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2022-04-05 Audit Committee agendaCITY OF SOUTHLAKE TEXAS AUDIT AND FINANCE COMMITTEE MEETING APRIL 5, 2022 LOCATION: Southlake Town Hall Executive Conference Room 1400 Main Street, 2nd Floor Southlake, Texas 76092 TIME: 5:00 p.m. Call to order. 2. Discussion of 2021 Comprehensive Annual Financial Report. 3. Adjournment. A quorum of the City Council may or may not be present at this meeting. CERTIFICATE I hereby certify that the above agenda was posted on the official bulletin boards at Town Hall, 1400 Main Street, Southlake, Texas, on Friday, April 1, 2022, by 5:00 p.m., pursuant to the Tex�iNWyernment Code, Chapter 551. H LAkF cn m Sh II r�{VIC �v City Secretary, If you plan to attendmi"p�MIZ` meeting and have a disability that requires special needs, please advise the City Secretary's Office 48 hours in advance at 817-748-8016 and reasonable accommodations will be made to assist you. City of Southlake values: Integrity ♦ Innovation ♦ Accountability ♦ Commitment to Excellence ♦ Teamwork City of Southiake Audit Committee Meeting April 5, 2022 weaver} assuron�er, adviso.y Overview weaver ► Introduction ► Audit Process ► Audit Results and Communications ► Financial Highlights ► Questions INTRODUCTIONS Ait Jot ‘14 Engagement Leadership Assurance•Tax•Advisory John DeBurro, CPA I Partner, Assurance Services ► Audit engagement partner ► 24 years of experience ► Practice emphasis in auditing cities, school districts, and nonprofit agencies Meredith Churchill, CPA I Manager, Assurance Services ► Audit manager ► 10+ years of experience ► Practice emphasis in auditing cities, school districts, and counties THERE WHEN YOU NEED US. Remember: Weaver is your auditor all year; we are always available to answer routine questions. Engagement Team weaver Assurance•Tax•Advic City of Southlake John DeBurro, CPA Audit Partner Audit Consulting Meredith Churchill, CPA Elisa Gilbertson, CPA Audit Manager Advisory Services -ACL Data Specialist Tess DiValerio Sorin Ciesielski Senior Associate Sr. Manager - IT Advisory Services 5 Arot AUDIT PROCESS The Audit Cycle Assurance•Tax•Advisory Initial Audit Planning Discuss Developments, Prepare for Next Season Interim Fieldwork Aug 23 - 27 Continuous Audit Committee Communication Meeting April 5 Fieldwork Jan 4 - 28 Release Audit Opinion March 11 Audit Process weaver Assurance Tax Advisory 40 Audit Standards Performed the audit in accordance with Generally Accepted Auditing Standards (GAAS) and Generally Accepted Government Auditing Standards (GAGAS) Compliance Performed tests of the City' s compliance with certain provisions of laws, regulations, contracts and grant agreements, including items such as compliance with the Public Funds Investment Act. (No Federal Single Audit required in FY21 ) Audit Process weaver Assurance•7ax•Advrsary ► Risk-based approach focused on specific risks: » Revenue recognition and receivables » Long-term liabilities » Capital projects, purchasing, and compliance with bidding procedures » Payables, accrued liabilities, and expenditures » Effects of COVID-19 ► Walkthroughs of accountingcontrols Q g over significant transaction cycles: » Cash disbursements - including p-cards » Payroll » Cash receipts - including utilities, court, etc. » Financial close/reporting » Review of IT Controls 9 • weaver - AssuranceAud t Process •Tax•Advisory ► Tested internal controls over financial reporting » Cash Disbursements » Payroll » Capital projects - bidding ► Substantive testing of account balances using a combination of vouching of 0 material transactions, sampling, and analytical procedures. ► Preparation of the financial statements. Management accepts responsibility for the financial statements, exercises appropriate oversight over the financial reporting process. AUDIT RESULTS AND COMMUNICATIONS Audit Results : weaver jr- Assurance•(ax•Advisory FINANCIAL STATEMENTS Type of Report Issued: UNMODIFIED Internal control over financial reporting : Any material weakness (es) identified ? NO Any significant deficiencies that are not NONE REPORTED material weaknesses? Any noted noncompliance material to N financial statements? O Re uired Communications Weaver a Assurance•Tax•Advisory Communication Description Auditor's responsibility under The financial statements are the responsibility of the City. Our audit was designed in generally accepted auditing accordance with GAAS in the U.S. and standards (GAAS) provides for reasonable rather than absolute assurance that the financial