HomeMy WebLinkAbout01/19/2016 11 State Auditor's Reports - City's 2014 Financial Statements, Federal Single Audit, and AccountabiltyBUSINESS OF THE CITY COUNCIL
YAKIMA, WASHINGTON
AGENDASTATEMENT
Item No. 11.
For Meeting of: January 19, 2016
ITEM TITLE: State Auditor's Reports - City's 2014 Financial Statements, Federal
Single Audit, and Accountability
SUBMITTED BY: Cindy Epperson, Director of Finance & Budget
SUMMARY EXPLANATION:
Attached for Council's information is the Washington State Auditor's Office (SAO) report
regarding their examination (audit) of the City of Yakima for the period January 1 through
December 31, 2014. SAO issued one report on Financial Statements and Federal Single
Audit, which includes three areas of review and corresponding three "reports", 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:
(a) Compliance with laws and regulations
(b) Evaluation of internal controls
3. Financial Statements (and related disclosures and internal controls)
SAO also performs an Accountability Audit which results in a separate report.
As stated in the enclosed auditor's reports, the Auditor gave the City's Financial Statements an
Unmodified Opinion (i.e.: clean opinion with no qualifications — the highest possible rating). The
City has received an Unmodified Opinion (previously known as Unqualified) from the State Auditor
on our financial statements every year for more than two decades.
Due to the size and complexity of documents included in the audit report, only the auditors
written reports and comments have been included in the Council packet; however, the entire
report — including the financial statements themselves and the related footnotes, Management
Discussion and Analysis and supplemental information - may be found on the State Auditor's
website — http://www.sao.wa.gov/Pages/default.aspx#.ViVk5XnQfcs - towards the bottom of
the page on the right-hand side. Click the tab "Search Reports" then enter "City of Yakima"
and simply select "Search Reports" towards the bottom of the screen.
(Additionally, the Comprehensive Annual Financial Report (CAFR) is posted on the City's
website. To access the CAFR on-line, go to " www. yakimawa.gov'; then go to "City
Departments" at the bottom of the page and click on "Finance'; on the right-hand side click
on "Financial Reports'; and then "2014 Comprehensive Annual Financial Report".)
The Finance Department would like to thank the SAO for their assistance in reviewing the
operations of the City --we value their insight and appreciate their comments and
recommendations for improvement.
ITEM BUDGETED:
NA
STRATEGIC PRIORITY: Public Trust and Accountability
APPROVED FOR SUBMITTAL: ,- Interim City Manager
STAFF RECOMMENDATION:
Accept Report
BOARD/COMMITTEE RECOMMENDATION:
ATTACHMENTS:
Description
D 2014 Audit IResullts Summary
D 2014 SAGO IF::iiirna nciialll Statements
D 2014 SAO Accouirntabiilliity Audit
Upload Date
1/11/2016
„Ira° Single Audit. 1/11/2016
1/11/2016
Type
Omer Memo
Omer Memo
Omer Memo
Audit Results Summary—Report on Financial Statements and Federal Single Audit:
1) Financial Statements (pg. 11):
(a) Internal Controls: The auditors reviewed the City's internal controls over financial reporting to
the extent the Auditor's considered necessary for the purpose of designing their auditing
procedures for the purpose of expressing their opinion on the financial statements.
The audit states (pg. 18): "... as described in the accompanying Schedule of Audit Findings and
Responses, we identified certain deficiencies in internal control that we consider to be material
weaknesses... ". The Schedule of Audit Findings and Responses (pg. 11-15) identified that the
Financial Statements were late being submitted to SAO, and the first set of statements included
some material errors that were subsequently corrected. Additionally, the process to develop the
Schedule of Federal Awards (SEFA) is not designed to identify federal loans (vs. outright grants)
that should be reported on the schedule. Our response was that we implemented a new Financial
Management System that needed the proper reports developed, and that our staff accountant
who had previously prepared the Financial Statements retired, so we had reduced staffing
resources. These conditions should not repeat going forward. We also found the financial
statement errors the Auditor identified, and corrected them before the statements were published.
The SEFA error was just a training issue, as we know to report grants but were not set up to
review loans for a federal source.
(b) Compliance: As part of their review to obtain reasonable assurance 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. 19): "...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) Major (Federal) Program Regulations (pg. 21-24):
Compliance: The auditors are required to perform audits to obtain reasonable assurance about
whether any non-compliance with laws, regulations, etc. could have a direct and material effect on
a major federal program.
The audit states: (pg. 22) "...In our opinion, the City complied, in all material respects, with the
compliance requirements ... that could have a direct and material effect on each of its major
federal programs for the year ended December 31, 2014."
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 (as noted above) and to
test and report on internal control over compliance in accordance with OMB Circular A-133.
The auditors reported that they found an instance of noncompliance with requirements, but
that "our opinion on each major federal program is not modified with respect to these matters."
(The finding is described in pages 6-10). There is a reporting requirement for subrecipients of
the Community Development Block Grants/Entitlement Grants program that we did not know
to submit. Now that we know, we intend to remain in compliance with this requirement, and
keep trained on new regulations.
3) Financial Statements (pg. 25-27): the State Auditors audited - and expressed an opinion on - the
City's Financial Statements for the period January 1 through December 31, 2014. The auditors
gave the City an unqualified opinion - the highest rating possible.
The auditors stated "...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, 2014 and the respective changes in financial position and, where applicable,
cash flows thereof, and the respective budgetary comparisons for the General and Streets Capital
Fund for the year then ended, in accordance with accounting principles generally accepted in the
United States of America."
