had previously been reported as part of the General Fund are now reported in a special revenue fund. This results in a restatement of the beginning fund balances as follows: Beginning fund balances, as previously reported Adjustment Beginning fund balances, as restated General Fund $ 5,204,511 (20,442) $ 5,184,069 NOTE 5 - RISK MANAGEMENT The City is exposed to various risks of loss, including, but not limited to theft, damage or destruction of its buildings, equipment, records, and monetary assets, and liability for personal injury, property damage, and consequences of employee and public official actions. The City participates in a non-assessable public risk pool to cover significant loss exposure and purchases commercial insurance for third party pollution liability coverage. The pool maintains a loss reserve and purchases specific excess insurance, aggregate excess insurance, and multiple loss coverage from commercial carriers and underwriters. If losses in anyone fiscal year extinguish all available funds provided by the pool, then the members are individually responsible for the claims. Settlement amounts have not exceeded coverage for the current year or the three prior years. NOTE6-COMNUTMENTS In September 2001, the City Council approved a construction contract for roadway improvements in the amount of$291,650. NOTE 7 - SUBSEQUENT EVENTS In December, the City entered into a new vehicle lease with a financial institution and purchased vehicles for $410,550 from a relative of one of the Council members. The City sold its current vehicles and paid off the related lease commitment. 22 r COMBINING AND INDIVIDUAL FUND STATEMENTS These financial statements provide a more detailed view of the "General Purpose Financial Statements" presented in the preceding subsection. Combining statements are presented when there is more than one fund of a given fund type. 23 CITY OF OKEECHOBEE, FLORIDA Combining Balance Sheet Fiduciary Fund Type - Pension Trust Funds Year Ended September 30, 2001 Municipal Police Municipal Officers' Firefighters' Totals ASSETS Cash $ 219,250 $ 103,173 $ 322,423 Investments 2,934,580 1,170,623 4,105,203 Receivables 22,142 8,714 30,856 Prepaids 8,272 8,272 Total assets $ 3,184,244 $ 1,282,510 $ 4,466,754 LIABILITIES AND FUND BALANCES Liabilities Accounts payable $ 5,914 $ 3,483 $ 9,397 Fund Balances Reserved for pension benefits 3,178,330 1,279,027 4,457,357 Total liabilities and fund balances $ 3,184,244 $ 1,282,510 $ 4,466,754 The accompanying notes are an integral part of these statements. 24 CITY OF OKEECHOBEE, FLORIDA Combining Statement of Changes in Plan Net Assets Fiduciary Fund Type - Pension Trust Funds Year Ended September 30, 2001 Municipal Police Municipal Officers' Firefighters' Totals Additions Contributions State $ 91,386 $ 54,041 $ 145,427 Employer 600 600 Employee 42,010 14,280 56,290 Total contributions 133,396 68,921 202,317 Investment income Net depreciation in fair value of investments (687,767) (272,715) (960,482) Interest and dividends 108,966 43,152 152,118 (578,801) (229,563) (808,364) Less investment expense (24,857) (9,817) (34,674) Net investment income (603,658) (239,380) (843,038) Total additions (470,262) (170,459) (640,721) Deductions Benefits paid to participants 108,785 108,785 Refunds on termination 2,404 15,529 17,933 Administrative expenses 10,510 6,315 16,825 Total deductions 121,699 21,844 143,543 Net decrease (591,961) (192,303) (784,264) Net assets held in trust for pension benefits, beginning of year 3,770,291 1,471,330 5,241,621 Net assets held in trust for pension benefits, end of year $ 3,178,330 $ 1,279,027 $ 4,457,357 The accompanying notes are an integral part of these statements. 25 TIllS PAGE IS INTENTIONALLY LEFT BLANK. 26 ADDITIONAL ELEMENTS REQUIRED BY GOVERNMENT AUDITING STANDA..1IDS AND THE RULES OF THE AUDITOR GENERAL 27 TIllS P AGE INTENTIONALLY LEFT BLANK. 28 " HOYMAN, DOBSON & COMPANY, P.A. . .. CERTIFIED PUBLIC ACCOUNTANTS ~,_.", ,=, ,~ ",*,'W",.~",~~.:iW~)tf.:Y'1l'j1W:'TPii:'i:Y,'F~;'<~"" 215 Bay/ree Drive, Me/bourne, Florida 32940, 32/-255-0088, Fax 32/-259-8648, wwwhoymancom Independent Auditor's Report on Compliance and on Internal Control Over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditin2 Standards Charles W Haymon, Jr Barbara J Oswalt Thomas L. Kirk Karen E. Kirkland Deborah A. Bradley DIRECTOR EMERITUS Roger W Dobson Eugene K. Bjerning Honorable Mayor and Members of the City Council City of Okeechobee, Florida We have audited the general purpose financial statements of the City of Okeechobee, Florida, as of and for the year ended September 30, 2001, and have issued our report thereon dated January 11,2002. 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. We did not audit the financial statements of the fiduciary fund type and the discretely presented component unit. Those financial statements were audited by other auditors whose reports have been furnished to us, and this report, insofar as it relates to the fiduciary fund type and the discretely presented component unit, is based on the reports of the other auditors. Compliance As part of obtaining reasonable assurance about whether the City of Okeechobee, Florida's general purpose 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 and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audit, we considered the City of Okeechobee, Florida's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the general purpose financial statements and not to provide assurance on the internal control over financial reporting. However, we noted a certain matter involving the internal control over financial reporting and its operation that we consider to be a reportable condition. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control over financial reporting that, in our judgment, could adversely affect the City ofOkeechobee, Florida's ability to record, process, summarize, and report financial data consistent with the assertions of management in the general purpose financial statements. A description of the reportable condition follows: Fixed Assets Condition: We noted that the City does not have detailed fixed asset records to support the recorded cost of its real property. In addition, we noted that the equipment fixed asset records did not include all of the fixed asset additions for the current year. ;"'S<;"<~P,"{.,;:tif':i)J{<:s};'tJ~?~~$<j')0dm}~",~.ul':JUillW;j~j1i'ig~tt4.IU. [,,~LL 29 . Americon Institute al Certdied Public Accountants' Flarida Institute al Certilied Public Accountants' SEC Practice Sectian al the A I. C PA . CPAmerico International Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Two Cause: The lack of detailed real property records is an ongoing issue. The City has passed a Resolution to update records based upon insurance valuations and property tax records, but no meaningful progress has been made toward this end during the current fiscal yt;ar. It appears that City employees are unsure as to how to proceed with this process. The problems with the equipment fixed assets records are the result of relying on information obtained from user departments during the taking of the annual physical inventory of fixed assets rather than capturing fixed asset additions at the time of purchase. Effect: Without adequate records and procedures for updating those records, the City cannot support the recorded value of its general fixed assets and will continue to receive qualified opinions. In addition, the lack of control over fixed asset increases the likelihood of misappropriation. Recommendation: We recommend that the City proceed with its plan to adjust its real property assets based upon insurance values and property tax records. It appears that the City will require outside assistance in completing this process. In addition, the City should implement procedures to identify fIxed asset additions at the time a purchase order is completed. Once the asset is received, it should be tagged, if applicable, and added to the fixed asset records at its cost. The user departments should be required to account for the asset at the time of taking the physical inventory and any differences should be investigated. Management's Response: This has been an on going finding of which we will strive to follow our Auditor's recommendation by proceeding with the plan to adjust real property assets based upon insurance values and property tax records. The City of Okeechobee will contract with an outside company for budget year 2002/2003 to assist in completing the process as well as working toward implementing GASB 34. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the general purpose financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control that might be reportable conditions and, accordingly, would not disclose all reportable conditions that are also considered to be material weaknesses. However, we believe that the reportable condition described above is not a material weakness. We also noted other matters involving the internal control over financial reporting that we have reported to management of the City ofOkeechobee, Florida, in a separate letter dated January 11,2002. This report is intended solely for the information and use of the City of Okeechobee, Florida and management, City Council, federal and state awarding agencies and the Office of the Auditor General and is not intended to be and should not be used by anyone other than these specified parties. =-- :(t:'~~~c~,1.~ . January 11, 2002 30 . "';':;. HOYMAN, DOBSON & COMPANY, P.A. "" CERTIFIED PUBLIC ACCOUNTANTS ~,gW:JtI:t#f\:jtM'.f'f;H'~;-}-;{j!" 2/5 Bay tree Drive, Melbourne, Florida 32940. 321255-0088, Fox 321-259-8648, wwwhoymancom Independent Auditor's Management Letter Charles W Hoyman, Jr Barbara J Oswalt Thomas l. Kirk Karen E. Kirkland Debarah A. Bradley DIRECTOR EMERITUS Roger W Dobson Eugene K. Blerning Honorable Mayor and Members of City Council City of Okeechobee, Florida. We have audited the financial statements of the City of Okeechobee, Florida, as of and for the fiscal year ended September 30, 2001, and have issued our report thereon dated January 11, 2002, which was qualified due to a lack of adequate fixed asset records. We conducted our audit in accordance with United States generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. We have also issued our Independent Auditor's Report on Compliance and Internal Control Over Financial Reporting. Disclosures in that report, dated January 11, 2002, should be considered in conjunction with this management letter. Additionally, our audit was conducted in accordance with Chapter 10.550, Rules of the Auditor General. Those rules (Section I 0.554(l)(g) 1.a.) require that we address in the management letter, if not already addressed in the auditor's reports on compliance and internal controls, whether or