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HomeMy WebLinkAbout12/08/2009 10 State Auditor's Report - City's 2008 Financial Statements . BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. For Meeting Of: December 8, 2009 ITEM TITLE: State Auditor's Report – City's 2008 Financial Statements SUBMITTED BY: Finance Department CONTACT: Rita M. DeBord, Finance Director; 575-6070 Cindy Epperson, Deputy Director Accounting / Budgeting; 575-6070 SUMMARY EXPLANATION: Introduction: Attached for Council review is the Washington State Auditor's Office (SAO) report regarding their examination of the City of Yakima for the period January 1 through December 31, 2008, Note: The Auditor's examination (audit) included three areas of review, as noted below: 1. Financial Reporting, with respect to: (a) Evaluation of internal controls ( b) Compliance.with laws and regulations 2. Federal Regulations, with respect to: (c) Compliance with laws and regulations • (d) Evaluation of internal controls • 3. Financial Statements (and related disclosures and internal controls) Overview: As stated in the enclosed auditor's reports, the Auditors gave the City's Financial Statements an Unqualified Opinion (i.e.: a clean opinion with no qualifications – the highest possible rating). The Auditor's did identify two "Findings" in the Federal program controls,. which are instances where Federal rules were not followed or properly documented. Neither of these findings resulted in any "Questioned Costs" which could result in the return of the grant funds. In one instance documentation was not properly filed, and in the second instance, staff has a difference of interpretation of a rule. (See further discussion below). Because these instances of "non-compliance" were related to Vendors that received more than one-half of the total program costs, the Auditors are issuing a qualified opinion on compliance with applicable requirements for 2 federal programs—the HOME Investment Partnerships Program, and the Healthy Marriage Promotion and Responsible Fatherhood Program. Staff has been in contact with the applicable grantors, and has determined that our corrective action plans are sufficient and will not jeopardize future grant awards for these particular programs. • Continued on next page Resolution Ordinahce Other (Specify) Report - 2008 State Audit Contract Mail to (name and address): . Phone: Funding Source N/A vb. APPROVED FOR SUBMITTAL: City Manager STAFF RECOMMENDATION: Accept Report ,OARD/COMMISSION RECOMMENDATION: • COUNCIL ACTION: • • A final accountability report from the State Auditor's is scheduled for submission to the City in' the near future. That will complete the auditor's work and reporting to the City regarding fiscal year 2008. A full copy of the audit report has been included in the agenda package provided to City Council Members and Department Heads. Due to the sizeand complexity of these documents, only the • auditors written reports and comments have been included for general distribution, (i.e.: the financial statements themselves and the related footnotes, Management Discussion and Analysis and supplemental information are not included in the general distribution). However, anyone interested may request a full copy of the report through the City Clerk's Office. (Additionally, the Comprehensive Annual Financial Report (CAFR) is posted on the City's website. To access the CAFR on=line, go to "www.ci.yakima.wa.us"; then go to "Services" and click on "Finance"; then click on "$", and then "2008 Comprehensive Annual Financial Report". ) . Audit Results Summary: 1(a) Financial Reporting - Internal Controls: The auditors reviewed the City's internal controls over financial reporting to the extent the Auditor's cohsidered necessary for the purpose of designing • . their auditing procedures for the purpose of expressing their- opinion on the financial statements. The audit states (oo, 12): ... "we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses"... 1 (b) Financial Reporting - Compliance: As part of their review to assure that the City's financial statements are free of material misstatements, the State Auditors test for compliance with certain provisions of laws and regulations, contracts and grant agreements. The auditor needs to obtain reasonable assurance that compliance with laws, regulations, contracts and grants has occurred, but they do not express an opinion on overall compliance. The audit states (pg. 12): ... "the results of our tests disclosed no instances of non-compliance or other matters that are required to be reported under Government Auditing Standards". 