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FY 1993-1994 -- Comprehensive Annual Financial Report (2) INGRAM, WALLIS & COMPANY A PROFESSIONAL CORPORATION Certified Public Accountants 2100 Villa Maria,Suite 100 BRYAN,TEXAS 77802 James D.Ingram,III TELEPHONE Thomas A.Wallis (409)776-2600 Agnes L.Bennett TELECOPIER Judith W.Childs (409)774-7759 James D.Ingram,IV Richard L.Webb Wendi M.Stratta Pu-Yu(Peggy)Wang Diane E.Kruse Steven J.Little Mayor Larry Ringer, Members of City Council and Interim City Manager of the City of College Station, Texas We have audited the general purpose financial statements of the City of College Station, Texas ("City") , for the year ended September 30, 1994 and have issued our report thereon dated February 10, 1995. Our professional standards require that we communicate with you concerning certain matters that may be of interest to you in fulfilling your obligation to oversee the financial reporting responsibility. We have prepared the following comments to assist you in fulfilling that obligation. OUR RESPONSIBILITY UNDER GENERALLY ACCEPTED AUDITING STANDARDS We conducted our audit of the 1994 financial statements of the City in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement. When performing an audit in accordance with those standards, we are only required to obtain an understanding of the City's internal control structure sufficient to enable us to properly plan our audit. Therefore, we cannot provide any assurances about the design or operation of the internal control structures. Based, in part, on our understanding of the control environment, we designed our audit to provide reasonable assurance of detecting errors and irregularities. However, because of the characteristics of irregularities, particularly those involving forgery and collusion, a properly designed and executed audit may not detect such items. SIGNIFICANT ACCOUNTING POLICIES The City's significant accounting policies are disclosed in the notes to the general purpose financial statements. During the year ended September 30, 1994 , there were no significant changes in previously adopted accounting policies or their application. MANAGEMENT JUDGMENTS AND ACCOUNTING ESTIMATES Accounting estimates are an integral part of the financial statements prepared by management and are based upon management's current judgments. Those judgments are normally based on knowledge and experience about past and current events and assumptions about future events. Significant accounting estimates reflected in the City's 1994 general purpose financial statements are normal and were determined on a basis consistent with that used in the prior year. SIGNIFICANT AUDIT ADJUSTMENTS We proposed no audit adjustment that, either individually or in the aggregate, would have a significant effect on the City's financial reporting process, in our judgment. All proposed audit adjustments, whether recorded in the accounting records or not, were reviewed with management. DISAGREEMENTS WITH MANAGEMENT We had no disagreements with management regarding the application of accounting principles, the basis for management's judgments about accounting estimates, the scope of our audit, disclosures to be included in the financial statements or the wording of our report on the 1994 general purpose financial statements. CONSULTATION WITH MANAGEMENT Management informed us that there were no consultations with other independent public accountants regarding accounting or auditing matters during 1994 . MAJOR ISSUES DISCUSSED WITH MANAGEMENT PRIOR TO RETENTION We discussed no major accounting or auditing issues with management in connection with our retention as the City's auditors in 1994 . DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT We experienced no difficulties in dealing with management relating to the performance of our audit. We received the full cooperation of management and staff. We believe that we have direct and unrestricted access to the City's management. This report is intended solely for the information of the Mayor and Members of the City Council and should not be used for any other purpose. We will be pleased to discuss this report with you further at your convenience. �/ •�-,g� arrn. •//� 7r�"�'O Bryan, Texas February 10, 1995 INGRAM, WALLIS & COMPANY A PROFESSIONAL CORPORATION Certified Public Accountants 2100 Villa Maria,Suite 100 BRYAN,TEXAS 77802 James D.Ingram,III TELEPI-IONS Thomas A.Wallis (409)776-2600 Agnes L.Bennett TELECOPIER Judith W.Childs (409)774-7759 James D.Ingram,IV Richard L.Webb Wendi M.Stratta Pu-Yu(Peggy)Wang Diane E.Kruse Steven J.Little Mayor Larry Ringer, Members of City Council and Interim City Manager of the City of College Station, Texas In planning and performing our audit of the general-purpose financial statements of the City of College Station ("City") for the year ended September 30, 1994, we considered its internal control structure in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control structure. However, we noted certain matters involving the internal control structure and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control structure that, in our judgment, could adversely affect the City's ability to record, process, summarize and report financial data consistent with the assertions of management in the general-purpose financial statements. In testing cash receipts, we again noted that some City departments are holding deposits for more than one day before forwarding them to the accounting department. In some departments, large dollar amounts are being accumulated in facilities which do not provide adequate safeguards over assets. All departments should be made aware of the City's cash receipts policy which requires all receipts to be deposited on a daily basis. In reviewing utility accounts receivable, it was noted that the receivable balance per utility billing did not agree with the receivable balance in accounting. Utility billing uses a separate computer system from that used by accounting. The accounting department receives information from utility billing regarding billings, daily deposits and adjustments. When posted by the accounting department, a different accounts receivable balance is generated which is reconciled to that in the utility billing department. Continuing efforts should be made to identify any unknown reconciling differences and to make the necessary adjustments to insure the two systems are in balance. Also, integration of the systems should be considered as part of an overall plan to eliminate the duplication of effort and to provide for ease of monthly reconciliations. As noted the prior year, the City maintains detailed property records for the Utility and Sanitation Funds but not for the General Fixed Asset Group of Accounts. The City should plan and work toward performing a complete physical inventory of fixed assets and should hire or train a fixed asset accountant whose duties would include updating the detail records for property additions, obtaining information from auctions for retirements and reconciling the detail with the accounting records on a regular basis. While reviewing expenditures, we noted that some non-qualifying expenditures were incorrectly recorded and included in the request for funds from the Department of Housing and Urban Development (HUD) . We recommend that procedures be implemented to ensure a monthly review of expenditures to ensure that only qualifying expenditures are submitted to HUD. A material weakness is a reportable condition in which the design or operation of one or more of the internal control structure elements does not reduce to a relatively low level the risk that errors or irregularities in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Our consideration of the internal control structure would not necessarily disclose all matters in the internal control structure that might be reportable conditions and, accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses as defined above. However, none of the reportable conditions described above is believed to be a material weakness. This report is intended solely for the information and use of the City Council and management and should not be used for any other purpose. We would like to express our appreciation to you and your staff for the cooperation extended to us during our audit. We shall be pleased to discuss the matters contained in this letter at your convenience. <24,t i�1 /� / #wr7. a ,/� Bryan, Texas February 10, 1995