Audit Results Summary—Report on Accountability:
The final component of the SAO audit is an accountability audit that focused on the City's
compliance with applicable state laws and our own policies and procedures. They also examine
areas that pose a high risk of fraud, loss, abuse, or noncompliance. Their report states "In most
areas we audited, City operations complied with applicable requirements and provided adequate
safeguarding of public resources. The City also complied with state laws and regulations and its
own policies and procedures in the areas we examined." There were no "findings" in this report.
Washington State Auditor's Office
September 30, 2015
Mayor and City 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,
JAN M. JUTTE, CPA, CGFM
ACTING STATE AUDITOR
OLYMPIA, WA
Insurance Building, P.O. Box 40021 L Olympia, Washington 98504-0021 J (360) 902-0370 L TDD Relay (800) 833-6388
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Federal Summary 4
Schedule Of Federal Audit Findings And Questioned Costs 6
Schedule Of Audit Findings And Responses 11
Status Of Prior Audit Findings 16
Independent Auditor's Report On Internal Control Over Financial Reporting And On
Compliance And Other Matters Based On An Audit Of Financial Statements Performed In
Accordance With Government Auditing Standards 18
Independent Auditor's Report On Compliance For Each Major Federal Program And On
Internal Control Over Compliance In Accordance With OMB Circular A-133 21
Independent Auditor's Report On Financial Statements 25
Financial Section 28
Corrective Action Plan For Findings Reported Under OMB Circular A-133 112
About The State Auditor's Office 114
Washington State Auditor's Office Page 3
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City of Yakima
Yakima County
January 1, 2014 through December 31, 2014
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 unmodified 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 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 reported no deficiencies in the design or operation of
internal control over major federal programs that we consider to be significant
deficiencies.
• Material Weaknesses: We identified deficiencies that we consider to be material
weaknesses.
We issued an unmodified opinion on the City's compliance with requirements applicable to each
of its major federal programs.
We reported findings that are required to be disclosed under section 510(a) of OMB Circular
A-133.
Washington State Auditor's Office Page 4
Identification of Major Programs:
The following were major programs during the period under audit:
CFDA No. Program Title
14.218 CDBG - Entitlement Grants Cluster - Community Development Block
Grants/Entitlement Grants
20.106 Airport Improvement Program
20.513 Transit Services Programs Cluster - Mobility of Seniors and Individuals
with Disabilities
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 qualified as a low-risk auditee under OMB Circular A-133.
Washington State Auditor's Office Page 5
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City of Yakima
Yakima County
January 1, 2014 through December 31, 2014
2014-001 The City's internal controls were not adequate to ensure
compliance with Federal Funding Accountability and
Transparency Act (FFATA) reporting requirements.
CFDA Number and Title:
Federal Grantor Name:
Federal Award/Contract Number:
Pass-through Entity Name:
Pass-through Award/Contract
Number:
Questioned Cost Amount:
14.218 Community Development
Block Grants/Entitlement Grants
U.S. Department of Housing and
Urban Development, Office of
Community Planning and
Development
B10 -MC -53-008
NA
NA
$0
Background
The City received $1,057,068 in federal funds through the Community
Development Block Grants/Entitlement Grants program during fiscal year 2014.
The purpose of this grant is to develop viable urban communities by providing
decent housing, a suitable living environment, and expanding economic
opportunities, principally for persons of low and moderate income. Under the
grant agreement, the City enters into contracts with service providers
(subrecipients) to carry out portions of the grant objectives. The City paid
$125,000 to subrecipients through this program.
Description of Condition
The Federal Funding Accountability and Transparency Act of 2006 requires direct
recipients of federal awards to report subawards over $25,000. They must report
each subaward using the federal government's online system by the end of the
month following the month in which it was granted.
Washington State Auditor's Office Page 6
In 2014, the City entered into two contracts of $50,000 and $75,000. The City did
not have controls in place to ensure the required reports were submitted.
We consider the control deficiency to be a material weakness.
Cause of Condition
The City was not aware of the FFATA reporting requirements and its
responsibility to report subawards of over $25,000.
Effect of Condition and Questioned Costs
The City did not submit the required FFATA reports, which diminishes the
federal government's ability to ensure transparency and accountability of federal
spending. Once the City became aware of the requirement, it promptly reported
these awards in the online system during the audit.
Recommendation
We recommend the City develop internal controls to ensure required FFATA
reports are reviewed and submitted in a timely manner.
City's Response
The City is aware of its responsibility to maintain internal controls over the
reporting of expenditures of federal funds and has strived to report all such
activity accurately and completely. However, the City was not aware of the new
FFATA reporting requirements prior to the audit. Although the City participates
in trainings covering federal grant reporting requirements, this new act was not a
topic covered in recent courses. The City has relied upon the local training and
our federal agency program coordinators (especially HUD) to keep us informed
of any changes to federal grant requirements which has been sufficient in the
past. Upon discovery of the failure to report on the FFATA website, the City
immediately reported all of its sub -recipients of federal grant funds. We will
continue to do so and will access other available resources to learn about new
requirements in the future.
Auditor's Remarks
We appreciate the City's commitment to resolve this finding and thank the City
for its cooperation and assistance during the audit. We will review the corrective
action taken during our next regular 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:
Washington State Auditor's Office Page 7
The auditee shall:
(b) Maintain internal control over Federal programs that provides
reasonable assurance that the auditee is managing Federal awards
in compliance with laws, regulations, and provisions of contracts
or grant agreements that could have a material effect on each of its
Federal programs.
(c) Comply with laws, regulations, and the provisions of contracts
or grant agreements related to each of its Federal programs.
