City of Brunswick, MD Fiscal Year 2019 Audit Results and Findings

Fiscal Year 2019 Audit Results D City of Brunswick, MD Presented by: Michele R. Mills, CPA Engagement Principal Addie Blickenstaff, CPA Senior Accountant

Communication with Governance Key Points No new accounting policies were adopted and existing policies were not changed in FY2019. No transactions were entered into by the City which lacked authoritative guidance or consensus. The audit was delayed as several accounts were not reconciled upon our arrival. As a result, additional time was needed to perform and complete the audit. There was a total of 21 audit adjustments, which affected all four funds of the City. The net income effect is as follows: Governmental Activities an increase of $102,655 to net position Business-Type Activities a decrease of $70,145 to net position No disagreements with management arose during our audit. See AUC-260 letter provided

Responsibilities: The financial statements are the responsibility of management Our responsibility is to: Plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement Express an opinion on the financial statements based on our audit

Auditors Opinion The City of Brunswick, Maryland received an Unmodified opinion on the financial statements.

In accordance with Government Auditing Standards we also considered the City s internal controls over financial reporting and compliance

Material Weakness a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement will not be prevented or detected and corrected on a timely basis. We identified one material weakness in internal control Finding 2019-001

Finding 2019 -001: Bank Account Reconciliations Criteria: The City s internal control procedures state that the Accountant and Accounting Clerk strive to reconcile bank accounts on a quarterly basis and all bank reconciliations are reviewed by the City Administrator or Mayor. Condition: Per inquiry of the Accountant, the bank reconciliations from September 2018 through June 2019 were all completed at the same time in September 2019 via a manual spreadsheet. As of October 2019, these bank reconciliations had not been reviewed by the City Administrator or Mayor. See page 47 of the audit report

Finding 2019 -001 (Cont.) Cause: In response to the same finding from the FY18 audit in January 2019, the City was working to implement and train on the Accounting System Module to facilitate and improve the monthly bank reconciliation process. Per inquiry, this implementation did not occur and caused the back log of reconciliations. Effect: Bank account reconciliations should be prepared to ensure that all cash transactions have been properly recorded to and discover any errors timely. Without completing and reviewing the bank reconciliations timely, the City faces a greater risk that errors may not be detected. See page 47 of the audit report

Finding 2019 -001 (Cont.) Recommendation: We recommend the City follow its established internal control reconciliations. procedures over bank Response: The City desires to have the bank reconciliations processed through the Springbrook accounting system. As the FY19 year-end approached encountered difficulty locating the needed online training. This triggered the Accountant to process the bank reconciliations through Excel (as had been done before) and cause a delay in the process. In FY20, the Accountant will seek out the required proper information from Springbrook, and have the bank reconciliations processed through the accounting system, and signed off appropriately and on a timely basis. however, the Accountant See page 47 of the audit report

Significant Deficiency a deficiency, or 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. We identified one significant deficiency in internal control Finding 2019-002

Finding 2019-002: Year End Financial Close Criteria: The City is responsible for ensuring there is an effective financial close and reporting process so that their book and records are reconciled at year-end to prevent any material misstatements. Condition: As a result of our audit procedures, we identified 21 audit adjustments, which affected all four funds of the City. The effect across the governmental and business-type activities are as follows; Governmental Activities an increase of $102,655 to net position Business-Type Activities a decrease of $70,145 to net position See page 48 of the audit report

Finding 2019 -002 (Cont.) Cause: Several of the journal entries are related to more complex transaction areas of the City, and it appeared there was a lack of technical training. For the other audit adjustments that were more routine and less complex in nature, it appeared that these were an oversight, perhaps due to the City not having a financial close and reporting process to follow. Effect: Without such a process and adequate training of the City s employees, the City is at a greater risk that their books and records will be materially misstated. See page 48 of the audit report

