The Finance Committee met 07/11/2022. They received a presentation from Leah Lasecki on Appleton’s 2021 Audit and Executive Summary. Basically, the city had a clean audit with no concerns.
Leah was a principal CPA at the firm CliftonLarsonAllen (CLA) and was responsible for the signing the report and taking responsibility for the audit itself.
She thanked city staff for their help, the amount of work they put into preparing for the audit, and for the fact that they had kept Appleton’s financial records relatively clean which really helped with the audit.
They were able to perform the 2021 audit in person which was a welcome change from the previous two audits which had been conducted remotely.
The purpose of the presentation was to go through the audit results, discuss Covid-19 related issues, and talk about future changes that would impact audits going forward. She noted that they would also be giving a similar presentation regarding Valley Transit’s results at the next Transit Commission meeting.
She gave an overview of the CliftonLarsonAllen service team. CLA was a large firm with over 100 office locations nationally and served over 400 governments just in the state of Wisconsin as well as 2,100 governmental clients nationally. They performed the most single audits out of any firm in the country. This allowed them to consult with many knowledgeable and experienced people as they performed Appleton’s audit, whether those people were local or based out of state. She noted that last year CLA had conducted a forensic consulting engagement with Appleton and most of the people who did that were actually based in California.
Although Leah was the one giving the presentation, another principal that had been associated with the audit was Bryan Grunewald. He worked out of the Sheboygan office and focused mostly on the utility side of the audit. She said it was important to CLA that their larger clients have two representatives for principals because that provided greater continuity of service should something happen to one or the other.
In addition to the two principals, three other full-time people came on site as well. They try to have the same people come back year-after-year, and this was the second year in which they performed Appleton’s audit with the exact same team. However, accounting standards required that they switch the team up every few years to get a new set of eyes on things, so every 3-5 years they pulled in extra people. She remarked that that would happen next year.
She told the committee that they actually audited three separate sets of financial statements: one for the City of Appleton, one for Valley Transit, and one for the Business Improvement District.
Additionally, they also did a “single audit” which was the Federal/State compliance audit. 40% of their audit time was actually spent just doing compliance work. A lot of that was making sure that Appleton was complying with both Federal and State grant requirements. It was an incredibly important part of the audit.
They also put together a compilation of the Public Service Commission’s annual financial report which she said was a “beast” of a report that they helped Appleton prepare and submit.
Finally, they issued a Tax 16 report which was something that got submitted to the Department of Revenue and determined what the city’s shared costs were and played a role in the city getting some type of aid. For cities with populations over 25,000, the auditing firm actually had to give an opinion within that report, which she said was important. That Tax 16 report was the one item from the audit still remaining to be completed and would be done by July 31st.
She then gave the basic, high-level audit results.
Appleton had received an unmodified or “clean” opinion. In the audit world that was the best opinion an entity could receive, and it meant that the auditor believed that their financial statements were fairly presented without material misstatements. It did not mean that they had looked at every dollar, but they were able to come to a pretty good feeling that Appleton’s financial statements were in good shape.
CLA did not identify any internal control deficiencies regarding financial reporting or compliance. She said that one of the things auditors do is come in and gain an understanding of an entity’s control environment. Auditors do a lot of inquiry and read a lot of memos written by staff about how day-to-day transactions are conducted, then they walk through those transactions and make sure that what staff claimed to be doing was in fact what they were actually doing.
She said that CLA put a bigger emphasis on that this time because of external fraud that Appleton experienced. So, they spent more time on that to make sure that everything was beefed up and looking good. [I have to say, I don’t remember any discussions about external fraud taking place at any committee or Council meetings. I’ll check with the Finance Department about that and let you know what they have to say about it.]
She said that if CLA had identified any control deficiency, they would have listed that in their Internal Control Findings.
As with the internal control deficiencies, they also had no compliance findings to report. She went on to talk about that in a little more detail, explaining that they audited three federal programs this year for the city. Normally they would audit one or two, so three was a little heavy.
They selected the Federal and State programs they audited through a risk-based approach. They also had to audit at least 20% of total expenditures for both Federal and State.
They audited three federal programs, all of which pertained to Covid-19:
- The Emergency Solutions Grant Program
- Covid-19 Coronavirus State and Local Fiscal Recovery funds (she noted those were the American Recovery Act Funds the city received)
- Epidemiology and Laboratory Capacity of Infection Diseases (ELC)
Both the Emergency Solutions Grant Program and the ELC had significant Covid monies come through them.
At the state level, they tested the VW Capital Grant. She said they were really limited on what they could pick to audit for the state because the city only had a couple million dollars in state grant dollars. They had a lot more state money through state entitlement programs, but not grants.
CLA did not find any issues or compliance findings when they audited these programs.
She then moved on to the Required Communications portion of the presentation.
CLA’S RESPONSIBILITY UNDER GENERALLY ACCEPTED AUDITY STANDARDS, UNIFORM GUIDANCE, AND STATE SINGLE AUDIT GUIDELINES – CLA’s biggest responsibility was to express an opinion using a risk-based audit approach.
