HomeMy WebLinkAbout18-1.Attachment Financials-Management LetterCommunications with Those Charged
with Governance and Internal Control
Related Matters for
Truckee Donner Public Utility
District
December 31, 2012
MOSS ADAMS
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COMMUNICATIONS WITH THOSE CHARGED WITH GOVERNANCE AND INTERNAL
CONTROL RELATED MATTERS UNDER SAS NO.114
To the Board of Directors
Truckee Donner Public Utility District
We have audited the consolidated financial statements of Truckee Donner Public Utility District
(the District) as of and for the year ended December 31, 2012, and have issued our report
thereon dated May 29, 2013. Professional standards require that we provide you with the
following information related to our audit.
OUR RESPONSIBILITY UNDER AUDITING STANDARDS GENERALLY ACCEPTED IN THE
UNITED STATES OF AMERICA
As stated in our engagement letter dated October 25, 2012, our responsibility, as described by
professional standards, is to form and express an opinion about whether the consolidated
financial statements prepared by management with your oversight are fairly presented, in all
material respects, in conformity with U.S. generally accepted accounting principles. Our audit of
the consolidated financial statements does not relieve you or management of your
responsibilities.
Our responsibility is to plan and perform the audit in accordance with generally accepted
auditing standards and to design the audit to obtain reasonable, rather than absolute, assurance
about whether the consolidated financial statements are free of material misstatement. An audit
of consolidated financial statements includes consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the District's internal
control over financial reporting. Accordingly, we considered the District's internal control solely
for the purposes of determining our audit procedures and not to provide assurance concerning
such internal control.
We are also responsible for communicating significant matters related to the financial statement
audit that, in our professional judgment, are relevant to your responsibilities in overseeing the
financial reporting process. However, we are not required to design procedures for the purpose
of identifying other matters to communicate to you.
PLANNED SCOPE AND TIMING OF THE AUDIT
We performed the audit according to the planned scope and timing previously communicated to
you in the engagement letter.
Praxifi."
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SIGNIFICANT AUDIT FINDINGS
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The
significant accounting policies used by the District are described in the notes to the consolidated
financial statements. The District adopted the following new accounting pronouncements in the
current year:
In November 2010, GASB issued Statement No. 61, "The Financial Reporting Entity - Omnibus -
An Amendment of GASB Statements No. 14 and No. 34." This statement modifies GASB Statement
34 requirements for inclusion of component units and amends criteria for reporting of
component units. The statement also clarifies the reporting of equity interests in legally
separate organizations. This statement is effective for periods beginning after June 15, 2012. The
District has elected to early implement GASB Statement No. 61 and its impact is not material.
In June 2011, GASB issued Statement No. 63, "Financial Reporting of Deferred Outflows of
Resources, Deferred Inflows of Resources, and Net Position." This statement provides a new
statement of net position format to report all assets, deferred outflows of resources, liabilities,
deferred inflows of resources, and net position (which is the net residual amount of the other
elements). This statement also provides guidance on reporting deferred inflows and outflows of
resources and standardizes the presentation of deferred inflows and outflows of resources and
their effect on a government's net position.
Deferred outflows of resources are defined as the consumption of net assets in one period that
are applicable to future periods and deferred inflows of resources are the acquisition of net
assets that are applicable to future reporting periods. The components of net position are
classified as investments in capital assets - net of related debt, restricted, and unrestricted.
Unrestricted indicates the funds are available for operations, while restricted funds are the
result of bond covenants, Board action, or other commitments.
This statement requires that deferred outflows of resources and deferred inflows of resources
be reported separately from assets and liabilities, and to reflect the residual measure in the
statement of financial position as net position, rather than net assets. This statement is effective
for the District beginning in 2012. The District has reformatted its Consolidated Balance Sheets
to reflect the new presentation and terminology required by this statement. Major changes
include renaming the Consolidated Balance Sheets to Consolidated Statements of Net Position, and
the Consolidated Statements of Revenues, Expenses and Changes in Net Assets to the Consolidated
Statements of Revenues, Expenses and Changes in Net Position. Former calculations of net asset
classifications have been modified to present the components of net position.
No other new accounting policies were adopted and there were no changes in the application of
existing policies during 2012. We noted no transactions entered into by the District during the
year for which there is a lack of authoritative guidance or consensus. There are no significant
transactions that have been recognized in the financial statements in a different period than
when the transaction occurred.