2 (a) Federal Program Regulations - Compliance: The auditors audited and expressed an opinion on - * the City of Yakima's compliance with the requirements of laws, regulations, contracts and grants applicable to each of the City's major federal programs. The four programs specifically audited were: . > Community Development Block Grants > HOME Investment Partnerships Program (HOME) > Highway Planning and Construction • > Healthy Marriage Promotion and Responsible Fatherhood (Healthy Families) As summarized above, the auditors did document instances of non-compliance regarding procurement and suspension and debarment that are applicable to the HOME and Healthy Families programs. In all of these programs, the rules are understood by applicable staff and procedures are in place to perform the required actions. However, either because of clerical error or a difference in interpretation of the rule, the auditors identified instances of non-compliance. Pages 3 through 10 of the auditor's report details the auditors finding and the City's response. Even though the City received these findings, please note that there were no "questioned costs" which could be required to be refunded to.the grahting agencies. The audit report on Compliance . is located on pages 13 through 15 of the attached material. • Continued on next page • • Page 2 of 3 2 (b) Federal Regulations - Internal Controls over Compliance: The auditors perform procedures to test internal controls over compliance requirements that could have a direct and material effect on major federal programs for the purpose of expressing an opinion on compliance and to test and report on internal control over compliance in accordance with OMB Circular A-133. The findings identified above also were cited as being examples of significant deficiencies in internal control over compliance, although staff is aware of and regularly follows applicable federal grant • requirements. • 3) Financial Statements: SAO audited - and expressed an opinion on - the City's Financial Statements for the period January 1 through December 31, 2008. The auditors gave the City an unqualified opinion - the highest rating possible. The auditors stated (pg. 16): "In our opinion, the financial statements... present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate ' remaining fund information of the City of Yakima, as of December 31, 2008, and the respective changes in financial position and cash flows, where applicable, thereof, and the respective budgetary comparisons for the General and Community Development Funds for the year then . ended, in conformity with accounting principles generally accepted in the United States of America." • • • Page 3 of 3 ,s , c oll Of' .tr 11 -A <t" pdr rz 11.•, „m N Washington State Auditor Brian Sonntag INDEPENDENT AUDITOR'S REPORT September 14, 2009 • Council City of Yakima Yakima, Washington We have audited the accompanying financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Yakima, Yakima County, Washington, as of and for the year ended December 31, 2008, which collectively comprise the City's basic financial statements as listed in the table of contents. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. The prior year summarized comparative information has been derived from the City of Yakima's 2007 financial statements and, in our report dated September 12, 2008, we expressed unqualified opinionson the respective financial statements of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information. • 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures, in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business-type activities, each major fund, and the aggregate remaining fund information of the City of Yakima, Yakima County, Washington, as of December 31, 2008, and the respective changes in financial position and, where applicable, cash flows thereof, and the respective budgetary comparison for the General and Community Development funds for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 1 2, during the year ended December 31, 2008, the City implemented the Governmental Accounting Standards Board's Statement 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. • 5 Insurance Building, PO Box 40021 • Olympia, Washington 98504-0021 (360) 902-0370 • TDD Relay (800) 833-638S FAX (360) 753-0646 • http://www.saowa.ov • The financial statements include summarized prior year comparative information. Such information does not include all of the information required for a presentation in conformity with accounting principles generally accepted in the United States of America. According|y, such information should be read in conjunction with the City's financial statements for the year ended December 31. 2007. from which such summarized information was derived. In accordance with Government Auditing we will also issue our report dated September 14, 2009. on our consideration of the City's internal control over financial reporting and on our tests of its compliance with certain provisions of |avvo, nagu|adons, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that teaUOg, and not to provide an opinion on the internal control over financial reporting or on cornpUanoo. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The management's discussion and analysis on pages 3 through 18, pension trust fund information on page 95 and information on postemployment benefits other than pensions on page 86 are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedu[es, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. Hovxever, we did not audit the information and express no opinion on it. Our audit was performed for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements. The accompanying information listed as combining financial statements on pages 97 through 151 is presented for purposes of - additional analysis and is not a required part of the basic financial statements. This information has been subjected to auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material [especto, in relation to the basic financial statements taken as a whole. The information identified in the table of contents as the Introductory Section, Capital Assets on pages 153 through 157. Supplemental Schedules on pages 159 through 172, and the Statistical Section on pages 173 through 197 is presented for purposes of additional analysis and is not a required port of the basic financial statements of the City. Such information has not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on it. Sincerely, . ' v ' BRIAN SONNTAG, CGFM STATE AUDITOR ' ' Washington State Auditor's Office Financial Statements and Federal Single Audit Report City of Yakima Yakima County Audit Period January 1, 2008 through December 31, 2008 Report No. 1002542 ,dole WASHINGTON Issue Date 41 . - e - BRIAN SONNTAG November 30, 2009 1) Nov, - °° cr. STATE AUDITOR N-,14,11 ,. ott Op 40 .0% •31 Tr. 4 731 ,-4 16% Washington State Auditor Brian Sonntag November 30, 2009 Council City of Yakima Yakima, Washington Report on Financial Statements and Federal Single Audit Please find attached our report on the City of Yakima's financial statements and compliance with federal laws and regulations. We are issuing this report in order to provide information on the City's financial condition. Sincerely, BRIAN SONNTAG, CGFM STATE AUDITOR Table of Contents City of Yakima Yakima County January 1, 2008 through December 31, 2008 Federal Summary ... ...... . ........ . . ....... ............................... . ..... ........ .......... ..... ...................1 Schedule of Federal Audit Findings and Questioned Costs ...... ....................................... ............ 3 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards ............: ............... ...,.„.... ............................ . ....... ........ ............................ 11 Independent Auditor's Report on Compliance with Requirements Applicable to each Major Program and Internal Control over Compliance in Accordance with OMB Circular ............ ............ ...................... ...... 13 Independent Auditor's Report on Financial 16 Financial Section 18 Federal Summary City of Yakima Yakima County ' January 1, 2008 through December 31, 2008 The results of our audit of the City of Yakima are summarized below in accordance with U.S. Office of Management and Budget Circular A-133. FINANCIAL STATEMENTS An unqualified opinion was issued on the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information. Internal Control Over Financial Reporting: • Significant Deficiencies: We reported no deficiencies in the design or operation of internal control over financial reporting that we consider to be significant deficiencies. • Material Weaknesses: We identified no significant deficiencies that we consider to be material weaknesses. We noted no instances of noncompliance that were material to the financial statements of the City. FEDERAL AWARDS Internal Control Over Major Programs: • Significant Deficiencies: We identified deficiencies in the design or operation of internal control over major federal programs that we consider to be significant deficiencies. • Material Weaknesses: We identified significant deficiencies that we consider to be material weaknesses. We issued an unqualified opinion on the City's compliance with requirements applicable to its major federal programs, with the exception of the HOME Investment Partnerships Program and Healthy Marriage Promotion and Responsible Fatherhood program on which we issued a qualified opinion on compliance with applicable requirements. We reported findings that are required to be disclosed under OMB Circular A-133. Washington State Auditor's Office 1 Identification of Major Programs: The following were major programs during the period under audit: CFDA No. Program Title 14.218 CDBG — Entitlement and (HUD- Administered) Small Cities Cluster — Community Development Block Grants /Entitlement Grants 14.239 HOME Investment Partnerships Program 20.205 Highway Planning and Construction Cluster— Highway Planning and Construction 93.086 Healthy Marriage Promotion and Responsible Fatherhood The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by OMB Circular A -133, was $300,000. The City did not qualify as a low -risk auditee under OMB Circular A -133. Washington State Auditor's Office 2 Schedule of Federal Audit Findings and Questioned Costs City of Yakima Yakima County January 1, 2008 through December 31, 2008 1. The City's internal controls were inadequate to ensure compliance with federal procurement requirements for its Healthy Marriage and Responsible Fatherhood program. CFDA Number and Title: 93.086 Healthy Marriage Promotion and Responsible Fatherhood Federal Grantor Name: U.S. Department of Health and Human Services Federal Award/Contract Number: NA Pass-through Entity Name: Department of Social and Health Services, Division of Child Support Pass-through Award/Contract 0664-94430 Number: Questioned Cost Amount: $0 Background The primary objective of the Healthy Marriage and Responsible Fatherhood grant program is to increase paternity establishment and child support enforcement, connect fathers with their families and promote healthy marriages and healthy outcomes for couples, parents and children. The