PLANNED SCOPE AND TIMING OF THE AUDIT – They performed the audit according to the planned scope and timing previously communicated. She said this was very important, and the city had been very strict with its deadline. CLA did meet the deadline, but Leah admitted they had been a little slow getting the initial draft submitted to the Finance Department and to Valley Transit. They were however able to deliver the final result on time.
OTHER INFORMATION IN DOCUMENTS CONTAINING THE AUDITED FINANCIAL STATEMENTS – She said this was more of a disclaimer to make sure that if the city was providing financial statements to anybody it was providing them in their entirety.
SIGNIFICANT ACCOUNTING POLICIES – She said there were no new accounting policies for 2021 which meant they could provide an apples-to-apples comparison with the prior year. She noted that 2022
SIGNIFICANT ACCOUNTING ESTIMATES – I’m going to be honest here, she talked for a bit on this topic. She used some acronyms and terms I did not understand, and I don’t have an accounting background so I’m not even going to try to recap what she said because I won’t be able to make it make sense.
SENSITIVE FINANCIAL STATEMENT DISCLOSURES – She said there were no particularly sensitive financial statement disclosures that they were aware of.
OTHER – Finally, she noted that there were no uncorrected misstatements that were greater than trivial. Additionally, no material misstatements were identified as part of audit procedures. She said they prepared very few entries for the city and those that they did were usually because they came in after the trial balance had already been provided to them.
They had no difficulties performing the audit and no disagreements, nor did they have any other findings or issues that rose to the level of having to be put into writing.
She then moved on to talk briefly about the Management’s Discussion and Analysis (MD&A) and the statistical data.
She said the city Finance Department’s staff prepares the MD&A and the statistical data. CLA makes sure that it makes sense and ties in with the rest of the financial statement, but they don’t prepare it for the city. Instead, city staff does that.
Leah thought the MD&A and statistical data was the best place for an average reader of the city’s financial statements to spend their time and she recommended that anybody who had questions about the financial statements should read the MD&A. [That starts on page 5 of the 2021 audit.]
She noted that they also included some financial trends which were in Appendix A as well as in the Executive Summary. She said those were in an easier to digest format than the larger audit report.
She then moved on to talk briefly about the current environment.
She said that Covid-19 was not going away. Public governments were the slowest to respond because of the way they were set up and because they had the least flexibility of any industry. Challenges of Covid-19 included additional costs, staffing considerations, technology considerations, and planning. She thought it was important that they continually talked about their strategies and strategic objectives and made sure that they were thinking about things outside of the box. [PowerPoint presentations sometimes have painful moments. “Covid 19 brought tough challenges and the best response is to talk about it and think outside the box” seems like an empty, anodyne way to pad out a PowerPoint slide deck.]
She said that she could guarantee that the city’s ARPA funds would be audited, probably a couple years in a row. The city had sought to hire a grant manager, so she hoped that would happen and they would find someone qualified to fill that position.
She finished up the presentation by talking about upcoming new accounting standards.
There was going to be a new standard on “leases” which would definitely have a material impact on the city. On one of the city’s statements for governmental funds they would start having to show “lease liability” and a “lease asset” which would have an impact on the city’s utilities. This information would also have to get reported in the city’s financial books. She assured the committee that CLA was on top of that and had some really good tools that could help the city get that figured out.
The second new standard would be on “Conduit Debt Obligations”. That pertained to disclosures. She said the city did have some conduit debt, so they would have to look at some potential additional disclosures for that.
She then opened things up for questions.
Alderperson Katie Van Zeeland asked was the acronym GASB stood for.
Leah answered that it referred to the Government Accounting Standards Board. That was the board that set accounting standards for government. There was also a private-side one called FASB.
Alderperson Van Zeeland asked if there were rules that they should expect any rules to change next year.
Leah said the one for leases was going to be the big one. The disclosure requirements for conduit debt were also going to be implemented but she didn’t expect that would affect the city’s numbers.
Alderperson Vered Meltzer (District 2) asked if there were any other GASB changes coming up for 2022.
Leah answered that there were a couple more that would be in place in 2022, but they would have immaterial effects on the city.
Alderperson Denise Fenton (District 6) asked if Leah could explain conduit debt obligations.
Leah responded that the best way to describe them was to say that the city was guaranteeing the debt of another organization be that a non-profit or even another government. Essentially, it was as if the city was underwriting another organization’s debt which could potentially become the city’s debt if that other organizations defaulted.
Alderperson Meltzer asked if she could give some examples of conduit debt.
There was an actual example of conduit debt that the city itself currently had, but Leah couldn’t remember off the top of her head what that was so she gave an example that had come up in some other cities. Bug Tussel was a company that installed a lot of fiberoptic lines. Some cities will underwrite their debt so that they can get those projects done because that benefits the cities. She said it did not affect the cities’ debt base though.
The committee members had no further questions, they thanked Leah for her time, and the presentation came to an end.
View full meeting details and video here: https://cityofappleton.legistar.com/MeetingDetail.aspx?ID=959312&GUID=E413032D-A5AD-4DD1-8CC6-962F2A0BC66A
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