2020-09-10 City Council - Full S Agenda-2664O� LDIVO
�o Agenda
Edmonds City Council
SPECIAL MEETING - AUDIT EXIT CONFERENCE
VIRTUAL ONLINE MEETING
EDMONDS CITY COUNCIL MEETINGS WEB PAGE,
HTTP://EDMONDSWA.IQM2.COM/CITIZENS/DEFAULT.ASPX, EDMONDS, WA
98020
SEPTEMBER 10, 2020, 2:00 PM
THIS MEETING MAY BE VIEWED ON THE CITY COUNCIL MEETING WEBPAGE, CABLE TV, OR
TELEPHONE BY CALLING (712) 775-7270, ACCESS CODE 583224.
1. CALL TO ORDER
2. AUDIT EXIT REPORT
1. 2019 City of Edmonds Audit Exit Report - State Auditor's Office (30 min)
ADJOURN
Edmonds City Council Agenda
September 10, 2020
Page 1
2.1
City Council Agenda Item
Meeting Date: 09/10/2020
2019 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
2019 calendar year.
Staff Recommendation
N/A
Narrative
N/A
Attachments:
Exit —Conference —Packet —City -of —Edmonds
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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 for the audit period January 1, 2019 through December 31, 2019:
• Accountability audit — see draft report.
• Financial statement and federal grant compliance audits — see draft report.
• Comprehensive Annual Financial Report opinion letter — see letter.
Audit Highlights
We noted the City devoted a significant amount of time and resources to improve its capital asset records. This effort
corrected many of the issues noted in prior audits and resulted in a lower level of reporting than past years.
We appreciate how organized the City's financial and grant records were and working with our staff to develop
methods of remotely reviewing City records.
Recommendations not included in the Audit Reports
Exit Items
We have provided exit recommendations for management's consideration. Exit items address control deficiencies or
non-compliance 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.
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Accountability Audit Report
City of Edmonds
For the period January 1, 2019 through December 31, 2019
Published (Inserted by OS)
Report No. 1026948
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2.1.a
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 we 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(a),sao.wa.go.
Insurance Building, P.O. Box 40021 • Olympia, Washington 98504-0021 • (564) 999-0950 • Pat. McCarthy@sao.wa.gov
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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
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Results in brief
This report describes the overall results and conclusions for the areas we examined. In those
selected areas, City operations complied, in all material respects, with applicable state laws,
regulations, and its own policies, and provided adequate controls over the safeguarding of public
resources.
In keeping with general auditing practices, we do not examine every transaction, activity, policy,
internal control, or area. As a result, no information is provided on the areas that were not
examined.
About the audit
This report contains the results of our independent accountability audit of the City of Edmonds
from January 1, 2019 through December 31, 2019.
Management is responsible for ensuring compliance and adequate safeguarding of public resources
from fraud, loss or abuse. This includes the design, implementation and maintenance of internal
controls relevant to these objectives.
This audit was conducted under the authority of RCW 43.09.260, which requires the Office of the
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 and
regulations and its own policies and procedures, and internal controls over such matters. The
procedures performed were based on our assessment of risks in the areas we examined.
Based on our risk assessment for the year ended December 31, 2019, 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, electronic funds transfers and
employee reimbursements
• Financial condition
• Licenses and permit software conversion
• Payroll — leave cash outs and separation agreements
• Budget compliance
Office of the Washington State Auditor Pagc 4
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Financial
0; Our opinion on the City's financial statements and compliance with federal grant program
Le requirements is provided in a separate report, which includes the City's financial statements. That
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u report is available on our website, http://portal.sao.wa.gov/ReportSearch.
Federal grant programs
We evaluated internal controls and tested compliance with the federal program requirements, as
"C applicable, for the City's major federal program, which is listed in the Schedule of Findings and
VIQuestioned Costs section of the separate financial statement and single audit report. That report is
13 available on our website, httn://portal.sao.wa. og v/ReportSearch.
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The City of Edmonds, incorporated in 1890, is the third largest city in Snohomish County with an
estimated population of 41,840 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,
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 Council
appoints management to oversee the City's daily operations as well as its 235 employees. For fiscal
year 2019, the City had expenditures of approximately $78.8 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 North
Edmonds, WA 98020
Contact:
Dave Turley, Interim Finance 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 for the City of Edmonds at
http://portal.sao.wa. og v/ReportSearch.