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Significant Accounting Estimates
Accounting estimates are an integral part of the consolidated financial statements prepared by
management and are based on management's knowledge and experience about past and current
events and assumptions about future events. Certain accounting estimates are particularly
sensitive because of their significance to the financial statements and because of the possibility
that future events affecting them may differ significantly from those expected. The most
sensitive estimates affecting the consolidated financial statements were:
Unbilled Revenue - Unbilled revenue is a measure of revenue earned through the end of
the reporting period that has yet to be billed. This generally represents accounts with
billing cycles that start in the reporting year and end in the subsequent year. We have
evaluated the key factors and assumptions used to develop unbilled revenue in
determining that it is reasonable in relation to the consolidated financial statements
taken as a whole.
Allowance for Doubtful Accounts - The allowance for doubtful accounts represents an
estimate of the amount of accounts receivable that will not be collected. We have
evaluated the key factors and assumptions used to develop the allowance in
determining that it is reasonable in relation to the consolidated financial statements
taken as a whole.
Recovery Periods for the Cost of Plant - This represents the depreciation of plant
assets. Management's estimate of the recovery periods for the cost of plant is based on
regulatory -prescribed depreciation recovery periods. We have evaluated the key factors
and assumptions used to develop the recovery periods in determining that they are
reasonable in relation to the consolidated financial statements taken as a whole.
Other Post -Employment Benefit Obligations - This represents the amount of annual
expenses recognized for post -employment benefits. The amount is actuarially
determined with management input. We have evaluated the key factors and
assumptions used to develop the annual expenses in determining that it is reasonable in
relation to the consolidated financial statements taken as a whole.
Financial Statement Disclosures
The disclosures in the consolidated financial statements are consistent, clear and
understandable. Certain financial statement disclosures may be particularly sensitive because of
their significance to financial statement users.
We did not note any disclosures in the consolidated financial statements which we consider
sensitive to potential users.
Significant Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and
completing our audit.
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Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified
during the audit, other than those that are trivial, and communicate them to the appropriate
level of management. None of the misstatements detected as a result of audit procedures and
corrected by management were material, either individually or in the aggregate, to the
consolidated financial statements taken as a whole.
Uncorrected misstatements are as follows:
• To record the reversing effect of the prior year proposed entry related to depreciation
expense - $67,658
• To adjust beginning net assets for overstated contributed capital in 2007 - $233,738
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a
financial accounting, reporting, or auditing matter, whether or not resolved to our satisfaction,
that could be significant to the consolidated financial statements or the auditor's report. We are
pleased to report that no such disagreements arose during the course of our audit.
Management Representations
We have requested certain representations from management that are included in the
management representation letter dated May 29, 2013.
Management Consultation with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters, similar to obtaining a "second opinion" on certain situations. If a
consultation involves application of an accounting principle to the District's consolidated
financial statements or a determination of the type of auditor's opinion that may be expressed
on those statements, our professional standards require the consulting accountant to check with
us to determine that the consultant has all the relevant facts. To our knowledge, there were no
such consultations with other accountants.
Other Significant Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and
auditing standards, with management each year prior to retention as the District's auditors.
However, these discussions occurred in the normal course of our professional relationship and
our responses were not a condition to our retention.
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Communication of Internal Control Related Matters
In planning and performing our audit of the consolidated financial statements of the District as
of and for the year ended December 31, 2012, in accordance with auditing standards generally
accepted in the United States of America, we considered the District's internal control over
financial reporting (internal control) as a basis for designing our auditing procedures for the
purpose of expressing our opinion on the financial statements, but not for the purpose of
expressing an opinion on the effectiveness of the District's internal control. Accordingly, we do
not express an opinion on the effectiveness of the District's internal control.
A deficiency in internal control exists when the design or operation of a control does not allow
management or employees, in the normal course of performing their assigned functions, to
prevent, or detect and correct misstatements on a timely basis. A material weakness is a
deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable
possibility that a material misstatement of the entity's financial statements will not be
prevented, or detected and corrected on a timely basis. We did not find any material weaknesses
through the course of our audit.
Our consideration of internal control was for the limited purpose described in the first
paragraph and was not designed to identify all deficiencies in internal control that might be
deficiencies, significant deficiencies, or material weaknesses.
