HomeMy WebLinkAbout09-30-1996
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Report to Management
FY ending 5eptember 30, 1997 e
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Deloitte &
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0 City of Denton, Texas
Report to Management
Year Ended September 30, 1997
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Deloltte &
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/ City Center Tower If Telephone: (817) 347-3300
Suite 2950
301 Commerce Street
r-ort Worth, Texas 76102
January 9, 1998
The Honorable Mayor and City Council
and City Manager
City of Denton
215 E. McKinney
Denton, Texas 76201
Dear Mayor, Council Members and City Manager
In planning and performing our audit of the general purpose financial statements of the City of
i lemon, Texas ("City"), for the year ended September 30, 1997 (on which we issued our report dared
January 9, 1998), we considered its internal control structure in order to determine our auditing
1 procedures for the purpose of expressing an opinion on the general purpose financial statements and
i not to provide assurance on the internal control structure. Our consideration of the internal control
structure would not necessarily disclose all matters in the internal control structure that might he
1 material weaknesses under standards established by the American Institute of Certified Public
I Accountants. A description of the responsibility of management for establishing and maintaining the
internal control structure, and the objectives of the inherent limitations in such a structure is set forth
in the attached Appendix and should be read in conjunction with this letter. A material weakness is a
condition in which the design or operation of the specific internal control structure elements does not
reduce to a relatively low level the risk that errors or irregularities in amounts that would be material
in relation to the general purpose financial statements being audited may occur and not be detected
within a timely period by employees in the normal course of performing their assigned functions, We
noted no matters involving the internal control structure and its operation that we consider to be
material weaknesses as defined above:
We did note other matters related to the internal control structure and certain administrative and
operating matters. These recommendations resulted from our observations made in connection with
0 our audit of the City's general purpose financial statements for the year ended September 30, 1997. ,
This report is intended solely for the use of the City Council and management and should not be used
for any other purpose, We will he pleased to discuss these recommendations with you further and to
assist you in implementing them.
Yours Truly, i
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TABLE OF CONTENTS
CONTINUING PREPARATION FOR THE YEAR 2000 3
GAS13 31 IMPLEMENTATION 3
DEFERRED COMPENSATION $
I APPENDIX
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CONTINUING PREPARATION FOR THE YEAR 2000
Observation: The approach of the year 2000 presents significant issues for many financial,
information, and operational systems. Many systems in use today may not be able to interpret dates after
December 31, 1999 appropriately, because such systems allow only two digits to indicate the year in a
date. As a result, such systems are unable to distinguish January 1, 2000, from January 1, 1900, which
could have adverse consequences on the operations of the entity and the integrity of information
processing, causing safety, operational, and financial issues.
Left uncorrected, many basic functions of computer systems could fail. For example:
• All calculations and processes based on two digit year data (e.g., years 1900 and 2000 are both
represented as "00") could fail completely or produce incorrect results.
a Age calculations for routine (asks (e.g., payment of benefits) could be incorrect.
• Sorting routines may not work correctly (e.g., year 2000 could be sorted as earliest data--00, 97, 98,
99).
Validation routines based on "date within range," "permitted time to reply") could fail.
• Automatically generated dale-based information (e,g„ limeslamps, reference numbers, receipt dates)
j could tai or reset to a past date (e.g., 1900).
• Interfaces between systems (e.g., links between personal computers and networks, links between
clients, vendors, and customers) could fail or transfer ambiguous data.
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The year 2000 issue may impact accounting and information systems, and it may also impact many of
the systems used by an entity to operate on a daily basis. Many operational systems havt ,.ates
.embedded" in their programming. h is also possible that the failure of operational systems could create
safely issues, such as the operations of elevators, building heating and cooling, and security. It has been
estimated that approximately 85%ofall local government programs are affected by the year 2000 issue,
The cost of resolving year 2000 programming issues is estimated to be very substantial and may place
some entities, particularly smaller entities, in financial difficulties. Actual experiences have indicated
that $1.00 to $2,00 per line of code is not unusual, and certain types of code are significantly higher. In
extreme cases, code cannot be fixed and must be replaced with new systems.
