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2024-01-11 Council Special Packet1.
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Edmonds City Council
1,00
SPECIAL MEETING - AUDIT EXIT CONFERENCE
CITY COUNCIL CONFERENCE ROOM
121 - 5TH AVENUE N, EDMONDS, WA 98020
JANUARY 11, 2024, 1:00 PM
PERSONS WISHING TO JOIN THIS MEETING VIRTUALLY IN LIEU OF IN -PERSON ATTENDANCE MAY
CLICK ON OR PASTE THE FOLLOWING ZOOM MEETING LINK INTO A WEB BROWSER USING A
COMPUTER OR SMART PHONE:
HTTPS://ZOOM. US/J/95798484261
OR JOIN BY PHONE: US: +1 253 215 8782 WEBINAR ID: 957 9848 4261
COUNCILMEMBERS AND STAFF WILL ATTEND THIS MEETING VIRTUALLY, AND MEMBERS OF THE
PUBLIC ARE ENCOURAGED TO ATTEND THE SAME WAY.
IF MEMBERS OF THE PUBLIC CANNOT ACCESS THIS VIRTUAL MEETING USING A COMPUTER,
SMART PHONE, OR TELEPHONE, A MONITOR IS PROVIDED IN THE CITY COUNCIL CONFERENCE
ROOM, LOCATED AT 121 5TH AVE N, EDMONDS WA.
CALL TO ORDER
STATE AUDITOR'S REPORT
1. 2022 City of Edmonds Audit Exit Report - State Auditor's Office (30 min)
ADJOURNMENT 2:00 PM
Edmonds City Council Agenda
January 11, 2024
Page 1
2.1
City Council Agenda Item
Meeting Date: 01/11/2024
2022 City of Edmonds Audit Exit Report - State Auditor's Office
Staff Lead: Dave Turley
Department: City Clerk's Office
Preparer: Scott Passey
Background/History
Each year the City of Edmonds is audited by the State Auditor's Office (SAO). This is their report for the
2022 calendar year.
Staff Recommendation
N/A
Narrative
N/A
Attachments:
City of Edmonds Exit Packet - January 112024
Exit Item Handout
Packet Pg. 2
2.1.a
Exit Conference: City of Edmonds
The Office of the Washington State Auditor's vision is increased trust in government. Our mission is to provide
citizens with independent and transparent examinations of how state and local governments use public funds, and
develop strategies that make government more efficient and effective.
The purpose of this meeting is to share the results of your audit and our draft reporting. We value and appreciate
your participation.
Audit Reports
We will publish the following reports:
• Accountability audit for January 1, 2022 through December 31, 2022— see draft report.
• Financial statement and federal grant compliance audits for January 1, 2022 through December 31, 2022—
see draft report.
Audit Highlights
We would like to thank the City's management and staff for their positivity and assistance throughout the audit.
We would like to thank Dave Turley, Administrative Services Director, and Kimberly Dunscombe, Assistant
Administrative Services Director for their professionalism, timely responses and effort put into the audit which
helped us to stay efficient.
We would also like to extend our appreciation to the accountants, including Debra Sharp, Sarah Mager and
Marissa Cain for their assistance and collaborative attitude throughout the audit.
Recommendations not included in the Audit Reports
Management Letters
Management letters communicate control deficiencies, noncompliance, or abuse with a less -than -material effect
on the financial statements or other items significant to our audit objectives. Management letters are referenced,
but not included, in the audit report. We noted certain matters that we are communicating in a letter to management
related to subrecipient monitoring and payroll.
Exit Items
We have provided exit recommendations for management's consideration. Exit items address control deficiencies
or noncompliance with laws or regulation that have an insignificant or immaterial effect on the entity, or errors
with an immaterial effect on the financial statements. Exit items are not referenced in the audit report.
Packet Pg. 3
2.1.a
Financial Statement Audit Communication
We would like to bring the following to your attention:
• We didn't identify any material misstatements during the audit.
• There were no uncorrected misstatements in the audited financial statements.
• The audit addressed the following risks, which required special consideration:
o Due to the possibility that management may be able to circumvent certain controls, standards
require the auditor to assess the risk of management override.
Finalizing Your Audit
Report Publication
Audit reports are published on our website and distributed via email in a .pdf file. We also offer a subscription
service that notifies you by email when audit reports are released or posted to our website. You can sign up for
this convenient service at https://portal.sao.wa.gov/SAOPortal.
Management Representation Letter
We have included a copy of representations received from management.
Audit Cost
At the entrance conference, we estimated the cost of the audit to be $109,000 and actual audit costs will
approximate that amount.
Your Next Scheduled Audit
Your next audit is scheduled to be conducted in 2024 and will cover the following general areas:
• Accountability for public resources
• Financial statement
• Federal programs
The estimated cost for the next audit based on current rates is $115,000, inclusive of travel and other expenses, if
any. This preliminary estimate is provided as a budgeting tool and not a guarantee of final cost.
Working Together to Improve Government
Audit Survey
When your report is released, you will receive an audit survey from us. We value your opinions on our audit
services and hope you provide feedback.
Local Government Support Team
This team provides support services to local governments through technical assistance, comparative statistics,
training, and tools to help prevent and detect a loss of public funds. Our website and client portal offers many
resources, including a client Help Desk that answers auditing and accounting questions. Additionally, this team
assists with the online filing of your financial statements.
Packet Pg. 4
2.1.a
The Center for Government Innovation
The Center for Government Innovation at the Office of the Washington State Auditor offers services specifically
to help you help the residents you serve at no additional cost to your government. What does this mean? We
provide expert advice in areas like Lean process improvement, peer -to -peer networking, and culture -building to
help local governments find ways to be more efficient, effective and transparent. The Center can help you by
providing assistance in financial management, cybersecurity and more. Check out our best practices and other
resources that help local governments act on accounting standard changes, comply with regulations, and respond
to recommendations in your audit. The Center understands that time is your most precious commodity as a public
servant, and we are here to help you do more with the limited hours you have. If you are interested in learning
how we can help you maximize your effect in government, call us at (564) 999-0818 or email us at
Centerksao.wa.gov.
Questions?
Please contact us with any questions about information in this document or related audit reports.
Kelly Collins, CPA, CFE, Director of Local Audit, (564) 999-0807, Kelly.Collins(&sao.wa.gov
Wendy Choy, Assistant Director of Local Audit, (425) 502-7067, Wendy.Choy(u,sao.wa.gov
Kristina Baylor, Program Manager, (425) 951-0290 , Kristina.Baylor(&,,sao.wa.gov
Maggie Wallis, CPA, Assistant Audit Manager, (425) 510-0490, Magdalene.Wallis(&sao.wa.gov
Irina Frolova, Audit Lead, (425) 510-0495, Irina.Frolova(&sao.wa.gov
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For the period January 1, 2022 through December 31, 2022
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2.1.a
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Office of the Washington State Auditor
Pat McCarthy
Issue Date — (Inserted by OS)
Mayor and City Council
City of Edmonds
Edmonds, Washington
Report on Accountability
Thank you for the opportunity to work with you to promote accountability, integrity and openness
in government. The Office of the Washington State Auditor 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.
Attached is our independent audit report on the City's compliance with applicable requirements
and safeguarding of public resources for the areas we examined. We appreciate the opportunity to
work with your staff and value your cooperation during the audit.
Sincerely,
Pat McCarthy, State Auditor
Olympia, WA
Americans with Disabilities
In accordance with the Americans with Disabilities Act, we will make this document available in
alternative formats. For more information, please contact our Office at (564) 999-0950, TDD
Relay at (800) 833-6388, or email our webmaster at webmaster@,sao.wa.goov.
