Mayor and Council

   For the meeting on:

  December 17, 2012
   Department:   Finance
   Responsible staff:  Gavin Cohen, Chief Financial Officer
  phone: (240) 314 - 8402

Fiscal Year 2012 Audited Financial Reports


Staff recommends that the Mayor and Council receive and file the audited Comprehensive Annual Financial Report (CAFR) (Attachment A), the report on internal controls (Attachment B), communication with those charged with governance (Attachment C), and the Single Audit (Attachment D) for the City of Rockville for the fiscal year ending June 30, 2012.

Comprehensive Annual Financial Report (CAFR)
The City’s financial policies specify that each year a firm of independent Certified Public Accountants (CPA’s) audit the City’s financial statements and that the auditor’s opinion be included in the financial statements as is required by Generally Accepted Accounting Principles (GAAP). An independent audit is essential to demonstrate the accountability of government officials’ use of public resources and provides a basis for user acceptance of the audited financial statements.

Staff is pleased to present the fiscal year 2012 CAFR and accompanying reports to the Mayor and Council. The CAFR is a very detailed report that goes beyond the requirements of GAAP and beyond any legal reporting requirements. The CAFR covers all funds of the government and all the financial transactions during the year. It is considered a general-purpose report as its contents are intended to meet the needs of a broad range of user groups. GAAP encourages, but does not require, a government entity to issue a CAFR.

There were no significant financial issues of concern with the financial statements. Staff did record a prior period adjustment to write down retiree health care expenses (GASB 45). There were no identified material weaknesses in the City's internal controls and a management letter was not issued.

The City’s audit was conducted in conformity with Generally Accepted Auditing Standards (GAAS). These are the standards that a CPA must follow when auditing financial statements. In an independent audit, the CPA expresses an opinion as to whether the financial statements present fairly the financial position and results of operations for the year ended. The fiscal year 2012 audit report contains this unqualified opinion on page 13 (A-19) at the beginning of the financial section.

The CAFR reflects the reporting format (GASB 34) and classifications of fund balance (GASB 54), which are required for all government entities. The overall goal of the GASB 34 format is to answer the question of whether a government as a whole is in better or worse financial condition than the preceding year. To this end, statements called Government-Wide financial statements are presented on pages 25-26 (A-35 - A-36). In fiscal year 2012, the City of Rockville's total change in financial position was an increase in net assets of $7,709,050.

The classifications of fund balance, required in governmental funds in accordance with GASB 54, serve to further clarify the constraints on the uses of funds by the level of authority where such constraints are placed. This can be seen on page 27 (A-37) where one can see the Fund Balances section with new categories of non-spendable, restricted, assigned, and unassigned, being applied to the Fund Balance. At June 30, 2012, the City's unassigned General Fund fund balance was 15% of budgeted General Fund revenue, which meets the City's 15% reserve requirement.

The Management Discussion and Analysis can be found on pages 15-23 (A-23 - A-31). This analysis gives the reader a concise overview of the government’s financial situation. Additional and more detailed information can be obtained by reading the notes to the financial statements that start on page 37 (A-47).

The City’s General Fund balance decreased by $3,846,411. This decrease was planned primarily for a transfer to the CIP over and above what was adopted at the beginning of the year by $4,348,055. One of the better places to review this can be found on page 63 (A-75) which shows budget to actual results for the General Fund. The General Fund Balance Sheet can be found on page 27 (A-37), and a ten-year fund balance trend can be found on page 74 (A-94) in the statistical section.

The City ended the fiscal year in a strong financial position. All governmental funds ended the year with positive fund balances (page 27/A-37), and all governmental funds were within Mayor and Council policy guidelines.

Out of the City’s six Enterprise Funds (Page 31/A-41), all funds except Parking had positive net asset balances as of June 30, 2012. This situation will continue until the parking garage debt is repaid in full. The Water and Sewer funds had negative cash balances and were consequently outside of Mayor and Council policy guidelines. The Water and Sewer funds are expected to improve as a result of planned rate increases; however, the cost of ongoing infrastructure maintenance continues to require significant capital outlay. During fiscal year 2012, the City outsourced its parking and golf operations. The outsourcing of these functions is expected provide relief to the General Fund, which has been supporting the enterprise operations.

The City was proud to accept, for the 22nd year in a row, the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers Association (GFOA) for fiscal year 2011. Staff is confident that the fiscal year 2012 report will again earn this distinction.

The CAFR is a comprehensive and complex report. Accounting Manager Kim Stein, Senior Accountant Sharon Collins, and City Accountant Trupti Singh are commended for their effort in completing and filing the fiscal year 2012 CAFR on time with the State.

Single Audit
The single audit is a compliance audit for entities receiving federal funding. Programs are distinguished as Type A or Type B, based on a $300,000 spending threshold, which is factored into the auditor's testing. The fiscal year 2012 Single Audit testing covered 64% of the City's total federal expenditures.

The City received federal funding for the following programs:

American Recovery and Reinvestment Act (ARRA) funds for the Woodley Gardens Stream Restoration Project, and for the Energy Efficiency and Conservation Block Grant (EECBG), which supported the Senior Center, LED Streetlight and Pumphouse projects. Other federal funding included Community Development Block Grant (CDBG), COPS Technology, Bulletproof Vest Grant, Maryland Association of Youth Services Bureaus Grant, Safe Routes to School, Pedestrian Access, Intermodal Access (Baltimore Road) Grant, Watershed Assistance Grant for Horizon Hills, Sanitary Sewer Grant, Senior Nutrition Grant, Legislative Pre-Disaster Mitigation Grant and Preserve America Grant. In total, the City spent $1.9 million of federal funds during fiscal year 2012.

The City received an unqualified single audit report, which states that the City met all material compliance requirements. City staff is pleased to report that there were no findings or questioned costs associated with the fiscal year 2012 single audit.

Mayor and Council History
This is the first time these items have been brought before the Mayor and Council. Each year, the Mayor and Council are asked to receive and file the audited CAFR, the report on internal controls, communication with those charged with governance, and the Single Audit.

Fiscal Impact
There is no fiscal impact associated with this agenda item.

Attachment A: Comprehensive Annual Financial Report


Attachment B: Report on Internal Controls


Attachment C: Communication with Those Charged with Governance


Attachment D: Single Audit Report


Department Head:

Gavin Cohen, Chief Financial Officer
Approved on: 11/26/2012

City Manager:

Approved on: 12/10/2012