In addition to the required communications, we have identified the following matters for your
consideration. Our recommendations are based on observations and testing during the course of
our audit. These recommendations should be evaluated by management and the Board of
Directors for implementation and the District should conduct a cost benefit analysis including
consideration of the risks for the recommended action.
Other Matters
2012 updates to prioryear comments
Adjustments to Customer Accounts - During our testing of the billing cycle, we noted
that adjustments to customer accounts are typically made by the Billing Clerk and
reviewed by the Billing Supervisor or the Customer Service Manager. However, per
discussion with the Customer Service Manager, adjustments are reviewed only if they
are larger (> $100). In 2011, we found that no written policy exists that explicitly states
when adjustments should be reviewed and approved.
2012 Audit Update: Management has established a formal, written policy that
explicitly states who is allowed to approve adjustments and what dollar
threshold each is authorized to approve. We reviewed a selection of
adjustments during our current year procedures and noted adherence to the
written policy. However, we noted that although the employees seem to be
following the established policies and thresholds, the employees responsible for
reviewing adjustments are able to approve their own adjustments up to the
stated thresholds. To further improve the controls surrounding customer
adjustments, we recommend that the appropriate segregation of duties be
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implemented so that each adjustment is reviewed by someone other than the
person recording the adjustment. Additionally, once the adjustments are
reviewed, maintaining evidence of the review and the date of the review will
support that the review was in fact performed and completed in a timely
manner.
Work Order Documentation and Close - During our review of the work order cycle, we
noted that the process to close work orders is often a verbal communication between
the Project Manager / Engineer and the Work Order Specialist. Although we were able
to verify verbally with the Engineers that the work orders selected for testing were
approved to be closed, implementing a close out form or other documentation that is
signed by the Project Manager / Engineer once the work order is in service and ready to
be closed would improve the audit trail and would evidence that the work order was in
fact complete and ready to close. We also noted that 8 out of 12 work orders selected for
testing were in fact complete and in service at December 31, 2011. The result of this was
an adjustment of $8.0 million and $2.4 million for water and electric operations,
respectively, to close open work orders to plant in service. In addition, we noted that
management identified 5 of these work orders as being complete at year end and a
resulting entry of $352,000 was recorded to accrue depreciation on these work orders.
The remaining 3 open work orders were not identified by management as being
complete at year end and therefore we proposed an adjustment for approximately
$67,000 to accrue depreciation expense on those work orders. We recommend that
management ensure that a thorough review of open work orders is performed on a
periodic basis to ensure that all work orders in commercial operation are appropriately
closed to plant in service in a timely manner.
2012 Audit Update: Through our current year procedures, we have noted that
periodic meetings between the engineering and accounting staff occur to review
the open work orders and ensure that completed work orders are closed on a
timely basis in the accounting system. This matter has been appropriately
addressed by management.
Inventory Cycle Counts - During our review of the inventory cycle, we discussed the
inventory cycle count procedures and noted that cycle counts are performed each
month for a different portion of the warehouse. However, since the busiest construction
time is typically in the summer, it may be helpful to ensure that all of the significant
inventory items be counted after the construction season. With all of the activity in the
summer, this may improve the accuracy of the inventory balance at year end. In
discussions with management, we have noted that the 2012 significant inventory cycles
counts are scheduled to take place after the construction season.
2012 Audit Update: Management has evaluated the timing of the various
inventory cycle counts and has ensured that the more significant inventory
items are counted subsequent to the busy construction season. This matter has
been appropriately addressed by management.
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New comments -2012
Special Tax Receivables - During our review of the collectability of the special tax
receivables, we noted that the delinquency amount, as provided by Willdan Financial
Services, was over $1 million as of December 31, 2012. Given that some of these
delinquent receivables are not expected to be collected within the next year, we
recommend that management prepare an analysis to evaluate the likelihood of
collectability within the next year and reclassify some of the receivables to long term
assets. In discussions with management, we have noted that this analysis is planned for
late 2012 and the proper classification between short term and long term will be
implemented in the December 31, 2013 financial statements.
This information is intended solely for the use of Board of Directors and management of Truckee
Donner Public Utility District and is not intended to be and should not be used by anyone other
than these specified parties.
Sincerely,
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Portland, Oregon
May 29, 2013
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