Recommendation: Management should continue to consider the risks associated with the year 2000
issue and take imrnediale steps to address these risks. A dialog should continue among management
personnel and between management and the board or council to help mitigate these risks, Some of the
questions that may be addressed on a continuing basis up through the year 2000 are as follows:
A a. Has a wrincn high-level plan tha( outlines the procedures for the year 2000 issue been developed?
Jlas the plan been reviewed by senior management? Was a copy (or appropriate summary)
provided to the audit/finance committee? boas the plan include an estimate of the total costs of the
year 2000 project? When was the last time that estimate was updated?
b. Has management identified and scheduled a sufficient number of personnel and processing
resources to address the year 2000 issue and to accomplish all of the objectives set forth in the year
2000 plan? Does the plan describe the resources that are needed? Have the costs of these resources
y. been included In the operating budgets?
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C. Does the plan include a timetable of expected completion dater for various phases of the projects i
(i.e., key milestones)? Are the year 2000 activities on schedule?
d. Does the plan include a process for preparing (or updating) a comprehensive inventory of financial,
informational, and operational systems? Has this inventory been completed? If not, when will it be
completed?
C. When will all of the systems that are critical to the operations be identified? Has this date been
included within the written plan?
f. What procedures are in place to identify those critical systems that are negatively impacted by the
year 20007 Are these procedures documented in the plan? What percentage of the critical systems
has been subject to these procedures? What were the results of those procedures? When will these
procedures be completed for all of the critical systems?
g. What is the plan for fixing critical systems that are negatively impacted by the year 2000 (c,g„ code
renovation, replacement, upgrade, development of "work-arounds')? Has this been documented in
the year 2000 plan?
h. When do you expect all critical systems to be year 2000 compliant? Has this date been documented
in the plan? What percentage of the critical systems is now year 2000 compliant? Are there critical
or noncritical systems that may not he completed by the required completion date? For every
critical system with year 2000 problems, is there a detailed project plan for resolving the problems
or for replacing the system; have required personnel and processing resources been estimated; and
have experienced project managers and technical staff been assigned? For every critical system
with year 2000 problems, is there a detailed schedule for problem resolution or system rcl lacemenl;
does the schedule include the required and expected completion dates, measurable milestones, and
expected performance metrics; and does project progress, as measured by achieved milestones end
actual metrics, suggest that the project will be completed on time?
I. What procedures are in place to test (hose critical systems that are considered Io be year 2000
compliant? Are these procedures documented in the plan? Have the processing resources required
for renovations and testing been estimated, and has a testing environment with adequate capacity
been established? What percentage of the critical systems have been subject to these procedures?
What verc the results of those procedures? When will these procedures be completed for all
critical systems? Has this completion date been documented in the plan?
j. What procedures arc in place to determine [hat the systems of your key vendors, service providers,
customers, and component units and joint ventures in which you have a material investment are
year 2000 compliant? Are these procedures documented in the plan? What percentage of your key
vendors, service providers, customers, and component units and joint ventures in which you have a
material investment has been subject to these procedures? What were the results of those
procedures? When will these procedures be completed for all of your key vendors, service
providers, customers, and component units and joint ventures in which you have a material
O imeslmenI7 Has this completion date been documented In the plan?
k, What procedures are in place to mitigate risk of litigation and noncompliance with federal and state
Y¢ regulations as a result of year 2000 operating problems7 Have these procedures been documented
in the plan? Has general counsel reviewed the plan?
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1. What contingency plans are in place, or planned, if systems fail to function properly? Have these
plans been tested or challenged for feasibility? Are there critical and unique high-volume, systems
for which a contingency plan may not be possible?
an. Who has oversight responsibility for this year 2000 project? How do they fulfill this responsibility
(e.g., interim status reports, exception reports that identify departures from schedules early enough
for corrective action)? Who verifies the accuracy of the reporting to this oversight body
(individual)?
