As already posted, the firm of CliftonLarsonAllen conducted the City of Appleton’s 2020 audit. They also conducted Valley Transit’s 2020 audit. CLA team member and CPA Leah Lasecki reviewed their audit report with the Fox Cities Transit Commission on 06/22/2021.
Ms. Lasecki was the manager the audits for both the city and Valley Transit. There were people who worked on Valley Transit’s audit, and they did that concurrently while also doing the city’s audit. She noted that this was the second year they conducted the audit remotely. She praised Valley Transit Administrative Services Manager Deb Ebben for gathering information into a very nice and organized package as well as being incredibly responsive during the audit process.
Before diving in to the actual audit report, Ms. Lasecki gave a broad summary.
- Valley Transit received an “unmodified” audit opinion which is the best opinion an entity/organization can receive.
- There were no findings indicating there were any internal control issues. CLA does not test internal controls, but they do assess them, and if they found any issues they would bring those forward and discuss them as part of their findings.
- There are no findings in compliance. “This year was a little bit different on the single audit/state audit that what we’ve done in the past, and that’s because the city received the CARES Act moneys and those were audited for federal. So this year, unlike other years we did not audit federal transit. But we did audit transit for state. So we audited the VW settlement program this year. But all of the procedures that we did on that state program, we had no issues at all with compliance. Everything was in good order. No issues whatsoever.” [Note: Valley Transit had received a grant from Volkswagen to purchase 15 buses, and that is what she was referencing when she talked about auditing to make sure they were in compliance with the VW settlement program.]
After that overview, she dove into more details about the independent auditor’s report.
They do issue an entirely separate financial statement for Valley Transit, but Transit is also included in the city and is treated as an enterprise fund of the city. Most of the information in the report she was presenting was also going to be included within the city’s report.
She said that the big thing was the opinion paragraph at the bottom of page one which reads, “In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Transit as of December 31, 2020, and the changes in financial position and cash flows therof for the year then ended in accordance with accounting principles generally accepted in the United States of American” What was important about that was that they were saying they were not aware of any material modifications to Valley Transit’s financial statements. Materiality is important. CLA does not have the time to look at every dollar, much as they wish they could, so their opinions are in regard to materiality.
She said that if people had not had a change to read through all of the audit report, and they didn’t want to wade through all the notes, they should read pages 4-8. She praised Deb Ebben’s preparation of the “Management’s Discussion And Analysis”.
She reviewed some of the changes on page 9 of the report. Valley Transit’s total assets went up by $2.7 million compared to 2019. Most of that was capital purchases of buses. In 2020 they purchased 5 buses via the Volkswagen program which was about $2.5 million.
Halway down the “assets” section there was a line labeled “net pension asset”. She said this referred to the Wisconsin Retirement System. With that, an entity carries either an asset or a liability and that is completely determined by an actuary who, at the end of the year, will determine if it’s a liability or an asset. In 2019, Valley Transit’s net pension liability was $620,000. In 2020, they had a net pension asset of $554,000. Per Ms. Lasecki, “That has a big impact on your statement of revenue and expenses because obviously that adjustment has to push through the current year.”
She noted that there was not a big change in Deferred Outflows Of Resources or in Liabilities. Their Net Position or fund balance went up around $1.8 million from 2019, and that correlated almost exclusively to the purchase of buses.
She said that no one likes to see negative numbers on a financial statement, so Commission members may be asked about the negative $547,160 listed in the 2020 column of the “Restricted” Net Position line item. That is because the “net pension asset” she talked about above was a restricticted net position, so it had to be taken out of the unrestricted net position and put into restricted. That pushed Valley Transit’s unrestricted net position down into the negative. She said that every government she’s talked to says, “That’s not fair,” and she knows it’s not fair, but that’s the way it is.
The information on page 10 covered Revenues, Expenses, and Changes in Net Position. Operating revenues went down by about $600,000 from 2019. $242,000 of that decrease was in ridership on the fixed routes and about $315,000 was ridership on the ADA and paratransit.
Valley Transit’s total operating expenses also went down by about $1.6 million. Most of that was in purchased transportation although there were some dips on some of the other lines.