Insurance Building, P.O. Box 40021 • Olympia, Washington 98504-0021 • (564) 999-0950 • Pat.McCarthy@sao.wa.gov
Packet Pg. 7
2.1.a
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AuditResults................................................................................................................................... 4
RelatedReports............................................................................................................................... 5
Informationabout the City.............................................................................................................. 6
About the State Auditor's Office..................................................................................................... 7
Office of the Washington State Auditor
sao.wa.gov
Page 3
Packet Pg. 8
2.1.a
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Results in brief
4; This report describes the overall results and conclusions for the areas we examined. In those
W selected areas, City operations complied, in all material respects, with applicable state laws,
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V regulations, and its own policies, and provided adequate controls over the safeguarding of public
— resources.
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O However, we noted certain matters related to Payroll that we communicated to City management
aand the Mayor and City Council in a letter dated January 11, 2024. We appreciate the City's
2 commitment to resolving those matters.
NIn keeping with general auditing practices, we do not examine every transaction, activity, policy,
U1 internal control, or area. As a result, no information is provided on the areas that were not
examined.
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About the audit
3 This report contains the results of our independent accountability audit of the City of Edmonds
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Cfrom January 1, 2022 through December 31, 2022.
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O 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
ta controls relevant to these objectives.
a This audit was conducted under the authority of RCW 43.09.260, which requires the Office of the
Washington State Auditor to examine the financial affairs of all local governments. Our audit
involved obtaining evidence about the City's use of public resources, compliance with state laws
iand regulations and its own policies and procedures, and internal controls over such matters. The
0 procedures performed were based on our assessment of risks in the areas we examined.
A
RBased on our risk assessment for the year ended December 31, 2022, the areas examined were
= those representing the highest risk of fraud, loss, abuse, or noncompliance. We examined the
following areas during this audit period:
• Accounts payable — general disbursements, credit cards, and electronic funds transfers
i
IL • Payroll — leave accrual and usage
• Contract compliance — use of American Rescue Plan Act (ARPA) funds
• Open public meetings — compliance with minutes, meetings and executive session
requirements
• Financial condition — reviewing for indications of financial distress
Office of the Washington State Auditor
sao.wa.gov
Page 4
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2.1.a
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Financial
4; Our opinion on the City's financial statements and compliance with federal grant program
#A requirements is provided in a separate report, which includes the City's financial statements. That
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V report is available on our website, http://portal.sao.wa. _ og v/ReportSearch.
V That report includes a finding for a material weakness in internal controls over financial reporting
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O regarding the Edmonds Public Facilities District's (a component unit of the City of Edmonds)
y internal controls over financial statement preparation.
3
T Federal grant programs
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V We evaluated internal controls and tested compliance with the federal program requirements, as
Qj applicable, for the City's major federal program, which is listed in the Schedule of Findings and
Questioned Costs section of the separate financial statement and single audit report. That report is
available on our website, http://portal.sao.wa. ov�/RoortSearch.
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sao.wa.gov
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The City of Edmonds, incorporated in 1890, is the third largest city in Snohomish County with an
estimated population of 42,470 citizens. Located 15 miles north of Seattle, the City encompasses
approximately nine square -miles in Snohomish County. The City provides services including:
administration, police, municipal court, streets, parks and recreation, facilities, cultural arts, human
services, cemetery, planning and community development, water, wastewater collection and
treatment plant management services, and sewer utility.
An elected, seven -member Council governs the City with a separately elected Mayor. The Mayor
is responsible for overseeing the City's daily operations as well as its 254 employees. For fiscal
year 2022, the City had expenditures of approximately $79.2 million. Primary revenue sources for
the City include taxes, grants, charges for services, and fines and forfeitures.
Contact information related to this report
Address:
City of Edmonds
121 5th Avenue N.
Edmonds, WA 98020
Contact:
Dave Turley, Administrative Services Director
Telephone:
(425) 275-4688
Website:
www.edmondswa.gov
Information current as of report publish date.
Audit history
You can find current and past audit reports
http://portal.sao.wa. og v/ReportSearch.
for the City of Edmonds at
Office of the Washington State Auditor
sao.wa.gov
Page 6
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The State Auditor's Office is established in the Washington State Constitution and is part of the
executive branch of state government. The State Auditor is elected by the people of Washington
and serves four-year terms.
We work with state agencies, local governments and the public to achieve our vision of increasing
trust in government by helping governments work better and deliver higher value.
In fulfilling our mission to provide citizens with independent and transparent examinations of how
state and local governments use public funds, we hold ourselves to those same standards by
continually improving our audit quality and operational efficiency, and by developing highly
engaged and committed employees.
As an agency, the State Auditor's Office has the independence necessary to objectively perform
audits, attestation engagements and investigations. Our work is designed to comply with
professional standards as well as to satisfy the requirements of federal, state and local laws. The
Office also has an extensive quality control program and undergoes regular external peer review
to ensure our work meets the highest possible standards of accuracy, objectivity and clarity.
Our audits look at financial information and compliance with federal, state and local laws for all
local governments, including schools, and all state agencies, including institutions of higher
education. In addition, we conduct performance audits and cybersecurity audits of state agencies
and local governments, as well as state whistleblower, fraud and citizen hotline investigations.
The results of our work are available to everyone through the more than 2,000 reports we publish
each year on our website, www.sao.wa.gov. Additionally, we share regular news and other
information via an email subscription service and social media channels.
We take our role as partners in accountability seriously. The Office provides training and technical
assistance to governments both directly and through partnerships with other governmental support
organizations.
Stay connected at sao.wa.gov
• Find your audit team
• Request public records
• Search BARS Manuals (GAAP and
cash), and find reporting templates
• Learn about our training workshops
and on -demand videos
• Discover which governments serve you
— enter an address on our map
• Explore public financial data
with the Financial Intelligence Tool
Other ways to stay in touch
• Main telephone:
(564) 999-0950
• Toll -free Citizen Hotline:
(866) 902-3900
• Email:
webmaster(a, s ao . wa. gov
Office of the Washington State Auditor
sao.wa.gov
Page 7
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2.1.a
Office of the Washington State Auditor
Pat McCarthy
January 11, 2024
Mayor and City Council
City of Edmonds
Edmonds, Washington
Management Letter
This letter includes a summary of specific matters that we identified in planning and performing
our accountability audit of the City of Edmonds from January 1, 2022, through December 31,
2022. We believe our recommendations will assist you in improving the City's internal controls in
these areas.
We will review the status of these matters during our next audit. We have already discussed our
comments with and made suggestions for improvements to City officials and personnel. If you
have any further questions, please contact me at (425) 951-0290.
This letter is intended for the information and use of management and the governing body and is
not suitable for any other purpose. However, this letter is a matter of public record and its
distribution is not limited.
We would also like to take this opportunity to extend our appreciation to your staff for their
cooperation and assistance during the audit.
Sincerely,
Kristina Baylor, Program Manager
Attachment
Insurance Building, P.O. Box 40021 • Olympia, Washington 98504-0021 • (564) 999-0950 • Pat. McCarthy@sao.wa. Packet Pg. 13
2.1.a
Management Letter
City of Edmonds
January 1, 2022, through December 31, 2022
Payroll
The City is responsible for implementing internal controls that provide reasonable assurance its
disbursements of public funds, including employee compensation, are supported and approved.