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n. Are senior management and the audit committee kept up to date on your year 2000 activities and
the results of those activities? When was the last communication to senior management? When
was the last communication to the audit committee?
f o. 1las the year 2000 impacted current or prior-year operations? Has the year 2000 impacted current
or prior year management or financial reporting?
! CASH STATEMENT NO, 31
Observation: The Governmental Accounting Standards Hoard ("GASB") has issued Statement 31,
"Accounting and Financial Reporting for Certain Investments and for External Investment Pools."
GASB Statement 31 will become effective for the City for the period beginning after June 15, 1997, It
requires that most investments be recorded at fair value, in most cases, market value. Fair value is
defined as the amount at which a financial instrument could be exchanged in a current transaction
between willing parties. This method of accounting will cause fluctuations in reported investment values '
based on fluctuations in the investment market. Fluctuations in the fair value of investments will be
recorded in the operating statements, in accordance with GASH Statement 31. Reported investment
income will be affected as amounts formerly excluded from operating statements as "unrealized," or
non-cash gains and losses will now be included.
Recommendation: Evaluate the impact of GASB Statement 31 on the City's investment policy and i
strategics, Management will need to esunblish and implement procedures to ensure that all information
required to monitor the fair value of investments is available and can be recorded appropriately. Users of
the City's financial statements will need to be educated on the effects on the financial statements of this
change in accounting for investments.
DEFERRED COMPENSATION
" Observalion: Section 457 of the Internal Revenue Code regarding deferred compensation has changed as
follows;
"A plan shall not be treated as an eligible deferred compensation plan unless all assets
and income of the plan are held in trust for the exclusive benefit of participants and
their beneficiaries. ...[it the case of a plan in existence on the date of the enactment of
this Act, a trust need not be established by reason of the amendments made by this
section before January I, 1999,"
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As a result, the assets and liabilities of the deferred compensation plan will no longer be shown as a
separate find in the general purpose financial statements, However, the change to the general purpose
u financial statements can only be made once the deferred compensation plan has been amended to reflect
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the change in the law. For plans to be in compliance with the law and remain as eligible for tax-exempt
stains, an amendment reflecting the change needs to be made by January 1, 1999.
Recommendation. Review the change in Internal Revenue Code Section 457 and draft appropriate
amendments to the deferred compensation plan reflecting the changes required by the law to ensure that
the plan is Iii compliance, Once the change has been made, remove the deferred compensation plan from
the agency fund of the general purpose financial statements,
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APPENDIX
MANAGEMENT'S RESPONSIBILITY FOR, AND THE OBJECTIVES
{ AND LIMITATIONS OF, THE INTERNAL CONTROL STRUCTURE
+ The following comments conceming management's responsibility for the intemal control structure and V
the objectives of, and the inherent limitations in, the intemal control structure are adapted from the
i Statements on Auditi ri2 Standards of the American Institute of Certified Public Accggn tuts.
Management's Respneslbility
Management is responsible for establishing and maintaining an internal control structure. In fulfilling
this responsibility, estimates and judgments by management are required to assess the expected benefits
and related costs of intemal control structure policies and procedures.
Objectives
The objectives of an internal control structure are to provide management with reasonable, but not
absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that
transactions are executed in accordance with management's authorization and recorded properly to
permit the preparation of financial statements In accordance with generally accepted eccounting
principles.
Limitations
Because of inherent limitatic:-ts in any intemal control structure, errors or irregularities may occur and
not be detected. Also, projection of any evaluation of the structure to future periods is subject to the risk
that procedures may become inadequate because of changes hr c.mditlons or that the degree of
compliance with the procedures may deteriorate.
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oel0iff &
Touche LLP
City Center Tower II Tela honor 181 71 347-3300
1\ Suite 2950
301 Commerce Slfeet
Foil Worth, Texas 76102
January 9, 1998
City of Denton
Municipal Building
215 E. McKinney
Denton, Texas 76201
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Dear Honorable Mayor and Members of the City Council:
We have audited the general purpose financial statements of the City of Denton (the "City") as of and
for the year ended September 30, 1997, and have issued our report thereon dated January 9, 1998.
Our professional standards require that we communicate with you concerning certain matters that may
be of interest to you In fulfilling your obligation to oversee the financial reporting and disclosure
process for which management of the City is responsible. We have prepared the following comments
to assist the Mayor and members of the City Council in fulfilling that obligation,
OUR RESPONSIBILITY UNDER GENERALLY ACCEPTED AUDITING STANDARDS AND
GOVERNMENT AUDITING STANDARDS ISSUED BY THE COMP'T'ROLLER GENERAL
OF THE UNITED STATES
We conducted our audit of the 1997 general-purpose financial statements of the City in accordance
with generally accepted auditing standards and Govenmtenl Auditing Standards. "those standards
require that we plan and perform the audit to obtain reasonable, rather than absolute, assurance about
whether the financial statements are free of material misstatement,
When per£ornling an audit in accordance with thane standards, we are only required to obtain an
understanding ofthe City's internal control structure sufficient to enable us to properly plan our audit
1 not to provide assurance on the internal control structure.
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~ Based, in part, on our understanding of the control environment, we design our audit to provide
reasonable assurance of detecting errors and irregularities that are material to the financial statements.
However, because orthe characteristics of irregularities, particularly those involving forgery and
collusion, a properly designed and executed audit may not detect such items,
We have issued a separate report to you, also dated January 9, 1998, containing our comments on the
internal control structure.
Neither our audit of the City's general purpose financial statements for the year ended September 30,
1997, nor any reviews or other services provided pursuant to that audit, provide any assurances that a !
the City's systems or any other systems, such as those of the city's vendors, service providers,
customers, component units or Joint ventures in which the. City has an investment, or other third
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parties, are year 2000 compliant, nor does our audit, any reviews or other services provide any other E
assurances regarding the year 2000. In addition, we are not engaged to perform, nor did we perform, any
procedures to test whether the City's systems or any other systems are year 2000 compliant or whether the
plans and activities of the City are sufficient to address and correct system or any other problems that might
arise because of the year 2000. Accordingly, have not expressed any opinion o. provided any other
assurances regarding the year 2000.
SIGNIFICANT ACCOUNTING POLICIES
During the year ended September 30, 1997, there were no significant changes in previously adopted
accounting policies or their application.
MANAGEMENT JUDGMENTS AND ACCOUNTING ESTIMATES
Accounting estimates are an Integral part of the general-purpose financial statements prepared by
management and are based upon management's current judgments. Thosejudgments are normally based on
knowledge and experience about past and current events and assumptions about future events. Significant
accounting estimates reflected in the City's 1997 general-purpose financial statements include the liabilities
for general liability claims payable and workers compensation claims payable and allowances for
uncollectible accounts.
SIGNIFICANT AUDIT ADJUSTMENTS
There were no significant audit adjustments.
DISAGREEMENTS WITH MANAGEMENT
There were no disagreements with management. I
CONSULTATION 'KITH OTHER ACCOUNTANTS
We are not aware of any consultations with other independent public accountants regarding accounting or
auditing matters.
MAJOR ISSUES DISCUSSED WITH MANAGEMENT PRIOR TO RETENTION
There were no major issues discussed with management,
DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT
d There were no difficulties encountered.
OTHER INFORMATION IN THE COMPREHENSIVE ANNUAL FINANCIAL REPORT
When audited financial statements are included In documents containing other information, such as the
City's Comprehensive Annual Financial Report, generally accepted auditing standards require that we read
such other information and consider whether it, or the manner of Its presentation, Is materially Inconsistent
with the information, or the manner of its presentation, in the financial statements audited by us. We have q •
read the other Information in the City's Comprehensive Annual Financial Report for the year ended
1k;, September 30, 1997, and have inquired as to the methods of measurement and presentation of such
information, If we had noted a material Inconsistency, or If we had obtained any knowledge of a material
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misstatement of fact in the other information, we would have discussed this matter with management and, if
appropriate, with the Mayor and members of the City Council.