Office of the Washington State Auditor
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The State Auditor's Office is established in the state's Constitution and is part of the executive
branch of state government. The State Auditor is elected by the citizens of Washington and serves
four-year terms.
We work with our audit clients and citizens to achieve our vision of government that works for
citizens, by helping governments work better, cost less, deliver higher value, and earn greater
public trust.
In fulfilling our mission to hold state and local governments accountable for the use of public
resources, we also hold ourselves accountable by continually improving our audit quality and
operational efficiency and developing highly engaged and committed employees.
As an elected agency, the State Auditor's Office has the independence necessary to objectively
perform audits and investigations. Our audits are designed to comply with professional standards
as well as to satisfy the requirements of federal, state, and local laws.
Our audits look at financial information and compliance with state, federal and local laws on the
part of all local governments, including schools, and all state agencies, including institutions of
higher education. In addition, we conduct performance audits of state agencies and local
governments as well as fraud, state whistleblower and citizen hotline investigations.
The results of our work are widely distributed through a variety of reports, which are available on
our website and through our free, electronic subscription service.
We take our role as partners in accountability seriously, and provide training and technical
assistance to governments, and have an extensive quality assurance program.
Contact information for the State Auditor's Office
Public Records requests
PublicRecordsksao.wa.gov
Main telephone
(564) 999-0950
Toll -free Citizen Hotline
(866) 902-3900
Website
www.sao.wa.gov
Office of the Washington State Auditor Pagc 7
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2.1.a
Financial Statements and Federal Single Audit
Report
City of Edmonds
For the period January 1, 2019 through December 31, 2019
Published (Inserted by OS)
Report No. 1026946
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2.1.a
Office of the Washington State Auditor
Pat McCarthy
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3 City of Edmonds
J2 Edmonds, Washington
Report on Financial Statements and Federal Single Audit
40 Please find attached our report on the City of Edmonds financial statements and compliance with
V federal laws and regulations.
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Sincerely,
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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 webmasterksao.wa.gov.
Insurance Building, P.O. Box 40021 • Olympia, Washington 98504-0021 • (564) 999-0950 • Pat. McCarthy@sao.wa.gov
Packet Pg. 12
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Schedule of Findings and Questioned Costs................................................................................... 4
4; Summary Schedule of Prior Audit Findings.................................................................................... 6
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0 Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance
0 and Other Matters Based on an Audit of Financial Statements Performed in Accordance with
'a Government Auditing Standards..................................................................................................... 8
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Independent Auditor's Report on Compliance for Each Major Federal Program and Report on
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Internal Control Over Compliance in Accordance With the Uniform Guidance ......................... 10
T Independent Auditor's Report on Financial Statements................................................................ 13
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16 Financial Section........................................................................................................................... 16
RAbout the State Auditor's Office................................................................................................... 90
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Office of the Washington State Auditor
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City of Edmonds
40 January 1, 2019 through December 31, 2019
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'Q SECTION I — SUMMARY OF AUDITOR'S RESULTS
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O The results of our audit of the City of Edmonds are summarized below in accordance with Title 2
41 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost
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3 Principles, and Audit Requirements for Federal Awards (Uniform Guidance).
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Financial Statements
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VWe issued an unmodified opinion on the fair presentation of the financial statements of the
0. governmental activities, the business -type activities, the aggregate discretely presented component
3 unit, each major fund and the aggregate remaining fund information in accordance with accounting
principles generally accepted in the United States of America (GAAP).
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V • Significant Deficiencies: We reported no deficiencies in the design or operation of internal
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A control over financial reporting that we consider to be significant deficiencies.
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weaknesses.
LWe noted no instances of noncompliance that were material to the financial statements of the City.
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= Federal Awards
Internal Control over Major Programs:
• Significant Deficiencies: We reported no deficiencies in the design or operation of internal
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d control over major federal programs that we consider to be significant deficiencies.
• Material Weaknesses: We identified no deficiencies that we consider to be material
weaknesses.
We issued an unmodified opinion on the City's compliance with requirements applicable to its
major federal program.
Office of the Washington State Auditor
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2.1.a
We reported no findings that are required to be disclosed in accordance with 2 CFR 200.516(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.
CFDA No. Program or Cluster Title
20.205 Highway Planning and Construction Cluster — Highway Planning and
Construction
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
None reported.
SECTION III — FEDERAL AWARD FINDINGS AND QUESTIONED
COSTS
None reported.
Office of the Washington State Auditor
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CITY OF EDMOND
GITY HALL
121 9' AVENUE NORTH • EDMONDS. WA 98020
425.771.0240 ■ FAX 425.771.0265
SUMMARY SCHEDULE OF PRIOR AUDIT FINDINGS
City of Edmonds
January 1, 2019 through December 31, 2019
This schedule presents the status of federal findings reported in prior audit periods.
Audit Period:
Report Ref. No.:
Finding Ref. No.:
January 1, 2018 — December 31, 2018
1024494
2018-001
Finding Caption:
The City's internal controls over accounting and financial preparation were not adequate to
ensure accurate financial reporting.
Background:
The City did not have adequate controls to ensure recent accounting pronouncements related to
postemployment benefits and pensions were implemented correctly. In addition to time delays
in receiving information, the City experienced miscommunication between staff responsible for
posting journal entries related to the implementation of GASB 75 and the firemen's pension
accounting entries related to GASB 68. Although the City has taken significant steps to make
improvements in its controls over the capital asset accounting system, its current process does
not ensure its accounting records align with its operational (public works and utility) records for
tracking, monitoring and maintaining city owned assets. Additionally, the City could not
demonstrate it completed an annual inventory of capital assets of all departments as required by
its capital asset policy. Lastly, the City has not fully researched and implemented a corrective
action plan to resolve prior audit recommendations relating to capital assets.
Status of Corrective Action: (check one)
❑x Fully ❑ Partially El Not Corrected ElFinding is considered no
Corrected Corrected longer valid
Corrective Action Taken:
We have taken significant steps to resolve the issues identified in last year's audit. Specifically,
we have hired a new actuarial firm to perform our pension calculations and we received their
actuarial results much earlier than last year, which will allow us more time to incorporate the
results in the City's financial statements and will allow additional time to conduct a proper
Office of the Washington State Auditor
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review. We also invested significant time and resources to improving our capital asset
accounting and bringing our asset schedules up to date, which we are confident will be reflected
in improved audit results this year.
Office of the Washington State Auditor
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2.1.a
City of Edmonds
January 1, 2019 through December 31, 2019
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
unit, each major fund and the aggregate remaining fund information of the City of Edmonds, as of
and for the year ended December 31, 2019, and the related notes to the financial statements, which
collectively comprise the City's basic financial statements, and have issued our report thereon
dated August 31, 2020.
As discussed in Note 19 to the financial statements, in February 2020, a state of emergency was
declared that could have a negative financial effect on the City. Management's plans in response
to this matter are also described in Note 19.
INTERNAL CONTROL OVER FINANCIAL REPORTING
In planning and performing our audit of the financial statements, we considered the City's internal
control over financial reporting (internal control) to determine the audit procedures that are
appropriate in the circumstances for the purpose of expressing our opinions on the financial
statements, but not for the purpose of expressing an opinion on the effectiveness of the City's
internal control. Accordingly, we do not express an opinion on the effectiveness of the City's
internal control.
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
Office of the Washington State Auditor
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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.
4j Our consideration of internal control was for the limited purpose described in the first paragraph
pof this section and was not designed to identify all deficiencies in internal control that might be
Hmaterial weaknesses or significant deficiencies. Given these limitations, during our audit we did
:i not identify any deficiencies in internal control that we consider to be material weaknesses.
i OHowever, material weaknesses may exist that have not been identified.
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COMPLIANCE AND OTHER MATTERS
.i As art of obtaining reasonable assurance about whether the City's financial statements are free
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from material misstatement, we performed tests of the City's compliance with certain provisions
qj of laws, regulations, contracts and grant agreements, noncompliance with which could have a
Vdirect and material effect on the determination of financial statement amounts. However, providing
an opinion on compliance with those provisions was not an objective of our audit, and accordingly,
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*. The results of our tests disclosed no instances of noncompliance or other matters that are required
Cto be reported under Government Auditing Standards.
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PURPOSE OF THIS REPORT
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The purpose of this report is solely to describe the scope of our testing of internal control and
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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
iaccordance with Government Auditing Standards in considering the City's internal control and
10 compliance. Accordingly, this communication is not suitable for any other purpose. However, this
A report is a matter of public record and its distribution is not limited. It also serves to disseminate
Ig information to the public as a reporting tool to help citizens assess government operations.
