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Home My WebLink About6,7,8 Audit Report TRUCKEE DONNER Public Utility District Memorandum To: Board of Directors From: Mary Chapman, Administrative Services Manager Date. August 14, 2003 SUBJECT: Approval of the final 2002 audit report, acceptance of the management letter and approval of additional audit expenses incurred 1. WHY THIS ITEM IS BEFORE THE BOARD On June 23, 2003, the Board was presented with and approved the draft audit. Since the audit had a restatement of the beginning equity (retained earnings) balance, KPMG's internal policies required that the audit be reviewed by their Department of Professional Practice and their SEC group. As a result, there have been some wording changes in the notes to the financial statements that were made since the Board approved the draft version. The numbers presented have not changed. 2. HISTORY In past years, Arthur Anderson would present the draft audit. Periodically there were changes in a few words. The changes would be incorporated into the final report and the final report would be accepted by the Board at a subsequent meeting. 3. NEW INFORMATION In conjunction with the audit presentation, KPMG has prepared an audit letter to the Board addressing certain observation they made during the audit. Finally, KPMG has presented a request for reimbursement for additional expenses that were incurred during the audit which were due to the method used by Arthur Andersen to record the Donner Lake Assessment District and their having to restate the beginning equity balance. RECOMMENDATION: That the Board take the following action: 1. Accept and approve the final audit report. 2. Direct staff to make recommendations to address the items listed in the management letter. 3. Approve payment of the additional costs incurred by KPMG to perform the 2002 audit in the amount of$22,650 plus reasonable out of pocket expenses incurred. Suite 2000 Telephone 503 221 6500 1211 South West Fifth Avenue Fax 503 796 7650 Portland,OR 97204 Board of Directors Truckee Donner Public Utility District 11570 Donner Pass Road Truckee, California 96161 July 22, 2003 Dear Sirs and Madam: As you are aware, KPMG has been engaged by you to perform the audit of the Truckee Donner Public Utility District(the District) as of and for the year ended December 31, 2002. During the performance of the audit, we encountered unexpected issues surrounding the District's past accounting policies for the Donner Lake assessments. Our review of the situation resulted in the proposed restatement of the opening fund equity balance for the year under audit. Such restatement resulted in our firm incurring additional time and expense beyond the amounts originally estimated for performance of the audit. Following are examples of additional procedures and steps that were required to be performed by us in order to address the restatement: ■ Identification of the potential issue, and review of prior accounting policies in Conversations with the District's legal counsel surrounding the structure of the assessment district, and the District's rights and obligations associated with the assessments ■ Performance of additional audit procedures to quantify the magnitude of the restatement, and the correction to be made to the unadjusted 2002 financial statements ■ Consultation with the engagement's concurring partner and KPMG's Department of Professional Practice regarding the cause and result of the restatement ■ Notification to Arthur Andersen regarding the restatement ■ Performance of additional procedures on other balances in the opening balance of the District, due to enhanced risks associated with the restatement in At the request of the District, conversations with the District's bond counsel regarding the potential impact of the restatement on future financing activities 1 y3 K' I. TRIMM Board of Directors Truckee Donner Public Utility District July 22, 2003 Page 2 ■ Review of the District's final 2002 financial statements by KPMG's Department of Professional Practice and KPMG's SEC group, as required by our firm's policy whenever a restatement occurs ■ Additional meetings and discussions with the management of the District While the process of restating financial statements can be cumbersome, we feel that the restatement best serves the District by ensuring the financial statements are of the highest quality. In accordance with our engagement letter with the District dated November 26, 2002, we noted that circumstances might be encountered during the performance of the audit that would warrant additional time or expense, and that could render us unable to complete our services within the original estimates. During our audit, we endeavor to keep time and expenses to a minimum. The magnitude of the issue and the environment surrounding any restatement has resulted in the incurrence of additional fees that exceed our original estimate. We have kept management of the District apprised of the fact that we were incurring additional time and expense associated with this issue. Management requested that we submit a letter to the Board of Directors summarizing the impact of the restatement on our estimated fees, so that authorization of the additional billings can be obtained. Thus, this letter serves to respectfully request approval of additional fees as follows: Additional audit fees: $22,650 Additional out of pocket expenses will be billed as actually and finally incurred. We appreciate your consideration of this matter. Feel free to contact me with any questions that you might have; I can be reached at(503) 323-0524. Sincer�y, Timothy E. McCann Partner' t t S' } 1�� JV Suite 2000 TelenGcne 503 221 6500 1211 South West Fifth Avenue Fax 503 796 7660 Portland, OR 97204 Board of Directors Truckee Donner Public Utility District Truckee, Califomia April 11, 2003 Ladies and Gentlemen: We have audited the financial statements of Truckee Donner Public Utility District (the District), for the year ended December 31, 2002, and have issued our report thereon dated April 11, 2003. In planning and performing our audit of the financial statements of the District, we considered internal control in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements. An audit does not include examining the effectiveness of internal control and does not provide assurance on internal control. We have not considered internal control since the date of our report. During our audit, we noted certain matters involving internal control and other operational matters that are presented below for your consideration. These comments and recommendations, all of which have been discussed with the appropriate members of management, are intended to improve internal control or result in other operating efficiencies and are summarized as follows: ACTUARIAL VALUATION Observation/Recommendation The actuarial valuations for the Truckee Donner Public Utility District Pension Plan were originally prepared in accordance with FASB 87, rather than the applicable rules and disclosure requirements of GASB 27. For purposes of the 2002 audit, it was necessary to obtain revised valuations from the District's consulting actuary. We recommend that the District ensure that all future valuations are prepared using the correct methodology, MANAGEMENT OF CAPITAL ASSETS Observation/Recommendation During performance of test work over 2002 fixed assets, we noted that the current accounting methodology for fixed assets appears time-consuming and cumbersome. In particular, the District has a complex method of allocating overhead costs. Currently these costs are manually allocated by expense type, based upon yearly percentages. While the current method yields an accurate result, the amounts allocated do not materially change the value of the asset. In addition, the amount of administrative time spent in recording the manual entries and making any necessary corrections to the > allocations may outweigh any benefit realized. We suggest automating this process, and simplifying the allocation percentages. For example, a single overhead percentage could be applied based upon 1 direct labor charged to a work order. We also noted numerous assets currently being capitalized that are insignificant. We suggest an increase in the capitalization threshold, with smaller maintenance type costs expensed. t: Board of Directors Truckee Donner Public Utility District April 11, 2003 Page 2 SEGREGATION OF DUTIES Observation/Recommendation During performance of test work over the payroll process, KPMG noted that the same employee el responsible for changes to employee data in the human resources system also processes the bi-w ek y payrolls. These duties should be segregated to enhance the effectiveness of the internal controls. Our audit procedures are designed primarily to enable us to form an opinion on the financial statements, and therefore may not bring to light all weaknesses in policies or procedures that may exist. We aim, however, to use our knowledge of the District's organization gained during our work to make comments and suggestions that we hope will be useful to you. We would be pleased to discuss these comments and recommendations with you at any time. This report is intended solely for the information and use of the board of directors, management, and others within the organization and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, K`PMC, ALP CA 3 J- Y: