Summary Financial Information from the Auditor for Fiscal Year 2011 (ending June 30, 2011)

Exactly as extracted, unformatted — for checking against the original. The readable version is easier to read.

S B & C O M P A N Y,
LLC
TOWN OF CENTREVILLE
COMMUNICATIONS WITH THOSE CHARGED
WITH GOVERNANCE
FOR THE YEAR ENDED JUNE 30, 2011
APRIL 19, 2012
E
XPERIENCE
Q
UALITY
C
LIENT SERVICE

Summary
EXPERIENCE QUALITY CLIENT SERVICE
Scope of Services
 Audit of June 30, 2011 financial statements
 OMB-Circular A-133 Single Audit and Data Collection Form
 Assistance in preparation of financial statements
 Review of the Uniform Financial Report
 Available for year-round consultation
Results
 Issued an unqualified opinion on financial statements and A-133
Audit
 No significant deficiencies or material weaknesses noted
 We did not discover any instances of fraud
 Received full cooperation of management
Items for discussion
 Industry Update
 SBC Risk-Based Audit Approach
 Assessment of Control Environment
 Evaluation of Key Processes
 Summary Financials
 Single Audit Results
 Required Communications
 Fraud Assessment
 Engagement Team
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Industry Update
EXPERIENCE QUALITY CLIENT SERVICE
 Standard and Poor’s Municipal Bond Downgrades;
 Municipal and County bankruptcies and potential impact on debt
market;
 Management and the Town should be aware that because of the
present economic times and slow down in our economy, there
will be greater financial pressures on the Town’s employees and
potential customers, which increases the Town’s risk of fraud
from its employees and customers;
 Risk management concerns related to employees have become
an issue among local governments. Governments should be
proactive in initiating risk management policies to minimize
liability exposure;
 Potential loss of tax exempt debt issuances if benefit plans not
adequately funded;
 Pension and OPEB liability recognition on the statements of net
assets (entity wide);
 State of Maryland shifting costs to counties and municipalities;
 Increased needs for fiscal transparency; and
 Potential industry movement to zero-based budgeting.
2

SBC Risk-Based Audit Approach
EXPERIENCE QUALITY CLIENT SERVICE
Focus During this Stage
- Identify internal, external and
financial statements risks
- Develop audit plans
- Evaluate your controls and
processes
-Test your key controls
- Evaluate your processes to
report correct amounts
- Evaluate reporting policies
- Review financial statement for
misstatements
- Verify selected account balances
- Obtain third party verification
- Professional standards
requirements
- Obtain representation
- Evaluate results of audit
procedures
- Communicate results and
prepare reports to issue
3