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State Auditor
Olympia, WA
August 31, 2020
Office of the Washington State Auditor
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City of Edmonds
January 1, 2019 through December 31, 2019
Mayor and City Council
City of Edmonds
Edmonds, Washington
REPORT ON COMPLIANCE FOR EACH MAJOR FEDERAL
PROGRAM
We have audited the compliance of the City of Edmonds, with the types of compliance
requirements described in the U.S. Office of Management and Budget (OMB) Compliance
Supplement that could have a direct and material effect on each of the City's major federal
programs for the year ended December 31, 2019. The City's major federal programs are identified
in the accompanying Schedule of Findings and Questioned Costs.
Management's Responsibility
Management is responsible for compliance with federal statutes, regulations, and the terms and
conditions of its federal awards applicable to its federal programs.
Auditor's Responsibility
Our responsibility is to express an opinion on compliance for each of the City's major federal
programs based on our audit of the types of compliance requirements referred to above. We
conducted our audit of compliance in accordance with auditing standards generally accepted in the
United States of America; the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States; and 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).
Those standards and the Uniform Guidance require that we plan and perform the audit to obtain
reasonable assurance about whether noncompliance with the types of compliance requirements
referred to above that could have a direct and material effect on a major federal program occurred.
Office of the Washington State Auditor
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An audit includes examining, on a test basis, evidence about the City's compliance with those
requirements and performing such other procedures as we considered necessary in the
circumstances.
4j We believe that our audit provides a reasonable basis for our opinion on compliance for each major
pfederal program. Our audit does not provide a legal determination on the City's compliance.
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Opinion on Each Major Federal Program
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In our opinion, the City complied, in all material respects, with the types of compliance
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2 requirements referred to above that could have a direct and material effect on each of its major
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federal programs for the year ended December 31, 2019.
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REPORT ON INTERNAL CONTROL OVER COMPLIANCE
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VManagement of the City is responsible for establishing and maintaining effective internal control
0. over compliance with the types of compliance requirements referred to above. In planning and
3 performing our audit of compliance, we considered the City's internal control over compliance
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with the types of requirements that could have a direct and material effect on each major federal
C program in order to determine the auditing procedures that are appropriate in the circumstances
O for the purpose of expressing an opinion on compliance for each major federal program and to test
'0 and report on internal control over compliance in accordance with the Uniform Guidance, but not
tafor the purpose of expressing an opinion on the effectiveness of internal control over compliance.
Accordingly, we do not express an opinion on the effectiveness of the City's internal control over
d compliance.
of A deficiency in internal control over compliance exists when the design or operation of a control
JU over compliance does not allow management or employees, in the normal course of performing
i their assigned functions, to prevent, or detect and correct, noncompliance with a type of
compliance requirement of a federal program on a timely basis. A material weakness in internal
i control over compliance is a deficiency, or combination of deficiencies, in internal control over
C compliance, such that there is a reasonable possibility that material noncompliance with a type of
compliance requirement of a federal program will not be prevented, or detected and corrected, on
a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a
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combination of deficiencies, in internal control over compliance with a type of compliance
d requirement of a federal program that is less severe than a material weakness in internal control
over compliance, yet important enough to merit attention by those charged with governance.
Our consideration of internal control over compliance was for the limited purpose described in the
first paragraph of this section and was not designed to identify all deficiencies in internal control
that might be material weaknesses or significant deficiencies. We did not identify any deficiencies
Office of the Washington State Auditor
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in internal control over compliance that we consider to be material weaknesses. However, material
weaknesses may exist that have not been identified.
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.
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Pat McCarthy
State Auditor
Olympia, WA
August 31, 2020
Office of the Washington State Auditor
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2.1.a
City of Edmonds
January 1, 2019 through December 31, 2019
Mayor and City Council
City of Edmonds
Edmonds, Washington
REPORT ON THE FINANCIAL STATEMENTS
We have audited the accompanying financial statements of the governmental activities, the
business -type activities, the aggregate discretely presented component unit, each major fund and
the aggregate remaining fund information of the City of Edmonds, as of and for the year ended
December 31, 2019, and the related notes to the financial statements, which collectively comprise
the City's basic financial statements as listed on page 16.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements
in accordance with accounting principles generally accepted in the United States of America; this
includes the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in the United States
of America and the standards applicable to financial audits contained in Government Auditing
Standards, issued by the Comptroller General of the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's judgment,
including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the City's preparation and fair presentation of the financial statements in order to design
Office of the Washington State Auditor
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audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the City's internal control. Accordingly, we express no such
opinion. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating the
W overall presentation of the financial statements.