Finding 2019 -002 (Cont.) Recommendation: We recommend the City implement a financial close and reporting process and consider providing technical training to its employees, as determined necessary. Response: The Accountant is in the process of preparing a checklist that will service as a guide for that individual throughout the fiscal year to eliminate any missed and needed journal entries during the course of the fiscal year. This should provide a blueprint for the Accountant to ensure all required entries are done and fewer adjusting journal entries needed to be processed from the audit team. Furthermore, the Accountant may suggest a day to meet with the audit team, prior to fieldwork in July, to see what is missing and needed before arrival at City Hall. Also, the Accountant will seek out specific governmental accounting training assistance resources such as online webinars or in-person seminars. See page 48 of the audit report

No instances of non-compliance required to be reported under Government Auditing Standards

GASB Reporting Model Governmental Accounting Standards Board requires: Two sets of Financial Statements Government wide (pg. 12 - 13) Fund level (pg. 14 - 20)

GovernmentWide Statements Two required government-wide financial statements: Statement of Net Position Statement of Activities

Government Wide Statements Statement of Net Position: Presents the financial condition of the governmental and business-type activities of the City

Statement of Net Position Total Assets $44,961,034 (Government-Wide) Governmental Activities, $15,452,739 , 34% Business-Type Activities, $29,508,295 , 66% 0.2% decrease from FY 2018 See page 12 of the audit report

Statement of Net Position Significant Assets; Governmental Activities Other, $577,535 , 4% Cash and cash equivalents, $5,048,275 , 33% Capital assets, $9,826,929 , 63% See page 12 of the audit report

Statement of Net Position Significant Assets; Business-Type Activities Cash and cash equivalents, $2,600,458 , 9% Other, $782,512 , 3% Capital assets, $26,125,325 , 88% See page 12 of the audit report

Statement of Net Position Total Liabilities $5,573,825 (Government-Wide) Governmental Activities, $2,464,860 , 44% Business-Type Activities, $3,108,965 , 56% 15.2% increase from FY 2018 See page 12 of the audit report

Statement of Net Position Significant Liabilities; Governmental Activities Other, Long term debt, $526,853 , 21% $190,159 , 8% A/P & accrueds, $688,437 , 28% Net pension liability, $1,059,411 , 43% See page 12 of the audit report

Statement of Net Position Significant Liabilities; Business-Type Activities A/P & accrueds, $236,394 , 7% Other, $211,458 , 7% Net pension liability, $217,294 , 7% Long term debt, $2,443,819 , 79% See page 12 of the audit report

Long-Term Debt Overall, the City s debt decreased 3.6% from FY 2018. New capital lease borrowings in FY 2019 of $254,663; $237,010 governmental & $17,653 business-type. Principal Payments of $364,581 $75,875 - Governmental activities $288,706 - Business-type activities See page 36 of the audit report

Deferred Inflows/Outflows of Resources Deferred outflows of resources a consumption of net assets by the government that is applicable to a future reporting period (attributable to pension) Governmental activities - $351,165 Business-type activities - $85,888 Deferred inflows of resources an acquisition of net assets by the government that is applicable to a future reporting period (attributable to pension and unearned revenue) Governmental activities - $176,793 Business-type activities - $9,521,586 See page 12 & 40 of the audit report

Deferred Inflows/Outflows of Resources Assets + Deferred Outflows Liabilities Deferred Inflows = Net Position Governmental Activities: Net position - $13,162,251 Business-type Activities: Net position - $16,963,633 See page 12 of the audit report

Statement of Net Position Total Net Position $30,125,884 (Government-Wide) Governmental Activities, $13,162,251 , 44% Business-Type Activities, $16,963,633 , 56% 0.05% increase from FY 2018 See page 12 of the audit report

Government Wide Statements Statement of Activities: Presents a comparison between direct expenses and program revenues for each program or function of the City s governmental and business-type activities

Statement of Activities Program Revenues Expenses Operating Grants and Contributions Capital Grants and Contributions Total Expenses Charges for Services General Revenues Government al Activities $6,072,894 $608,333 $490,729 $11,929 $5,083,597 See page 13 of the audit report