Government Auditing Standards, December 2011 Revision, paragraph 4.23 states:
4.23 When performing GAGAS financial audits, auditors should
communicate in the report on internal control over financial
reporting and compliance, based upon the work performed, (1)
significant deficiencies and material weaknesses in internal
control; (2) instances of fraud and noncompliance with provisions
of laws or regulations that have a material effect on the audit and
any other instances that warrant the attention of those charged with
governance; (3) noncompliance with provisions of contracts or
grant agreements that has a material effect on the audit; and (4)
abuse that has a material effect on the audit.
The American Institute of Certified Public Accountants defines significant
deficiencies and material weaknesses in its Codification of Statements on Auditing
Standards, section 935, as follows:
.11 For purposes of adapting GAAS to a compliance audit, the
following terms have the meanings attributed as follows:
Deficiency in internal control over compliance. A deficiency in
internal control over compliance exists when the design or
operation of a control over compliance does not allow management
or employees, in the normal course of performing their assigned
functions, to prevent, or detect and correct, noncompliance on a
timely basis. A deficiency in design exists when (a) a control
necessary to meet the control objective is missing, or (b) an
existing control is not properly designed so that, even if the control
operates as designed, the control objective would not be met. A
deficiency in operation exists when a properly designed control
does not operate as designed or the person performing the control
does not possess the necessary authority or competence to perform
the control effectively.
Washington State Auditor's Office Page 8
Material weakness in internal control over compliance. A
deficiency, or combination of deficiencies, in internal control over
compliance, such that there is a reasonable possibility that material
noncompliance with a compliance requirement will not be
prevented, or detected and corrected, on a timely basis. In this
section, a reasonable possibility exists when the likelihood of the
event is either reasonably possible or probable as defined as
follows:
Reasonably possible. The chance of the future event or
events occurring is more than remote but less than likely.
Remote. The chance of the future event or events occurring
is slight.
Probable. The future event or events are likely to occur.
Significant deficiency in internal control over compliance. A
deficiency, or a combination of deficiencies, in internal control
over compliance that is less severe than a material weakness in
internal control over compliance, yet important enough to merit
attention by those charged with governance.
Title 2, Code of Federal Regulations, APPENDIX A TO PART 170 — AWARD
TERM, provides, in part:
L Reporting Subawards and Executive Compensation.
Reporting of first-tier subawards.
1. Applicability. Unless you are exempt as provided
in paragraph d. of this award term, you must report
each action that obligates $25,000 or more in
Federal funds that does not include Recovery funds
(as defined in section 1512(a)(2) of the American
Recovery and Reinvestment Act of 2009, Pub. L.
111-5) for a subaward to an entity (see definitions
in paragraph e. of this award term).
2. Where and when to report.
i. You must report each obligating action
described in paragraph a.l. of this award
term to http://www.fsrs.gov.
Washington State Auditor's Office Page 9
ii. For subaward information, report no later
than the end of the month following the
month in which the obligation was made.
(For example, if the obligation was made on
November 7, 2010, the obligation must be
reported by no later than December 31,
2010.)
U.S. Office of Management and Budget Circular A-133, Audits of States, Local
Governments, and Non -Profit Organizations, Section 300, states in part:
Good Faith Effort for Submission Process
In the event that applicable subawards/subcontracts were not
properly reported by a recipient pursuant to the Transparency Act,
auditors should evaluate compliance with these requirements based
on whether a recipient demonstrated a "good faith" effort to
comply with the submission process. Demonstration of a "good
faith" effort by a recipient should be evidenced by proper
documentation such as emails or phone logs of communication
between a recipient and the awarding agency or GSA; or computer
screen shots that illustrate recipient attempts to upload information
into FSRS. Auditors are not required to report audit findings when
there is evidence that a recipient demonstrated a "good faith" effort
to submit the information. However, auditors still are required to
report audit findings for non-compliance with the Transparency
Act reporting requirements that are not supported by a recipient's
demonstrated "good faith" effort or are related to the accuracy of
the information being submitted.
Washington State Auditor's Office Page 10
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City of Yakima
Yakima County
January 1, 2014 through December 31, 2014
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2014-002 City of Yakima's internal controls over financial statement
preparation are inadequate to ensure accurate and complete
reporting.
Background
Council members, state and federal agencies, and the public rely on the
information included in the financial statements and reports to make decisions. It
is the responsibility of the City to design and follow internal controls that provide
reasonable assurance regarding the reliability of financial reporting.
Government Auditing Standards, prescribed by the Comptroller General of the
United States, require the auditor to communicate material weakness as defined
below in the Applicable Laws and Regulations section, as a finding.
State law requires the City to submit an annual financial report to our Office
within 150 days of the fiscal year end. The annual financial report includes
financial statements, supporting schedules and notes to the financial statements.
Description of Condition
We identified the following deficiencies in internal controls that, when taken
together, represent a material weakness:
• City personnel preparing the financial statements did not correctly apply
capital asset reporting requirements using current guidance under
Generally Accepted Accounting Principles (GAAP).
• Although the City independently reviewed the financial statements
prepared, the review was not effective or timely to ensure the financial
statements were accurate prior to the audit.
• The City's process to prepare the Schedule of Expenditures of Federal
Awards (SEFA) is not designed to identify federal loans that should be
reported on the schedule.
Washington State Auditor's Office Page 11
Additionally, the City submitted its financial statements to our office 51 days after
the reporting deadline as required by State law.
Cause of Condition
The City converted to a new general ledger system and experienced turn over in
key accounting staff. This prevented management from dedicating the time and
resources necessary to ensure the financial statements were presented in
accordance with GAAP.