statements are free of material misstatement. Our responsibility is to express an opinion about whether the financial statements prepared by management with your oversight are fairly presented, in all material respects, in conformity with U.S. generally accepted accounting principles. Our audit of the financial statements does not relieve you or management of your responsibilities. The audit of the fiscal year 2021 financial statements has been completed and we have issued an unmodified opinion. Required Commun cat onsy Communication Description Auditor's responsibility under In addition to the GAAS responsibilities, we are required to issue a written report on our Government Auditing consideration of internal controls and identify Standards significant deficiencies, including material weaknesses, if any. Our report does not provide assurance on internal controls. We design our audit to provide reasonable assurance of detecting material misstatements resulting from noncompliance with provisions of contracts or grant agreements that have a direct or material effect on the financial statements. We issued a written report on the results of these procedures; however, our report does not express an opinion on compliance. No findings noted. Required Communications Assurance•Tax•Advisory Communication Results Unusual transactions and the The significant accounting policies used by the City are described in Note 1 to the adoption of new accounting financial statements. principles The only pronouncement implemented in 2021 was GASB Statement No. 84, which provided more comprehensive guidance for reporting fiduciary activities. This pronouncement had no effect on the City's financial reporting. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. Required Communications Weaver Assurance Tax Advisory Communication Results Difficulties encountered No difficulties or disagreements arose during the course of our audit. Management representations We requested certain representations from management that were included in the management representation letter. Auditor independence No independence issues noted. Other information contained in We performed limited procedures on the Management's cnalys documents containing audited (MD&A) and RequiredDis Supplementary ussion adAn is financial statements Information (RSI). We did not provide any assurance on this information. Management judgments and Management's estimates of uncollectible receivables, net pension and total OPEB accounting estimates liabilities and useful lives of capital assets were evaluated and determined to be reasonable in relation to the financial statements as a whole. Required Communications Y1ry!d Communication Results Audit adjustments and Passed Professional standards require us to accumulate all known and likely adjustments misstatements identified during the audit, other than those that are trivial, and communicate them to the appropriate level of management. There were no audit adjustments identified as a result of our auditing procedures. In addition, there was only one uncorrected misstatement identified as a result of our audit procedures which was deemed immaterial. Other material written Nothing to note communications between Weaver and Tidwell, L.L.P., and the City FINANCIAL HIGHLIGHTS Financial Highlights weaver Assurance•Tax•Advisory Governmental Revenues Governmental Revenues for FY 2021 totaled $93.6 million, a $2. 1 million or 2.3% increase. Significant changes included Sales taxes ($6.4 million increase) , Interest Income ($1 .5 million decrease) , Miscellaneous income ($1 .3 million decrease) . FY 2021 Revenues FY 2020 Revenues 7% General Fund General Fund [8% 10% in General Obligation Debt ■General Obligation Debt Service 9% Service 120/ ■General Capital Projects ■General Capital Projects 10% IN iviiii SPDC Special Revenue ■SPDC Special Revenue 10% Tax Increment Financing Tax Increment District 9% 1.111 Financing District liit 56% ■CEDC Special Revenue 1% 54% ■CEDC Special Revenue 6% Fund Fund Nonmajor Governmental 7% Nonmajor Funds Governmental Funds 19 Financial Highlights weaver ' Assurance.Tax•Advisory Comparison of Governmental Revenues by Source $45.0 $41.7 $42.0 $40.0 $38.5 $35.0 $32.1 $30.0 $25.0 $20.0 $15.0 $10.0 $5.8 $5.1 2021 $5.0 $2 7 $2R $2.0 $9 q 111. :; 0 $1. $0.8 $1.7 $0.1 $1.6 $1.0 $2.3 2020 T I f 1 � MI mom= t I 1 1 e, +eic" e� e� ny ,` w J�o c 0�a �a+ a`��' a e e � cc'6+ eS tea \ Pa ate+e e�c,e' bra •(<\�e \e Ca (2-year comparison - current year and prior year - in millions) 