Assessment of Control Environment
EXPERIENCE QUALITY CLIENT SERVICE
Our
Area Points to Consider
Assessment
 Key executive integrity, ethics, and behavior
 Control consciousness and operating style
 Commitment to competence
Control
 Council’s participation in governance and oversight Effective
Environment
 Organizational structure and assignment of authority
and responsibility
 HR policies and procedures
 Mechanisms to anticipate, identify, and react to
Risk significant events
Effective
Assessment  Processes and procedures to identify changes in GAAP,
business practices and internal control
 Adequate performance reports produced from
information systems
 Information systems are connected with the business
strategy
Information &  Commitment of HR and finance to develop, test and
Effective
Communication monitor IT systems and programs
 Business continuity/disaster plan for IT
 Established communication channels for employees to
fulfill responsibilities
 Adequate communication across organization
 Existence of necessary policies and procedures
 Clear financial objectives with active monitoring
 Logical segregation of duties
Control
 Periodic comparisons of book to actual and physical Effective
Activities
count to books
 Adequate safeguards of documents, records and assets
 Access controls in place
 Periodic evaluations of internal controls
Monitoring Effective
 Implementation of improvement recommendations
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Evaluation of Key Processes
EXPERIENCE QUALITY CLIENT SERVICE
Process Function Design Operation
 Cash Management Effective Effective
Treasury
 Investment Accounting
 Methodology Effective Effective
Estimation
 Calculation
 Accounting Principles and Disclosure Effective Effective
 Closing the Books
Financial
 General Ledger and Journal Entry
Reporting
Processing
 Verification and Review of Results
 Purchasing Effective Effective
Expenditures  Receiving
 Accounts Payable/Cash Disbursement
 Hiring Effective Effective
 Attendance Reporting
Payroll  Payroll Accounting and Processing
 Payroll Disbursements
 Separation
 Billing Effective Effective
Revenue
 Cash Receipts
 Physical Custody Effective Effective
Fixed Assets
 Asset Accounting
 Assess Internal and External Risk Effective Effective
 Regulatory Compliance
Compliance
 Monitor Compliance
 Grant Compliance
 Program Integrity and Change Effective Effective
Management
 Information Security and Transaction
Information Authorization
Technology
 Segregation of Duties and Management
Oversight
 Computer Operations
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Summary Financials
EXPERIENCE QUALITY CLIENT SERVICE
Caption 2011 2010 2009
Net assets $ 3 6,950,000 $ 36,598,000 $ 36,803,000
Capital assets 33,648,000 3 1,657,000 3 1,054,000
Total assets 51,666,000 4 7,474,000 4 8,015,000
General fund balance 5,370,000 5,152,000 5,314,000
Budgeted general fund revenue 3,985,000 4,168,000 3,480,000
Actual general fund revenue 3,536,000 3,715,000 3,377,000
Budgeted general fund expenditures 5,187,000 5,125,000 5,874,000
Actual general fund expenditures 3,826,000 3,741,000 3,055,000
Debt 11,236,000 8,957,000 9,449,000
Enterprise fund revenue 1,515,000 1,349,000 1,966,000
Debt as a % of capital assets 33% 28% 30%
Debt per capita 2,622 2,090 2,732
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Single Audit Results
EXPERIENCE QUALITY CLIENT SERVICE
Federal CFDA Federal
Major Federal Award Program Description Number Expenditures
Capitalization Grants for Clean Water State
Revolving Funds - Rt. 213 and 304 Sanitary Sewer
Upgrade (ARRA) 66.458 $ 1,034,115
Total Expenditures of Federal Awards $ 1,251,355
Major Program Coverage 83%
Results:
Area Opinion
Financial reporting controls and compliance Unqualified
Major programs compliance Unqualified
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Required Communications
EXPERIENCE QUALITY CLIENT SERVICE
1. Auditor’s Responsibilities Under Generally Accepted Auditing Standards
(GAAS)
The financial statements are the responsibility of management. Our audit was
designed in accordance with auditing standards generally accepted in the
United States of America, and provide for reasonable, rather than absolute,
assurance that the financial statements are free of material misstatement.
2. Significant Accounting Policies
Management has the responsibility for selection and use of appropriate
accounting policies. In accordance with the terms of our engagement letter, we
will advise management about the appropriateness of accounting policies and
their application. The significant accounting policies used by management are
described in the notes to the financial statements.
3. Auditor’s Judgments About the Quality of Accounting Principles
We discuss our judgments about the quality, not just the acceptability, of
accounting principles selected by management, the consistency of their
application, and the clarity and completeness of the financial statements, which
include related disclosures.
We have reviewed the significant accounting policies adopted by the Town and
have determined that these policies are acceptable accounting policies.
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Required Communications
EXPERIENCE QUALITY CLIENT SERVICE (continued)
4. Audit Adjustments
We are required to inform the Town Council about adjustments arising from the
audit (whether recorded or not) that could in our judgment either individually or
in the aggregate have a significant effect on the entity’s financial reporting
process. We also are required to inform the Town Council about unadjusted
audit differences that were determined by management to be individually and in
the aggregate, immaterial.
We provided assistance with cash-to-accrual adjustments.
5. Fraud and Illegal Acts
We are required to report to the Town Council any fraud and illegal acts
involving senior management and fraud and illegal acts (whether caused by
senior management or other employees) that cause a material misstatement of
the financial statements.
Our procedures identified no instances of fraud or illegal acts.
6. Material Weaknesses in Internal Control
We are required to communicate all significant deficiencies in the Town’s
systems of internal controls, whether or not they are also material weaknesses.
There were no significant deficiencies or material weaknesses noted during the
audit.
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Required Communications
EXPERIENCE QUALITY CLIENT SERVICE (continued)
7. Other Information in Documents Containing Audited Financial Statements
None.
8. Disagreements with Management on Financial Accounting and Reporting
Matters
None.
9. Serious Difficulties Encountered in Performing the Audit
None.
10. Major Issues Discussed with Management Prior to Acceptance
None.
11. Management Representations
We will receive certain written representations from management as part of the
completion of the audit.
12. Consultation with Other Accountants
To our knowledge, there were no consultations with other accountants since our
appointment as the Town’s independent public accountants.
13. Independence
As part of our client acceptance process, we go through a process to ensure we are
independent of the Town. We are independent of the Town.
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Required Communications
EXPERIENCE QUALITY CLIENT SERVICE (continued)
14. Our Responsibility Related to Fraud
• Plan and perform the audit to obtain reasonable assurance that there is no
material misstatement caused by error or fraud;
• Comply with GAAS SAS No. 99 “Consideration of Fraud in a Financial
Statement Audit”;
• Approach all audits with an understanding that fraud could occur in any
entity, at any time, by anyone; and
• Perform mandatory procedures required by GAAS and our firm policies.
Examples of Procedures Performed
• Discuss thoughts and ideas on where the financial statements might be
susceptible to material misstatement due to fraud;
• Understand pressures on the financial statement results;
• Understand the tone and culture of the organization;
• Look for unusual or unexpected transactions, relationships, or procedures;
• Discuss with individuals outside of finance;
• Evaluate key processes and controls; and
• Consider information gathered throughout the audit.
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Fraud Assessment
EXPERIENCE QUALITY CLIENT SERVICE
O
P
P
O
R
T
PRESSURE U
N
I
T
Y
Opportunity
• Generally provided through weaknesses in internal control
• Tone at the top is important
• We assess controls and tone at the top
Pressure
• Pressure can be imposed due to economic troubles,
personal vices, and unrealistic deadlines and performance
goals
• There are increased pressures due to economy and
minimal salary increases
Rationalization
• Individuals develop a justification for their fraudulent
activities
• Increased rationalization due to minimal salary increases
and less personnel
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Engagement Team
EXPERIENCE QUALITY CLIENT SERVICE
13

EXPERIENCE QUALITY CLIENT SERVICE
Headquarters:
200 International Circle  Suite 5500  Hunt Valley  Maryland 21030
(P) 410-584-0060  (F) 410-584-0061