H We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
:j for our audit opinions.
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In our opinion, the financial statements referred to above present fairly, in all material respects,
do
the respective financial position of the governmental activities, the business -type activities, the
aggregate discretely presented component unit, each major fund and the aggregate remaining fund
information of the City of Edmonds, as of December 31, 2019, and the respective changes in
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financial position and, where applicable, cash flows thereof, and the budgetary comparison for the
V General fund, for the year then ended in accordance with accounting principles generally accepted
p. in the United States of America.
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C Matters of Emphasis
O As discussed in Note 19 to the financial statements, in February 2020, a state of emergency was
40 declared that could have a negative financial effect on the City. Management's plans in response
R to this matter are also described in Note 19.Our opinion is not modified with respect to this matter.
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0 Other Matters
Required Supplementary Information
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Accounting principles generally accepted in the United States of America require that the
imanagement's discussion and analysis and required supplementary information listed on page 16
= be presented to supplement the basic financial statements. Such information, although not a part
.0 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
i limited procedures to the required supplementary information in accordance with auditing
d 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.
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Supplementary and Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that
collectively comprise the City's basic financial statements as a whole. The accompanying
4j Schedule of Expenditures of Federal Awards is presented for purposes of additional analysis as
p required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative
OU H Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance).
:a This schedule is not a required part of the basic financial statements. Such information is the
i Oresponsibility 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
3 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
40
information is fairly stated, in all material respects, in relation to the basic financial statements
.V taken as a whole.
a
3
0 OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING
c STANDARDS
O
13 In accordance with Government Auditing Standards, we have also issued our report dated
40
August 31, 2020 on our consideration of the City's internal control over financial reporting and on
4l our tests of its compliance with certain provisions of laws, regulations, contracts and grant
d agreements and other matters. The purpose of that report is to describe the scope of our testing of
internal control over financial reporting and compliance and the results of that testing, and not to
provide an opinion on internal control over financial reporting or on compliance. That report is an
integral part of an audit performed in accordance with Government Auditing Standards in
considering the City's internal control over financial reporting and compliance.
I
Pat McCarthy
L
d State Auditor
Olympia, WA
August 31, 2020
Office of the Washington State Auditor
Packet Pg. 25
2.1.a
FINANCIAL SECTION
City of Edmonds
0 January 1, 2019 through December 31, 2019
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'a REQUIRED SUPPLEMENTARY INFORMATION
am
O Management's Discussion and Analysis — 2019
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N BASIC FINANCIAL STATEMENTS
Statement of Net Position — 2019
Statement of Activities — 2019
VBalance Sheet — Governmental Funds — 2019
aReconciliation of the Balance Sheet to the Statement of Net Position — Governmental
3 Funds — 2019
'Q Statement of Revenues Expenditures and Changes es in Fund Balances — Governmental p g
O Funds — 2019
O Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund
13 Balances of Government Funds to the Statement of Activities — 2019
40
to Statement of Revenues, Expenditures, and Changes in Fund Balances — Budget and
R
Actual — General Fund — 2019
d Statement of Net Position — Proprietary Funds — 2019
Statement of Revenues, Expenses and Changes in Net Position — Proprietary Funds —
A
2019
Statement of Cash Flows — Proprietary Funds — 2019
Statement of Fiduciary Net Position — 2019
16 Statement of Changes in Fiduciary Net Position — 2019
= Notes to the Financial Statements — 2019
REQUIRED SUPPLEMENTARY INFORMATION
IL
Firemen's Pension Fund Other Post -Employment Benefits — Schedule of Changes in Total
OPEB Liability and Related Ratios — 2019
Firemen's Pension Fund — Schedule of Changes in the City's Net Pension Liability and Related
Ratios — 2019
Firemen's Pension Fund — Schedule of City Contributions — 2019
Office of the Washington State Auditor
Packet Pg. 26
2.1.a
Schedules of Proportionate Share of the Net Pension Liability — PERS 1, PERS 2/3, LEOFF 1,
LEOFF 2 — 2019
Schedule of Employer Contributions — PERS 1, PERS 2/3, LEOFF 1, LEOFF 2 — 2019
W
O
u SUPPLEMENTARY AND OTHER INFORMATION
H
'Q Schedule of Expenditures of Federal Awards — 2019
am
O Notes to the Schedule of Expenditures of Federal Awards — 2019
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Office of the Washington State Auditor
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2.1.a
The State Auditor's Office is established in the state's Constitution and is part of the executive
branch of state government. The State Auditor is elected by the citizens of Washington and serves
four-year terms.