not inaccuracies, shortages, defalcations, fraud, and/or violations of laws, rules, regulations, and contractual provisions reported in the preceding annual financial audit report have been corrected. There were no inaccuracies, irregularities, shortages, defalcations, and/or violations of laws, rules, regulations, and contractual provisions disclosed in the preceding annual report. The Rules of the Auditor General (Section 1O.554(l)(g)1.b.) require that we address in the management letter, if not already addressed in the auditor's reports on compliance and internal controls whether or not recommendations made in the preceding annual financial audit report have been followed. The status of the audit findings for the year ended September 30, 2000 is as follows: Internal Control Over Financial Reportine 00-1 Fixed Assets Group Status Repeated/revised, included in report on compliance and internal controls Repeated/revised, included in management 1 etter Not applicable; no action required 00-2 General Ledger 00-3 Grant Reporting Management Letter 1. Accounts Receivable - Garbage 2. General Ledger 3. Payroll Taxes Status Repeated/revised Corrected Corrected J:--.'JL\,._-_'\LL/;:::~S;;;;.i0i.fi;i*@t~'~"%M~tJil '" . American institute of Certified Public Accountants. Florida Institute of Certified Public Accountants. SEC Practice Section of the A i. C PA . CPAmerica International Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Two As required by the Rules of the Auditor General (Section 10.554(1)(g)2.), the scope of our audit included 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 of Okeechobee, Florida complied with Section 218.415, Florida Statutes. The Rules of the Auditor General (Section 10.554(1)(g)4.) require disclosure in the management letter of the following matters if not already addressed in the auditor's reports on compliance and internal controls: (1) violations of laws, rules, regulations, and contractual provisions that have occurred, or are likely to have occurred; (2) improper or illegal expenditures; (3) improper or inadequate accounting procedures (e. g., the omission of required disclosures from the financial statements); (4) failures to properly record financial transactions; and (5) other inaccuracies, shortages, defalcations, and instances of fraud discovered by, or that come to the attention of, the auditor. Our audit disclosed the following matters required to be disclosed: Current Year Findings and Recommendations 1. General Ledger - Year End Reconciliations Finding: We noted that at year end, the City's schedules of receivables, payables, and encumbrances did not reconcile to the general ledger balances. The City identifies outstanding receivables, p~bles, and encumbrances and makes entries to record these amounts in the general ledger b,yt d2esn't ~ure that the general ledger balances are zero before making these adjustments. The balances appear to be due to prior year entries made by the auditor and not recognized by the City in its subsidiary schedules, audit entries not posted by the client, current year transactions that were incorrectly posted against these balances, and prior year balances not being cleared by current year receipts and payments. Recommendation: We recommend that the City implement procedures to ensure that auditor adjustments to these accounts are reflected in the City's subsidiary schedules and that the City post all required adjusting entries. In addition, the City should implement control procedures to verify that receipts and payments posted against these accounts are, in fact, in the account balance at year end and that balances that remain outstanding for a long period be investigated to determine if the receipt or payment has been posted elsewhere. As an alternative, subsequent to year end, the City could reverse the year end balances and post the receipts and disbursements against revenue and expenditure accounts rather than the receivable and payable accounts. Management's Reponse: We in the Finance office will strive to reconcile the General Ledger balances for the Receivables, Payables and Encumbrances. In prior years some of the adjusting entries from our auditor were difficult to follow in that some adjustments appeared to be duplicated. It is the expectation of the Finance Office that these problems will be cleared in our next Audit. 2. Accounts Receivable - Garbage Finding: We noted that the City's garbage accounts receivable includes old uncollected receivables. Recommendation: We recommend that the City review these receivables and write-off accounts determined to be uncollectible. 32 Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Three Management's Reponse: The Finance Office is in process of adding the Garbage Accounts to the property tax bill. We believe this will help to eliminate unpaid accounts. A recommendation will be made to the City Council to allow a write off of old uncollectible accQunts over 75 days. . 