program plan includes activities such as relationship education for couples and a bilingual media campaign. The Washington Department of Social and Health Services administers the grant. An independent contractor manages the grant program for the City. Description of Condition The City spent $365,080 in federal Healthy Marriage and Responsible Fatherhood grant funds during fiscal year 2008. The City paid a contractor $153,102 to produce advertisements about the program and place them in media outlets. The City did not follow federal procurement requirements when selecting the contractor. Federal regulations require grantees to follow their own procurement procedures as long as they comply with state laws and federal regulations. For purchases not covered under state law, such as professional services, grantees must follow procurement methods set forth in federal regulations. For purchases that exceed $100,000, grantees must formally bid the contract. Grantees may solicit services from only one vendor when they determine awarding the contract is not feasible using bids or competitive proposals, • Washington State Auditors Office 3 the goods and services are available only from one source or competition is determined to be inadequate. Grantees and subgrantees must document their procurement efforts. The City stated it obtained three quotes from vendors before granting the contract. However, we found the City did not use a formal bidding process to select the contractor, • in accordance with federal procurement requirements. Cause of Condition The City's contracted grant program manager procured the media marketing contract on behalf of the City. Program staff did not understand that services procured in this manner had to comply with federal requirements and did not ensure the contractor followed the appropriate purchasing procedures. Effect of Condition Contractors were not provided .an opportunity to compete for the contract, which could have affected contract price and quality of service. Recommendation We recommend the City: • Maintain documentation supporting its compliance with federal procurement requirements. • Implement internal controls to ensure staff procuring goods and services with federal funds comply with federal requirements. City's Response This contract was to obtain a media purchasing agent (i.e. a consultant/broker for media placement), with the base retainer being $15,000 per year. In accordance with City Policy, professional services such as broker services do not require to be bid. However, to ensure that the "best deal" was obtained for this work, the Executive Director of the program contacted three potential service providers, and inquired about availability, billing rates and interest in doing pro bono work for the program. The selected vendor agreed to a monthly retainer, which included media procurement as well as writing for other projects. They also expressed a willingness to work with the program as much as necessary to get the project rolling at no additional charge. As the Executive Director had formerly been involved in media placement, she had a strong background from which to make this decision, and has been extremely satisfied with the level of work performed. In addition to paying the vendor the base retainer, all of the media purchases are being passed through this vendor, which is what brought the total paid in the year from $15,000 to the $153, 102. (It should also be noted that the minimum local match required by this grant is one-third—the vendor was able to obtain almost a 50% match from the media providers.) Washington State Auditor's Office 4 The City has a strong kno and ba e federal procurement rules, and because of the nature of the purchase 8e. a broker) believed that telephone quotes were adequate for this type ofprocurement. Further, because of the extra work put into the program by the vendor and the extensive match negotiated with the media providers by the vendor, the Healthy Families program has likely received the "best deal" for this component, ' Auditor's Remarks • Federal regulations require grantees to use formal bidding procedures when making payments for professional services that exceed $100.000. The City's payment to the contractor was in excess of this amount. We reaffirm our finding. Applicable laws and Regulations U G. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizotiono.Section 3OO, states inpa�: The auditee shall: (b) Maintain internal control over Federal programs that provides reasonable assurance that the auditee is managing Federal awards in compliance with |mvvo, regu|adono, and the provisions of contracts or grant agreements that could have a material effect on each of its Federal programs. Title 45, Code of Federal Regu\adons, Section 92.36 — Pnocunamerd, states in part: (b) Procurement standards. ' (1) Grantees and subgrantees will use their own procurement procedures which reflect applicable State and local laws and reQu|at|ons, provided that the procurements conform to applicable Federa the standards identified in this section . � /S\ Grantees and subgrantees will maintain records sufficient to detail the significant history of a procurement. These records will ino|ude, but are not necessarily limited to the following: rationale for the method of