Their overall operating loss, which was their loss prior to calculating in any operating assistance dollars, only approximately $7.6 million in 2020 as compared to $8.5 million in 2019 which was about a $1 million improvement.
She pointed out that they received about $2.5 million in Federal and State capital grants and contributions and noted that that was all the Volkswagen settlement grant that they used to purchase buses.
Page 11 was a statement of cash flows which no one had any questions about so she did not review it with the commission.
Page 12 was the start of the various Notes To Financial Statements. She said there were no changes in accounting policies or anything else from 2019, so those statements read almost exactly the same as the statements from the previous year, other than having different dollar amounts. Since no one hand any questions about them, she did not spend time in that meeting going through them.
She said that Page 24 was one of the most important disclosures in the entire report. It was Valley Transit’s operating subsidies and transfers that occurred during 2020. They received a total of $6.9 million of operating assistance. Of that $6.9 million about 31% came from federal sources, 42% from the state, and 27% from the local municipalities. She said that municipalities went down a bit in 2020 as there were other sources of revenue that came in which decreased the local share somewhat.
She skipped ahead to pages 32-34 of the audit report and explained that was presented in the audit report as “other information” meaning that they don’t actually audit this information, but as part of our services to Valley Transit, they do prepare this information and work through it with Deb Ebben. Pages 32-34 are very important because they are all the support that Valley Transit turns in WisDOT for potential pay backs.
Page 32 went through revenues and expenses that were on a regulatory basis–so these did not match up with what was at the front of the financial statements.
Page 33 went through how Valley Transit was calculating out the recognized deficit of its operating assistance.
Page 34 went through both the state and the federal shares. She said that based on preliminary estimates, Valley Transit should not have to pay back any of the operating dollars that they received from WisDOT.
Thus ended the presentation.
Valley Transit General Manager Ron McDonald asked if she could talk a little bit about the CARES Act money Valley Transit received and how that was processed.
Ms. Lasecki said that ask far as she was a aware, all CARES Act money had come through as 5307 grants which could be used for operating expenses. She noted that in the Management’s Discussion And Analysis, Deb Ebben had included some information on the CARES Act and had said that the CARES Act funding was used for safety equipment and associated operating expenses directly related to the pandemic and that Valley Transit was 100% reimbursed for those cost. Ms. Lasecki thought that the CARES Act money had been $443,850, and Deb confirmed that.
Ron thanked her and said he wanted to make sure that there weren’t any questions about where the CARES Act money was spent.
A new commission member had a question which he prefaced by mentioned that this was only his third meeting. He said that the operating loss had been better in 2020 than in 2019 by $1 million. He wondered if there was a benchmark for how much of an operating loss they wanted to have.
Ron said that the difference he was seeing was primarily because Valley Transit operated less services on the purchased contracts. They have a number of purchased contracts that they contract with the private sector to provide and they pay on a per trip basis. Because ridership was down last year, they didn’t incur those expenses, and that was why the operating loss decreased compared to 2019. All of the funding Valley Transit receives is based on what their deficit is, so that is why it’s spelled out like that. They have to incur a deficit in order to get federal and state money.
The commission member wanted to know if there was a benchmark or a goal for that.
Ron said it doesn’t work that way, and said he could sit down with him and go through the entire budgeting process. Basically, they put their budget together and determine what their operating loss will be and then they apply for state and federal grant money to cover than and try to get as much investment as possible for other sources before going to the local municipalities because they want to minimize what the local municipalities need to contribute.
Deb added that they will always see an operating loss because they don’t collect all the money they need to run through their fares. In a normal year, 15-17% of revenue is from fares of the rest so they have to get the rest of the money from other sources. About 60% come from state and federal grants and the remaining amount comes from local partners.
The commission member said that when he looked at the loss the loss made sense, but as far as the change went, he wondered if that was good, bad, or indifferent and what did they stack that up again.
Ron said he thought the difference he was seeing in that area was primarily related to their purchase transportation contracts with the private sector. Because there had been less ridership, they didn’t incur the cost or the revenue on those.
View full meeting details here: https://cityofappleton.legistar.com/MeetingDetail.aspx?ID=859393&GUID=08DFC888-BC3B-4C25-A946-1FD700AD4F5C&Options=info|&Search=
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