This report is intended solely for the use of the audit committee of the City Council, management and others
within the City and should not be used for any other purpose.
We will be pleased to discuss this report with you further at your convenlence.
Yours truly,
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CITY OF_OENTON, TEXAS _Finance Department" 215 E. McKinney "Denton, Texas 78201 _
Teiephune (940) 349-82RR * DF'11' Metro (972) 434.2529 * FAX (940) 349-7789
February 6, 1998
Honorable Mayor, Council Members and City Manager:
After review and discussion of the auditor's management letter, staff has prepared the following responses
to the recommenddions presented,
1. CONTINUING PRFIPARATION FOR THE YEAR 2000
Observation: The approach of the year 2000 presents significant issues for many financial, information,
and operational systems. Many systems in use today may not be able to interpret dates after December 31,
1999 appropriately, because such systems allow only two digits to indicate the year in a date. Asa result,
such systems are unable to distinguish January I, 2000, front January I, 1900, which could have advers
consequences on the operations of the entity and the integrity of information processing, causing safety,
operational, and financial issues,
1.01 wicorrected, many basic functions of computer systems could fail. For example:
• Alt calculations and processes based on two-digit year data (e.g., years 1900 and 2000 are both
represented as "00") could fail completely or produce incorrect re5ldts.
4 Age calculations for routine tasks (e,g., payment of benefits) could be incorrect.
* Sorting routines may not work correctly, (e.g., year 2000 could be sorted as earliest data
00,97,98,99),
• Validation routines (e.g,, based on "date within range," "permitted time to reply") could fail.
• Automatically generated date-based information (e.g,, timestamps, reference numbers, receipt dates)
ti could fail or reset to a past date (ag., 1900),
* Interfaces hemtcrI systems (c.g„ links between personal computers and networks, links between
® clients, vendors, and customers) could fail or transfer ambiguous data.
The year 2000 issue may impact accounting and information systems, and it may also impact many of the
systenis used by an entity to operate on a daily basis. Many operntional systems have dates "embedded" in
their programming. It is also possible that the failure of operational systems could create safety issues,
such as the operations of elevators, building heating and cooling, and security. It has been estimated that
approximately 85°t6 of all local government programs are affected by the year 2000 issue.
Fite cost of resolving year 2000 programming issues is estimated to be very substantial and may place some :
entities, particularly smaller entities, in financial difficulties. Actual experiences have indicated that $ 1.00
t _ to $2.00 per line of code is not unusual, and certain types of code are significantly higher. In extreme
r' enses, code cannot be fixed and must be replaced with new systems.
"Ucdicaled Iii Qna7:rr Scm-ke"
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Wriagemcnl Letter Responses
February 1, 1998
Page 2 ol'4
Recommendalion: Management should continue to consider the risks assucmled with the )'c'ar 2000 issue
and lake inmuediate steps to address these risks. A dialog should continue among management personnel
and between mamagenunl and the board or council to help mitigate these risks. Some of the questions that
may be addressed on a continuing basis up through the year 2000 are as follows:
a. I las a written high-level plena that outlince the procedures for the year 2000 issue bccn developed?