Effect of Condition
The City's financial statements contained misstatements that were not detected by
City staff. Our audit identified the following material errors:
• Infrastructure, such as roads and streets, in the amount of $120,174,943
was incorrectly classified as other improvements and utility systems on the
Governmental Activities Statement of Net Position.
• The streets capital fund incorrectly reported $931,057 as unassigned
instead of assigned fund balance.
• The City did not report $1,201,673 of expenditures on its 2014 SEFA for
the Capitalization Grants for Drinking Water State Revolving Funds,
(CFDA 66.468).
The City subsequently corrected these errors in the reported financial to
statements.
Additionally, as the City's financial statements were not submitted by the required
deadline, the audit was delayed.
Recommendation
We recommend City establish ongoing, consistent internal controls over its
financial reporting, to include the following:
• Establish an effective review process of the financial statements to ensure
compliance with Generally Accepted Accounting Principles (GAAP) and
Budgeting, Accounting and Reporting Systems (BARS) reporting
requirements.
• Ensure all federal activity required to be reported on the SEFA is reported,
which includes federal loans.
Washington State Auditor's Office Page 12
• Submit financial statements to the State Auditor's office within 150 days
after fiscal year-end as required by state law.
City's Response
The City is aware of its responsibility to maintain internal controls over financial
statement preparation and takes pride in producing its annual Comprehensive
Annual Financial Report (CAFR) that receives unmodified opinions year after
year. As noted by the auditors, the City implemented a new financial software
system during 2014. The new system allows for considerable flexibility in data
reporting. However, that flexibility required that a new financial reporting model
be built from scratch. We had to properly map the data and then develop and
design appropriate reports. In order to assure that the reports were pulling the
correct data, our first step was to recreate the 2013 financial statements using the
new mapping and new chart of accounts. This took far more time than originally
anticipated because of changes to the mandatory "Budgeting, Accounting and
Reporting System" (BARS) accounting number structure. While implementing a
new system and developing new reports the City was compelled to change its
chart of accounts to accommodate the required changes. The Finance division
was still understaffed by one professional accountant position throughout most of
the year and due to a retirement in 2015 was severely deficient of experienced
staff during CAFR preparation. System conversion, specifically capital assets
continued through much of 2014 and was not actually completed until early 2015.
All of these factors combined to make the 2014 CAFR preparation considerably
more difficult and time consuming than was expected or ever had been
experienced previously.
The timing of the completion of the reporting structure did not allow enough time
to adequately review the financial statements before the initial submission to the
State Auditor's Office (SAO). The statements were presented to SAO with the
provision that we would also still be reviewing them for accuracy and
completeness, and indeed our review found the same material errors as noted by
SAO. We appreciate the cooperation and flexibility shown to us by the State
Auditors who worked on our audit. The team was professional, attentive and very
helpful as we worked through this difficult set of circumstances surrounding our
2014 audit.
Auditor's Remarks
We appreciate the City's commitment to resolve this finding and thank the City
for its cooperation and assistance during the audit. We will review the corrective
action taken during our next regular audit.
Applicable Laws and Regulations
Washington State Auditor's Office Page 13
RCW 43.09.200 Local government accounting — Uniform system of accounting,
states in part:
The state auditor shall formulate, prescribe, and install a system of
accounting and reporting for all local governments, which shall be
uniform for every public institution, and every public office, and
every public account of the same class.
Government Auditing Standards, July 2007 Revision - Section 5.11 provides that
auditors should report material weaknesses and significant deficiencies in internal
control.
The American Institute of Certified Public Accountants, Statement on Auditing
Standards No. 115 defines significant deficiencies and material weaknesses as
follows:
a. Significant deficiency: A significant deficiency is a deficiency,
or a combination of deficiencies, in internal control that is less
severe than a material weakness, yet important enough to merit
attention by those charged with governance.
b. Material weakness: A material weakness is a deficiency, or
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.
Budgeting, Accounting and Reporting System (BARS) manual — Accounting,
Accounting Principles and General Procedures, Internal Control, states in part:
Management and the governing body are responsible for the
government's performance, compliance, and financial reporting.
Therefore, the adequacy of internal control to provide reasonable
assurance of achieving these objectives is also the responsibility of
management and the governing body. The governing body has
ultimate responsibility for ensuring adequate controls to achieve
objectives, even though primary responsibility has been delegated
to management.
RCW 43.09.230, Local government accounting — Annual reports — Comparative
statistics, states:
The state auditor shall require from every local government
financial reports covering the full period of each fiscal year, in
Washington State Auditor's Office Page 14
accordance with the forms and methods prescribed by the state
auditor, which shall be uniform for all accounts of the same class.
Such reports shall be prepared, certified, and filed with the state
auditor within one hundred fifty days after the close of each fiscal
year.
The reports shall contain accurate statements, in summarized form,
of all collections made, or receipts received, by the officers from
all sources; all accounts due the public treasury, but not collected;
and all expenditures for every purpose, and by what authority
authorized; and also: (1) A statement of all costs of ownership and
operation, and of all income, of each and every public service
industry owned and operated by a local government; (2) a
statement of the entire public debt of every local government, to
which power has been delegated by the state to create a public
debt, showing the purpose for which each item of the debt was
created, and the provisions made for the payment thereof; (3) a
classified statement of all receipts and expenditures by any public
institution; and (4) a statement of all expenditures for labor
relations consultants, with the identification of each consultant,
compensation, and the terms and conditions of each agreement or
arrangement; together with such other information as may be
required by the state auditor.