We work with our audit clients and citizens to achieve our vision of government that works for
citizens, by helping governments work better, cost less, deliver higher value, and earn greater
public trust.
In fulfilling our mission to hold state and local governments accountable for the use of public
resources, we also hold ourselves accountable by continually improving our audit quality and
operational efficiency and developing highly engaged and committed employees.
As an elected agency, the State Auditor's Office has the independence necessary to objectively
perform audits and investigations. Our audits are designed to comply with professional standards
as well as to satisfy the requirements of federal, state, and local laws.
Our audits look at financial information and compliance with state, federal and local laws on the
part of all local governments, including schools, and all state agencies, including institutions of
higher education. In addition, we conduct performance audits of state agencies and local
governments as well as fraud, state whistleblower and citizen hotline investigations.
The results of our work are widely distributed through a variety of reports, which are available on
our website and through our free, electronic subscription service.
We take our role as partners in accountability seriously, and provide training and technical
assistance to governments, and have an extensive quality assurance program.
Contact information for the State Auditor's Office
Public Records requests
PublicRecords(asao.wa.gov
Main telephone
(564) 999-0950
Toll -free Citizen Hotline
(866) 902-3900
Website
www.sao.wa.gov
Office of the Washington State Auditor
Packet Pg. 28
2.1.a
Office of the Washington State Auditor
Pat McCarthy
August 31, 2020
Mayor and City Council
City of Edmonds
Edmonds, Washington
REPORT ON THE FINANCIAL STATEMENTS
We have audited the accompanying financial statements of the governmental activities, the business -
type activities, the aggregate discretely presented component units, each major fund and the aggregate
remaining fund information of the City of Edmonds, as of and for the year ended December 31, 2019,
and the related notes to the financial statements, which collectively comprise the City's basic financial
statements as listed in the table of contents.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes
the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or
error.
Auditor's Responsibility
Our responsibility is to express opinions on these financial statements based on our audit. We conducted
our audit in accordance with auditing standards generally accepted in the United States of America and
the standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the City's
Packet Pg. 29
2.1.a
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the City's internal control. Accordingly, we express no such opinion. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinions.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects, the
respective financial position of the governmental activities, the business -type activities, the aggregate
discretely presented component units, each major fund and the aggregate remaining fund information of
the City of Edmonds, as of December 31, 2019, and the respective changes in financial position and,
where applicable, cash flows thereof, and the budgetary comparison for the General Fund for the year
then ended in accordance with accounting principles generally accepted in the United States of America.
Matters of Emphasis
As discussed in Note 19 to the financial statements, in February 2020, a state of emergency was declared
that could have a negative financial effect on the City. Management's plans in response to this matter
are also described in Note 19. Our opinion is not modified with respect to this matter.
Other Matters
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 table of contents be
presented to supplement the basic financial statements. Such information, although not a part of the basic
financial statements, is required by the Governmental Accounting Standards Board who considers it to
be an essential part of financial reporting for placing the basic financial statements in an appropriate
operational, economic or historical context. We have applied certain limited procedures to the required
supplementary information in accordance with auditing standards generally accepted in the United States
of America, which consisted of inquiries of management about the methods of preparing the information
and comparing the information for consistency with management's responses to our inquiries, the basic
financial statements, and other knowledge we obtained during our audit of the basic financial statements.
We do not express an opinion or provide any assurance on the information because the limited
procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Packet Pg. 30
2.1.a
Supplementary and Other Information
Our audit was conducted for the purpose of forming opinions on the financial statements that collectively
comprise the City's basic financial statements as a whole. The combining and individual fund financial
statements and schedules are presented for the purposes of additional analysis and are 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 financial
statements. This information has been subjected to 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 financial
statements or to the financial statements themselves, and other additional procedures in accordance with
auditing standards generally accepted in the United States of America. In our opinion, the information
is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole.
The Introductory and Statistical Sections are presented for purposes of additional analysis and are not a
required part of the basic financial statements of the City. Such information has not been subjected to
the auditing procedures applied in the audit of the basic financial statements and, accordingly, we do not
express an opinion or provide any assurance on it.