procurement, selection of contract type, contractor selection or rejection, ond the basis for the contract price .. . (d) Methods of procurement to be followed. (1) Procurement by smatl purchase procedures. Small purchase cod those i | d info i procurement procedures are oae arnpa �n informal procunonne methods for securing aen/icea, supplies, or other property that do not cost more than the simplified acquisition threshold fixed at 41 U.S.C.403/11> (currently set at $1O0.00O). If small purchase vvaxmnymnsm'eAum/orsOffice 5 procedures are used, price or rate quotations shall be obtained from an adequate number of qualified sources . . . (2) Procurement by sealed bids (formal advertising). Bids are publicly solicited and a firm-fixed-price contract (lump sum or unit price) is awarded to the responsible bidder whose bid, conforming with all the material terms and conditions of the invitation for bids, is the lowest in price . . . (3) Procurement by competitive proposals. The technique of competitive proposals is normally conducted with more than one source submitting an offer, and either a fixed-price or cost- reimbursement type contract is awarded. It is generally used when conditions are not appropriate for the use of sealed bide . . . (4) Procurement by noncompetitive proposals is procurement through solicitation of a proposal from only one oou,ne, or after solicitation of a number of sources, competition is determined inadequate. (U Procurement by noncompetitive proposals may be used only when the award of a contract is infeasible under small purchase procedures, sealed bids or competitive proposals , and one of the following circumstances applies: (A) The item is available only from a single source .. . Washington State Auditors Office o Schedule of Federal Audit Findings and Questioned Costs City of Yakima Yakima County • January 1, 2008 through December 31, 2008 2. The City of Yakima's internal controls are inadequate to ensure compliance with federal suspension and debarment requirements. CFDA Number and Title: 14.218 Community Development Block Grant • 14.239 HOME Investment Partnership Program 20.205 Highway Planning and Construction 93.086 Healthy Marriage Promotion and Responsible Fatherhood Federal Grantor Name: NA Federal Award/Contract Number: CDBG: B 07-M053-0008 HOME: M08-MC53-0203 HOME: M07-MC53-0203 Pass-through Entity Name: Healthy Marriage Promotion and Responsible Fatherhood — Department of Social and Health Services Highway Planning and Construction — Department of Transportation Pass-through Award/Contract Healthy Marriage Promotion and Responsible Number: Fatherhood — 0664-94430 Highway Planning and Construction — STPE- - 1485(020) Questioned Cost Amount: $0 Background Recipients of federal grants are prohibited from contracting with or making subawards to parties that are suspended or debarred from doing business with the federal government. If a vendor certifies in writing that it has not been suspended or debarred, the grantee may rely on that certification. Alternatively, the grantee may check for suspended or debarred parties by reviewing the federal Excluded Parties List issued by the U.S. General Services Administration. This requirement should be met prior to the first payment to the vendor. Description of Condition During 2008, the City spent the following federal grant money: • $1,670,230 from the Community Development Block Grant. Washington State Auditors Office 7 • $624,342 from the HOME Investment Partnership Prograrn. • $849,170 $849,170 In the Highway Planning and Construction Program. • $365,080 in the Healthy Marriage and Responsible Fatherhood Frogram. We noted several instances in which the City did not comply with federal requirements to ensure vendors and subgrantees are not suspended or disbarred from receiving federal grant funds: • Community Develpoment Block Grant: The City paid one vendor $75.000 in federal funds. • HOME Investment Partnership Program: The City paid one vendor $149.917 and one aubrec\piard$2DO.00O. • Highway Planning and Construction: The City paid one vendor $DO.9B8. • Healthy Marriage and Responsible Fatherhood: The City paid one vendor $153.102. Cause of Condition The City did not knovv it was required to verify suspension and debarment for subrecipients and certain vendors, such as consultants and nonprofit organizations. For its highway construction program, the City did not use the standard contract template provided by the Washington State Department of Transportation, which includes a suspension and debarment. certification. instead, the City created its own uontract, which omitted the certification. Effect of Condition � � ' • � VVithout adequate internal controls over suspension and debarment the City cannot ensure federal funds are paid to vendors or subrecipients that are eligible to participate in federal programs. Any payments made to an ineligible party are unallowable and would be subject to recovery by the funding agency. Hovvever, we were able to verify that the, vendors and subrecipients in question were not suspended or debarred. Therefore, we are not questioning costs. Recommendation �8 We recommend the City establish and perform procedures related to suspension and debarment requirements to ensure vendors and subrecipients are eligible to receive . federd| nda City's Response The City believes that it does, in fact, have adequate systems in place with regards to federal suspension and debarment requirements; the items identified in the 2008 audit Washington State Auditors Office 8 were explainable and understandable exceptions. Following are the reasons for the exceptions: 1) In the case of Community Development and HOME Grants, the vendor/sub- recipient not verified are non-profit organizations which, in fact, are direct recipients of major federal grants. It is the policy of the Office of Neighborhood Development Services to check the suspension/debarment website, and print off the report for the vendor file. According to the manager, the verification was likely done, however, the documentation was either not printed or filed correctly. Since these organizations were still actively receiving / administering other federal grants, staff had no reason to suspect they were debarred. 2) The Highway Planning & Construction exception was a minor contract (under $50,000) for which the standard contract was substituted by another contractor which didn't document suspension and debarment; however, it was understood that no disbarment existed. 3) The vendor in question for the Healthy Marriage and Responsible Fatherhood Grant is a consultant /broker for media placement. The retainer fee for the broker services was only $15,000 per year, below the threshold of $25, 000; thus, no suspension / disbarment review was required. Due to the fact that purchases for media ads, and not just the retainer fees, flowed through this vendor, the threshold appeared to be exceeded. However, the media purchases were separately reviewed and only reimbursements for valid expenditures were made to the broker. The City recognizes the importance of meeting federal requirements and the significant consequences of not doing so. Although there are procedures in place to help ensure that federal suspension / disbarment requirements are met - and these procedures have been utilized - and deemed sufficient - for many years, different circumstances led staff to believe that certification was not required in the above cases, We would like to assure the readers that these were isolated incidents, that no use of federal funds are in question, and that staff will confirm vendor status in these situations in the future. Auditor's Remarks We appreciate the steps the City is taking to resolve this issue. We will review the condition during our next audit. We thank City officials for the assistance we received during the audit. Applicable Laws and Regulations U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, Section 300, states in part: The auditee shall: (b) Maintain internal control over Federal programs that provides reasonable assurance that the auditee is managing Federal Washington State Auditors Office 9 awards in compliance with laws, regulations, and the provisions of contracts or grant agreements that could have a material effect on each of its Federal programs. Title 2, Code of Federal Regulations, Section 180.300 — What must I do before I enter into a covered transaction with another person at the next lower tier? When you enter into. a covered transaction with 'another person at the next lower tier, you must verify that the person with whom you intend to do business is not excluded or disqualified. You do this by: (a) Checking the EPLS; or (b) Collecting a certification from that person if allowed by this rule; or (c) Adding a clause or condition to the covered transaction with that person. Washington State Auditors Office 10 Independent Auditor's Report on Internal Control over Financial Reporting and on Compliance and Other Matters in Accordance with Government Auditing Standards City of Yakima Yakima County January 1, 2008 through December 31, 2008 Council City of Yakima Yakima, Washington We have audited the financial statements of the governmental activities, the business-type activities, each major fund and the aggregate remaining fund information of the City of Yakima, Yakima County, Washington, as of and for the year ended December 31, 2008, which collectively comprise the City's basic financial statements, and have issued our report thereon dated September 14, 2009. The prior year summarized comparative information has been derived from the City's 2007 basic financial statements that we issued our report thereon dated September 12, 2008. During the year ended December 31, 2008, the City implemented Governmental Accounting Standards Board Statement 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. INTERNAL CONTROL OVER FINANCIAL REPORTING In planning and performing our audit, we considered the City's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City's internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the City's internal control over financial reporting. A control deficiency 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 misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the City's ability to initiate, authorize, record, process or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the City's financial statements that is more than inconsequential will not be prevented or detected by the City's internal control. Washington State Auditors Office 11 A rnataha| weakness