YES
I las the plan been reviewed by senior management? YES
Was a copy (or appropriate summary) provided to the auditlfoance committee? YES
Uoes the plan include an estimate orthe total costs of the year 2000 project? YES
When was the last time that esfiutatc was updalcd? Slil'TFNIIIER 1995
K I [as management identified and scheduled a sufficient number of personnel and processing resources
to address the year 2000 issue and to accomplish all of the objectives set forth in the year 2000
Plan? YES
Does the plan describe the resources that are needed? YES
Have the costs of these resources been included in the operating budgets? YES
C. Does the plan include a timetable orexpected completion dates for various phases ol'Ihe projects (i.e.,
key milestones)? YES
Are the year 2000 activities on schedule? YIS
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d. Does the plan include a process for preparing (or updating) a comprehensive inventory of financial,
infbnmalional, and operational systems? YES
has this inventory been completed? YES
c. when will all of the systems that are critical to the operations be identified? ACI III-NED
las this date been included within the written plan? YES
F. what procedures are- in place to identify those critical systems that am negatively impacted by the year
2000? All applications, hosts, and conneetivity components are verilied Y2K compliant prior to
implementation or have been identified in our Y2K assessment plan.
Are these procedures documented in the plan? YES
%Vlm percentage of the critical systems has been subject to these procedures? 100%
What were the results cl'rhose procedures? Our accormting sysicat (WFS), Equipment j
Management Systen, Municipal Court System, VSE operating system, Ncl%Vare 3.X and 4.X were all
identified as being non-Y21K compliant.
When will these procedures be completed for all of the critical systems? ACIIIFVED
g. Wlint is the plan for fixing critical systems that are negatively impacted by the year 2000 (e.g., code
renovation, replacement, upgrade, development of "work-moods'")? Implementation of vendor
patches, soliware upgrades.
Has this been documented in the year 2000 plan? YES
It, when do you expect all critical systems to be year 2000 compliant? )anumy 1999
Iias this date been doctnncnted in the plan? YES
What percentage of the critical systems is now year 2000 compliant? d'J%
Arc there critical or noncritical systems that may not be completed by the required completion
® dale? NO
For every critical system with year 2W0 problems, is there a detailed project plan resolving the Q w
problems or for replacing the system; have required personnel and pro tessing resources been
-yam estkwled, and have experienced project managers and technical stall been assigned? YES
For every critical system with year 2000 problems, is there a detailed schedule for problem resolution
or system rcplacentenl; does the schedule include the required and expected completion dates,
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Management Letter Responses
February 3, 1998
Page 3 ol'4
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measurable milestones, and expected pcrfonnanee metrics; and does project progress, as measured by
achieved milestones and actual metrics, suggest that the project will be completed on tithe? YD'S
i. What proccdures are in place to test those critical systems that are considered in be year 2000
compliant? Detailed in the Y2K Assessment Plan.
Are these procedures documented in the plan? YES
I lave the processing resources required for, IenoYalions and testing been estimated, and has a testing
environment with adequate capacily Now established? YI?S
What percentage of the critical systems have been subject to these procedures? 100%
What were the results of those procedures? COMPLIANT
When will these procedures be completed for all critical systems? ACI IIEVED J
Has this completion date been documented in the plan? YI7S
j, What procedures are in place to determine that the systems of your key vendors, service providers,
customers, and component units andjoint ventures in which you have a material investment are year
2000 compliant? To nc Detennined
Arc these procedures documented in the plan? To Be Determined
What perce ulogc of your key vendors, service providers, customers, and component units and joint
ventures in which you have a material investment has been subject to these
procedures? To Be Determined
What were the results of those procedures? To Ile Ikternined
When will these procedures be completed for all of your key vendors, service providers, customers,
and component units and joint ventures in which you have a malerinl investment? To ne Detennined
Has this completion date been documented In the plan? To Be Determined
k. What procedures are in place to mitigate the risk of litigation and noncompliance Wth federal and state
regulations as a result of year 2000 operating problems or product/servlec failures? To Ile Ietermducd
Have these procedures been documented in the plan? To lie letennined
Has the general counsel reviewed the plan? To Ile Detennined
1. What contingency plans are in place, or planned, if systems fail to function properly? A business
contiuuily plan is in development.
D lave these plans been tested or challenged for feasibility? To Be Determined
Are there criliual and unique high-volume systems fur which a contingency plan cony not be
possible? To Be Iktcnnincd
in. Who has oversight responsibility for ibis year 2000 project? Alex Pettit, Dircctorof Information
Services.