The City's total salaries and wages for fiscal year 2022 were $24,456,72 1. Our audit of wages paid
to certain employees found instances where the City's internal controls over reviewing and
approving time worked and leave taken could be improved. Specifically, our audit noted there is
no review of leave recorded on Director's timesheets compared to that entered into the leave usage
system to ensure all leave taken is appropriately deducted. We tested fiscal year 2022 timesheets
for three Directors and the Payroll Accountant and noted the following exceptions:
• We were unable to obtain eight timesheets for one employee. During this time the
employee was on family medical leave and was paid for 70 regular hours. We were unable
to determine whether the regular hours were valid as there was no timesheet showing
approval for that time worked.
• Six timesheets were not in agreement with leave usage reports for two employees. We
noted a total of 178 leave hours recorded on the timesheets, but only 140 hours were
deducted and paid out from the associated employee's accrued leave balances. As a result,
we are unable to confirm whether 38 hours of leave should have been deducted from the
leave balance.
We also identified additional minor errors with ensuring other leave types, such as bereavement
leave, were correctly entered into the leave system and that all timesheets were appropriately
approved by an authorized individual.
We recommend the City ensure:
• All employees complete and certify time reported on timesheets, including Director -level
positions, for each pay period.
• Timesheets are reviewed and approved by authorized individuals and reflect actual time
worked during the period. As part of this review, the City should ensure leave recorded on
timesheets matches that entered and deducted from the leave system.
• Review variances in leave usage identified during the audit and take corrective action to
ensure employees accrued leave balances are adjusted for any leave not correctly deducted
from existing balances.
Packet Pg. 14
2.1.a
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Financial Statements and Federal Single
Audit Report
City of Edmonds
For the period January 1, 2022 through December 31, 2022
Published (Inserted by OS) 0 • ❑� Scan to see another great way
Report No. 1033990
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City of Edmonds
.0 Edmonds, Washington
Report on Financial Statements and Federal Single Audit
0 Please End attached our report on the City of Edmonds financial statements and compliance with
Vfederal laws and regulations.
CL 3 We are issuing this report in order to provide information on the City's financial condition.
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Americans with Disabilities
In accordance with the Americans with Disabilities Act, we will make this document available in
alternative formats. For more information, please contact our Office at (564) 999-0950, TDD
Relay at (800) 833-6388, or email our webmaster at webmaster@,sao.wa.gov.
Insurance Building, P.O. Box 40021 • Olympia, Washington 98504-0021 • (564) 999-0950 • Pat. McCarthy@sao.wa.gov
Packet Pg. 16
2.1.a
Schedule of Findings and Questioned Costs................................................................................... 4
Schedule of Audit Findings and Responses.................................................................................... 6
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0 Summary Schedule of Prior Audit Findings.................................................................................. 10
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Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance
Cand Other Matters Based on an Audit of Financial Statements Performed in Accordance with
Government Auditing Standards................................................................................................... 13
Independent Auditor's Report on Compliance for Each Major Federal Program and Report on
'i Internal Control Over Compliance in Accordance With the Uniform Guidance ......................... 16
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-C Independent Auditor's Report on the Financial Statements.......................................................... 20
*+ Financial Section........................................................................................................................... 24
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O. Corrective Action Plan for Findings Reported Under Uniform Guidance..................................110
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City of Edmonds
January 1, 2022 through December 31, 2022
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i0 The results of our audit of the City of Edmonds are summarized below in accordance with Title 2
U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost
Principles, and Audit Requirements for Federal Awards (Uniform Guidance).
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NFinancial Statements _
We issued an unmodified opinion on the fair presentation of the basic financial statements of the
agovernmental activities, the business -type activities, the aggregate discretely presented component
V units and remaining fund information and each major fund in accordance with accounting
IL principles generally accepted in the United States of America (GAAP).
3
V Internal Control over Financial Reporting:
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C • Significant Deficiencies: We reported deficiencies in the design or operation of internal
control over financial reporting that we consider to be significant deficiencies.
M • Material Weaknesses: We identified no deficiencies that we consider to be material
weaknesses.
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We noted no instances of noncompliance that were material to the financial statements of the City.
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i 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 no deficiencies that we consider to be material
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We issued an unmodified opinion on the City's compliance with requirements applicable to its
major federal program.
We reported no findings that are required to be disclosed in accordance with 2 CFR 200.516(a)
Office of the Washington State Auditor sao.wa.gov
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2.1.a
Identification of Major Federal Programs
The following program was selected as a major program in our audit of compliance in accordance
with the Uniform Guidance.
ALN Program or Cluster Title
21.027 COVID-19 CORONAVIRUS STATE AND LOCAL FISCAL
RECOVERY FUNDS
The dollar threshold used to distinguish between Type A and Type B programs, as prescribed by
the Uniform Guidance, was $750,000.
The City did not qualify as a low -risk auditee under the Uniform Guidance.
SECTION II — FINANCIAL STATEMENT FINDINGS
See Finding 2022-01.
SECTION III — FEDERAL AWARD FINDINGS AND QUESTIONED
COSTS
None reported.
Office of the Washington State Auditor sao.wa.gov
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2.1.a
City of Edmonds
January 1, 2022 through December 31, 2022
2022-001 The Edmonds Public Facilities District, a component unit of the
City of Edmonds, did not have adequate internal controls ensuring
accurate reporting of its financial statements.
State and federal agencies, the Board of Directors, and the public rely on the
information included in financial statements and reports to make decisions.
Edmonds Public Facilities District management is responsible for designing,
implementing and maintaining internal controls to ensure the District's financial
statements and notes are prepared and presented fairly in accordance with generally
accepted accounting principles and Governmental Accounting Standards Board
(GASB) statements. These controls should also provide reasonable assurance
regarding the reliability of these statements.
Our audit found a significant deficiency in the District's internal controls over
financial reporting that hindered its ability to produce reliable financial statements
and notes. Government Auditing Standards requires the State Auditor's Office to
communicate significant deficiencies as a finding.
Description of Condition
Our audit found a significant internal control deficiency. Specifically, the District
did not have a process in place to adequately research and implement new
accounting standards.
Cause of Condition
The District experienced turnover in its accounting department, and management
did not dedicate the necessary resources to researching new GASB standards. As a
result, District personnel did not implement the new lease reporting requirements
in GASB Statement No. 87 when completing the financial statements. Although the
District has procedures to review the financial statements, it did not dedicate
adequate resources to performing a detailed review to ensure the financial
statements and notes were accurate and complete.
Office of the Washington State Auditor saoma.gov
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2.1.a
Effect of Condition
The District's financial information contained errors that management did not
detect before the start of the audit. Through collaboration with District staff, we
found the District did not implement GASB Statement No. 87, Leases. As a result,
the District underreported its lease receivable and deferred inflows balances by
$856,050 and its lease interest revenue by $18,536, and it overstated its rent revenue
by $18,536. The District immediately acknowledged the error, subsequently
evaluated its leases, and corrected its financial statements to report the lease
balances.
Recommendation
We recommend the District:
• Research and seek technical guidance for the implementation of new GASB
standards
• Strengthen its financial statement preparation process by ensuring that
someone familiar with applicable reporting requirements independently
reviews the financial statements and notes. This review should be
appropriately detailed to ensure all required new GASB standards are
implemented.
Edmonds Public Facilities District's Response
In response to Audit Finding 2022-001, the District's Board of Directors and
management acknowledge and agree with the State Auditors Office's finding that
adequate internal controls to ensure the reporting accuracy of its FY2022 financial
statements were temporarily compromised due to staffing transitions.
The District experienced a series of personnel changes in its accounting
department in 2021 and 2022, due in part to market forces beyond its control. This
temporary lack of adequate personnel resources combined with a lack of sufficient
time to review the final statements resulted in the inadvertent omission of a recent
GASB pronouncement. The District had been aware of this reporting change and
had been preparing the required entries prior to the unexpected resignation of its
long-standing accountant.