is a significant deficiency, or combination of significant daficienciaa. that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity's internal control. Our consideration of internal control over financial reoorting was for the limited purpose described in the firs paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, we noted certain matters that we will report to the management of the City in a separate etter dated September 23, 2009. COMPLIANCE AND OTHER MATTERS As part of obtaining reasonable assurance about whether the City's financial statements are free of material misstaten`ent, we performed tests of the City's compliance with certain provisions of |ovva, nugu|aUono, contracts and grant agreements, noncompliance with which could have a direct and material effect oh the determination of financial statement amounts. Movvevar, providing an opinion on compliance with those provisions was not an objective of our audd, and aocording/y, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended for the information and use of management, the Counc||, federal awarding agencies and pass-through entities. Howvever, this report is a matter of public record and its distribution is not limited. It also serves to disseminate information to the public as a repor tool to help citizens assess government operations. 44 ( BRIAN SONNTAG. CGFN1 STATE AUDITOR September 14, 2009 Washington State Auditors Office 12 • Independent Auditor's Report on Compliance with Requirements Applicable to each 'Major Program and Internal Control over Compliance in Accordance with OMB Circular A-133 City of Yakima Yakima County January 1, 2008 through December 31, 2008 Council City of Yakima Yakima, Washington COMPLIANCE We have audited the compliance of the City of Yakima, Yakima County, Washington, with the types of compliance requirements described in the U.S. Office of Management and Budget . (OMB) Circular A-133 Compliance Supplement that are applicable to its major federal programs for the year ended December 31, 2008. The City's major federal programs are identified in the Federal Summary. Compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal programs is the responsibility of the City's management. Our responsibility is to express an opinion on the City's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the City's compliance with those requirements. As described in Findings 1 and 2 in the accompanying Schedule of Federal Audit Findings and Questioned Costs, the City did not comply with requirements regarding procurement and suspension and debarment that are applicable to the HOME Investment Partnerships and Healthy Marriage Promotion and Responsible Fatherhood programs. Compliance with such requirements is necessary, in our opinion, for the City to comply with requirements applicable to the programs. Washington State Auditors Office 13 In our opinion, except for the noncompliance described in the preceding paragraph, the City complied, in all material reapacta, with the requirements referred to above that are applicable to its major federal programs for the year ended December 31, 2008. The results of our auditing procedures also disclosed instances of noncompliance with those requirements which are required to be reported in accordance with OMB Circular A-133 and which are described in the accompanying Schedule of Federal Audit Findings and Questioned Costs as Findings 1 and 2. INTERNAL CONTROL OVER COMPLIANCE The management of the City is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the City's internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of ' expressing our opinion on compliance and to test and report on internal control over connp|ianoe, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. A000rding|y, we do not express an opinion on the effectiveness of the City's internal control over compliance. Our consideration of internal control over compliance was for the limited purpose described in the preceding paragraph and would not necessarily identify all deficiencies in the entity's internal control that might be significant deficiencies or material weaknesses as defined below. Hovvever, as discussed be|ovv, we identified certain deficiencies in internal control over compliance that we consider to be significant deficiencies. A control deficiency in an entity's internal control over compliance exists when the design or operation of a control does not allow management or ennp|oyeen, in the normal course of performing their assigned functions, to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis. A significant deficiency is a control def)cienoy, or combination of control defioienoien, that adversely affects the entity's ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is 'more than inconsequential will not be prevented or detected by the entity's internal control. We consider the deficiencies in internal control over compliance described in the accompanying Schedule of Federal Audit Findings and Questioned Costs as Findings 1 and 2 to be significant deficiencies. A material weakness is a significant deficiency, or combination of significant defioienoiea, that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity's internal control. Of the significant deficiencies in internal control over compliance described in