How do they fulfill this responsibility (e.g., interim status reports, exception reports that identify
departures from schedules early enough for corrective actiony? Status reports/project planning.
Who verifies the accuracy of the reporting to this oversight body (individual)? D avo Dickey and
Angela Kastel,
n. Arc seniorrnanagenent and the audit committee kept up to date on your year 2000 activitiesand fire
results ofthoscactivities? YES
When was the last communicalion to senior management? Ibsenhber 22, 1997
When ems the last emnnnmlcation to the audit commniuee? May, 1995
o. I las the year 2000 impacted current or prior year operations? NO
Has the year 2000 impacted current or prior year inanagetnew or flrmciol reporting'? NO
tY,1J p. What year 2000 issues cause you the most concern? Of no current concern.
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Management Letter Responses
February 1, 1998
Page 4 ol'4
Response: Staff agrees with the recommendation and has had a formal plan t.. effect for the list several
years to address these issues. Management's responses to the questions raised in the recommendation
appear above.
IF, GASII STATEMENT NO, JI
Obscrvalion: The Governmental Accounting Standards Board ("GAS3") has issued Statement 31,
"Accounting and financial Reporting for Certain Investments and for External Investment Pools." GASI I
Statement 31 will hecome effective for the City for the period beginning Oder Juno IS, 1947, It requires
that most investments be recorded at fair value, in most cases, market value, Fair value is defined as the
anneunl at which a financial instrument could be exchanged in a current tnutsaction bepvaca willing parties,
This method ofaccounting will cause fluctuations in reported investment values based on fluctuations in
the investment nmrkel. Fluctuations in the fair value orinvestmenls will be recorded in the operating
sletenwrits, in accordance with GASB Statement 31. Reported investment income will be affected as
amounts formerly excluded front operating statements as "unrealized," or non-cash gainsand losses will j
nonv be included.
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Recommendation: Evaluate the impact of GASB Stamneat 31 on the City's investment policy and
stralcgics, Manngenieut will need to establish and implement procedures to ensure that all infomnalion
required to monitor the fair value of investments is available and can be recorded appropriately. Users of
the City's firlMdal statements will need to be educated on the effects on the financial statements of this
change in accounting for investments.
ResnonsL SlafTagrecs with the recommendation and has implemented procedures to conform wNh the
reporting requirennenis ofCASI3 31. Additionally, die ( ' 'onopreltensive Annual Financial Report for the
next fiscal }eat will contain information to assist users in understanding the effects of GASI3 31 on the
financial slatcnnenls.
III. DI:FIM:)COMPHNSATION
Ob.servaion: Section 457 of the Internal Revenue Code regarding deferred compensation has changed as
fbl lows;
"A plan...sholl not be treated as an eligible deferred compensation plan unless all assets and
income of the plan ...are held [it trust for The exclusive benefit of participants and their
beneficiaries. In the case or a plan in existence on tine date of Iha cnneiment of this Act, a trust
need not le established by reason of the amendments made by this section before January I,
1999."
As a result, the assets and liabilities of the deferred compensation plan will no longer be shown as a
sepanne (land in the general purpose financial statements. However, the change to the general purpose
O timancial enttemmnts can only be nnnde once the deferred compensation plan has been amended to reflect the
cliangc in dic law, for plans to be in compliance with the law and remain as eligible for Inx-exempt status,
on amendntem rellecting the change needs to be made by January I, 1999.
Recgnuncrulmion: Review the change in Internal Revenue Code Section 457 and drag appropriate
amendments to the deferred compensation plan reflecting the changes required by the law to ensure that the
plan is in compliance. Once the change has been made, remove the deferred compensation plan front the
agency Il nd ofthc general putpose dnacial statements.
® O
Rcspqflsc; Staff agrecs with the recommendation and %011 make all changes necessary to ensue full
compliance with the mew law.
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