The reports shall be certified as to their correctness by the state
auditor, the state auditor's deputies, or other person legally
authorized to make such certification.
Their substance shall be published in an annual volume of
comparative statistics at the expense of the state as a public
document.
Washington State Auditor's Office Page 15
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City of Yakima
Yakima County
January 1, 2014 through December 31, 2014
This schedule presents the status of findings reported in prior audit periods. The status listed
below is the representation of the City of Yakima. The State Auditor's Office has reviewed the
status as presented by the City.
Audit Period:
January 1, 2013 —
December 31, 2013
Report Ref. No:
1012690
Finding Ref. No:
2013-001
Finding Caption:
The City did not have adequate internal controls in place to ensure accurate reporting of the
Schedule of Expenditures of Federal Awards.
Background:
Our audit identified the following deficiencies in internal controls over financial reporting
that, when taken together, represent a significant deficiency:
• Although the City has procedures to perform a review of the financial statements for
accuracy, the review was not adequate to detect and correct errors prior to audit.
• The City did not have a clear understanding of the SEFA reporting requirements for
its Capitalization Grants for Clean Water State Revolving Funds loans and did not
follow guidance provided in the Budget, Accounting and Reporting Standards
(BARS) manual or OMB Circular A-133.
The City' s SEFA preparation and review process did not take into consideration loans that
could potentially be from federal sources and require disclosure on the schedule.
As a result, the City did not report $194,672 and $1,393,240 for the Drinking Water State
Revolving Fund loan (CFDA 66.468) on the 2012 and 2013 schedules. This error is
considered material to the 2013 SEFA and this grant was required to be audited. We
identified this error during the subsequent audit. As a result, we have re -issued our 2013
report (originally dated September 25, 2014) to include this federal loan as a major program.
Status of Corrective Action: (check one)
X Fully • Partially • No Corrective • Finding is considered no
Corrected Corrected Action Taken longer valid
Washington State Auditor's Office
Page 16
Corrective Action Taken:
Corrective action has been implemented to train staff to identify federal funding sources even
when the source of funds appears to be from the state or other pass through agency. Federal
funding consideration has also been added to the debt review process and a "source of
funds" column has been added to debt schedules so that even though money is received as
"debt proceeds" under state coding 11 will be flagged as federal reimbursement in regular
reporting procedures. These procedures will ensure proper SEFA reporting of loan funds in
the future.
Washington State Auditor's Office Page 17
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City of Yakima
Yakima County
January 1, 2014 through December 31, 2014
Mayor and City Council
City of Yakima
Yakima, Washington
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We have audited, 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, 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, 2014, and the related notes to the financial statements, which
collectively comprise the City's basic financial statements, and have issued our report thereon
dated September 28, 2015.
INTERNAL CONTROL OVER FINANCIAL REPORTING
In planning and performing our audit of the financial statements, we considered the City's
internal control over financial reporting (internal control) to determine the audit procedures that
are appropriate in the circumstances 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. Accordingly, we do not express an opinion on the effectiveness of the City's
internal control.
Our consideration of internal control was for the limited purpose described in the preceding
paragraph and was not designed to identify all deficiencies in internal control that might be
material weaknesses or significant deficiencies and therefore, material weaknesses or significant
deficiencies may exist that were not identified. However, as described in the accompanying
Schedule of Audit Findings and Responses, we identified certain deficiencies in internal control
that we consider to be material weaknesses.
Washington State Auditor's Office Page 18
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 City's financial statements will not be prevented,
or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a
combination of deficiencies, in internal control that is less severe than a material weakness, yet
important enough to merit attention by those charged with governance. We consider the
deficiencies described in the accompanying Schedule of Audit Findings and Responses as
Finding 2014-002 to be material weaknesses.
COMPLIANCE AND OTHER MATTERS
As part of obtaining reasonable assurance about whether the City's financial statements are free
from material misstatement, we performed tests of the City's compliance with certain provisions
of laws, regulations, contracts and grant agreements, noncompliance with which could have a
direct and material effect on the determination of financial statement amounts. However,
providing an opinion on compliance with those provisions was not an objective of our audit, and
accordingly, 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.
CITY'S REPONSE TO FINDINGS
The City's response to the findings identified in our audit is described in the accompanying
Schedule of Audit Findings and Responses. The City's response was not subjected to the
auditing procedures applied in the audit of the financial statements and, accordingly, we express
no opinion on the response.
PURPOSE OF THIS REPORT
The purpose of this report is solely to describe the scope of our testing of internal control and
compliance and the results of that testing, and not to provide an opinion on the effectiveness of
the City's internal control or on compliance. This report is an integral part of an audit performed
in accordance with Government Auditing Standards in considering the City's internal control and
compliance. Accordingly, this communication is not suitable for any other purpose. However,
Washington State Auditor's Office Page 19
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 reporting tool to help citizens assess government
operations.
JAN M. JUTTE, CPA, CGFM
ACTING STATE AUDITOR
OLYMPIA, WA
September 28, 2015
Washington State Auditor's Office Page 20
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City of Yakima
Yakima County
January 1, 2014 through December 31, 2014
Mayor and City Council
City of Yakima
Yakima, Washington
REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL
PROGRAM
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 could have a direct and material effect on
each of its major federal programs for the year ended December 31, 2014. The City's major
federal programs are identified in the accompanying Federal Summary.
Management's Responsibility
Management is responsible for compliance with the requirements of laws, regulations, contracts
and grants applicable to its federal programs.