The District has taken actions to address this temporary deficiency, and to restore
the strength of internal controls. Action steps taken by the District to correct the
issue outlined in the Description of Condition section of this audit finding include
but are not limited to:
Office of the Washington State Auditor sao.wa.gov
Packet Pg. 21
2.1.a
• The District is in the process of redrafting its Financial Policies and
Procedures which includes the addition of the Checklist for Preparing
Financial Statements following Generally Accepted Accounting Principles
(GAAP) for year-end close provided by the State Auditor's Office. These
updated policies will be first -round reviewed by the District's
Administration and Finance Committee and the District's Board of
Directors during their October meetings.
• The District will train its new accounting staff regularly on the District's
financial policies and procedures to ensure consistent compliance from FY
2023 forward.
• The District, now having adequate accounting staff, will strengthen its
financial preparation and review process and the District will document the
Associate Executive Director's review of its annual financial statements
utilizing the State Auditor's Office checklist. A signed copy will be kept with
all year-end financial statement preparation back up documentation.
• The District's recently hired Accountant will be attending the Washington
Finance Officers Association (WFOA) BARS-GAAP training presented by
the Washington State Auditor's Office on November 14, 2023, which
includes an update on upcoming GASB pronouncements.
The District's Board and staff extend our appreciation to the State Auditor's Office
for assisting the District to identify opportunities and procedures to prevent future
deficiencies. The corrective actions taken by the District will result in significant
improvements in its internal controls and will ensure that all future financial
statements will be completed in compliance with Governmental Accounting
Standards Boards (GASB) requirements.
Auditor's Remarks
We appreciate the Edmonds Public Facilities District's commitment to resolving
this finding and thank the District for its cooperation and assistance during the
audit. We will review the corrective action taken during our next regular audit.
Applicable Laws and Regulations
Government Auditing Standards, July 2018 Revision, paragraphs 6.40 and 6.41
establish reporting requirements related to significant deficiencies or material
weaknesses in internal control, instances of fraud, and noncompliance with
provisions of laws, regulations, contracts, or grant agreements.
Office of the Washington State Auditor saoma.gov
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2.1.a
The American Institute of Certified Public Accountants defines significant
deficiencies and material weaknesses in its Codification of Statements on Auditing
Standards, section 265, Communicating Internal Control Related Matters Identified
in an Audit, paragraph 7.
The Governmental Accounting Standards Board establishes a single model for
lease accounting and financial reporting for leases by governments in its Statement
No. 87 of the Governmental Accounting Standards Board, Leases.
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2.1.a
CITY OF EDMONDS
121 5"h Avenue North, Edmonds, WA 98020
(425) 771-0240 1 www.edmondswa.gov
MIKE NELSON, MAYOR
44C. 189%j
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS
City of Edmonds
January 1, 2022 through December 31, 2022
This schedule presents the status of findings reported in prior audit periods.
Audit Period: Report Ref. No.: Finding Ref. No.:
1 / 1 /2021 - 12/31 /2021 �1032090 2021-001
Finding Caption:
The City did not have adequate internal controls ensuring accurate reporting of grant funds
received in advance and the elimination of interfund reimbursements in their financial
statements.
Background:
State and federal agencies, the City Council, and the public rely on information included in the
financial statements and reports to make decisions. Management is responsible for designing
and following internal controls that provide reasonable assurance the City's financial reporting
is reliable and its financial statements are accurate. The City prepares its financial statements in
accordance with generally accepted accounting principles (GAAP). Our audit found deficiencies
in internal controls over accounting and financial reporting that affected the City's ability to
produce reliable financial statements. Government Auditing Standards requires the State
Auditor's Office to communicate material weaknesses in internal controls as a finding.
American Rescue Plan Act revenue recognition In 2021, the City received in advance
$5,843,775 of American Rescue Plan Act of 2021 (ARPA) grant funds, and it incurred eligible
ARPA expenditures of $1,116,283. The City did not have a process in place to properly evaluate
whether it had met revenue recognition criteria for grants received in advance, including
incurring eligible expenditures, as required to recognize the grant funds received as revenue.
Interfund reimbursement eliminations The City allocated expenditures centrally paid for by its
General Fund to the City's other funds. The City's other funds then reimbursed the General
Fund for their share of the expenditures. Our audit found the City did not have a process in place
to eliminate interfund transfers when combining funds for financial reporting. Page 6 Office of
the Washington State Auditor sao.wa.gov We found these internal control deficiencies to
represent a material weakness.
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2.1.a
Status of Corrective Action: (check one)
® Fully ❑ Partially El Not Corrected ElFinding is considered no
Corrected Corrected longer valid
Corrective Action Taken:
ARPA Revenue Recognition — The corrective action taken was to reclassify this grant receipt
from Revenue to Unearned Revenue. We have taken steps to ensure that subsequent grant
receipts will be evaluated in the same manner and recorded in this manner if appropriate.
Interfund Reimbursement Eliminations — The corrective action taken was to reclassify the
questioned expenses incurred in the Engineering Department. Expenses charged to other
departments were originally classified as Revenue to Engineering and Expense to the receiving
department. We created a journal entry to reclassify those amounts from Revenue to Expense in
the Engineering Department. We have taken steps to ensure that these expenses will be classified
in this manner for future external financial reporting.
Audit Period:
Report Ref. No.:
Finding Ref. No.:
Assistance Listing
l/l/2021 - 12/31/2021
1032090
2021-002
Number(s): 21.027
Federal Program Name and Granting
Pass -Through Agency Name:
Agency: Coronavirus State and Local
N/A
Fiscal Recovery Funds - U.S. Department
of the Treasury
Finding Caption:
The City's internal controls were inadequate for ensuring compliance with federal
requirements for allowable costs, suspension and debarment, and subrecipient monitoring.
Background:
The purpose of the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program is
to respond to the COVID-19 pandemic's negative effects on public health and the economy,
provide premium pay to essential workers during the pandemic, provide government services
to the extent COVID-19 caused a reduction in revenues collected, and make necessary
investments in water, sewer or broadband infrastructure. During 2021, the City spent
$1,219,058 in program funds to cover additional costs it had incurred during the pandemic,
including expenditures supporting public health, household utility relief, and direct assistance
payments to local businesses and nonprofit organizations financially affected by COVID-19.
The program funds also included $468,761 passed through to four subrecipients to fulfill
components of the program's objectives. The portion of program funds the City passed through
to the subrecipients provided emergency assistance to households and job retraining for people
financially affected by COVID-19. Federal regulations require recipients to establish and
maintain internal controls that ensure compliance with program requirements. These controls
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2.1.a
include understanding program requirements and monitoring the effectiveness of established
controls. Allowable Costs For the SURF program, the costs must have been necessary for
responding to the COVID 19 pandemic and not incurred before March 3, 2021. All costs
charged to the SURF program must comply with program requirements and be supported by
proper documentation demonstrating funds are spent on allowable costs. Suspension and
Debarment Federal regulations prohibit recipients from contracting with, purchasing from or
making subawards to parties suspended or debarred from doing business with the federal
government. Whenever the City contracts for goods or services expected to equal or exceed
$25,000 and for all subawards, irrespective of award amount, paid all or in part with federal
funds, it must verify a contractor's or subrecipient's status by checking for exclusion records
in the System for Award Management (SAM.gov), obtaining a written certification from the
contractor or subrecipient, or inserting a clause or condition into the contract stating the
contractor or subrecipient is not suspended or debarred. The City must perform this verification
before entering into the contract or making the subaward and keep documentation
demonstrating compliance with this federal requirement. Subrecipient Monitoring Whenever
passing federal funding to subrecipients, federal regulations require the City to monitor them
and ensure they comply with the terms and conditions of the federal award. To determine the
appropriate level of monitoring, the City must evaluate each subrecipient's risk of
noncompliance with federal requirements. For these awards, monitoring would include
verifying the subrecipients only provided assistance to participants who met eligibility
requirements and claimed reimbursement for allowable costs.