OTHER REPORTING REQUIRED BY GOVERNMENT AUDITING STANDARDS
In accordance with Government Auditing Standards, we will also issue our report dated August 31, 2020,
on our consideration of the City's internal control over financial reporting and on our tests of its
compliance with certain provisions of laws, regulations, contracts and grant agreements and other
matters. That report will be issued under separate cover in the City's Single Audit Report. The purpose
of that report is to describe the scope of our testing of internal control over financial reporting and
compliance and the results of that testing, and not to provide an opinion on internal control over financial
reporting or on compliance. That report is an integral part of an audit performed in accordance with
Government Auditing Standards in considering the City's internal control over financial reporting and
compliance.
Sincerely,
Pat McCarthy
State Auditor
Olympia, WA
Packet Pg. 31
2.1.a
CITY OF EDMONDS
CITY HALL
121 5'" AVENUE NORTH • EDMO�NDS, WA 98020
1, VC 13`�fl 425.771-0240 + FAX 425.771.0265
August 31, 2020
Office of the Washington State Auditor
15129 Main Street, Suite C102
Mill Creek, WA 98012
To the Office of the Washington State Auditor:
We are providing this letter in connection with your audit of City of Edmonds for the period from
January 1, 2019 through December 31, 2019. 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.
Information 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. If we 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 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 material 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.
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.
We acknowledge our responsibility for compliance with applicable laws, regulations, contracts and
grant agreements.
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2.1.a
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. 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, notwithstanding immaterial uncorrected items referenced in the attached schedule.
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.
Additional representations related to the financial statements:
11. 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.
12. We acknowledge our responsibility for establishing and maintaining effective internal control over
financial reporting.
13. 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.
14. The financial statements properly classify all funds and activities.
15. All funds that meet the quantitative criteria in GASB requirements or are otherwise particularly
important to financial statement users, are presented as major funds.
16. Capital assets, including infrastructure and intangible assets, are properly capitalized, reported and
depreciated as applicable.
17. We have no plans or intentions that may materially affect the reported value or classification of
assets, liabilities or net position.
18. Revenues are appropriately classified by fund and account.
19. Expenses have been appropriately classified by fund and account, and allocations have been made
on a reasonable basis.
20. 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.
21. Significant assumptions we used in making accounting estimates are reasonable.
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2.1.a
22. 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.
23. 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.
24. We acknowledge our responsibility for reporting supplementary information such as the Schedule
of Expenditures of Federal Awards and Combining and Individual Fund Financial Statements and
Schedules in accordance with applicable requirements and believe supplementary information is
fairly presented, in both form and content in accordance with those requirements.
25. 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.
26. 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.
27. 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.
28. We believe the effects of uncorrected financial statement misstatements summarized in the
schedule of uncorrected items provided to us by the auditor are not material, both individually and
in the aggregate, to each applicable opinion unit.
29. 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.
30. We acknowledge our responsibility for presenting Comprehensive Annual Financial Report
combining statements and supplemental schedules in accordance with generally accepted
accounting principles in the United States. We believe that combining statements and supplemental
schedules are fairly presented, including both form and content, in accordance with those
principles.
31. We have disclosed to you all significant changes to the methods of measurement and presentation
of combining statements and supplemental schedules, reasons for any changes and all significant
assumptions or interpretations underlying the measurement or presentation of the combining
statements and supplemental schedules.
32. We adequately considered the qualifications of Milliman, Inc. and agree with conclusions regarding
Firefighter's Pension and other post -employment benefits liability, which are reflected in financial
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Packet Pg. 34
2.1.a
statement amounts and disclosures. We provided Milliman, Inc. with accurate and complete
information in response to requests and did not give or cause any instructions to be given to
Milliman, Inc. with respect to the values or amounts derived in an attempt to bias their work, and
we are not otherwise aware of any matters that have had an impact on the independence or
objectivity of Milliman, Inc.
Additional representations related to expenditures under „federal grant programs.,
33. 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.
34. 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.
35. We have identified and complied with all direct and material compliance requirements of federal
awards.
36. Management is responsible for establishing effective internal control and has 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.
37. 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.
38. Copies of federal program reports provided to yoyare true copies of the reports submitted, or
electronically transmitted, to federal agencies or pass -through agencies, as applicable.
39. We are responsible for, and will accurately prepare, the auditee section of the Data Collection Form
as required by the Uniform Guidance.