Auditor's Responsibility
Our responsibility is to express an opinion on compliance for each of the City's major federal
programs based on our audit of the types of compliance requirements referred to above. We
conducted our audit of compliance in accordance with auditing standards generally accepted in
the United States of America; the standards applicable to 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
Washington State Auditor's Office Page 21
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 on compliance for each
major federal program. Our audit does not provide a legal determination on the City's
compliance.
Opinion on Each Major Federal Program
In our opinion, the City complied, in all material respects, with the types of compliance
requirements referred to above that could have a direct and material effect on each of its major
federal programs for the year ended December 31, 2014.
Other Matters
The results of our auditing procedures disclosed an instance of noncompliance with those
requirements, which is required to be reported in accordance with OMB Circular A-133 and
which is described in the accompanying Schedule of Federal Audit Findings and Questioned
Costs as Finding 2014-001. Our opinion on each major federal program is not modified with
respect to these matters.
City's Response to Findings
The City's response to the noncompliance findings identified in our audit is described in the
accompanying Schedule of Federal Audit Findings and Questioned Costs. The City's response
was not subjected to the auditing procedures applied in the audit of compliance and, accordingly,
we express no opinion on the response.
REPORT ON INTERNAL CONTROL OVER COMPLIANCE
Management of the City is responsible for establishing and maintaining effective internal control
over compliance with the types of compliance requirements referred to above. In planning and
performing our audit of compliance, we considered the City's internal control over compliance
with the types of requirements that could have a direct and material effect on each major federal
program in order to determine the auditing procedures that are appropriate in the circumstances
for the purpose of expressing an opinion on compliance for each major federal program and to
test and report on internal control over compliance in accordance with OMB Circular A-133, but
Washington State Auditor's Office Page 22
not for the purpose of expressing an opinion on the effectiveness of internal control over
compliance. Accordingly, 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 was not designed to identify all deficiencies in internal control over
compliance that might be material weaknesses or significant deficiencies and therefore, material
weaknesses or significant deficiencies may exist that were not identified. However, as discussed
below, we identified certain deficiencies in internal control over compliance that we consider to
be material weaknesses.
A deficiency in internal control over compliance exists when the design or operation of a control
over compliance does not allow management or employees, in the normal course of performing
their assigned functions, to prevent, or detect and correct, noncompliance with a type of
compliance requirement of a federal program on a timely basis. A material weakness in internal
control over compliance is a deficiency, or combination of deficiencies, in internal control over
compliance, such that there is a reasonable possibility that material noncompliance with a type of
compliance requirement of a federal program will not be prevented, or detected and corrected, on
a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a
combination of deficiencies, in internal control over compliance with a type of compliance
requirement of a federal program that is less severe than a material weakness in internal control
over compliance, yet important enough to merit attention by those charged with governance. We
consider the deficiencies in internal control over compliance described in the accompanying
Schedule of Federal Audit Findings and Questioned Costs as Finding 2014-002 to be a material
weakness.
City's Response to Findings
The City's response to the internal control over compliance findings identified in our audit is
described in the accompanying Schedule of Federal Audit Findings and Questioned Costs. The
City's response was not subjected to the auditing procedures applied in the audit of compliance
and, accordingly, we express no opinion on the response.
PURPOSE OF THIS REPORT
The purpose of this report on internal control over compliance is solely to describe the scope of
our testing of internal control over compliance and the results of that testing based on the
requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other
Washington State Auditor's Office Page 23
purpose. However, 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 reporting tool to help citizens assess
government operations.
JAN M. JUTTE, CPA, CGFM
ACTING STATE AUDITOR
OLYMPIA, WA
September 28, 2015
Washington State Auditor's Office Page 24
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City of Yakima
Yakima County
January 1, 2014 through December 31, 2014
Mayor and City Council
City of Yakima
Yakima, Washington
REPORT ON THE FINANCIAL STATEMENTS
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, 2014,
and the related notes to the financial statements, which collectively comprise the City's basic
financial statements as listed on page 28.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with accounting principles generally accepted in the United States of America; this
includes the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. 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 from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's
judgment, including the assessment of the risks of material misstatement of the financial
Washington State Auditor's Office Page 25
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the City's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the City's internal control.
Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinions.
Opinion
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, 2014, and the respective changes in financial position and, where applicable, cash
flows thereof, and the respective budgetary comparison for the General and Streets Capital
funds, for the year then ended in accordance with accounting principles generally accepted in the
United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis on pages 30 through 44 and pension trust fund
information and information on postemployment benefits other than pensions on pages 106
through 108 be presented to supplement the basic financial statements. Such information,
although not a part of the basic financial statements, is required by the Governmental Accounting
Standards Board who considers it to be an essential part of financial reporting for placing the
basic financial statements in an appropriate operational, economic or historical context. We have
applied certain limited procedures to the required supplementary information in accordance with
auditing standards generally accepted in the United States of America, which consisted of
inquiries of management about the methods of preparing the information and comparing the
information for consistency with management's responses to our inquiries, the basic financial
statements, and other knowledge we obtained during our audit of the basic financial statements.
We do not express an opinion or provide any assurance on the information because the limited
procedures do not provide us with sufficient evidence to express an opinion or provide any
assurance.
Washington State Auditor's Office Page 26
Supplementary and Other Information
Our audit was conducted for the purpose of forming opinions 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.S. 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 is the responsibility of management and was derived from and
relates directly to the underlying accounting and other records used to prepare the basic financial
statements. The information has been subjected to the auditing procedures applied in the audit of
the basic financial statements and certain additional procedures, including comparing and
reconciling such information directly to the underlying accounting and other records used to
prepare the basic financial statements or to the basic financial statements themselves, and other
additional procedures in accordance with auditing standards generally accepted in the United
States of America. In our opinion, the information is fairly stated, in all material respects, in
relation to the basic financial statements taken as a whole.
OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING
STANDARDS
In accordance with Government Auditing Standards, we have also issued our report dated
September 28, 2015 on our consideration of the City's internal control over financial reporting
and on our tests of its compliance with certain provisions of laws, regulations, 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 internal control over financial reporting or on compliance. That
report is an integral part of an audit performed in accordance with Government Auditing
Standards in considering the City's internal control over financial reporting and compliance.
JAN M. JUTTE, CPA, CGFM
ACTING STATE AUDITOR
OLYMPIA, WA
September 28, 2015
Washington State Auditor's Office Page 27
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City of Yakima
Yakima County
January 1, 2014 through December 31, 2014
REQUIRED SUPPLEMENTARY INFORMATION
Management's Discussion and Analysis — 2014
BASIC FINANCIAL STATEMENTS
Statement of Net Position — 2014
Statement of Activities — 2014
Balance Sheet — Governmental Funds — 2014
Reconciliation of Governmental Funds Balance Sheet to the Statement of Net Position —
2014
Statement of Revenues, Expenditures and Changes in Fund Balance — Governmental
Funds — 2014
Reconciliation of Governmental Funds Statement of Revenues, Expenditures and
Changes in Fund Balance to the Statement of Activities — 2014
Statement of Revenues, Expenditures and Changes in Fund Balance — Budget and Actual
— General Fund — 2014
Statement of Revenues, Expenditures and Changes in Fund Balance — Budget and Actual
— Street Capital Fund — 2014
Statement of Net Position — Proprietary Funds — 2014
Statement of Revenues, Expenses and Changes in Fund Net Position — Proprietary Funds
— 2014
Statement of Cash Flows — Proprietary Funds — 2014
Statement of Net Position — Fiduciary Funds — 2014
Statement of Changes in Fiduciary Net Position — Fiduciary Funds — 2014
Notes to Financial Statements — 2014
REQUIRED SUPPLEMENTARY INFORMATION
Pension Trust Fund Information and Information on Postemployment Benefits Other
Than Pensions — 2014
Schedule of Funding Progress — Other Postemployment Benefits (OPEB) and Pensions —
2014
Washington State Auditor's Office Page 28
SUPPLEMENTARY AND OTHER INFORMATION
Schedule of Expenditures of Federal Awards — 2014
Notes to the Schedule of Expenditures of Federal Awards — 2014
Washington State Auditor's Office Page 29
Washington State Auditor's Office
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City of Yakima
Yakima County
For the period January 1, 2014 through December 31, 2014
Published December 14, 2015
Report No. 1015784
Washington State Auditor's Office
December 14, 2015
Mayor and City Council
City of Yakima
Yakima, Washington
Report on Accountability
Thank you for the opportunity to work with you to promote accountability, integrity and
openness in government. The State Auditor's Office takes seriously our role of providing state
and local governments with assurance and accountability as the independent auditor of public
accounts. In this way, we strive to help government work better, cost less, deliver higher value
and earn greater public trust.
Independent audits provide essential accountability and transparency for City operations. This
information is valuable to management, the governing body and public stakeholders when
assessing the government's stewardship of public resources.
The attached comprises our report on the City's compliance and safeguarding of public
resources. Our independent audit report describes the overall results and conclusions for areas
we examined. We appreciate the opportunity to work with your staff and we value your
cooperation during the audit.
Sincerely,
TROY KELLEY
STATE AUDITOR
OLYMPIA, WA
Insurance Building, P.O. Box 40021 ❑Olympia, Washington 98504-0021 0(360) 902-0370 TDD Relay (800) 833-6388
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Audit Summary 4
Status Of Prior Audit Findings 5
Related Reports 6
Information About The City 7
About The State Auditor's Office 8
Washington State Auditor's Office Page 3
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Results in brief
In most areas we audited, City operations complied with applicable requirements and provided
adequate safeguarding of public resources. The City also complied with state laws and
regulations and its own policies and procedures in the areas we examined.
However, we noted certain matters that we communicated to City management in a letter dated
December 7, 2015, related to use of credit cards and monitoring of fuel use. We appreciate the
City's commitment to resolving those matters.
About the audit
This report contains the results of our independent accountability audit of the City of Yakima
from January 1, 2014 through December 31, 2014.
Management is responsible for ensuring compliance and adequate safeguarding of public
resources from fraud, loss or abuse. This includes the design, implementation and maintenance
of internal controls relevant to these objectives.
Our audit involved performing procedures to obtain evidence about the City's uses of public
resources, compliance with state laws and regulations and its own policies and procedures, and
internal controls over such matters.
In keeping with general auditing practices, we do not examine every transaction, activity or area.
Instead, the areas examined were those representing the highest risk of fraud, loss, abuse, or
noncompliance. The following areas were examined during this audit period:
• Citizen concerns regarding gifting of
public funds and contracts/agreements
• Police Department evidence room
• Police Department cash receipting and
citations
• Yakima Consortium For Regional
Public Safety
• Bid -law compliance
• Bus passes
• Fuel use
• General disbursements
• Travel expenditures
• Credit card use
• Self-insurance programs
• Cost allocation plans
• Payroll
Washington State Auditor's Office Page 4
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This schedule presents the status of findings reported in prior audit periods. The status listed
below is the representation of the City of Yakima. The State Auditor's Office has reviewed the
status as presented by the City.