the accompanying Schedule of Federal Audit Findings and Questioned Costs, we consider Findings 1 and 2 to be material weaknesses. The City's responses to the findings identified in our audit are described in the accompanying Schedule of Federal Audit Findings and Questioned Costs. We did not audit the City's response and, accordingly, we express no opinion on it. This report is intended for the information of management, the Council, federal awarding agencies and pass-through entities. Hovvever, this report is a matter of public record and its Washington State Auditors Office 14 distribution is not limited. It also serves to disseminate information to the public as a reporting tool to help citizens assess government operations. BRIAN SONNTAG, SONNTAG, CGFM STATE AUDITOR September 14, 2009 • Washington State Auditors Office 15 Independent Auditor's Report on Financial Statements City of Yakima Yakima County January 1, 2008 through December 31, 2008 Council • City of Yakima Yakima, Washington We have audited the accompanying financial statements of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information of the City of Yakima, Yakima County, Washington, as of and for the year ended December 31, 2008, which collectively comprise the City's basic financial statements as listed on page 18. These financial statements are the responsibility of the City's management. Our responsibility is to express opinions on these financial statements based on our audit. The prior year summarized comparative information has been derived from the City's 2007 financial statements and, in our report dated September 12, 2008, we expressed unqualified opinions on the respective financial statements of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information. 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, the business -type activities, each major fund and the aggregate remaining fund information of the City of Yakima, as of December.31, 2008, and the respective changes in financial position and, where applicable, cash flows thereof, and the respective budgetary comparison for the General and Community Development funds, for the year then ended in conformity with accounting principles generally accepted in the United States of America. As described in Note 12, during the year ended December 31, 2008, the City implemented Governmental Accounting Standards Board Statement 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. In accordance with Government. Auditing Standards, we have also issued our report on our consideration of the City's internal control over financial reporting and on our tests of its Washington State Auditor's Office 16 compliance with certain provisions of |avva, nagu|otions, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. •The management's discussion and analysis on pages 19 through 35, pension trust fund information on page 105 and information on postemployment benefits other than pensions on page 108 are not a required part of the basic financial statements but are supplementary information required by the Governmental Accounting Standards Board. We have applied _ certain limited promnduren, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. Huvvever, we did not audit the information and express no opinion on it. (]ur audit was performed for the purpose of forming an opinion on the financial statements that collectively comprise the City's basic financial statements. The accompanying Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as required by U.G. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. This schedule is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly otated, in all material rospmcts, in relation to the basic financial statements taken as a whole. `1 ~��^ ^, BRIAN SONNTAG, CGFM STATE AUDITOR September 14, 2009 ` wmn»mgtcm State Auditor's Office n Financial Section City of Yakima Yakima County January 1, 2008 through December 31, 2008 REQUIRED SUPPLEMENTAL INFORMATION Management's Discussion and.Analysis — 2008 BASIC FINANCIAL STATEMENTS Statement of Net Assets — 2008 Statement of Activities — 2008 Balance Sheet — Governmental Funds — 2008 Reconciliation of the Balance Sheet to the Government-Wide Statement of Net Assets — 2008 Statement of Revenues, Expenditures and Changes in Fund Balances — Governmental Funds — 2008 Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities — 2008 Statement of Revenues, Expenditures and Changes in Fund Balances — Budget and Actual — General Fund — 2008 Statement of Revenues, Expenditures and Changes in Fund Balances — Budget and Actual — Community Development Fund — 2008 Statement of Net Assets — Proprietary Funds — 2008 Statement of Revenues, Expenses and Changes in Fund Net Assets — Proprietary Funds — 2008 Statement of Cash Flows — Proprietary Funds — 2008 Statement of Net Assets — Fiduciary Funds — 2008 Statement of Changes in Fund Net Assets — Fiduciary Funds — 2008 Notes to the Financial Statements — 2008 REQUIRED SUPPLEMENTAL INFORMATION Schedule of Employer Contributions — Police and Fire — 2008 Schedule of Funding Progress Other Post Employment Benefits (OPEB) — 2008 SUPPLEMENTAL INFORMATION Schedule of Expenditures of Federal Awards — 2008 Notes to the Schedule of Expenditures of Federal Awards — 2008 Washington State Auditor's Office 18