Adrienne Fraley -Mot ill Dave Turley
City Council Presid nt Acting Finance Dire r
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2.1.a
Closing Remarks
Communications required by audit standards
In relation to our financial statement audit report, we would like to bring to your attention:
• Uncorrected misstatements in the audited financial statements are summarized on the attached schedule. We
agree with management's representation that these misstatements are immaterial to the fair presentation of the
financial statements.
• There were no material misstatements in the financial statements corrected by management during the audit.
Finalizing Your Audit
Report Publication
Audit reports are published on our website and distributed via e-mail in an electronic .pdf file. We also offer a
subscription service that allows you to be notified by email when audit reports are released or posted to our website.
You can sign up for this convenient service at: hM2s://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 $86,000 plus travel and other expenses of $10,000.
Actual audit costs will approximate $91,500 as working remotely, due to the ongoing COVID-19 pandemic, resulted in
some related delays. However, with the assistance of City staff, we were able to keep total audit costs with the original
estimate of $96,000 by utilizing unused travel costs and will remain under the original estimated budget.
Your Next Scheduled Audit
Your next audit is scheduled to be conducted in spring 2021 and will cover the following general areas:
• Accountability for Public Resources
• Financial Statement including Comprehensive Annual Financial Report Opinion Letter
• Federal Programs
The estimated cost for the next audit based on current rates is $ 86,000 plus travel expenses of $10,000. 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.
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2.1.a
The Center for Government Innovation
The Center for Government Innovation of the Office of the Washington State Auditor is designed to offer 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, 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, Director of Local Audit, (564) 999-0807, Kelly. Collinsgsao.wa.gov
Tina Watkins, CPA, Assistant Director of Local Audit, (360) 260-6408, Tina.Watkins(&sao.wa.gov
Kristina Baylor, Program Manager, (425) 951-0290, Kristina.Bulorksao.wa.gov
Kirk Gadbois, Assistant Audit Manager, (425) 951-0912, Kirk. Gadboisgsao.wa.gov
Magdalene "Maggie" Wallis, CPA, Audit Lead, (425) 948-7401, Magdalene.Wallis(&sao.wa.gov
Packet Pg. 37
2.1.a
Attachment: Listing of Uncorrected Misstatements in the 2019 Audited Financial Statements
Description
Statement /
Opinion Unit
Schedule
Property Taxes receivable: The City understated property taxes
Statement of Net Position
Governmental
receivable by $91,688. The City deferred inflow amount was the
Balance Sheet;
Activities
same as the receivable amount. Deferred inflows and property tax
Statement of Activities
General Fund
receivable should be different amounts as deferred inflows is the
Statement of Revenues,
amount collected after the 60 day measurability period ($319,415
Expenditures, and
receivable less $91,689 60 day collection equals $227,727 as the
Changes in Fund Balance
amount to be collected after the 60 day measurement period.
The City underreported the Hotel/Motel taxes amount reported in
Balance Sheet
Aggregate
the "taxes" balance by $8,347. Includes only 11 months (3/29/19-
Statement of Revenues,
Remaining
1/31/20). Missing accrual of funds distributed 2/28 totaling $8,347
Expenditures, and
Funds
(two month lag when receiving these specific taxes).
Changes in Fund Balance
Sales tax balance underreported $14,242. Hotel/Motel taxes was
Statement of Net Position
Governmental
underreported $8,347. Includes only 11 months (3/29/19-1/31/20)
Statement of Activities
Activities
Missing accrual of funds distributed 2/28 totaling $8,347 (two
month lag when receiving these specific taxes). Housing and
related services taxes Includes one month (12/31/19). Missing
accrual of funds distributed 1/31/20 totaling $5,895 (one month lag
when receiving thesespecific taxes).
The City deleted roads from its asset records that are still in use as
Statement of Net Position
Governmental
of December 31, 2019. We determined capital assets (GASB 34
Statement of Activities
Activities
roads) were underreported by $143,928, accumulated depreciation
underreported by $117,001, and expense over reported by $26,926.
The City did not capitalize playground equipment that was
Statement of Net Position
Governmental
purchased in 2013. Instead the City expensed the equipment. The
Statement of Activities
Activities
equipment should have been capitalized since it was above the
City's capital asset threshold and has a useful life of more than a
year.
We determined capital assets (playground equipment)
underreported by $79,602.43, accumulated depreciation $34,494.39
and adjustment to equity of $45,108.04.
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