Audit Period:
January 1, 2013 — December 31, 2013
Report Ref. No:
1013518
Finding Ref. No:
1
Finding Caption:
The City of Yakima's Police Department does not have adequate controls over voided receipts
or citations.
Background:
The Police Department does not have adequate controls over voided cash receipts or voided
citations to ensure all revenue is accounted for. Additionally, the Department does not
adequately monitor and retain all citations as required by state law.
Status of Corrective Action: (check one)
No Corrective
Taken
• No Corrective • Finding is considered no
X Fully • Partially •
• Finding is considered no
Corrected Corrected Action
longer valid
Corrective Action Taken:
The City has implemented internal controls over the cash receipting process at the police
department and now reviews to ensure all voided receipts are for valid purposes and are fully
supported. Also, the Police Department has implemented a new web based system for issuing
citations that automatically ensures all voided citations are reviewed and all citations are
retained per state law.
Audit Period:
January 1, 2013 — December 31, 2013
Report Ref. No:
1013518
Finding Ref. No:
2
Finding Caption:
The City does not have adequate internal controls over bus pass revenues.
Background:
The City's lacks controls to ensure all bus pass receipts are collected and deposited at seven
sales locations.
Status of Corrective Action: (check one)
X Fully
• No Corrective • Finding is considered no
Partially Corrected
•Corrected
Action Taken longer valid
Corrective Action Taken:
The City has implemented a process to compare actual receipts from bus passes sales against
the amount of bus passes sold from inventory to ensure all revenue is being collected and
deposited.
Washington State Auditor's Office
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Our opinion on the City's financial statements and compliance with federal grant program
requirements is provided in a separate report, which includes the City's financial statements.
That report is available on our website, http://portal.sao.wa.gov/ReportSearch.
That report includes a finding for a material weakness in internal controls over financial
reporting regarding improper presentation of capital assets in accordance with Generally
Accepted Accounting and Reporting Principles and omitting federal loans from the Schedule of
Expenditures of Federal Awards.
Federal grant programs
We evaluated internal controls and tested compliance with the federal program requirements, as
applicable, for the City's major federal programs, which are listed in the Federal Summary
section of the separate financial statement and single audit report. That report includes a federal
finding regarding control weaknesses and material noncompliance with Federal Funding
Accountability and Transparency Act reporting requirements. That report is available on our
website, http://portal.sao.wa.gov/ReportSearch.
Special investigations
We noted certain matters that we communicated to City management in a letter, relating to a loss
of public funds. We appreciate the City's commitment to resolving those matters.
Other reports
During the current audit period, the State Auditor's Office issued a report on agreed-upon
procedures performed at the City. That report is available on our website,
http://portal.sao.wa.gov/ReportSearch.
During the current audit period, the State Auditor's Office issued an examination report on the
City's management's assertion regarding pensionable wages and contributions reported to the
Washington State Department of Retirement Systems. That report is available on our website,
http://portal.sao.wa.gov/ReportSearch.
Washington State Auditor's Office Page 6
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The City of Yakima serves approximately 92,000 citizens in Yakima County. It operates as a
first class city under the council-manager form of government.
The City Council consists of seven Council Members, four of whom are elected from separate
districts and three elected at large. The Council, from within its own membership, chooses the
Mayor every two years. The City provides a full range of municipal services. These services
include public safety (police, fire, Municipal Court), public improvements (streets, traffic
signals, storm sewer), sanitation (solid waste disposal, sewer utility), water utility, community
development, parks, recreation, code enforcement and general administrative services. The City
has approximately 770 employees. For fiscal year 2014, the City's total budget was
approximately $220 million.
Contact information related to this report
Address:
City of Yakima
129 N. Second Avenue
Yakima, WA 98901-2720
Contact:
Cindy Epperson, Director of Finance and Budget
Telephone:
(509) 576-6644
Website:
www.ci.yakima.wa.us
Information current as of report publish date.
Audit history
You can find current and past audit reports for the City of Yakima at
http://portal.sao.wa.gov/ReportSearch.
Washington State Auditor's Office Page 7
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The State Auditor's Office is established in the state's Constitution and is part of the executive
branch of state government. The State Auditor is elected by the citizens of Washington and
serves four-year terms.
We work with our audit clients and citizens to achieve our vision of government that works for
citizens, by helping governments work better, cost less, deliver higher value, and earn greater
public trust.
In fulfilling our mission to hold state and local governments accountable for the use of public
resources, we also hold ourselves accountable by continually improving our audit quality and
operational efficiency and developing highly engaged and committed employees.
As an elected agency, the State Auditor's Office has the independence necessary to objectively
perform audits and investigations. Our audits are designed to comply with professional standards
as well as to satisfy the requirements of federal, state, and local laws.
Our audits look at financial information and compliance with state, federal and local laws on the
part of all local governments, including schools, and all state agencies, including institutions of
higher education. In addition, we conduct performance audits of state agencies and local
governments as well as fraud, state whistleblower and citizen hotline investigations.
The results of our work are widely distributed through a variety of reports, which are available
on our website and through our free, electronic subscription service.
We take our role as partners in accountability seriously, and provide training and technical
assistance to governments, and have an extensive quality assurance program.
Contact information for the State Auditor's Office
Deputy Director for Communications
Thomas Shapley
Thomas.Shapley@sao.wa.gov
(360) 902-0367
Public Records requests
PublicRecords@sao.wa.gov
Main telephone
(360) 902-0370
Toll-free Citizen Hotline
(866) 902-3900
Website
www.sao.wa.gov
Washington State Auditor's Office
Page 8