Status of Corrective Action: (check one)
® Fully ❑ Partially ❑ Not Corrected ❑ Finding is considered no
Corrected Corrected longer valid
Corrective Action Taken:
The City has hired a consultant to act as Grants Manager, specifically to handle ARPA
receipts, distribution, and reporting. This person has received additional training in this area
and has monitored spending by the city and by subrecipients for accuracy and eligibility. She
has checked for suspension and debarment and performed several on -site audits to monitor
the spending by the subrecipients. In the case of WA Kids in Transition, the city properly
notified them that they were receiving Federal award money through the City and that as such
they are subject to the requirements of the Code of Federal Regulations as it relates to
recipients of Federalfunds.
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2.1.a
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
City of Edmonds
January 1, 2022 through December 31, 2022
Mayor and City Council
City of Edmonds
Edmonds, Washington
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, the aggregate discretely presented component
units and remaining fund information and each major fund of the City of Edmonds, as of and for
the year ended December 31, 2022, and the related notes to the financial statements, which
collectively comprise the City's basic financial statements, and have issued our report thereon
dated January 11, 2024.
REPORT ON 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) as a basis for designing 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.
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.
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Our consideration of internal control was for the limited purpose described above 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.
Given these limitations, during our audit we did not identify any deficiencies in internal control
that we consider to be material weaknesses. However, we identified certain deficiencies in internal
control, described in the accompanying Schedule of Audit Findings and Responses as Finding
2022-001 that we consider to be a significant deficiency.
REPORT ON 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 its compliance with certain provisions of laws,
regulations, contracts and grant agreements, noncompliance with which could have a direct and
material effect on the financial statements. 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.
RESPONSE TO FINDINGS
Government Auditing Standards requires the auditor to perform limited procedures on the
Edmonds Public Facilities District's response to the findings identified in our audit and described
in the accompanying Schedule of Audit Findings and Responses. The District'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, this
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2.1.a
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.
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Pat McCarthy, State Auditor
Olympia, WA
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2.1.a
Report on Compliance for Each Major Federal Program and Report on Internal
Control over Compliance in Accordance with the Uniform Guidance
0
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N City of Edmonds
January 1, 2022 through December 31, 2022
i
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0 Mayor and City Council
3 City of Edmonds
Edmonds, Washington
U1 REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL
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PROGRAM
VOpinion on Each Major Federal Program
CL 3 We have audited the compliance of the City of Edmonds, with the types of compliance
■p requirements identified as subject to audit in the U.S. Office of Management and Budget (OMB)
0 Compliance Supplement that could have a direct and material effect on each of the City's major
C federal programs for the year ended December 31, 2022. The City's major federal programs are
.0 identified in the auditor's results section of the accompanying Schedule of Findings and
0 Questioned Costs.
r
In our opinion, the City complied, in all material respects, with the types of compliance
a' 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, 2022.
L
Basis for Opinion on Each Major Federal Program
We conducted our audit of compliance in accordance with auditing standards generally accepted
= in the United States of America (GAAS); the standards applicable to financial audits contained in
■C Government Auditing Standards issued by the Comptroller General of the United States; and the
■� audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative
Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance)
are further described in the Auditor's Responsibilities for the Audit of Compliance section of our
report.
We are required to be independent of the City and to meet our other ethical responsibilities, in
accordance with the relevant ethical requirements relating to our audit. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion on
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2.1.a
compliance for each major federal program. Our audit does not provide a legal determination on
the City's compliance with the compliance requirements referred to above.
4; Responsibilities of Management for Compliance
W
O Management is responsible for compliance with the requirements referred to above and for the
N design, implementation, and maintenance of effective internal control over compliance with the
V requirements of laws, statutes, regulations, rules and provisions of contracts or grant agreements
am
00 applicable to the City's federal programs.
a+
2 Auditor's Responsibilities for the Audit of Compliance
Our objectives are to obtain reasonable assurance about whether material noncompliance with the
U1 compliance requirements referred to above occurred, whether due to fraud or error, and express an
opinion on the City's compliance based on our audit. Reasonable assurance is a high level of
a assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in
.V accordance with GARS, Government Auditing Standards and the Uniform Guidance will always
p, detect a material noncompliance when it exists. The risk of not detecting a material noncompliance
= resulting from fraud is higher than for that resulting from error, as fraud may involve collusion,
0 forgery, intentional omissions, misrepresentations, or the override of internal control.
C Noncompliance with the compliance requirements referred to above is considered material, if there
0 is a substantial likelihood that, individually or in the aggregate, it would influence the judgement
V
0 made by a reasonable user of the report on compliance about the City's compliance with the
Mrequirements of each major federal program as a whole.
Go
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a Performing an audit in accordance with GARS, Government Auditing Standards and the Uniform
Guidance includes the following responsibilities:
i• Exercise professional judgment and maintain professional skepticism throughout the audit;
0 • Identify and assess the risks of material noncompliance, whether due to fraud or error, and
idesign and perform audit procedures responsive to those risks. Such procedures include
= examining, on a test basis, evidence regarding the City's compliance with the compliance
• requirements referred to above and performing such other procedures as we considered
necessary in the circumstances;
Obtain an understanding of the City's internal control over compliance relevant to the audit
i in order to design audit procedures that are appropriate in the circumstances and to test and
d
report on internal control over compliance in accordance with the Uniform Guidance, but
not for the purpose of expressing an opinion on the effectiveness of the City's internal
control over compliance. Accordingly, no such opinion is expressed; and
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2.1.a
• We are required to communicate with those charged with governance regarding, among
other matters, the planned scope and timing of the audit and any significant deficiencies
and material weaknesses in internal control over compliance that we identified during the
ai
audit.
H
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H
V We noted certain matters related to compliance that we have reported to the management of the
C City in a separate letter dated January 11, 2024.
a+
REPORT ON INTERNAL CONTROL OVER COMPLIANCE
H A deficiency in internal control over compliance exists when the design or operation of a control
:a 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
40
compliance requirement of a federal program on a timely basis. A material weakness in internal
Ucontrol over compliance is a deficiency, or combination of deficiencies, in internal control over
CL 3 compliance, such that there is a reasonable possibility that material noncompliance with a type of
'a compliance requirement of a federal program will not be prevented, or detected and corrected, on
0 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
.0 requirement of a federal program that is less severe than a material weakness in internal control
0 over compliance, yet important enough to merit attention by those charged with governance.
r
Our audit was not designed for the purpose of expressing an opinion on the effectiveness of internal
a control over compliance. Accordingly, no such opinion is expressed. Our consideration of internal
control over compliance was for the limited purpose described in the Auditor's Responsibilities
for the Audit of Compliance section above and was not designed to identify all deficiencies in
i internal control over compliance that might be material weaknesses or significant deficiencies in
internal control over compliance and therefore, material weaknesses or significant deficiencies
may exist that were not identified.
= Given these limitations, during our audit we did not identify any deficiencies in internal control
over compliance that we consider to be material weaknesses, as defined above.