Statement of Activities Program Revenues Expenses Operating Grants and Contributions Capital Grants and Contributions Total Expenses Charges for Services General Revenues Business- Type Activities $4,163,949 $3,835,726 $42,000 $ - $180,995 See page 13 of the audit report

Statement of Activities Change in Net Position $16,464 (Government-Wide) As compared to $379,027 for FY 2018 Governmental Activities $ 121,692 Business-Type Activities $(105,228) See page 13 of the audit report

Balance Sheet Governmental Funds Total Assets Total Liabilities Total Deferred Inflows Fund Balances Committed $ 110,392 Assigned 3,193,656 Unassigned Total Fund Balances $ 8,802,274 3,896,897 47,306 1,554,024 $4,858,072 Governmental Funds include: General and Capital Projects See page 14 of the audit report

Fund Balance Classifications Fund Balance Classification Committed Impact Fees $ 34,852 Heritage Museum 75,540 $ 110,392 Committed Amounts that can only be used for specific purposes because of a formal action (resolution or ordinance) by the City s highest level of decision-making authority, the Mayor and Council.

Fund Balance Classifications Fund Balance Classification Assigned Capital Lease Obligations 8 leases 340,072 Berlin Cemetery Project 22,315 Future Capital Projects 2,831,269 $ 3,193,656 Assigned Amounts that are constrained by the City s intent to be used for specific purposes, but do not meet the criteria to be classified as restricted or committed. Intent can be stipulated by the Mayor and Council, or by an official to whom that authority has been given.

Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds Total Revenues Total Expenditures Deficiency of Revenues over Expenditures (153,492) $ 6,139,868 (6,293,360) Sale of capital assets Debt proceeds Deficiency of Revenues and Other Financing Sources Over Expenditures and Other Uses 7,414 237,010 $ 90,932 Governmental Funds include: General and Capital Projects See page 15 of the audit report

Reconciling Items Item Governmental Funds Governmental Activities Issuance of debt Other financing source Liability Payment of principal of debt Expenditure Reduction of liability Outlays to construct/acquire assets Expenditures Assets Depreciation Not reported Reported as operating expense Pension related items (NPL & Deferred Inflows/Outflows) Not reported NPL reported as a LT obligation and deferred items reported on Statement of Net Position

Statement of Revenues, Expenditures and Changes in Fund Balances Governmental Funds Excess of Revenues and Other Financing Sources Over Expenditures and Other Uses Adjustments for the Statement of Activities Capital outlay Depreciation expense Insurance proceeds Compensated absences Debt service expenditures Debt proceeds Net pension adjustment Change in Net Position of Governmental Activities $ 121,692 $ 90,932 (683,664) 862,282 47,306 (26,512) 75,875 (237,010) ( 7,517) Governmental Funds include: General and Capital Projects See page 15 of the audit report

Reconciliation of Fund Balance to Net Position of Governmental Activities See page 16 of the audit report

Statement of Operations Water (Proprietary Fund -Enterprise) $2,048,170 $1,945,676 $1,943,860 $1,681,873 $263,803 $222,491 $104,310 $61,806 FY18 FY19 Operating Revenue Operating Expense 15.6% increase Operating Income Change in net position 5.3% increase See page 18 of the audit report

Statement of Operations Sewer (Proprietary Fund - Enterprise) $2,133,203 $2,082,276 $2,010,551 $1,914,491 $(122,652) $(167,785) 5.0% increase 2.4% increase $(167,034) $(210,299) FY18 FY19 Operating Revenue Operating Expense Operating Loss Change in net position See page 18 of the audit report

BUDGET TO ACTUAL GENERAL FUND BUDGET (Original) BUDGET (Final) ACTUAL VARIANCE REVENUES $5,466,352 $5,678,800 $6,123,036 $444,236 EXPENDITURES $5,439,225 $5,651,673 $5,651,673 $ - TOTAL OTHER FINANCING SOURCES (USES) $241,924 $(27,127) $(770,205) $(528,281) NET CHANGE IN FUND BALANCE $(56,918) $ - $(743,078) $686,160 See page 42 & 43 of the audit report

QUESTIONS?