20 Financial Highlightsweaver Assurance•Tax.Advisory Governmental Funds Expenditures FY 2021 General Fund FY 2020 General Fund •General Obligation Debt 4% 10% Service 3% 15% 43% •General Obligation Debt 51% •General Capital Projects 9% Service 11%, A •General Capital Projects •SPDC Special Revenue 2% Fund 2% ■SPDC Special Revenue Tax Increment Financing Fund 1111111. District Tax Increment Financing District 13% ■CEDC Special Revenue 19% •CEDC Special Revenue Fund 9% 8% Fund Nonmajor Governmental Nonmajor Governmental Funds Funds Governmental Funds Expenditures for FY 2021 totaled $85.2 million, a $6.8 million or 7.4% decrease • Capital outlay decreased $4.5 million. • Culture & Recreation decreased $2.0 million. 21 Financial Highlights weaverA,-- Assurance•Tax•Advisory Comparison of Governmental Funds Expenditures $25.0 $22.0 $21.5 $20.0 $16.0 $15.0 $14.2$13.1 $13.2 $13.0 $13.0 $11.2 $11.- $10.0 $7.2 $7.8 $7.1 2021 $6.0 $5.0 ■ 2020 II II $- se, aSe�a °��� ,as e��a\ J\aA s,\62 5 44 e o e, e I .�\ � � G (2-year comparison - current year and prior year - in millions) 22 FinancialHighlightsweaver Assurance•Tax•Advisory Fund Balances Governmental Funds' Fund Balances As of September 30, 2021 , the City's governmental funds reported a combined ending fund balance of $136.6 million as follows:G• eneral Fund $43,725,563 lk General Fund • Debt Service 3, 1 10,539 ■General Obligation Debt 20% Service • Capital Projects 30, 161 ,629 32°' ■General Capital Projects • SPDC S R F 12, 163,448 9% ■SPDC Special Revenue • TIF District 5,641 ,893 • CEDC S R F 12,628,611 4°' 2,o Tax Increment Financing 9% District • Other Funds 29, 158,024 22% ■CEDC Special Revenue $136.589,707 Nonmajor Governmental Funds • Overall, fund balance of the Governmental Funds increased by $1 1 .5 million, primarily the result of a $6. 1 million increase in the general fund (the result of increased sales tax revenues, decreased expenditures), as well as a $2.8 million increase in the SPDC Special Revenue Fund and a $2.9 million increase in the CEDC Special Revenue Fund. • Fund balance in the General Fund, $43.7 million, represents 101 % of fiscal year 2021 General Fund expenditures, while unassigned fund balance, $15.8 million, represents approximately 37% of this figure. 23 Financial Highlights weaver Assurance•Tax.Advisor Y Budgetary Highlights - General Fund The City had a favorable budget variance of $5.8 million (net change in fund balance) : • Actual revenues were $4.0 million more than budgeted. • Sales and mixed beverage taxes were $2.4 million more than budgeted. • Licenses, permits and fees were $519K more than budgeted. • Miscellaneous revenues were $470K more than budgeted. • Actual expenditures were below budget by $1 .8 million. 24 Financial Highlights weaver) Assurance•Tax•Advisory Comparison of Utility Fund Operating Revenues and Expenses - FY 2021 and FY2020 (in millions) $35.0 $32.1 $32.2 $30.0 $26.5 $24.9 $25.0$20.0 ■ 2021 $15.0 ■ 2020 $10.0 $5.0 - $- Operating Revenues Operating Expenses ■ Utility Fund net position increased by $8.4 million, primarily the result of $7.2 million in operating income. ■ Operating revenues were consistent with the prior year, decreasing slightly due to a reduction in water consumption. ■ Operating expenses decreased $1 .6 million, primarily due to a reduction in repairs and maintenance costs. 25 Upcoming Changes weaver Assurance•Tax•Advisory Leases GAS B 87: The objective of this Statement is to better meet the information needs of financial statement users by improving accounting and financial reporting for leases by governments. Effective forperiods This Statement increases the usefulness of governments ' financial statements by requiring beginnin g recognition of certain lease assets and liabilities for leases that previously were classified as after operating leases and recognized as inflows of resources or outflows of resources based on the 1 2/ 1 5/2020 payment provisions of the contract. ( FY2022) It establishes a single model for lease accounting based on the foundational principle that leases are financings of the right to use an underlying asset. 26 weaver We appreciate the � opportunity to work with SOUTHt . . City of Southiake L:11/( and look forward to our continued relationship . 27 weaver Assurance•Tax•Advrsory DISCUSSION • Contact Us • John DeBurro Partner, Assurance Services Direct: (972) 448.6970 Email: john.deburro@weaver.com Meredith Churchill Manager, Assurance Services Direct: (972) 448.6932 Email: meredith.churchill@weaver.com