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  Item # 2.       
Town Council Regular Session
Meeting Date: 02/06/2019  
Requested by: Stacey Lemos Submitted By: Stacey Lemos, Finance
Department: Finance  

Presentation and discussion of the Town's Annual Financial Audit for Fiscal Year ending June 30, 2018
This item is for presentation and discussion.
The certified public accounting firm of Heinfeld, Meech & Co., P.C. has completed the financial audit of the Town for the fiscal year ending June 30, 2018. The audit was conducted in accordance with generally accepted auditing standards, and the auditors have rendered an opinion that the Town's general purpose financial statements fairly present the Town's financial position as of June 30, 2018. This is also known as an unmodified, or clean, audit opinion, which is the highest form of audit opinion given.

Attached is a copy of the Comprehensive Annual Financial Report (CAFR), which contains the audited financial statements. The CAFR has been submitted to the Government Finance Officers Association (GFOA) for the Excellence in Financial Reporting Award program for the 25th consecutive year. Additional attachments to this communication, the Audit Communication Letter and the Report on Internal Controls, are standard auditor communications to the Town Council which outline various aspects of the audit process.

The attached Report on Internal Controls identifies an issue that arose during the course of auditing development impact fee revenues. It was found that infrastructure contributed by developers through the granting of impact fee credits was not included in the Town's capital asset listing, and the impact fee credits granted were not properly recorded in the Town's general ledger. Also, a cash contribution was incorrectly recorded in the general ledger. It is important to note that these findings did not cause a material misstatement of the Town's financial statements. To address these findings and prevent future occurrences, Town staff from the Community and Economic Development Department, Public Works Department, Legal Department and Finance Department are developing formal written procedures and forms necessary to properly account for impact fee credit agreements. These procedures will be completed by mid-February, and will be followed by training with all key staff involved in collecting, approving, managing and accounting for impact fees and impact fee credit agreements. It is important to note that while the Town did not have formal written procedures in place, all information related to the value of infrastructure constructed and impact fee credits was readily accessible and able to be entered into the Town's financial records through journal entry posting.

Mr. Corey Arvizu, CPA, with the firm of Heinfeld, Meech & Co., P.C. will be present to provide an overview of the audit to Town Council and answer questions.

Key sections of the attached CAFR for Town Council's review include the Letter of Transmittal located in the beginning of the report (pages 1 - 8); the Independent Auditors' Report (pages 15 - 16); and Management's Discussion and Analysis (pages 19 - 28). Additionally, the Notes to the Financial Statements section (pages 52 - 88) provides a more detailed explanation of significant accounting policies, Town investments, capital assets and debt, and pension plan information. Finally, the Statistical Section (pages 141 - 166) provides various schedules of historical financial trend data, as well as demographic and economic information.

The following is an overview of the Town's financial operations for the fiscal year ending June 30, 2018:
  • On June 30, 2018, the General Fund's end-of-year fund balance was $15,967,642, which increased by $2,564,428 compared to last year (page 42). This increase was due to increased sales tax collections and increased license and permit revenues from development activity, in addition to department expenditure savings.
  • The Highway Fund's end-of-year fund balance was $960,719, which decreased by $390,184 compared to last year (page 114). This was due to the planned use of contingency reserves approved by Town Council to support operations during the fiscal year.
  • The Community Center Fund's end-of-year fund balance was ($71,563), which increased, or improved, by $25,594 compared to last year (page 42). This was primarily due to increased revenues from dedicated sales tax collections and charges for services.
The following is the financial position of the Oro Valley Water Utility at June 30, 2018:
  • Net income of $3,887,397 and capital contributions of $870,920 increased the Utility's net position by $4.8 million. Total net position at year-end was $87 million (page 48). Net position is defined as the difference between assets and liabilities in the Water Utility Fund and is one indicator of the utility's financial position. The largest portion of the Utility's net position reflects its investment in capital assets (e.g. land, buildings and improvements, infrastructure, vehicles, etc.).

This item is for presentation and discussion.
FY 2017/18 CAFR
Audit Communication Letter
Report on Internal Control

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