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10.a 2022 Report to Members of Governance - Scandia City of Scandia, Minnesota Report to the Members of Governance May 16, 2023 CITY OF SCANDIA, MINNESOTA TABLE OF CONTENTS Introductory Letter...................................................................................................................................................... 1 Required Communications ......................................................................................................................................... 2 An Independently Owned Member, RSM US Alliance RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. www.schlennerwenner.cpa Members of Governance City of Scandia, Minnesota We are pleased to present this report related to our audit of the basic financial statements of the City of Scandia (the City) as of and for the year ended December 31, 2022. This report summarizes certain matters required by professional standards to be communicated to you in your oversight responsibility for the City’s financial reporting process. This report is intended solely for the information and use of the members of governance and management and is not intended to be, and should not be, used by anyone other than these specified parties. It will be our pleasure to respond to any questions you have regarding this report. We appreciate the opportunity to continue to be of service to the City. SCHLENNER WENNER & CO. St. Cloud, Minnesota May 16, 2023 CITY OF SCANDIA, MINNESOTA REQUIRED COMMUNICATIONS 2 Auditing standards generally accepted in the United States of America (AU-C 260, The Auditor’s Communication With Those Charged With Governance) require the auditor to promote effective two-way communication between the auditor and those charged with governance. Consistent with this requirement, the following summarizes our responsibilities regarding the financial statement audit as well as observations arising from our audit that are significant and relevant to your responsibility to oversee the financial and related compliance reporting process. Our Responsibilities With Regard to the Financial Statement and Compliance Audit Our responsibilities under auditing standards generally accepted in the United States of America and Government Auditing Standards issued by the Comptroller General of the United States have been described to you in our arrangement letter dated November 2, 2022. Our audit of the basic financial statements does not relieve management or those charged with governance of their responsibilities, which are also described in that letter. Overview of the Planned Scope and Timing of the Financial Statement Audit We have issued a separate communication dated February 22, 2023 regarding the planned scope and timing of our audit and identified significant risks. Accounting Policies and Practices Preferability of Accounting Policies and Practices Under accounting principles generally accepted in the United States of America, in certain circumstances, management may select among alternative accounting practices. In our view, in such circumstances, management has selected the preferable accounting practice. Adoption of, or Change in, Accounting Policies Management has the ultimate responsibility for the appropriateness of the accounting policies used by the City. The City did not adopt any significant new accounting policies, nor have there been any changes in existing significant accounting policies during the current period. Significant Accounting Policies We did not identify any significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus. Significant Unusual Transactions We did not identify any significant unusual transactions. Management’s Judgments and Accounting Estimates Accounting estimates are an integral part of the preparation of financial statements and are based upon management's current judgment. The process used by management encompasses their knowledge and experience about past and current events and certain assumptions about future events. You may wish to monitor throughout the year the process used to determine and record these accounting estimates. The only estimates we have deemed significant to the financial statements are estimates associated with the following balances reported at year-end: • Net pension asset/liability and related deferred outflows/inflows of resources CITY OF SCANDIA, MINNESOTA REQUIRED COMMUNICATIONS 3 Audit Adjustments and Uncorrected Misstatements Audit adjustments, other than those that are clearly trivial, have been proposed by us and recorded by the City and relate to the adjustment, reclassification or recording of receivables, interest earnings, capital assets, payables, net pension liability, accrued expenses, and special assessments. Uncorrected misstatements are summarized in the management representation letter and consist of projected unrecorded liabilities at year-end, based on the extrapolation of sampling procedures, as well as an understatement of current year expenses resulting from 2021 project costs being capitalized in 2022. Departure From the Auditor's Standard Report Our Independent Auditor’s Report includes several additional or non-standard paragraphs that you should be aware of as follows: • Other Matters related to Required Supplementary Information and Supplementary Information • Other Reporting Required by Government Auditing Standards Observations About the Audit Process Disagreements with Management We encountered no disagreements with management over the application of significant accounting principles, the basis for management’s judgments on any significant matters, the scope of the audit, or significant disclosures to be included in the basic financial statements. Consultations with Other Accountants We are not aware of any consultations management had with other accountants about accounting or auditing matters. Significant Issues Discussed with Management No significant issues arising from the audit were discussed or were the subject of correspondence with management. Significant Difficulties Encountered in Performing the Audit We did not encounter any significant difficulties in dealing with management during the audit. Difficult or Contentious Matters That Required Consultation We did not encounter any significant and difficult or contentious matters that required consultation outside the engagement team. Shared Responsibilities for Independence Independence is a joint responsibility and is managed most effectively when management, audit committees (when applicable), and audit firms work together in considering compliance with AICPA and Government Accountability Office (GAO) independence rules. For Schlenner, Wenner, & Co. to fulfill its professional responsibility to maintain and monitor independence, management, the audit committee (when applicable), and Schlenner, Wenner, & Co. each play an important role. Our Responsibilities • AICPA and GAO rules require independence both of mind and in appearance when providing audit and other attestation services. Schlenner, Wenner, & Co. is to ensure that the AICPA and GAO’s General Requirements for performing non-attest services are adhered to and included in all letters of engagement. • Maintain a system of quality control over compliance with independence rules and firm policies. CITY OF SCANDIA, MINNESOTA REQUIRED COMMUNICATIONS 4 The City’s Responsibilities • Timely inform Schlenner, Wenner, & Co., before the effective date of transactions or other changes, of the following: o New affiliates, members of governance, or person in financial reporting and compliance oversight roles. o Changes in the reporting entity impacting affiliates such as related entities, investments, joint ventures, component units, and jointly governed organizations. • Provide necessary affiliate information such as new or updated structure charts, as well as financial information required to perform materiality calculations needed for making affiliate determinations. • Understand and conclude on the permissibility, prior to the City and its affiliates, members of governance, or persons in a decision-making capacity, engaging in business relationships with Schlenner, Wenner, & Co. • Not entering into arrangements of non-audit services resulting in Schlenner, Wenner, & Co. being involved in making management decisions on behalf of the City. • Not entering into relationships resulting in Schlenner, Wenner, & Co., Schlenner, Wenner, & Co. covered persons or their close family members, temporarily or permanently acting as a member of governance or person in an accounting, financial reporting or compliance oversight role at the City. Internal Control and Compliance Matters We have separately communicated the material weaknesses and significant deficiency in internal control over financial reporting identified during our audit of the basic financial statements, as required by Government Auditing Standards. This communication is included within the compliance section of the City’s financial report for the year ended December 31, 2022. Significant Written Communications Between Management and Our Firm We have requested significant written communications from management that are included in the management representation letter dated May 16, 2023.