3. Capital Outlay and Operating Expense Classifications Finding: We noted that the City's capital outlay line items were often charged with small dollar items and with items that did not appear to meet the definition of capital outlay. In addition, we noted that the equipment fixed asset records contained many small dollar items and that the cost of some of the items had changed since the prior year's audit. The changes appear to stem from changes made by the departments at the time of taking the physical inventory. Recommendation: We recommend that the City establish a policy that adequately describes what items constitute capital outlay and that capital outlay items under $750 be charged to a separate capital outlay line item or that they be charged to a supply account. The accounting department should review all purchase orders and charges and verify that the appropriate line item has been charged. In addition, we recommend that the City review its equipment records and remove all items costing under $750 in accordance with its capitalization policy. In addition, we recommend that fixed asset costs be determined at the time of purchase and that recorded costs not changed unless documentation is available to verify that the recorded cost is in error. Management's Reponse: A memo has been sent to all City Departments instructing them that any purchase under $750.00 should not be expended to capital outlay. The Finance Office will check Departmental purchases as they are processed through accounts payable to verify that this procedure is being followed. 4. Travel Reimbursement Finding: We noted that not all expenditures charged to City credit cards were supported by receipts. Recommendation: We recommend that the City implement a policy for credit card use that requires the timely submission of all receipts and that employees be held responsible for all charges not adequately supported. Management's Reponse: We in the Finance Office are in process of sending a memo to all City Departments to once again inform them that when traveling expenses are incurred on behalf of the City, if the receipts and vouchers aren't submitted to the Finance Office in a timely manner, the employee that incurred the expense will be held responsible for all charges not adequately supported. 5. Blank Check Stock Finding: We noted that the City's blank check stock is not kept in a secure location to restrict unauthorized access. Recommendation: We recommend that the City keep its blank check stock locked in a secure location when not III use. Management's Reponse: The Finance Office has implemented our Auditors recommendation by keeping our blank check stock locked in a secure location when not in use. 33 Honorable Mayor and Members of the City Council City of Okeechobee, Florida Page Four 6. Segregation of Duties Finding: Due to the limited accounting staff, we noted that certain functions are not adequately segregated such as bank reconciliations being performed by employees involved in the cash receipting and disbursement functions and direct deposit payroll proce&sing not being subject to an independent review and approval. Recommendation: In order to enhance controls in areas such as these, we recommend that the City implement procedures whereby the City Administrator review the bank statement and cancelled checks and sign off on the monthly bank reconciliations and direct deposit payroll listings. Management's Response: At our Auditors recommendation the City Administrator is currently reviewing and signing the monthly bank reconciliation's as well as the weekly direct deposit payroll listings in order to enhance controls. The Rules of the Auditor General (Section 10.554(1)(g)5.) also require that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in the management letter, unless disclosed in the notes to the financial statements. The City of Okeechobee, Florida was originally incorporated in 1915 and its present charter was adopted under Chapter 83 18 of Special Acts of 1919. The City of Okeechobee, Florida includes the following component units: City of Okeechobee, Florida and Okeechobee Utility Authority General Employees' Pension Trust Fund - established under the City of Okeechobee, Florida Ordinance 655, as amended by City Ordinance 686; City ofOkeechobee, Florida Municipal Police Officers' Pension Trust Fund - established under City Ordinance 657, as amended by Ordinance 750; City of Okeechobee, Florida Municipal Firefighters' Pension Trust Fund - established under City Ordinance 656, as amended by Ordinance 749. As required by the Rules of the Auditor General (Section lO.554(1)(g)6.a.), the scope of our audit included a review of the provisions of Section 218.503(1), Florida Statutes, regarding financial emergencies. In connection with our audit, we determined that the City of Okeechobee, Florida is not in a state of financial emergency as a consequence of the conditions described in Section 218.503(1), Florida Statutes. As required by the Rules of the Auditor General (Section 10.554(1)(g)6.b.), we determined that the annual financial report for the City of Okeechobee, Florida for the fiscal year ended September 30, 2001, filed with the Department of Banking Finance pursuant to Section 218.32, Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended September 30, 2001 As required by the Rules of the Auditor General (Sections 10.554(g)(6)c. and 10.556), we applied financial condition assessment procedures. It is management's responsibility to monitor the entity'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. This management letter is intended solely for the information of the City of Okeechobee, Florida and management, and the State of Florida Office of the Auditor General, and is not intended to be and should not be used by anyone other than these specified parties. iK~&~~~fA-. January 11,2002 34