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iWe noted certain other matters that we have reported to the management of the City in a separate
IL letter dated January 11, 2024.
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2.1.a
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 the Uniform Guidance. Accordingly, this report is not suitable for any other
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.
Pat McCarthy, State Auditor
Olympia, WA
January 11, 2024
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2.1.a
Report on the Audit of the Financial Statements
City of Edmonds
January 1, 2022 through December 31, 2022
Mayor and City Council
City of Edmonds
Edmonds, Washington
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinions
We have audited the accompanying financial statements of the governmental activities, the
business -type activities, the aggregate discretely presented component units and remaining fund
information and each major fund of the City of Edmonds, as of and for the year ended December
31, 2022, and the related notes to the financial statements, which collectively comprise the City's
basic financial statements as listed in the financial section of our report.
In our opinion, the accompanying financial statements referred to above present fairly, in all
material respects, the respective financial position of the governmental activities, the business -type
activities, the aggregate discretely presented component units and remaining fund information and
each major fund of the City of Edmonds, as of December 31, 2022, and the respective changes in
financial position and, where applicable, cash flows thereof, and the budgetary comparison for the
for the year then ended in accordance with accounting principles generally accepted in the United
States of America.
Basis for Opinions
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America (GAAS) and the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States. Our
responsibilities under those standards are further described in the Auditor's Responsibilities for
the Audit of the Financial Statements section of our report. We are required to be independent of
the City and to meet our other ethical responsibilities, in accordance with the relevant ethical
requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinions.
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2.1.a
Responsibilities of Management 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, and
for 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.
In preparing the financial statements, management is required to evaluate whether there are
conditions or events, considered in the aggregate, that raise substantial doubt about the City's
ability to continue as a going concern for twelve months beyond the financial statement date,
including any currently known information that may raise substantial doubt shortly thereafter.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor's report
that includes our opinions. Reasonable assurance is a high level of assurance but is not absolute
assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and
Government Auditing Standards will always detect a material misstatement when it exists. The
risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or
the override of internal control. Misstatements are considered material if there is a substantial
likelihood that, individually or in the aggregate, they would influence the judgment made by a
reasonable user based on the financial statements.
Performing an audit in accordance with GAAS and Government Auditing Standards includes the
following responsibilities:
• Exercise professional judgment and maintain professional skepticism throughout the audit;
• Identify and assess the risks of material misstatement of the financial statements, whether
due to fraud or error, and design and perform audit procedures responsive to those risks.
Such procedures include examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements;
• Obtain an understanding of internal control relevant to the audit 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, no such opinion
is expressed;
• Evaluate the appropriateness of accounting policies used and the reasonableness of
significant accounting estimates made by management, as well as evaluate the overall
presentation of the financial statements;
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2.1.a
• Conclude whether, in our judgment, there are conditions or events, considered in the
aggregate, that raise substantial doubt about the City's ability to continue as a going
concern for a reasonable period of time; and
• Communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit, significant audit findings, and certain internal
control -related matters that we identified during the audit.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis and required supplementary information listed in the
financial section of our report be presented to supplement the basic financial statements. Such
information is the responsibility of management and, 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.
Supplementary 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
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements,
Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). This
supplementary information 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 as a whole.
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2.1.a
OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING
STANDARDS
In accordance with Government Auditing Standards, we have also issued our report dated
H January 11, 2024 on our consideration of the City's internal control over financial reporting and
0 on our tests of its compliance with certain provisions of laws, regulations, contracts and grant
H agreements and other matters. The purpose of that report is to describe the scope of our testing of
Im
'Q internal control over financial reporting and compliance and the results of that testing, and not to
pprovide an opinion on the effectiveness of the City's internal control over financial reporting or on
0 compliance. That report is an integral part of an audit performed in accordance with Government
3 Auditing Standards in considering the City's internal control over financial reporting and
compliance.
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2.1.a
City of Edmonds
January 1, 2022 through December 31, 2022
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REQUIRED SUPPLEMENTARY INFORMATION
Management's Discussion and Analysis — 2022
2 BASIC FINANCIAL STATEMENTS
*0 Statement of Net Position — 2022
U1Statement of Activities — 2022
Governmental Funds Balance Sheet — 2022
Reconciliation of Governmental Funds Balance Sheet to the Statement of Net Position —
.V 2022
r
9L Statement of Revenues, Expenditures and Changes in Fund Balance — Governmental
3 Funds— 2022
.a
+' Reconciliation of Governmental Funds Statement of Revenues, Expenditures and
O
C Changes in Fund Balance to the Statement of Activities — 2022
O Statement of Revenues, Expenditures, and Changes in Fund Balances — Budget and
.e
Actual - General Fund — 2022
Statement of Revenues, Expenditures, and Changes in Fund Balances — Budget and
a Actual - Edmonds Rescue Plan Fund — 2022
Statement of Net Position — Proprietary Funds — 2022
Statement of Revenues, Expenses and Changes in Fund Net Position — Proprietary Funds
L
—2022
Statement of Cash Flows — Proprietary Funds — 2022
Statement of Net Position — Fiduciary Funds — 2022
i Statement of Changes in Fiduciary Net Position — Fiduciary Funds — 2022
!p g rY rY
C Notes to Financial Statements — 2022
I
REQUIRED SUPPLEMENTARY INFORMATION
i
d Schedule of Changes in the Total OPEB Liability and Related Ratios - Firemen's Pension
Fund Other Post -Employment Benefits — 2022
Schedule of Changes in the City's Net Pension Liability and Related Ratios — Firemen's
Pension Fund — 2022
Schedule of City Contributions — Firemen's Pension Fund — 2022
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2.1.a
Schedule of Proportionate Share of Net Pension Liability — PERS 1, PERS 213, LEOFF 1,
LEOFF 2 — 2022
Schedule of Employer Contributions — PERS 1, PERS 2/3, LEOFF 1, LEOFF 2 — 2022
SUPPLEMENTARY AND OTHER INFORMATION
Schedule of Expenditures of Federal Awards — 2022
Notes to the Schedule of Expenditures of Federal Awards — 2022
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2.1.a
C
A
CITY OF EDMONDS
121 5"h Avenue North, Edmonds, WA 98020
(425) 771-0240 1 www.edmondswa.gov
MIKE NELSON, MAYOR
•nc 1 g9"
CORRECTIVE ACTION PLAN FOR FINDINGS REPORTED UNDER
UNIFORM GUIDANCE
City of Edmonds
January 1, 2022 through December 31, 2023
This schedule presents the corrective action planned by the City for findings reported in this report
in accordance with Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform
Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards
(Uniform Guidance).
Finding ref number:
Finding caption:
2022-001
The Edmonds Public Facilities District, a component unit ofthe City
of Edmonds, did not have adequate internal controls ensuring accurate
reporting of its financial statements.
Name, address, and telephone of auditee contact person:
Kim Dunscombe
121 5th Avenue North
Edmonds, WA 98020
Corrective action the auditee plans to take in response to the finding:
The Edmonds Public Facilities District was formed in 200 I and developed a performing arts
center within the City of Edmonds called the Edmonds Center for the Arts. The PFD is included
in the City's reporting entity as a discretely presented component unit due to the financial
accountability relationship. The Edmonds PFD Board works in partnership with a separate
nonprofit Board of 20 members to ensure the financial health and operating success of the
Center. The City will consult with Edmonds PFD to ensure financial statements are fairly
presented in accordance with generally accepted accounting procedures.
Anticipated date to complete the corrective action: March 31, 2024
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2.1.a
The State Auditor's Office is established in the Washington State Constitution and is part of the
executive branch of state government. The State Auditor is elected by the people of Washington
and serves four-year terms.
We work with state agencies, local governments and the public to achieve our vision of increasing
trust in government by helping governments work better and deliver higher value.
In fulfilling our mission to provide citizens with independent and transparent examinations of how
state and local governments use public funds, we hold ourselves to those same standards by
continually improving our audit quality and operational efficiency, and by developing highly
engaged and committed employees.
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Office of the Washington State Auditor sao.wa.gov
Packet Pg. 41
2.1.a
Office of the Washington State Auditor
Pat McCarthy
January 11, 2024
Mayor and City Council
City of Edmonds
Edmonds, Washington
Management Letter
This letter includes a summary of specific matters that we identified in planning and performing
our federal grant compliance audit of the City of Edmonds from January 1, 2022 through
December 31, 2022. We believe our recommendations will assist you in improving the City's
internal controls and compliance in these areas.
We will review the status of these matters during our next audit. We have already discussed our
comments with and made suggestions for improvements to City officials and personnel. If you
have any further questions, please contact me at (425) 951-0290.
This letter is intended for the information and use of management and the governing body and is
not suitable for any other purpose. However, this letter is a matter of public record and its
distribution is not limited.
We would also like to take this opportunity to extend our appreciation to your staff for their
cooperation and assistance during the audit.
Sincerely,
Kristina Baylor, Program Manager
Attachment
Insurance Building, P.O. Box 40021 • Olympia, Washington 98504-0021 • (564) 999-0950 • Pat. McCarthy@sao.wa. Packet Pg. 42
2.1.a
Management Letter
City of Edmonds
January 1, 2022 through December 31, 2022
Subrecivient Monitoring
The City received a Coronavirus State and Local Fiscal Recovery Funds Program award,
ALN 21.027, and spent $1,371,952 in program funds to cover additional costs it had incurred
during the pandemic, including expenditures supporting public health, household utility relief, and
necessary investments in water and sewer infrastructure. The program funds also included
$965,946 passed through to two subrecipients to provide emergency assistance to households for
people financially affected by COVID-19.
Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements,
Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) requires federal
award recipients to establish and follow internal controls, and to monitor subrecipients to ensure
compliance with federal program requirements. This includes providing subrecipients with
program requirements, performing risk assessments to determine the appropriate level of
monitoring, reviewing financial, performance and special reports to monitor program compliance,
ensuring each subrecipient receives a single audit when required, and issuing management
decisions for audit findings reported pertaining to the federal award provided to the subrecipient.
During our audit, we identified an internal control deficiency and noncompliance related to the
City's subrecipient monitoring for this program. Specifically, the City did not have adequate
controls for monitoring its subrecipients, including ensuring they received a federal single audit
when required and reviewing their audits when applicable.
The City contracted with four subrecipient agencies during 2021, including two that continued to
receive funding during 2022. Our audit found the City provided subrecipients with program
requirements, performed risk assessments, and monitored their financial and other reports for
program compliance. However, we found the City did not perform monitoring activities to verify
if subrecipients were required to receive single audits when their total federal expenditures
exceeded $750,000. Without this verification, the City cannot ensure it is performing the proper
level of monitoring and that subrecipients are complying with program requirements. Our testing
found that two of the four subrecipients would not have been required to have single audits until
2023, and the remaining two did not appear to have federal expenditures in 2022 exceeding the
threshold requiring a single audit.
We recommend the City verify all subrecipients have received single audits when required and
retain sufficient documentation of this verification to ensure proper monitoring occurs in
compliance with federal requirements.
Packet Pg. 43
2.1.a
CITY OF EDMONDS
121 5TH AVENUE NORTH • EDMONDS, WA 98020 • (425) 771-0240
FINANCE AND INFORMATION SERVICES DEPARTMENT
I"7e 18c)0
January 11, 2024
Office of the Washington State Auditor
3200 Capitol Blvd
P.O. Box 40031
Olympia, WA 98504-0031
To the Office of the Washington State Auditor:
We are providing this letter in connection with your audit of the City of Edmonds for the period
from January 1, 2022 through December 31, 2022. Representations are in relation to matters
existing during or subsequent to the audit period up to the date of this letter.
Certain representations in this letter are described as being limited to matters that are significant
or material. Inforniation is considered significant or material if it is probable that it would change
or influence the judgment of a reasonable person.
We confirm, to the best of our knowledge and belief, having made appropriate inquires to be able
to provide our representations, the following representations made to you during your audit. Ifwe
subsequently discover information that would change our representations related to this period, we
will notify you in a timely manner.
General Representations:
1. We have provided you with unrestricted access to people you wished to speak with and
made available all requested and relevant information of which we are aware, including:
a. Financial records and related data.
b. Minutes of the meetings of the governing body or summaries of actions of recent
meetings for which minutes have not yet been prepared.
c. Other internal or external audits, examinations, investigations or studies that might
concern the objectives of the audit and the corrective action taken to address _significant
findings and recommendations.
d. Communications from regulatory agencies, government representatives or others
concerning possible noncompliance, deficiencies in internal control or other matters
that might concern the objectives of the audit.
e. Related party relationships and transactions.
f. Results of our internal assessment of business risks and risks related to financial
reporting, compliance and fraud.
• Incorporated August 11, 1890 •
Sister City - Hekinan, Japan Packet Pg. 44
2.1.a
2. We acknowledge our responsibility for compliance with requirements related to
confidentiality of certain information, and have notified you whenever records or data
containing information subject to any confidentiality requirements were made available.
3. We acknowledge our responsibility for compliance with applicable laws, regulations,
contracts and grant agreements.
4. We have identified and disclosed all laws, regulations, contracts and grant agreements that
could have a direct and material effect on the determination of financial statement amounts,
including legal and contractual provisions for reporting specific activities in separate funds.
5. We have complied with all material aspects of laws, regulations, contracts and grant
agreements.
6. We acknowledge our responsibility for establishing and maintaining effective internal
controls over compliance with applicable laws and regulations and safeguarding of public
resources, including controls to prevent and detect fraud.
7. Except as reported by the audit, we have established adequate procedures and controls to
provide reasonable assurance of safeguarding public resources and compliance with
applicable laws and regulations.
8. We have no knowledge of any loss of public funds or assets or other illegal activity, or any
allegations of fraud or suspected fraud involving management or employees.
9. In accordance with RCW 43.09.200, all transactions have been properly recorded in the
financial records.
10. We are responsible for, and have accurately prepared, the summary schedule of prior audit
findings to include all findings, and we have provided you with all the information on the
status of the follow-up on prior audit findings.
11. We are responsible for taking corrective action on audit findings and have developed a
corrective action plan.
Additional representations related to the financial statements:
12. We acknowledge our responsibility for fair presentation of financial statements and believe
financial statements are fairly presented in conformity with generally accepted accounting
principles in the United States of America.
13. We acknowledge our responsibility for establishing and maintaining effective internal
control over financial reporting.
14. The financial statements include financial information of the primary government and all
component units, fiduciary and other activity required by generally accepted accounting
principles to be included in the financial reporting entity.
Packet Pg. 45
2.1.a
15. The financial statements properly classify all funds and activities.
16. All funds that meet the quantitative criteria in GASB requirements or are otherwise
particularly important to financial statement users, are presented as major funds.
17. Capital assets, including infrastructure and intangible assets, are properly capitalized,
reported and depreciated as applicable.
18. We have no plans or intentions that may materially affect the reported value or
classification of assets, liabilities or net position.
19. Revenues are appropriately classified by fund and account.
20. Expenses have been appropriately classified by fund and account, and allocations have
been made on a reasonable basis.
21. Net position components (net investment in capital assets, restricted and unrestricted) and
fund balance components (nonspendable, restricted, committed, assigned and unassigned)
are properly classified and, as applicable, approved.
22. Significant assumptions we used in making accounting estimates are reasonable.
23. The following have been properly classified, reported and disclosed in the financial
statements, as applicable:
a. Interfund, internal, and intra-entity activity and balances.
b. Related -party transactions, including sales, purchases, loans, transfers, leasing
arrangements, and guarantees, and amounts receivable from or payable to related
parties.
c. Joint ventures and other related organizations.
d. Guarantees under which the government is contingently liable.
e. All events occurring subsequent to the fiscal year end through the date of this letter that
would require adjustment to, or disclosure in, the financial statements.
f. Effects of all known actual or possible litigation, claims, assessments, violations of
laws, regulations, contracts or grant agreements, and other loss contingencies.
24. We have accurately disclosed to you all known actual or possible pending or threatened
litigation, claims or assessments whose effects should be considered when preparing the
financial statements. We have also accurately disclosed to you the nature and extent of our
consultation with outside attorneys concerning litigation, claims and assessments.
25. We acknowledge our responsibility for reporting supplementary information (Schedule of
Expenditures of Federal Awards) in accordance with applicable requirements and believe
supplementary information is fairly presented, in both form and content in accordance with
those requirements.
Packet Pg. 46
2.1.a
26. We have disclosed to you all significant changes to the methods of measurement and
presentation of supplementary information, reasons for any changes and all significant
assumptions or interpretations underlying the measurement or presentation.
27. We acknowledge our responsibility for the supplementary information required by
generally accepted accounting principles in the United States (RSI) and believe RSI is
measured and presented within prescribed guidelines.
28. We have disclosed to you all significant changes in the methods of measurement and
presentation of RSI, reasons for any changes and all significant assumptions or
interpretations underlying the measurement or presentation of the RSI.
29. We believe there are no uncorrected misstatements that would be material individually and
in the aggregate to each applicable opinion unit.
30. We acknowledge our responsibility not to publish any document containing the audit report
with any change in the financial statements, supplementary and other information
referenced in the auditor's report. We will contact the auditor if we have any needs for
publishing the audit report with different content included.
Additional representations related to expenditures under federal grant programs:
31. We acknowledge our responsibility for complying, and have complied, with the
requirements of 2 CFR § 200 Uniform Administrative Requirements, Cost Principles and
Audit Requirements for Federal Awards.
32. With regards to your audit of federal grant programs, we have made available all relevant
and requested information of which we are aware, including:
a. All federal awards and related grant agreements (including amendments, if any),
contracts with pass -through entities, service organizations and vendors, and
correspondence.
b. All communications from federal awarding agencies, vendors, service organizations or
pass -through entities concerning possible noncompliance.
c. All information regarding corrective actions taken and management decisions or
follow-up work performed by federal or pass -through agencies on any findings reported
in the past.
d. All documentation related to the compliance requirements, including information
related to federal program financial reports and claims for advances and
reimbursements.
e. Interpretations or other support for any situations where compliance with requirements
might be questionable or unclear.
33. Except as reported by the audit, we have identified and complied with all direct and
material compliance requirements of federal awards.
Packet Pg. 47
2.1.a
34. Management is responsible for establishing effective internal control and has, except as
reported by the audit, maintained sufficient control over federal programs to provide
reasonable assurance that awards are managed in compliance with laws, regulations,
contracts or grant agreements that could have a material effect on each of our federal
awards.
35. Federal program financial reports and claims for advances and reimbursements are
supported by the accounting records from which the basic financial statements have been
prepared, and are prepared on a basis consistent with the Schedule of Expenditures of
Federal Awards.
36. Copies of federal program reports provided to you are true copies of the reports submitted,
or electronically transmitted, to federal agencies or pass -through agencies, as applicable.
37. We are responsible for, and will accurately prepare, the auditee section of the Data
Collection Form as required by the Uniform Guidance.
Additional representations related to federal grants passed through to subrecipients:
38. We have advised our subrecipients of requirements imposed on them by Federal laws,
regulations, contracts or grant agreements as well as any supplemental requirements we
impose as a condition of receiving Federal awards.
39. We have monitored the activities of our subrecipients as necessary to ensure that Federal
awards are used for authorized purposes in compliance with laws, regulations, contracts or
grant agreements.
40. We have determined that subrecipients expending $750,000 or more in Federal awards
during the subrecipient's fiscal year have met the audit requirements of 2 CFR § 200.501
for that fiscal year.
41. When applicable, we have issued a management decision on audit findings within six
months after receipt of the subrecipient's audit report and ensured that the subrecipient has
taken appropriate and timely corrective action.
42. We have considered the results of our subrecipients' audits and made any necessary
adjustments to our own accounting records.
Mice Rosen
Mayor
Dave Turley
Administrative Services Dir7ctor
Packet Pg. 48
2.1.b
Exit Recommendations
City of Edmonds
Audit Period Ending: December 31, 2022
We are providing the following exit recommendations for management's consideration. They are
not referenced in the audit report. We may review the status of the following exit items in our next
audit.
Accountability:
Financial Condition — Fund Balance Compliance
The City adopted a fund balance policy effective July 2019. We tested compliance for December
2022 and January through July 2023. Per the policy, General Fund Operating Reserve should be
in an amount equal to or greater than 16 percent of the General Fund's adopted annual operating
expenditure budget, the Contingent Reserve Fund and General Fund operating reserve shall not
exceed 20 percent of the General Fund's adopted operating expenditure budget, and any use of the
committed General Fund operating reserve or contingency reserve must be submitted by the Mayor
and approved by Council. We noted the City did not meet the 16 percent requirement for January,
February, March and June of 2023. We were unable to see evidence of a report submitted by the
Mayor and approved by Council for these months. Additionally, the City was also over the 20
percent reserve maximum for April, May, and July of 2023.
We recommend the City ensure compliance with its fund balance policy, including clarifying its
fund balance policy to ensure:
• the reserve requirements are clearly stated
• when the reserve benchmarks need to be met and
• at what point reports should be provided to City Council
Electronic Fund Transfers
During our fiscal year 2019 audit, our review of electronic fund transfers (EFT) found the City
does not have an existing written policy required by BARS Manual 3.8.11 and in accordance
with RCW 39.58.750 to include the following:
• Implementation of bank offered security measures to prevent unauthorized individuals
from initiating or modifying a transfer. Each user initiating or approving bank
transactions must have a separate banking user identification.
• Define the process for creating, securing, sending and authenticating direct deposit
transmittal files to prevent unauthorized modification or submission.
Policies and procedures should be in place to validate these authorization to protect
resources being transferred electronically.
We continue to recommend the City implement a written policy to include all elements required
by the BARS Manual 3.8.11 and in accordance with RCW 39.58.750 for EFT transactions.
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Packet Pg. 49
2.1.b
Exit Recommendations
City of Edmonds
Audit Period Ending: December 31, 2022
Executive Sessions
We reviewed the written and video -recorded meeting minutes and identified a few instances where
the documented meeting minutes did not fully demonstrate compliance with the Open Public
Meetings Act (RCW 42.30). Specifically, our audit identified five instances where the documented
minutes did not state when executive sessions would conclude and open session would reconvene.
However, our review of the video recordings of these meetings confirmed the City did announce
this information.
We recommend the City ensure the written record of City Council meetings demonstrates
compliance with the laws by including the time executive sessions will conclude and open sessions
reconvene.
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